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Item 1A. Risk Factors

2023-08-04 compared with 2023-04-28 · 33 added, 57 removed, 88 unchanged (51% of the section changed)

30 unchanged sentences

federal reimbursement policy.

For example, in 2022, the IRA was enacted and includes provisions requiring that:

(1) beginning in 2026, mandatory price setting be introduced in Medicare for certain drugs paid for

under Parts B and D, whereby manufacturers must accept a price established by the government or face penalties on all U.S.

sales (starting with 10 drugs in 2026, adding 15 in 2027 and 2028, and adding 20 in 2029 and subsequent years such that by 2031 approximately 100 drugs could be subject to such set prices);

(2) starting in 2024, Medicare Part D be redesigned to cap beneficiary out-of-pocket costs and, beginning January 1, 2025, Federal reinsurance be reduced in the catastrophic phase (resulting in a shift and increase of such costs to Part D plans and manufacturers, including by requiring manufacturer discounts on certain drugs);

and (3) beginning October 1, 2022, manufacturers will owe rebates on drugs reimbursed under Medicare Part D if price increases outpace inflation, and beginning January 1, 2023, will owe rebates on drugs reimbursed under Medicare Part B if price increases outpace inflation.

The IRA’s drug pricing controls and Medicare redesign is likely to have a material adverse effect on our sales, our business and our results of operations, and such impact is expected to increase through the end of the decade and will depend on factors including the extent of our portfolio’s exposure to Medicare reimbursement, the rate of inflation over time, the number of our products selected for mandatory price setting and the timing of market entry of generic or biosimilar competition.

Further, following the passage of the IRA, the environment remains dynamic, and in February 2023, the HHS selected new healthcare payment and delivery models for testing, in response to an October 2022 Executive Order on Lowering Prescription Drug Costs for Americans, including the Accelerating Clinical Evidence Model, which could introduce new payment methods that reduce reimbursement for drugs approved under accelerated approval.

For example, in 2022, the IRA was enacted and includes provisions requiring that beginning in 2026, mandatory price setting be introduced in Medicare for certain drugs paid for under

Parts B and D, whereby manufacturers must accept a price established by the government or face penalties on all U.S.

sales (starting with 10 drugs in 2026, adding 15 in 2027 and 2028, and adding 20 in 2029 and subsequent years such that by 2031 approximately 100 drugs could be subject to such set prices), and starting in 2024, Medicare Part D will be redesigned to cap beneficiary out-of-pocket costs and, beginning January 1, 2025, Federal reinsurance be reduced in the catastrophic phase (resulting in a shift and increase of such costs to Part D plans and manufacturers, including by requiring manufacturer discounts on certain drugs).

Further, the IRA created a mechanism for CMS to collect rebates from manufacturers if price increases outpace inflation.

Rebate obligations began to accrue October 1, 2022 for Medicare Part B and January 1, 2023 for Medicare Part D, but CMS has not yet issued invoices and has some discretion as to when it must bill manufacturers.

We expect that our products will be subject to these inflation rebates, and several of our products have been on lists that are issued and updated on a quarterly basis by CMS under a related program under which Medicare beneficiaries are charged reduced coinsurance if price increases exceed inflation.

The IRA’s drug pricing controls and Medicare redesign are likely to have a material adverse effect on our sales, our business and our results of operations, and such impact is expected to increase through the end of the decade and will depend on factors including the extent of our portfolio’s exposure to Medicare reimbursement, the rate of inflation over time, the number of our products selected for mandatory price setting and the timing of market entry of generic or biosimilar competition.

Further, following the passage of the IRA, the environment remains dynamic and U.S.

policymakers continue to demonstrate interest in health care and drug pricing reform.

In February 2023, the HHS selected new healthcare payment and delivery models for testing, in response to an October 2022 Executive Order on Lowering Prescription Drug Costs for Americans, including the Accelerating Clinical Evidence Model, which could introduce new payment methods that reduce reimbursement for drugs approved under accelerated approval.

That Executive Order followed a 2021 Executive Order designed to increase competition in the healthcare sector, including by calling for the FDA to develop prescription drug importation programs and the FTC to apply greater scrutiny of anticompetitive activity and responses to which include actions from the HHS (which released a report with drug pricing proposals that seek to promote competition) and from the U.S.

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In September 2021, HHS released a plan to address drug pricing that included potential future mandatory models that link payment for prescription drugs and biologics to certain factors, including the overall cost of care.

