Who can expect the biggest hit under the Senate's budget deal?

Despite its powerful presence in Washington, D.C., pharma took a surprise hit last week when the Senate's budget deal forced bigger contributions in Medicare Part D's coverage gap. But most drugmakers won't take much of a hit, analysts said Monday. Who will? Companies heavily invested in diabetes and COPD.

After running the numbers on the budget deal—which boosts drugmakers' share of the Part D "donut hole" costs to 70% from 50% beginning next year—analysts came up with an average loss of 1% off of earnings per share.

But the average is just that, and companies whose meds are heavily used by Medicare patients will take a bigger loss, Bernstein analyst Ronny Gal wrote in a Monday note.

Overall, the bigger Part D burden doesn't "appear to be a significant concern" for the drugmakers his team covers, Gal said. But diabetes and COPD drugmakers could see a larger hit, he noted, even as they've already been battered in recent years by payer cost-fighting tactics. Eli Lilly, Novo Nordisk and Sanofi have each seen sales suffer as insurers pressed for bigger discounts, and GlaxoSmithKline offered broad discounts on Advair to snag formulary positions.

Consulting group Avalere Health wrote in its analysis that the change "could have a multibillion-dollar impact on some large" drug companies.

Cancer and other rare disease drugmakers won't see as much of a hit, Gal wrote. "The challenge is that the impact is not uniform," he said. "Branded drugs with broad elderly population use will be hit more, while expensive but less frequently used drugs will be hurt less."

The donut hole gap hits after patients reach $3,750 in drug spending for the year and extends until their total spending reaches about $8,400, or $5,000 out-of-pocket for patients, Gal said.

To help bridge that gap, drug companies previously had to provide a 50% discount on meds and lawmakers have increased the amount to 70% starting in 2019. PhRMA president Stephen Ubl said in a statement the change "provides a massive bailout for insurance companies and undermines their incentive to reduce Part D costs" instead of working to lower patient out-of-pocket costs. 

Based on CMS data (PDF), coverage gap discounts were $5.65 billion nationwide in 2016, according to Gal. Assuming average spending growth of 3% and adding in a 40% boost to pharma's gap responsibility, Gal wrote that the change will cost the industry roughly $2.5 billion a year more starting in 2019, or about a 1% hit to operating margins. 

Avalere calculated that Part D insurance plans will save $40 billion over 10 years with the change, according to PhRMA. The Committee for a Responsible Federal Budget said the cost shift will save the government $10 billion over a decade. 

The coverage gap proposal came as a surprise to an industry that has been successful in recent years lobbying its cause in Washington, D.C., even as drug pricing has become a tense political issue. During the first year of the Trump Administration, PhRMA boosted its lobby spend 30%, spending the most in the first quarter. That was about the same time then President-elect Donald Trump said the industry was "getting away with murder." 

Meanwhile, the federal government hasn't progressed with significant action on drug prices, and many states have passed bills aimed at lowering costs with varying approaches.  

More recently, President Trump said during his State of the Union Speech that drug pricing will be a top priority for his administration this year. New HHS secretary, Alex Azar, a former Eli Lilly executive, said the administration will address the issue in its upcoming budget proposal.

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