Merck’s price cuts are flashy, but no more benevolent than Pfizer’s freeze: analysts

Little more than a week after Pfizer drew praise from President Donald Trump for simply delaying planned price increases on 40 drugs, Merck & Co. pledged several strategies for "responsible pricing," including slashing the price of its hepatitis C drug Zepatier by 60% and instituting price-hike controls across its entire portfolio.

At first glance, it seemed as if Merck was one-upping Pfizer—and Novartis, which this week said it was holding off on price hikes, too—in the ongoing battle with the Trump administration on rising drug prices.

But was it? Not so much, analysts say. A closer look at Merck’s planned price drops reveals that the company’s pricing strategy really isn’t changing all that much.

Take Zepatier, for example. "This drug has effectively gone away on volumes," wrote Evercore ISI analyst Umer Raffat in a note to investors after Merck’s announcement. Indeed, Zepatier has struggled to compete with rival drugs from Gilead and AbbVie, not to mention the fact that the number of eligible patients is rapidly shrinking because the new generation of medicines effectively wipe out the virus. Sales of Zepatier were just $131 million in the first quarter of this year, missing consensus estimates by $100 million.

Merck also plans to cut the price of six products by 10%, including prostate treatment Proscar and Parkinson’s drug Sinemet. But as Raffat pointed out, those products "are all TINY." That’s because they’re off-patent and losing ground to generic competitors. Combined sales of the six products amounted to less than 0.1% of Merck’s total sales last year, according to Raffat.

Merck led off its pricing announcement by pledging not to boost the average net price across its portfolio beyond the rate of inflation. But that’s not really a change in strategy, said Credit Suisse analyst Vamil Divan in a note, "as we do not believe they have been getting much more than this level of net pricing in recent years anyway."

In fact, Merck’s net pricing dropped 1.9% last year, the company announced in April. That’s likely because three major products went off-patent and the company slashed their prices to compete with generic rivals, shifting Merck’s overall mix away from higher-priced drugs.

But massive discounting by pharma companies is also affecting net pricing. Merck’s pricing transparency report revealed that the average discount rate across its portfolio was 45% last year.

Nevertheless, overall healthcare spending continues to increase, the company’s president of global human health, Adam Schechter, acknowledged. And out-of-pocket costs paid by consumers—usually based on list prices, before discounts and rebates that payers get—are projected to rise every year through 2025.

"These trends are not sustainable and must be addressed," he wrote in an online post.

Whether Merck’s pricing announcement on Thursday constitutes a real effort to address rising drug costs or a way to appease Trump is certainly debatable. The president called Merck "a leader in higher & higher drug prices" on Twitter last year, adding that the company should "Bring jobs back & LOWER PRICES!" That came after Merck CEO Ken Frazier resigned from the president’s manufacturing council in the wake of the violence at a Charlottesville white supremacy rally.

The only thing that can be said for certain is that Pfizer’s price-hike freeze seems to be having a domino effect in the industry. On Wednesday, Novartis CEO Vas Narasimhan said during the company’s second-quarter conference call that it would suspend price increases for the rest of the year and figure out a strategy for pricing for 2019 and beyond.

So far, Trump has been mum on Merck’s pricing pledge, though he did thank Pfizer and Novartis on Twitter yesterday for their price freezes.

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