In March 2023, the Administration released its budget plan for fiscal year 2024 that included proposals to expand the number of drugs subject to mandatory price setting under Medicare, imposing such price setting activity earlier, and extending to commercial health insurance the requirement that drug manufacturers pay rebates if price increases outpace inflation.

While the Administration’s budget plan remains subject to Congressional review and implementation, this expansion of drug pricing controls and Medicare redesigns introduced by the IRA through this budget proposal demonstrates that this area continues to be a focus of the Administration.

In March 2023, the Administration released its budget plan for fiscal year 2024 that included proposals to expand the number of drugs subject to mandatory Medicare price setting under the IRA, imposing such price setting activity earlier, and extending to commercial health insurance the requirement that drug manufacturers pay rebates if price increases outpace inflation.

While those proposed expansions of the IRA’s drug pricing controls and Medicare redesigns have not been enacted, the proposals demonstrate that this area continues to be a focus of the Administration.

We also face risks related to the reporting of pricing data that affects reimbursement of and discounts provided for our products.

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A number of states have adopted, and many other states are considering, drug importation programs and other pricing actions, including proposals designed to require biopharmaceutical manufacturers to report to the state proprietary pricing information or provide advance notice of certain price increases.

For example, a California law requires biopharmaceutical manufacturers to notify health insurers and government health plans at least 60 days before scheduled prescription drug price increases that exceed certain thresholds.

Similar laws exist in Oregon and Washington.

Additional proposals directed at Medicaid seek to penalize manufacturers for pricing drugs above a certain threshold or limit spending on biopharmaceutical products.

States are also seeking to change the way they pay for drugs for patients covered by state programs.

New York has established a Medicaid drug spending cap, and Massachusetts implemented a new review and supplemental rebate negotiation process.

Six states (Colorado, Maine, New Hampshire, Maryland, Oregon and Washington) have enacted laws that establish Prescription Drug Affordability Boards (PDABs) to study drug prices and identify drugs that pose affordability challenges, and in three states (Colorado, Maryland and Washington) include authority for the state PDAB to set upper payment limits on certain drugs in state regulated plans.

Following the passage of the IRA, legislators in Nevada and Minnesota have proposed laws that would apply the drug price caps set by HHS for Medicare to drug prices statewide, including commercial health insurance.

Other states may consider implementing similar policies and laws.

Additionally, Colorado, Florida, Maine, New Hampshire, New Mexico and Vermont have enacted laws, and several other states have proposed bills, to implement importation of drugs from Canada.

States are also enacting laws modeled on federal policies, such as the IRA and the 340B Drug Discount Program.

For example, bills were introduced in fifteen states in 2023 with provisions directed at manufacturers participating in 340B, including restricting a manufacturer’s ability to direct drugs in 340B channels, recognizing 340B contract pharmacies and a prohibition on requiring the inclusion of 340B claims modifiers.

Further, following the passage of the IRA, laws have been proposed in Connecticut, Maine, Nevada, New York, Rhode Island and Virginia that would apply the drug price caps set by HHS for Medicare to all state drug prices.

For Medicaid patients, states have established a Medicaid drug spending cap (New York) and implemented a new review and supplemental rebate negotiation process (Massachusetts).

Seven states (Colorado, Maine, New Hampshire, Maryland, Minnesota, Oregon and Washington) have enacted laws that establish Prescription Drug Affordability Boards (PDABs) to study drug prices and identify drugs that pose affordability challenges, and in four states (Colorado, Maryland, Minnesota and Washington) include authority for the state PDAB to set upper payment limits on certain drugs in state regulated plans and, in Minnesota, upper billing limits by in-state payers and providers.

Additionally, Colorado, Florida, Maine, New Hampshire, New Mexico, Texas and Vermont have enacted laws, and several other states have proposed

bills, to implement importation of drugs from Canada.

The FDA has met with representatives from Colorado, Florida, Maine and New Mexico to discuss those states’ proposed importation programs, and the FDA may be working towards approving such plans.

Other states could adopt similar approaches or could pursue different policy changes in

a continuing effort to reduce their costs.

Other states could adopt similar approaches or could pursue different policy changes in a continuing effort to reduce their costs.

Ultimately, as with U.S.

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For example, in the United States, as of the beginning of 2023, the top five integrated health plans and PBMs controlled about 92% of all pharmacy prescriptions.

