Merck sues Biden administration over Medicare drug pricing talks

Global drugmaker Merck on Tuesday sued the Biden administration over Medicare’s new powers to substantially reduce drug prices for seniors under the Inflation Reduction Act, the opening salvo in the pharmaceutical industry’s efforts to weaken the program.

In a scathing complaint filed in federal court in Washington DC, Merck criticized the negotiation process as a “farce” and “amounting to extortion.”

The drugmaker accused the federal government of employing what the company described as an unconstitutional scheme to take private property for public use without just compensation in violation of the Fifth Amendment.

The Inflation Reduction Act, which became law last summer, was a major victory for President Joe Biden and Democrats in Congress, who have long pushed to authorize Medicare to fight rising drug prices.

The pharmaceutical industry has fiercely opposed the law, arguing it will stifle the development of new drugs.

Merck said the Department of Health and Human Services is forcing companies to enter into an agreement that effectively mandates the price of a drug at a 25% to 60% discount under threat of daily excise taxes that are many times higher than the daily drug receipts.

Merck has asked a judge to stop HHS from forcing the drugmaker to participate in the program.

“Under the IRA, the government will seize Merck’s patented pharmaceutical products and transfer them to Medicare beneficiaries through forced sales,” the company’s legal team wrote in the complaint.

“Those forced sales forced by the threat of draconian penalties that the government has admitted no manufacturer could ever rationally afford to pay will strip Merck of possession and title to its personal property,” Merck’s attorneys wrote.

Merck also argued in its lawsuit that Medicare’s new powers to negotiate prices violate the company’s free speech rights under the First Amendment. The drugmaker said the Inflation Reduction Act forces companies to participate in a “political deception” that presents the program as a bargain for fair prices.

“Enlisting companies to legitimize government extortion is the kind of parroted orthodoxy that the First Amendment’s forced speech doctrine prohibits,” Merck’s lawyers wrote.

Under the Inflation Reduction Act, HHS will select 10 drugs to enter a first round of price negotiations. Those drugs will be the ones that Medicare Part D spends the most money on and that have no generic competition.

Medicare Part D is the program that covers the cost of drugs that seniors usually buy at pharmacies.

The Centers for Medicare and Medicaid Services will release a list of drugs selected for the first round of negotiations on September 1.

Merck said its type 2 diabetes drug, Januvia, will be the subject of a negotiated deal this year. The drugmaker reported $2.8 billion in revenue from that drug last year, according to financial filings.

Merck also expects its blockbuster cancer immunotherapy Keytruda and its other diabetes drug Janumet to be subject to the program in subsequent negotiating rounds. The drugmaker reported $21 billion in sales from Keytruda in 2022 and $1.7 billion in sales from Janumet.

Keytruda accounted for 35% of Merck’s total revenue last year.

CMS will send its initial price offer for the first round of price negotiations on February 1, 2024, according to a timeline published by HHS. Drugmakers have 30 days to agree to that price or make a counteroffer, according to the department.

Negotiations end on August 1, 2024, and CMS will publish a list of reduced prices in September, according to the timeline. Those prices will go into effect on January 1, 2026, according to HHS.

The program will expand in subsequent years to Medicare Part B, which generally covers drugs and treatments that older adults can’t give themselves at home.

CNBC has reached out to HHS and the White House for comment.