As Congress considers drug price reforms, Merck, Lilly and Takeda execs warn of dire consequences

As Congress reconvenes this month to resolve a $3.5 trillion budget package, Democrats are focused on enacting sweeping legislation that would allow the government to negotiate prices for prescription drugs.

On Wednesday, Merck’s executive chairman and former CEO Ken Frazier warned of dire consequences from such a move.

“The proposals that we’re seeing from Congress will devastate this industry,” Frazier said during a virtual press conference hosted by lobbying organization PhRMA. “While large companies like Merck will survive, we will do significantly less research.”

Under the proposal, Merck would cut its R&D efforts by nearly 50%, Frazier said.

“The most difficult disease states, the most risky, the most expensive projects will be at risk,” Frazier said. “The hundreds and thousands of small biotechs that rely on venture capital investments from big pharmaceutical companies will just disappear.” 

While Democrats are seeking to enact changes that would lower drug costs for most Americans, the push could be hindered by a procedural rule in the Senate which would exclude employer-paid insurance plans. Those plans cover more than 150 million people in the country.

By invoking the “Byrd rule,” the Senate could justify limiting drug price reforms to Medicare, The Hill reports. For their part, employer groups and organizations backing drug price reform contend that lower drug prices should apply to all. They also warn that pharma companies would compensate for lower prices for Medicare by increasing prices for private insurers.    

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While the pharmaceutical industry hopes that price cuts don’t apply to private insurers, government negotiations in Medicare would still hurt the industry, Bernstein analyst Ronny Gal wrote in a Tuesday note to investors. The program would be a “material negative,” Gal wrote, as “its role may expand over time.”

The analyst originally considered Medicare negotiations unlikely, but the recent disclosure about the jockeying in the Senate “suggests it is still very much on the agenda,” he warned this week.

That’s disquieting to industry execs such as Lilly CEO David Ricks, who on Wednesday pointed to the health systems of countries such as England and France. 

“One only has to look across the Atlantic to see what a two-decade-long effort to control drug pricing has led to, which is a shrinking of the biopharmaceutical industry and slower or no access to the latest medicines and cures,” Ricks said. “For patients on the ground there, this has not been a positive tradeoff.”

Ricks said that proposed price reforms would reduce industry revenues by 40%.

Takeda’s president of business operations in the United States, Ramona Sequeira, added that the biopharma industry recognizes the problem of high drug costs and is offering policy solutions that “can create a more predictable and sustainable health care environment.”

“We believe lowering costs and helping patients is not mutually exclusive,” she said. “Our average rebates paid to insurers have risen to 40%. Today patients simply aren’t benefiting from these rebates in the form of lower out-of-pocket costs and we need to change that.”

In the Senate, finance committee chairman Ron Wyden (D-Ore.), who has voiced his support for extending drug price cuts to the private insurance market, is navigating “delicate politics,” between moderate and progressive Democrats, The Hill reports. With the 50-50 composition of the Senate, Democrats can’t afford to lose any votes.

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Employers’ groups, led by the Purchaser Business Group on Health and EmployersRx, have written Wyden, asking for price reform to include the private sector. The organizations point to a survey by the West Health Policy Institute and Gallup, which found that the highest proportion of people who report difficulty affording drugs are aged 50-64 and not yet eligible for Medicare.  

“We’ve seen this playbook before,” Elizabeth Mitchell, CEO of PBGH said in a statement. “If price protections aren’t extended to employers and employees, the cost balloon will be pushed down for Medicare and everyone else will pay for it.”