This high degree of consolidation among insurers and PBMs and other payers, including through integrated healthcare delivery systems and/or with specialty or mail-order pharmacies and pharmacy retailers, has increased the negotiating leverage such entities have over us and other biopharmaceutical manufacturers and has resulted in greater price discounts, rebates and service fees realized by those payers from our business.

Each of CVS, Express Scripts and United Health Group (among the top five integrated health plans and PBMs), each have Rebate Management Organizations that further increase their leverage to negotiate deeper discounts.

This high degree of consolidation among insurers, PBMs and other payers, including integrated healthcare delivery systems and/or with specialty or mail-order pharmacies and pharmacy retailers, has increased the negotiating leverage such entities have over us and other biopharmaceutical manufacturers and has resulted in greater price discounts, rebates and service fees realized by those payers from our business.

Each of CVS, Express Scripts and United Health Group (among the top five integrated health plans and PBMs), have Rebate Management Organizations that further increase their leverage to negotiate deeper discounts.

Ultimately, additional discounts, rebates, fees, coverage changes, plan changes, restrictions or exclusions imposed by these commercial payers could have a material adverse effect on our product sales, business and results of operations.

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marketplace could have downstream implications or consequences for our business and how we interact with these entities.

For example, on June 7, 2022, the FTC launched an inquiry into the business practices of PBMs, and the results of such inquiry could have an effect on manufacturer interactions with PBMs, resulting in changes to access for certain medicines.

For example, in June 2022, the FTC launched an inquiry into the business practices of PBMs and subsequently expanded the investigation to the three rebate management organizations owned by the three largest PBMs.

In addition, multiple Congressional Committees are investigating PBM practices and have also proposed legislation that could increase transparency and reporting of these practices and/or impact rebates and service fees.

The results of such inquiry could have an effect on manufacturer interactions with PBMs, resulting in changes to access for certain medicines.

See our Annual Report on Form 10-K for the year ended December 31, 2022, Part I, Item 1A.

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Our business is also affected by policies implemented by private healthcare entities that process Medicare claims, including Medicare Administrative Contractors.

For example, in the second quarter of 2022, several Medicare Administrative Contractors issued notice, in contravention of TEZSPIRE’s FDA approved labeling, that TEZSPIRE would be added to their “self-administered drug” exclusion lists.

For example, in the second quarter of 2022, several Medicare Administrative Contractors issued notice that TEZSPIRE would be added to their “self-administered drug” exclusion lists.

Although the Medicare Administrative Contractors subsequently removed TEZSPIRE from their exclusion lists, these exclusions, if reintroduced and/or implemented, would result in Medicare beneficiaries with severe asthma losing access to TEZSPIRE coverage under Medicare Part B and potentially also under Medicare Advantage.

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Acquisition activities may be subject to regulatory approvals or other requirements that are not within our control.

There can be no assurance that such regulatory or other approvals will be obtained or that all closing conditions required in connection with our acquisition activities will be satisfied or waived, which could result in us being unable to complete the planned acquisition activities.

For example, with respect to our proposed acquisition of Horizon, the Company and Horizon each received a request for additional information and documentary materials from the FTC, and the FTC could make similar further requests in connection with its review of the proposed acquisition.

In addition, antitrust scrutiny by regulatory agencies and changes to regulatory approval process in the U.S.

Antitrust scrutiny by regulatory agencies and changes to regulatory approval process in the U.S.

and foreign jurisdictions may cause approvals to take longer than anticipated to obtain, not be obtained at all, or contain burdensome conditions, which may jeopardize, delay or reduce the anticipated benefits of acquisitions to us and could impede the execution of our business strategy.

On May 16, 2023, the FTC filed a complaint in the Northern Illinois District Court seeking to enjoin our proposed acquisition of Horizon.

Attorneys general for California, New York, Illinois, Minnesota, Washington and Wisconsin joined the Northern Illinois District Court lawsuit as co-complainants.

On June 22, 2023, the FTC filed an administrative complaint alleging that the proposed acquisition would violate federal antitrust laws.

See Part I—Note 14, Contingencies and commitments, to the condensed consolidated financial statements.

Acquisition activities are complex, time consuming and expensive and may result in unanticipated costs, delays or other operational or financial problems related to integrating the acquired company and business with our company, which may divert our management’s attention from other business issues and opportunities and restrict the full realization of the anticipated benefits of such transactions within the expected timeframe or at all.

