Jun 7, 2023 - Health

Merck lawsuit opens new effort to cripple drug price negotiations

Illustration of a pill atop a column with a red spotlight on both

Illustration: Natalie Peeples/Axios

Merck's lawsuit challenging drug price negotiations established by the Inflation Reduction Act is the likely start of a flurry of litigation to undo Democrats' signature effort to tackle pharmaceutical costs.

Why it matters: At a minimum, the IRA's drug pricing provisions probably won’t start on time, experts say. And a Merck victory could cripple the way the law forces manufacturers to the bargaining table with the threat of steep excise taxes.

Driving the news: Merck on Tuesday asked the U.S. District Court for the District of Columbia to declare the drug negotiation process unconstitutional and prevent the government from forcing it to agree to negotiated prices.

  • The timing means the court could freeze the law before the government reveals in September the first 10 drugs that will be subject to talks with manufacturers.
  • Under the IRA, Medicare can negotiate the prices of certain drugs that have been on the market for several years but don't have competition from generics. Negotiated prices are due to take effect starting in 2026.
  • Merck in its complaint characterized the negotiation process as a "sham" and "a bureaucratic diktat in disguise, backed by coercive state sanctions rather than mutual consent." It's vowing to take the case all the way to the Supreme Court.

The big picture: The lawsuit chiefly focuses on escalating penalties on drugmakers who refuse to negotiate with the government, meaning a Merck victory would effectively gut the process, said TD Cowen analyst Rick Weissenstein.

  • If that happens, Republican opposition to the IRA makes it unlikely there would be a legislative fix, Weissenstein said.
  • A key question is whether Merck has standing to sue since the government hasn't yet named the drugs subject to the first round of negotiations. The company said its diabetes drugs Januvia and Janumet and the cancer treatment Keytruda are projected to be subject to negotiations.

The other side: White House press secretary Karine Jean-Pierre said in a statement there is nothing in the Constitution that prevents Medicare from negotiating lower drug prices and blamed big drug companies for profiteering, often on products developed generations ago.

  • Merck's claims look very weak, University of Michigan law professor Nicholas Bagley wrote on Twitter, noting the company doesn't have a legal right to sell its drugs to Medicare at the price that it sets and can always opt to drop out of the program.
  • "The government is making an offer. Merck doesn't like the offer. So what? That's not a constitutional violation," Bagley wrote.

Other drugmakers are likely to follow Merck's lead.

  • Soon after the lawsuit was filed, Biogen CEO Chris Viehbacher told a biotech industry meeting in Boston that he wasn't surprised by the suit and agreed with its characterization of the IRA as "extortion," Endpoints News reported.

The intrigue: Merck is represented by a group of lawyers at Jones Day who previously served as clerks to Supreme Court justices — a sign the company is ready and willing to take the case all the way to the high court, Raymond James analyst Chris Meekins wrote in a note.

  • The law's relatively fast implementation timeline, the threat of more lawsuits, and the possibility that a Republican wins the 2024 presidential election make it likely the drug pricing provisions won't begin on time, Weissenstein said.
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