(Bloomberg) -- Merck & Co. is suing the US over a law that will allow the government to negotiate prescription-drug prices with pharmaceutical companies — a reform aimed at cutting costs for elderly and disabled Medicare patients that the health-care giant says is “tantamount to extortion.”
In a lawsuit filed Tuesday, Merck argues the negotiation process outlined in President Joe Biden’s Inflation Reduction Act violates the Constitution. The process is a “sham” that allows the government to unilaterally impose its preferred price, according to the suit, and the company is calling for a court stay against any negotiations involving Merck.
“The IRA wields the threat of crippling penalties to force manufacturers to transfer their patented pharmaceutical products to Medicare beneficiaries” for public use, Merck said in the lawsuit. The law is “forcing manufacturers to accept government-dictated payments that represent a fraction of the drugs’ fair value.”
Passed last year amid public outcry over soaring drug costs, the IRA gives Medicare — the largest single buyer of health-care products and services in the US — the power to negotiate how much it will pay for a certain number of high-priced therapies for the first time in its history. While the negotiations are estimated to save the government billions of dollars — almost $100 billion by 2031, according to the Kaiser Family Foundation — the pharma industry has warned it will hurt profits and chill research into new drugs.
Merck’s shares fell as much as 2.8% as of 1:28 p.m. in New York. They had risen 2% since the year began through Monday’s close.
Merck is the first major drug company to bring a legal challenge to the measures in Biden’s legislation. The Department of Health and Human Services plans to release a list of the first 10 drugs for negotiation by September, and prices will take effect in 2026. Named in the lawsuit as a defendant, HHS Secretary Xavier Becerra said he’ll fight to defend the IRA, which he said is already lowering health care costs for seniors and people with disabilities.
“The law is on our side,” he said in a statement.
The pharmaceutical industry has blocked efforts to let Medicare negotiate lower drug costs for decades, White House press secretary Karine Jean-Pierre said in an email.
“Big Pharma regularly forces Americans to pay many times what they do customers in other countries for the exact same medicines,” Jean-Pierre said. “There is nothing in the Constitution that prevents Medicare from negotiating lower drug prices.”
Read more: Merck Falls as New US Price Guidelines Threaten Keytruda Sales
Merck is under increasing pressure from investors as two of its top medicines are likely to fall under Medicare negotiations by the end of the decade. Diabetes medication Januvia, set to sell $2 billion this year, is expected to become part of the price talks in 2026, and cancer immunotherapy blockbuster Keytruda, with sales of $24 billion, is likely to face the same challenge in 2028. Keytruda negotiations are expected to trim 5% from Merck’s revenue in the first year of bargaining.
“Since 2000, companies like ours have invested more than $1.1 trillion in the search for new treatments and cures, including $102.3 billion in 2021 alone,” the drugmaker said in an email. “Merck intends to litigate this matter all the way to the US Supreme Court if necessary.”
PhRMA, which lobbies on behalf of drug companies, said it may take similar action. “We will consider every tool available to protect patients and future innovation, which includes potential litigation,” the industry group said in an email.
Among the changes to the IRA that the pharmaceutical industry is pushing for is longer protection from negotiations for small-molecule drugs — mostly pills. Under the new law, these are exempt from negotiations until nine years after their approval date, while more complex biologics are exempt until 13 years after approval.
Drugs selected for the IRA program are subject to minimum discounts of 25% to 60%. That’s based on the time elapsed since FDA approval, meaning price cuts could be even steeper since the law doesn’t create a floor, according to Bloomberg Intelligence analyst Duane Wright.
Merck’s lawsuit argues that the new law violates the Fifth Amendment because it’s taking property for public use without offering just compensation. In addition, it “makes a mockery” of the First Amendment, Merck said, because it forces companies to convey that they agree to government pricing when they are being forced to do so or risk excise taxes and monetary penalties.
“Conscripting companies to legitimize government extortion is the sort of parroted orthodoxy that the First Amendment’s compelled-speech doctrine forbids,” the lawsuit said.
The lawsuit, filed in the US District Court for the District of Columbia, also names Administrator of Centers for Medicare & Medicaid Services Chiquita Brooks-LaSure as a defendant.
--With assistance from Zoe Tillman, Bob Van Voris and Justin Sink.
(Updates with government comments in sixth and seventh paragraphs.)
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