Newsletter · · Ashutosh Agarwal

Drug-Price Carve-Outs Surface as Medicare MFN Demos Slip to January - Drug Pricing & IRA Round 2 - Week of September 14, 2026

Drug Pricing & IRA Round 2 for the week of September 7 to September 14, 2026. Podcast synthesis on the first concrete MFN carve-outs (Incyte's Jakafi Medicaid deal and BridgeBio's orphan-drug exemption), the Medicare GLOBE and GUARD price-control demos slipping toward January, the September 29 branded-drug tariff, the escalating 340B rebate fight, and Novo Nordisk's candid account of losing the obesity lead to Lilly.

Drug Pricing & IRA Round 2

Week of September 14, 2026: Drug-Price Carve-Outs Surface as Medicare MFN Demos Slip to January

TL;DR

  • The fine print of Trump's drug-pricing deals is finally leaking out, and it's all about the carve-outs. Incyte quietly agreed to give state Medicaid programs its blood-cancer drug Jakafi at an international reference price; BridgeBio got a permanent exemption for orphan (rare-disease) drugs. Each deal looks bespoke, which tells you the "wins" are negotiated one drug at a time. Source: BioCentury This Week.
  • The two big Medicare price-control experiments are slipping. The government's Part B demo (nicknamed GLOBE) was supposed to start October 1, it won't. The Part D demo (GUARD) is still pencilled in for January 1, and several people expect both to launch together in January, with lawsuits to follow within days. That is the clearest live link to real Medicare price cuts, and the date just moved. Source: BioCentury This Week.
  • The person actually running Medicare says 90% of branded drugs are now under "most favored nation" pricing, but admits the deals are temporary. CMS Administrator Dr. Mehmet Oz said the contracts "will expire after the administration completes its term" and called on Congress to make them permanent. That is the whole ballgame: without a law, this unwinds. Source: Squawk Pod.
  • A 100% tariff on many branded drugs is scheduled for September 29, and it's the stick that pulled foreign companies to the table. Expect a few more names to sign before the deadline. Source: BioCentury This Week.
  • Novo Nordisk's new CEO gave a candid interview on how it lost the obesity lead to Lilly, and how it plans to claw it back. He conceded Lilly's Zepbound delivered 21–22% weight loss versus Novo's 15–16%, and that "led into our market loss." Novo's answer: a higher-dose Wegovy and a Wegovy pill that just hit 5 million prescriptions in six months. Source: Power Players with Brian Sozzi.
  • The 340B discount fight is heating up into a genuine earnings variable. Hospitals and their pharmacies bought $100 billion of outpatient drugs at deep discounts in 2025, and drugmakers say "billions of dollars" a year in wrongly-paid rebates are being "taken away from research and R&D." Source: Pharmaceutical Executive.
  • This was a busy, information-rich week, the policy plumbing everyone models actually moved. LLY, NVO, AMGN and NVS all saw setups shift.

What's New

1. The carve-outs come into focus, and they explain why US biotechs still won't sign.

Last week's headline was that "most favored nation" (MFN) pricing deals, where a company promises the US won't pay more than other rich countries, now cover most of big pharma. This week, BioCentury This Week ("Ep. 386 – Novartis misses, pharma deals analysis, MFN carve-outs," Sept 9) told us what's actually inside them. Washington editor Steve Usdin, a veteran policy journalist, not a company insider, said the story is still about the no-shows:

"My focus really hasn't changed. It's still about who wasn't at the White House rather than who was. Because administration sources and pharma lobbyists tell me that companies like Vertex, Biogen, Alnylam are under pressure to do MFN deals. So far, there's no indication that they're going to succumb to that pressure."

Two concrete deals surfaced through securities filings, and they're revealing:

  • Incyte (INCY) agreed to give state Medicaid programs access to its blood-cancer drugs Jakafi and Jakafi XR at an international reference price. Notably, Incyte skipped the White House press conference; Usdin's read is that it "hasn't made any commitment to tie future launches to an MFN price," i.e., it fenced off tomorrow's products.
  • BridgeBio (BBIO) got a forward-looking exclusion for drugs approved only for orphan (rare-disease) indications, which happens to be its entire pipeline.

The pattern matters more than the names: these deals are being cut drug-by-drug, with company-specific escape hatches. As Usdin put it, when the deals eventually become public "we're going to see what the kind of exclusions are that each company managed to negotiate, and how to square the circle with the Trump administration's assertions that these deals have saved the taxpayers massive amounts of money, and most of the companies saying, well, they're not actually costing the companies anything, at least nothing material in the next year or two."

Translation for a book: the near-term earnings hit still looks small. The value at risk is the precedent.

2. The two Medicare price-control experiments are slipping, a real, dated catalyst just moved.

This is the thread that connects the White House theater to actual Medicare price cuts. Usdin laid out the administration's "two hammers" for forcing companies to the table, and named them:

  • GLOBE ("Global Benchmark for Efficient Drug Pricing") applies MFN pricing to Medicare Part B (drugs given in a doctor's office, infusions, injectables). It was supposed to start October 1. It won't.
  • GUARD ("Guarding US Medicare Against Rising Drug costs") applies MFN pricing to Medicare Part D (pharmacy drugs). It's still slated for January 1.

"Some people are saying that they expect what's going to happen is that GLOBE... will slip, and that both GLOBE and GUARD will start January 1st... One of the things you can bet is that whenever it is announced, we're going to see litigation coming pretty quickly after that to try to knock them out."

Companies that signed MFN deals have been promised "some kind of exclusion" from GLOBE and GUARD, but, crucially, nobody yet knows whether that shields specific drugs or a whole portfolio, and whether it covers future launches. Companies that didn't sign can become collateral damage. For the IRA-negotiation names, this is the mechanism that could push US prices toward European levels; the start date just drifted from October to (probably) January, with courts likely to weigh in immediately.

3. The person running Medicare says the quiet part out loud: the deals expire.

On Squawk Pod ("GLPs & Fraud with Dr. Oz," Sept 8), CMS Administrator Dr. Mehmet Oz, the operator who actually runs Medicare and Medicaid, gave the clearest official framing yet. He claimed the program's reach:

"Now 90% of all the drugs, branded products sold in America are under most favored nation drug pricing, which also, by the way, onshores them... the drug prices you're getting now on TrumpRx are the biggest drop in prices in 63 years."

But pressed by the hosts on whether this survives the administration, he conceded the structural weakness:

"That's why we need Congress to codify these rules. The contracts... were designed to last through this administration. The contracts will expire after the administration completes its term."

He also offered the bull's best comeback, that investors have shrugged this off: "market cap on the industry went up after the initial set of most favored nation drug prices." Both things are true at once: prices are being cut today, but the whole edifice is a set of voluntary, time-limited contracts that need a law to stick. That is exactly why the midterms matter: Usdin notes that if either chamber of Congress flips, one of the first moves will be to subpoena the deals and make them public.

4. Novo's CEO explains, in plain terms, how it lost the obesity crown, and its plan to take it back.

The best operator interview of the week: Novo Nordisk's CEO (newly in the top job) on Power Players with Brian Sozzi ("Weight loss is just the beginning of GLP-1's," Sept 7). He was unusually blunt about why Lilly took share:

"They brought a product to the market that provided 21–22% weight loss while the current version of ours at the time was 15–16%. And people felt at 21% weight loss, that's the next generation of the product... So that's the one I want. And that led into our market loss."

Novo's counter-punch, in his words:

  • Wegovy HD, a higher 7.2mg dose that brings "weight efficacy exactly on par with our competitor," now paired with Novo's stronger heart/kidney/liver data.
  • The Wegovy pill, which he called "the best product launch of any pharmaceutical company to date in volume": 5 million prescriptions in six months, taking "9 out of 10 patients that want a pill."
  • A pipeline aimed at the early-2030s patent cliff: CagriSema (semaglutide + amylin) next year, plus amylin monotherapy and triple-agonists (GLP-1/GIP/glucagon) "before the end of the decade," and a fatty-liver drug. He also wants Novo to be the dominant generic semaglutide maker after the cliff, the way it is in insulin, a tell that the post-patent world is squarely on management's mind.

On compounded/knock-off GLP-1s, he was scathing ("they have not been tested... why would you take such a big gamble"), the same enforcement fight that's been eating into realized branded prices.

5. The 340B discount fight is quietly becoming an earnings variable.

Two shows dug into 340B, the program that forces drugmakers to sell to safety-net hospitals and clinics at steep discounts, and the numbers are getting large enough to matter. On Pharmaceutical Executive ("340B Under Pressure," Sept 9), Jesse Mendelson, a Senior VP at pricing-software firm Model N and an industry insider, sized it up:

"340B covered entities purchased $100 billion in outpatient drugs in 2025... by some measurements, it is the largest [government pharmaceutical] program to date."

The core dispute is "duplicate discounts", where a manufacturer gives a 340B discount and pays a separate rebate on the same pill. Mendelson said it's gotten worse: "We're now seeing triplicate discounts." His punchline for anyone modeling gross-to-net:

"That's billions of dollars paid over the last decade in rebates that technically manufacturers were liable for. And that's billions of dollars taken away from research and R&D."

