Is Big Pharma About To Win? Goldman Sachs Weighs In On 340B And Medicaid Shifts

Medicaid funding, totaling approximately $900 billion per year and serving around 72 million participants, and the 340B program are key focus areas for potential healthcare reforms.

Goldman Sachs analyst Salveen Richter, however, warns that federal Medicaid cuts could lead to stricter policies and lower drug coverage.

Per Richter, the 340B program is currently facing increased scrutiny, with proposed reforms that could potentially benefit biopharma companies by limiting eligibility for drug discounts, which would enable “transfer of profits” from providers back to biopharma.

This shift could positively impact major biopharma companies with high exposure to 340B drugs, such as Merck & Company, Inc. MRK, Gilead Sciences, Inc. GILD and Bristol-Myers Squibb Company BMY.

However, the specifics of these reforms are still uncertain, which could cause “volatility” in the healthcare sector until more details are released.

At the same time, Medicaid funding and eligibility changes are under consideration as potential cost-saving measures by the new administration.

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These changes could have negative effects on biopharma companies with significant Medicaid drug exposure, including AbbVie Inc. ABBV, Gilead Sciences, and Eli Lilly and Company LLY, whose top Medicaid drugs make up a large percentage of their US sales.

Overall, for the 340B program, the analyst sees potential policy/legal outcomes that would move dynamics towards a transfer of profits from providers to biopharma companies as a positive for much of the biopharma sector.

Meanwhile, potential Medicaid changes could create “potential headwinds” for healthcare providers and biopharma companies, though the exact effects remain uncertain.

The healthcare industry is awaiting further clarity on these proposed policy changes and their implications.

Overall, the analyst notes that exposure to Medicaid and 340B can vary widely by product and indication.

The top three highest-spend drugs for Medicaid (as of 2022) are AbbVie’s Humira, Gilead’s Biktarvy and Eli Lilly’s Trulicity for type 2 diabetes and cardiovascular disease.

For these drugs, Medicaid and 340B spending represented ~15-30% of the drugs' FY22 and FY23 revenue.

Further, 340B impact may vary for different methods of administration within the same indication – for example, Gilead’s expects lower 340B exposure for injectables for PrEP than for daily orals – and expansion of eligibility for 340B discounts may have an outsized impact on certain therapeutics over others.

Overall, 340B reform would serve as a tailwind to biopharma, as the aforementioned initiatives are generally intended to limit access to the statutory discount.

On the other hand, spending cuts to Medicaid could have a negative impact to volume if they have the effect of reducing coverage, the analyst writes.

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