Merck’s Lawsuit Signals Major Battle Over Drug Pricing Policy

Merck’s Lawsuit Signals Major Battle Over Drug Pricing Policy

Merck, a prominent pharmaceutical company, has taken legal action against the government by filing a lawsuit in federal court in Washington. The lawsuit is in response to a federal law that grants Medicare the authority to negotiate prices directly with drugmakers, a significant policy change set to take effect in 2026. The move by Merck represents the pharmaceutical industry’s most significant effort to oppose this change, which was introduced by Democrats last summer as part of the Inflation Reduction Act, with the aim of reducing drug prices.

While only select drugs will be subject to Medicare negotiation, and only after being on the market without competition for a considerable period, Merck argues that this law will hinder its ability, as well as that of other companies, to make investments in new treatments and cures. The company, which reported a profit of $14.5 billion last year, claims that the law will have a stifling effect on innovation.

Other pharmaceutical companies have also expressed concerns about the potential impact on their revenue and have indicated that they may cut back on certain drug development programs. Some companies have already started reevaluating their research plans. Merck, in its lawsuit, is seeking a court order or alternative legal remedy that would exempt it from participating in the negotiation program.

The Biden administration, through Health and Human Services Secretary Xavier Becerra, has stated its intent to defend the law vigorously, asserting that it is constitutional. Merck’s legal team, represented by the law firm Jones Day, argues that the Medicare negotiation program violates the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation. They also claim that the program infringes on Merck’s free-speech rights by compelling the company to agree to terms it does not support after the negotiation process concludes.

However, industry experts argue that Merck’s constitutional arguments may face challenges in court. They contend that the program establishes a more rational marketplace, addressing a key factor contributing to high drug prices. They also highlight that the negotiation process allows drugmakers to reject Medicare’s final offer and walk away without a deal, albeit subject to a tax penalty.

In September, the government plans to announce the first ten drugs subject to negotiation in 2026, and it is likely that Merck’s widely used diabetes drug, Januvia, will be included. Furthermore, Merck’s long-term plans for its blockbuster cancer drug Keytruda could be affected, as negotiations are set to begin in 2028 for drugs administered in healthcare settings. Merck had anticipated significant revenue from a new formulation of Keytruda, which could also be subject to negotiation under the government’s program.

The outcome of Merck’s lawsuit and the implementation of the Medicare negotiation program will have far-reaching implications for the pharmaceutical industry, drug prices, and access to medications in the United States.