The industry's fix is a rebate model (pay upfront, verify eligibility, then true-up), a pilot was released July 31, and manufacturers' proposals are due to the health agency by September 24. On 340B Unscripted ("Ep 99," Sept 7), attorneys from the Powers firm, including Joella Roland, a former lead compliance officer at the federal 340B agency (HRSA), mapped who's pushing hardest. Fourteen manufacturers now condition 340B pricing on getting claims data. Eli Lilly is "the most aggressive." Novo Nordisk has warned it may pull 340B pricing through wholesalers. And Amgen has gone furthest, demanding, from November, detailed patient "encounter data" including diagnosis codes, "well beyond what HRSA has asked for." Big new compliance changes hit January 1, 2027. This is a slow-moving margin tailwind for branded manufacturers if it sticks, and a headwind for the hospitals that have leaned on 340B spread.

The Debate

The core argument on this beat, a bounded, well-modeled headwind versus a structural squeeze on US branded-pharma margins, got sharper this week, with fresh ammunition on both sides.

"It's manageable: priced in, and reversible."

  • Companies themselves say the MFN deals aren't "costing... anything material in the next year or two" (BioCentury This Week).
  • The deals are voluntary, drug-specific, and full of carve-outs (Incyte fenced off future launches; BridgeBio exempted its whole orphan pipeline).
  • Even the government concedes they're temporary and need a law to survive, and pharma market caps rose after the first MFN prices, per Dr. Oz (Squawk Pod).
  • The GLOBE Part B demo just slipped past its October date, buying more time.

"It's structural: this is the on-ramp to real price control."

  • International reference pricing is now baked into the system; the Medicare GLOBE/GUARD demos would hardwire it into Part B and Part D, and litigation won't necessarily kill them (BioCentury This Week).
  • If Democrats win a chamber in the midterms, the deals get subpoenaed, exposed as thin, and used to justify tougher, reference-priced Medicare negotiation below today's levels.
  • The "pill penalty", the IRA quirk that exposes small-molecule pills to negotiation years earlier than biologics, is still a live drag on R&D incentives. Rod of the RTW Institute, a biotech investment think tank, put the innovator's case cleanly on The RTW Podcast (Sept 10): "You shouldn't do things like the pill penalty that makes it uneconomic to innovate." He also aimed at 340B: "Non-innovators shouldn't enrich themselves... whether it's middleman rebates or hospital 340B."

Net: the near-term P&L math still looks contained, and the timeline just got a little longer with GLOBE slipping. But the structural case keeps gaining specificity: the exact demos, the exact drugs, the exact January date. The bear doesn't need this quarter; it needs a Democratic chamber and a court that lets the demos stand.

Stocks in Play

Eli Lilly (LLY)

  • Bull: Still the obesity leader by efficacy; the biggest dealmaker in pharma (roughly 40% of tracked pharma deals in the last year, per BioCentury); an MFN signer, so tariff and Medicare-demo overhang is largely lifted.
  • Bear: It also carries an LP(a) heart drug and took a 2% hit ($25B) on the read-across from Novartis's failure (below); it's "the most aggressive" enforcer on 340B claims data (340B Unscripted), which invites hospital and political blowback.
  • Watch: Its own LP(a) trial readout; Zepbound share versus Wegovy HD and the Wegovy pill; whether GLOBE/GUARD exclusions cover future launches.

Novo Nordisk (NVO)

  • Bull: The Wegovy pill hit 5 million prescriptions in six months with ~90% share of the oral GLP-1 market; Wegovy HD closes the efficacy gap with Lilly; deep pipeline (CagriSema, amylin, triple-agonists) and a stated plan to own generic semaglutide post-cliff (Power Players).
  • Bear: Management openly admits it lost share to Lilly on efficacy; compounded/knock-off versions still undercut realized prices; its own cardiovascular IL-6 program (ziltivekimab) failed two more trials this month (BioCentury).
  • Watch: CagriSema data next year; oral-Wegovy prescription trajectory (the Street wants to see it accelerate, not just hold share); compounding enforcement.

Novartis (NVS) (new to the letter this week)

  • Bear: A brutal early September, roughly $40 billion of market cap erased across three back-to-back Phase 3 failures: the Pelacarsen LP(a) heart-drug outcomes miss, three deaths in an autoimmune CAR-T trial, and a failed muscular-dystrophy trial (from its ~$12B Avidity buy). The LP(a) miss is the big one; it dents a whole new cardiovascular category (BioCentury).
  • Watch: Whether the failure is the drug, the target, or the trial design, and the read-through to the next LP(a) readouts.

Amgen (AMGN) (read-through)

  • Bear/Watch: Shares fell 9% ($21B) on the Novartis LP(a) read-across; Amgen's rival LP(a) drug (olpasiran, an siRNA) is the next big test, with data expected within roughly a year. Separately, Amgen is the boldest on 340B data demands (encounter/diagnosis data from November).

