Merck & Co, the maker of pembrolizumab (Keytruda®), olaparib (Lynparza®) and other pharmaceutical drugs, has filed a lawsuit in the US District Courts against the federal government,* claiming it violates constitutional rights and undermines drug pricing negotiation powers. The lawsuit could have significant implications for the future of drug pricing regulation and may prompt other pharmaceutical companies to challenge the Inflation Reduction Act as well.

“The Inflation Reduction Act, signed into law last summer, gave the Centers for Medicare and Medicaid Services the power to directly negotiate with pharma companies the prices of several select drugs for the first time ever. The law had been hailed as a success for the Democrats, but the pharma industry has been highly critical of the Act, stating it would stifle innovation and hinder the development of critical drugs. Many industry experts had predicted that lawsuits will likely occur if the bill was passed,” noted Cyrus Fan, Pharma Research Analyst at GlobalData, a leading data and analytics company.

Early stage cancer
In a statement, Merck & Co, said that investments by Merck & Co and others in the biopharmaceutical sector have led to important progress in the treatment of earlier-stage cancer, most notably lung cancer. With increased adoption of screening, we have now reached an inflection point at which we are poised to bend the trajectory of the societal burden of cancer. The Inflation Reduction Act makes further investment in treatments for earlier-stage cancer and screening far more difficult. [1]

“The stakes are getting higher and higher, and with this lawsuit pharma risks biting the hand that feeds them. Merck & Co comments that the US government forces pharma companies to sign contracts, acknowledging the negotiated prices are fair, which Merck claims is a violation of free speech protected by the First Amendment,” Fan added

However, in their statement, Merck & Co says that such an ‘acknowledgment’ creates the false impression that biopharmaceutical companies are voluntary participants, while, in fact, companies are coerced in signing contracts conveying that the government-set prices are the “fair” result of a “negotiation.”

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“In addition, Merck & Co  states that the “compelled mirroring of the government’s political message in the Inflation Reduction Act” also violates the Fifth Amendment that requirs the US government to pay just compensation for private property taken for public use. The lawsuit explains the Inflation Reduction Act would force pharma companies to negotiate prices below market value for specific drugs covered by Medicare,” Fan said.

Merck’s lawsuit claims that pharmaceutical companies do not have a choice on the conditions of the negotiation and is seeking a court to rule those aspects of the Inflation Reduction Act as unconstitutional. Furthermore, Merck aims to prevent the Department of Health and Human Services from having Merck & Co sign any agreements on drug prices set by the Inflation Reduction Act.

“Merck’s lawsuit is the first of its kind against the Inflation Reduction Act. It would be surprising if more pharma companies do not do the same and challenge the law over procedural reasons. Many other pharma companies, like Biogen and Sanofi, have quickly expressed support for Merck’s lawsuit and agreed with the latter’s description of the Inflation Reduction Act as extortion. Any successful claim against the Inflation Reduction Act could massively undermine the negotiation powers of the bill,” Fan explained.

No guarantee
Success for Merck and other pharma companies attempting the block the Inflation Reduction Act through litigation is far from guaranteed. Governments in other countries around the world routinely engage in price negotiation for reimbursable medicines.

“The United States is unique in that it had – up until the passing of the Inflation Reduction Act – a specific ban on government negotiation of pharmaceutical prices. The US is also unique in that drug prices tend to go up for branded drugs after patent expiry,” said Milena Izmirlieva, Director of Health Economics and Market Access Research and Analysis at GlobalData.

“The Biden administration would argue that by removing this ban – in a very limited and gradual manner – the Act simply restores the normal state of affairs whereby buyers and sellers negotiate on the price of goods. Other countries, which have free market economies and free speech, allow government entities to negotiate pharmaceutical prices with producers, without violating these freedoms, so Merck may have a difficult time proving its case,” Izmirlieva concluded.


Note:* On Friday, June 9, 2023. U.S. Chamber of Commerce Executive Vice President and Chief Policy Officer Neil Bradley said that the U.S. Chamber of Commerce together with the Dayton Area Chamber of Commerce, U.S. Chamber, Ohio Chamber of Commerce, and Michigan Chamber of Commerce in the Southern District of Ohio has filed a lawsuits to stop the Department of Health and Human Services from implementing new government price control provisions in the Inflation Reduction Act.

“We are suing to block an illegal and arbitrary government price control scheme. Examples from around the world show that price controls only lead to shortages and rationing, and when we are talking pharmaceuticals that means less access to the new medicines and treatments Americans are counting on to save and improve their lives,” Bradly noted.

[1] The Inflation Reduction Act’s Negative Impact on Patient-Focused Innovation, Value and Access. Merck & Co. June 6, 2023. Online. Last accesses on June 8, 2023.

This article was updated on June 9, 2023

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