The forthcoming Medicare reforms in the USA will likely have a dramatic effect on many drugmakers, say analysts at Wood Mackenzie, putting many large pharmaceutical companies "at risk of their blockbuster products not being included” within the new drug benefit plans being drawn up by providers ahead of the January 2006 launch.

The analysts have issued a report, Medicare Insight, which looks at the reforms that are to be introduced in January 2006, over two years after Senate passed legislation designed to provide elderly and disabled individuals with prescription drug benefits and to boost market competition [[26/11/03a]]. Previously Medicare only covered physician and hospital services, called Part B, but the report focuses on a new component, Part D, that will be introduced in January and covers self-administered drugs. Part D rules will introduce new competition in 20 major classes by forcing branded drugs to vie with both other branded treatments and generics with different mechanisms of action. Medicare providers need only offer a minimum of two drugs per class in their plans.

Wood Mackenzie takes the antidepressant class of drugs, where three different types of medicines could be forced to compete with each to gain access to each plan – such as selective serotonin re-uptake inhibitors, like GlaxoSmithKline’s Paxil (paroxetine), serotonin and norepinephrine reuptake inhibitors, including Wyeth’s Effexor (venlafaxine), and generic tricyclics. “For the first time in US healthcare provision, this creates significant competition between branded drugs and generics that were previously managed separately,” say the analysts.

Out of 60 companies in the study, Wood Mackenzie says that six stand out as having well over 40% of their portfolio exposure to these drug classes – Merck & Co, Eli Lilly, Allergan, Sanofi-Aventis, Pfizer and Schering AG. These companies not only have higher proportions of Part D drugs in their portfolios, but also a larger number of drugs in these Medicare-specific classes that cover more than one type of medicine. Not all companies have “significant exposure to these new Part D competitive forces”, however. Firms like Amgen and Roche have many drugs covered by the old Part B in their portfolios “and so do not have to fight to get on any drug formularies,” the report says.

“Medicare is likely to have a more significant effect on the revenues of these exposed companies than most Industry observers are currently predicting,” claimed Mike Ratcliffe, US research director for Wood Mackenzie, noting that up to two-thirds of drugs covered by these plans could be competing in a manner different to the traditional managed care market, “the market pharmaceutical companies understand.” Manufacturers will have to rethink their strategies for many drugs as the new Part D programmes unfold, he concluded.