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Further, failures or difficulties in integrating or retaining new personnel or in integrating the operations of the businesses, products or assets we acquire (including related technology, commercial operations, compliance programs, manufacturing, distribution and general business operations and procedures and ESG activities) may affect our ability to realize the benefits of the transaction and grow our business and may result in us incurring asset impairment or restructuring charges.

These and other challenges may arise in connection with our acquisitions of Otezla, Five Prime Therapeutics, Inc., Teneobio, Inc., ChemoCentryx, Horizon and/or our collaborations with BeiGene and Kyowa Kirin Co., Ltd., or with other acquisition activities, which could have a material adverse effect on our business, results of operations and stock price.

Global economic conditions may negatively affect us and may magnify certain risks that affect our business.

Our operations and performance have been, and may continue to be, affected by global economic conditions.

The economic downturn resulting from the COVID-19 pandemic precipitated a global recession, which was followed by high rates of inflation and actions taken by financial regulators to raise interest rates.

Recent instability in the financial system and tighter lending standards are likely to generate additional stress and vulnerabilities in the global economy.

These conditions have cumulatively led to regional and/or global macroeconomic challenges, the effects of which may be of an extended duration.

Further, acute rising energy costs may further adversely affect productivity and economic conditions, particularly in Europe.

The availability of governmental monetary and fiscal tools to address the financial crisis may also be limited as a result of political divisions in Congress, including any impasse on raising the debt ceiling which could result in a government shutdown.

Additionally, with higher interest rates, governments may be unable to sustain their previously high levels of fiscal spending

and deficits.

Consequently, these and other financial pressures have caused, and may continue to cause, government or other third-party payers to more aggressively seek cost containment measures in healthcare and other settings.

See Our sales depend on coverage and reimbursement from government and commercial third-party payers, and pricing and reimbursement pressures have affected, and are likely to continue to affect, our profitability.

As a result of global economic conditions, some third-party payers may delay or be unable to satisfy their reimbursement obligations.

Job losses or other economic hardships (including inflation) may also affect patients’ ability to afford healthcare as a result of increased co-pay or deductible obligations, greater cost sensitivity to existing co-pay or deductible obligations, lost healthcare insurance coverage or for other reasons.

We believe such conditions have led and could continue to lead to reduced demand for our products, which could have a material adverse effect on our product sales, business and results of operations.

The current inflationary environment related to increased aggregate demand, supply chain constraints and the effects from the armed conflict in Ukraine (including the effects of the sanctions that were implemented in response to the conflict and the resulting impacts on the commodity market and supply chains) have also increased our operating expenses and may continue to affect our operating expenses.

Our operational costs, including the cost of energy, materials, labor, distribution and our other operational and facilities costs are subject to market conditions and are being adversely affected by inflationary pressures.

Economic conditions may also adversely affect the ability of our distributors, customers and suppliers to obtain the liquidity required to buy inventory or raw materials and to perform their obligations under agreements with us, which could disrupt our operations.

Although we monitor our distributors’, customers’ and suppliers’ financial condition and their liquidity to mitigate our business risks, some of our distributors, customers and suppliers may become insolvent, which could have a material adverse effect on our product sales, business and results of operations.

A significant worsening of global economic conditions could precipitate or materially amplify the other risks described herein .

We maintain a significant portfolio of investments disclosed as cash equivalents and marketable securities on our consolidated balance sheets.

The global spread of COVID-19, and more recently, interest rate increases, have also led to disruption and volatility in the global capital markets.

We have certain assets, including equity investments, that are exposed to market fluctuations that could, in a sustained or recurrent series of market disruptions, result in impairments.

The value of our investments may also be adversely affected by interest rate fluctuations, inflation, downgrades in credit ratings, illiquidity in the capital markets and other factors that may result in other-than-temporary declines in the value of our investments.

Any of those events could cause us to record impairment charges with respect to our investment portfolio or to realize losses on sales of investments.

We also maintain a majority of our cash and cash equivalents in accounts with major multi-national financial institutions, and our deposits at these institutions exceed insured limits.

Market conditions can adversely affect the viability of these institutions.

In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all.

Inability to access, or a delay in accessing these funds, could adversely affect our business and financial position.

These and other challenges may arise in connection with our acquisitions of Otezla, Five Prime Therapeutics, Inc., Teneobio, ChemoCentryx, Horizon and/or our collaborations with BeiGene and Kyowa Kirin Co., Ltd., or with other acquisition activities, which could have a material adverse effect on our business, results of operations and stock price.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors