Merck Throws a Wrench in Drug Pricing

Zepatier is not a mononymous Latin pop star, an extra Musketeer, a soccer player, or a mysterious revolutionary.

Instead, it’s Merck’s new entrant into a now-crowded market of drugs that cure Hepatitis C, approved by the FDA Thursday night. And it’s by far the cheapest, priced at $54,600 for a 12-week course. That’s about a 42 percent discount to market leader Gilead’s $13 billion-a-year blockbuster Harvoni and a slightly smaller discount to AbbVie’s Viekira Pak.

Undercutting rivals on price is an unusual and stealthily brilliant strategy from Merck. It will likely burnish the company’s image at a time when politicians are aggressively attacking high drug prices. It could possibly reshape the way drugs are priced. And who doesn’t like a good old-fashioned price war?

Not Gilead shareholders. The company’s shares were down 4.8 percent Friday on Merck’s approval and price announcement, AbbVie’s only slightly less. Merck was up 1.5 percent.

Drugmakers rarely price a branded drug like this so far below competitors, even when it’s late to market. That’s because list prices — for all the furor they provoke as they push into the high five and six figures — aren’t what anyone actually pays for a drug. Insurers and pharmacy benefit managers negotiate big rebates. In the U.S., government programs such as Medicaid get significant mandatory rebates.

Drugmakers tend to start high and quietly negotiate down from there. It’s why Viekira Pak — which makes patients take multiple pills and is less convenient than Gilead’s one-pill option — priced at only a narrow discount to Harvoni when it hit the market in late 2014. It’s sort of an unspoken gentleman’s agreement: Until generic competition comes along, companies price similar drugs in a similar — usually high — range, giving them a bigger pie to split.

The prices actually paid in the U.S. for Gilead and AbbVie’s drugs aren’t too far from Zepatier’s list price, once you consider the big discounts. But Merck changed the game by including assumed discounts in Zepatier’s list price from the start. Had it priced higher, it still would have had to cut prices privately. By cutting them publicly, it embarrasses its rivals, making them look greedy, among other benefits.

Merck may have been forced to compete on price. Zepatier was approved for a narrower set of HCV patients; it is not as effective across different subsets of the disease as Harvoni is. It also has stricter warnings for doctors prescribing it compared to its rivals, due to side effects. But Merck’s price cut is pretty extreme; after mandatory and negotiated discounts, Zepatier will sell at a price well below the discounted costs of Gilead and AbbVie’s drugs, creating significant price pressure.

Volume may help Merck make up what it loses on price. AbbVie and Gilead’s drugs are priced so high that many governments and insurers will only pay for them for patients that have severe liver scarring, given HCV’s slow progression. Zepatier is priced at a point that could make it affordable to treat a much larger population at earlier stages of the disease.

Gilead, with more than $18 billion in HCV drug sales in 2015, is easily the leader in this field, according to analyst estimates. In contrast, Zepatier sales are expected to be just $1.5 billion in 2017. That consensus doesn’t factor in Merck’s pricing and was generated before the drug’s approval. Zepatier might snag higher market share than the chart below suggests. But Gilead is still expected to have the HCV drugs of choice, even as it faces downward price pressure.

Source Link

Recommended Articles

White House Leaves One Trump-Era Policy Alone

The Biden administration has gutted many of former President Donald Trump’s health care policies, but there’s one that the White House has yet to touch, Kelly reports. It’s a 2019 rule that expanded individual coverage health reimbursement arrangements, or ICHRAs, which allowed employers to provide tax-exempt subsidies to help workers purchase Obamacare plans. The Biden administration’s ...

Read More

Court Strikes Down HHS Rule that Allowed Insurers to Not Count Copay Assistance

In a major victory for patients who depend on prescription drugs, Judge John D. Bates of the U.S. District Court for the District of Columbia struck down a Trump administration federal rule that allowed health insurers to not count drug manufacturer copay assistance towards a beneficiary’s out-of-pocket costs. The case was brought against the U.S. Department of Health and ...

Read More

Lawmakers, Payers And Providers All Air Grievances With Federal No Surprises Act Implementation

Amid a flurry of partisan roadblocks rolling out across Capitol Hill, representatives on both sides of the aisle came together Tuesday to critique federal agencies’ rollout of the No Surprises Act and throw their support behind court-ordered rewrites of independent dispute resolution (IDR) regulations. During a hearing exploring the “flawed implementation” of the law intended ...

Read More

As Biden Plans To Ban Medical Debt From Credit Scores, Advocates Press For More Change

The dramatic impact of medical debt on credit scores may soon be a thing of the past. On Thursday, the White House announced a plan outlined by the Consumer Financial Protection Bureau (CFPB) to eliminate medical debt from credit reports. The move — which follows an earlier decision from the three main credit bureaus to eliminate paid medical debt, medical ...

Read More
arrowcaret-downclosefacebook-squarehamburgerinstagram-squarelinkedin-squarepauseplaytwitter-squareyoutube-square