Incyte (INCY) (new to the letter)

  • Neutral: Signed a targeted MFN deal on Jakafi/Jakafi XR for state Medicaid at reference prices, while pointedly not committing future launches. A template for how mid-caps limit the damage.

BridgeBio (BBIO) (new to the letter)

  • Positive: Won a forward-looking MFN exclusion covering orphan drugs, i.e., its entire pipeline. The cleanest carve-out disclosed so far.

Merck (MRK), Bristol Myers (BMY), AstraZeneca (AZN), Pfizer (PFE), JNJ, AbbVie (ABBV), Teva (TEVA)

  • Setup unchanged this week; the policy read-throughs run through the sections above. The most relevant new facts for this group: the GLOBE/GUARD timing (matters for every IRA-negotiated franchise), the 340B rebate-model fight (a potential gross-to-net tailwind for all branded names), and the September 29 tariff deadline (most acute for companies with heavy ex-US manufacturing). Teva sits in the generics complex most exposed to the 2028 tariff-reshoring push (see Read-throughs).

Read-Throughs

  • PBMs / managed care (CVS, CI, UNH): The 340B rebate-model shift and the "duplicate/triplicate discount" clean-up run straight through the rebate plumbing that PBMs and payers sit on. Model N's Jesse Mendelson walked through how a commercially-insured patient filling a script at a contract pharmacy can trigger both a 340B discount and a PBM rebate on the same unit, the exact overlap manufacturers are now trying to scrub (Pharmaceutical Executive). More manufacturer visibility into claims is a structural negative for opaque middleman margin.
  • Biosimilar / generic makers (incl. Teva): On Off Script ("What Will It Take to Reshore Generic Drug Manufacturing?," Sept 8), consultant Tom Strohl (Oliver Wight Americas, which advises major pharma) said the 2028 generic tariff cliff, starting at 100% and rising toward 200% the next year, is "a good start" but nowhere near enough on its own. His timeline: two years is too short to move finished-dose production home, and rebuilding domestic active-ingredient (API) supply is "three to five years, probably... and maybe longer." For Teva and the generics complex, that means years of tariff exposure with no quick escape.
  • Small-molecule vs biologic R&D mix ("pill penalty"): No dedicated legislative movement on the EPIC Act fix this week, but the innovator argument got a crisp articulation from the RTW Institute, the pill penalty "makes it uneconomic to innovate" (The RTW Podcast). Meanwhile pharma dealmaking is tilting hard toward biologics (bispecific antibodies, in-vivo CAR-T, siRNA) and away from antisense and small molecules, a modality shift the pill penalty only reinforces.
  • Ex-US launch & pricing: A useful reminder that US GLP-1 economics don't travel. On The Plus SideZ (Sept 8), Irish clinicians noted that even in a wealthy market, obesity GLP-1s are almost entirely cash-pay (Ozempic ~$900/month, Wegovy ~$1,400/month at US-equivalent list), and that the UK's cost watchdog recently limited tirzepatide on the public system because it isn't cost-effective at current prices. As reference pricing spreads, the gap between US list prices and what other systems will actually fund is the pressure point.

What Changed vs. Last Week

The story advanced rather than restarted. Last week was about the count, MFN deals reaching ~89–90% of branded drugs. This week was about the contents and the calendar:

  • Carve-outs became concrete (Incyte's Jakafi Medicaid deal; BridgeBio's orphan-drug exemption), confirming these are bespoke, drug-by-drug arrangements, and that major US biotechs (Vertex, Biogen, Alnylam) are still refusing to sign.
  • The dated catalyst moved: the Part B demo (GLOBE) slipped past October 1; both GLOBE and GUARD now most likely land January 1, with litigation to follow.
  • The government confirmed the deals are temporary, Dr. Oz explicitly said the contracts expire with the administration and need Congress to codify them.
  • New, harder 340B numbers ($100B of 2025 purchases; a rebate-model pilot with manufacturer proposals due Sept 24; changes live Jan 1, 2027).
  • A fresh, dated tariff trigger: the 100% branded-drug tariff on September 29, plus a 2028 generic tariff cliff that experts say can't be met in time.
  • A new name in the frame: Novartis's ~$40B, three-strike LP(a)/CAR-T/DM1 wipeout, with read-through pain at Amgen and Lilly.

The concrete, dated markers to watch next: September 24 (340B manufacturer rebate proposals), September 29 (100% tariff), the pending GLOBE/GUARD announcements, January 1, 2027 (340B changes and, likely, the Medicare MFN demos), and the midterms as the switch that determines whether any of this becomes permanent law.