Merck's Keytruda charted a whopping 26% sales boost in the second quarter, but the company now stands accused of sidestepping taxes on its immuno-oncology megablockbuster.
In recent years, Merck & Co. has dodged billions of dollars in U.S. taxes by offshoring profits on Keytruda, according to an ongoing investigation by Democrats on the Senate Finance Committee.
Merck did not immediately reply to Fierce Pharma’s request for comment.
The committee’s chair, Sen. Ron Wyden, said in a release that the U.S. made up $22.4 billion of Merck’s 2021 sales, though Merck reported just $1.85 billion in local pretax income. By contrast, that same year, Merck reported international pretax income of more than $12 billion from around $27 billion in international sales, he added.
“That Merck located more than 85% of its profits in foreign jurisdictions in 2021 implies that the current U.S. international tax system created by the 2017 Republican tax law has encouraged and rewarded Merck’s shifting of profits offshore,” the senator contended.
Merck has also so far “stonewalled the committee” by refusing to divulge “specific information” about where it books profits from U.S. drug sales, Wyden continued in the release.
“Unfortunately, Merck has twice declined to provide the Committee this information, choosing to keep secret how much of its profits are reported by offshore subsidiaries for tax purposes,” Wyden wrote in a letter to Merck, as quoted in the finance committee’s release.
Reuters reported July 27 that Merck told the news service in an emailed statement: “Prior to today, we have received two letters from the Senate Finance Committee requesting responses to questions around our tax rate, and in each case, we have cooperated and responded with information that we believe appropriately addressed their inquiries.”
Keytruda continues to do gangbusters as Merck’s top-selling med. For the 2022’s second quarter, Keytruda sales grew 26% to $5.3 billion, Merck reported this week.
“As noted in previous communications on this matter, there appears to be a substantial discrepancy between where Merck generates prescription drug sales and where Merck books profits from those drug sales for tax purposes,” Wyden continued.
Merck indicated that all profits from its $17 billion drug Keytruda—including sales to U.S. customers—are "taxed in jurisdictions outside the United States," according to Wyden.
The senator noted that Merck further stated that as Keytruda became a bigger fixture of the company’s overall profits, this "increased the portion of Merck’s overall income subject to tax outside the United States."
As for the methods behind Merck’s alleged tax dodge, the New Jersey-based drugmaker holds the intellectual property rights to Keytruda in the Netherlands and manufactures the drug entirely in Ireland, Wyden explained. Thanks to Keytruda’s offshore IP and production, Merck has been “able to avoid billions of dollars in taxes on profits from Keytruda sales in the United States,” Wyden continued.
In 2021, Merck paid an effective tax rate of 11%, the senator added. That's approximately half the U.S. corporate tax rate of 21%. Also last year, according to Wyden, Merck generated more than 46% of its sales outside the U.S., but it reported just 14% of its pretax income in the U.S.
Democrats on the Senate Finance Committee are putting the 2017 tax law under a microscope to see how it has benefited large pharmaceutical companies like Merck. The committee is concerned companies have been exploiting foreign subsidiaries to avoid taxes as well, Reuters notes.
Wyden also took aim at healthcare outfit Abbott for its alleged refusal to comply with the finance committee’s investigation.