Drug pricing pressure isn't likely to get worse: Merck CEO

Merck CEO Ken Frazier told an audience at the J.P. Morgan Healthcare Conference he believes drug pricing pressure won't get much worse.

SAN FRANCISCO—The good news about drug pricing pressure, according to Merck & Co. CEO Ken Frazier? It won't get much worse. 

Merck, along with its biopharma peers, has faced increasing price resistance since some high-profile controversies in 2015 triggered a public outcry. As the industrywide controversy continued—and politicians, including President Donald Trump, vowed to crack down on pharma—the company published a "transparency report" last year disclosing 40.9% rebates overall, up from 27.3% in 2010.

But Frazier sees no sign that payers or politicians will tighten the clamps further in 2018.

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"While we are going to continue to see incremental pressure on pricing, I don't see anything from the public agencies or through the private payers, any kind of significant jump in that pressure," he said Monday during a Q&A-style session at the annual J.P. Morgan Healthcare Conference.  

Beyond the price-hike controversies, payers have been zeroing in on some competitive drug categories, including diabetes, to wring big discounts out of drugmakers in return for formulary exclusives or better coverage. And as many critics have blasted pharma for raising their prices, the industry has sought to argue that middlemen are playing a role in growing prices. 

Merck's "transparency report" highlighted its yearly increases at a portfolio level. For 2016, the company increased its U.S. prices by 9.6% on average before discounts. Payer negotiations brought the net price hikes to a 5.5% increase on average, according to the report. 

RELATED: With tax reform passed, pharma's dealmakers likely to pick up the pace in 2018 

There's one area where Merck will definitely see less pressure in 2018 than it did last year, Frazier said, and that's taxes, thanks to the Republican tax plan. Merck's overall tax rate “will be lower with this legislation compared to what it would have been without the legislation." 

"It doesn't really change our capital allocation strategy per se," Frazier said.

But it does give Merck increased flexibility for dealmaking, he noted. In the wake of tax reform, many industry watchers have predicted that 2018 will bring a new wave of M&A. For two years, as dealmakers awaited results from the U.S. election and then on tax cuts, the industry has been largely quiet on big M&A moves. Now, according to Frazier, that could change.

Asked whether he believes the industry is poised for consolidation, Frazier said he believes the conditions are right, but cautioned that Merck "will continue to be focused on innovation, not consolidation, as our strategy."