Is Merck ready to face the looming patent cliff?
Impact of Inflation Reduction Act (IRA) on Keytruda
Inflation Reduction Act (IRA) was passed in 2022 mainly to address inflation and boost economic stability in the United States. The act aimed to increase the disposable income for consumers and reduce financial strain on households by lowering prescription drug prices and capping out-of-pocket expenses. The act came as a huge relief for Medicare enrollees and taxpayers as under the Medicare Drug Pricing Negotiation Program (DPNP), the government establishes price caps or maximum fair prices (MFPs) for selected medications, providing cost relief for Medicare beneficiaries.
The prices for the 10 initial drugs selected as a part of the 2026 list are set to be announced by September 1, 2024, and will go into effect by January 1, 2026. However, the major drugmakers believe that these are not “fair prices” as IRA’s DPNP ‘involves no genuine negotiations and no voluntary agreements’. On the contrary, the IRA provision threatens pharmaceutical companies with ‘enormous monetary penalties’.
Pharmaceutical companies are now adjusting their research and development strategies to include fewer small-molecule drugs in their pipelines as the IRA sets different timelines for price negotiations depending on the type of drug. Biologic medications have a longer period of exclusivity before their prices can be negotiated, with a total of thirteen years between approval and price implementation. For small molecules, this process is quicker, starting negotiations nine years after approval and implementing the new price shortly after.
Pharmaceutical companies challenging the drug price negotiation provisions of the IRA
As many as 10 large drugmakers, including AstraZeneca, Johnson & Johnson, Bristol Myers Squibb, Merck, Novo Nordisk, and Novartis, have filed lawsuits challenging the drug price negotiation provisions of the Inflation Reduction Act (IRA). They have claimed that price negotiations by Medicare violate the First and Fifth Amendments of the US Constitution.
It is expected that the blockbuster oncology drug, Keytruda, covered under Part B, will be added in the 2028 list of selected drugs for price negotiation. Merck has spent $46 billion so far on Keytruda development, with an additional $20 billion expected by 2030. Its addition to the 2028 list of selected drugs will add to the troubles of Merck as the base patent of Keytruda – US8354509, runs out in 2028, creating an opportunity for a surge in biosimilars.
What is Merck doing to offset the patent loss in 2028?
To offset this substantial revenue decline, the company has been actively pursuing a mergers and acquisitions (M&A) strategy. In March this year, the company broadened its oncology pipeline with the acquisition of US-based Harpoon Therapeutics for $680m. Under the terms of the agreement, Merck acquired Harpoon’s T-cell engagers – engineered antibodies that redirect T cells to attack cancer cells.
Its strategic acquisition of Mirus Bio for US$ 600 million in May 2024 was further a building block for accelerating growth in the break-through technologies of the future. This acquisition complemented the existing portfolio of Merck for the development and production of novel modalities such as cell and gene therapies. Merck also completed the acquisition of Eyebiotech Limited (EyeBio) on July 12, 2024. This acquisition strengthened and diversified Merck’s pipeline with the addition of Restoret™, a novel late-phase candidate for diabetic macular edema and neovascular age-related macular degeneration, as well as preclinical candidates.
Merck continues to build its broad oncology portfolio with Sacituzumab tirumotecan (sac-TMT; formerly MK-2870/SKB264), an investigational anti-TROP2 antibody-drug conjugate (ADC) being developed in collaboration with Kelun-Biotech and Patritumab deruxtecan (HER3-DXd), a HER3-directed ADC being developed in collaboration with Daiichi Sankyo. The US patents protecting Sacituzumab include US10918721, US10179171, US11052081, and US9770517. Will they be the next blockbuster drugs that Merck is sitting on?