Pharmaceutical giant Merck has filed a lawsuit in the US District Courts against the federal government, claiming it violates constitutional rights and undermines drug pricing negotiation powers. The lawsuit could have significant implications for the future of drug pricing regulation and may prompt other pharmaceutical companies to challenge the Inflation Reduction Act as well, says GlobalData, a leading data and analytics company.

Cyrus Fan, Pharma Research Analyst at GlobalData, comments: “The Inflation Reduction Act, signed into law last summer, gave Medicare the power to directly negotiate with pharma companies the prices of several select drugs for the first time ever. The law had been hailed as a success for the Democrats, but the pharma industry has been highly critical of the Act, stating it would stifle innovation and hinder the development of critical drugs. Many industry experts had predicted that lawsuits will likely occur if the bill was passed.

“The stakes are getting higher and higher, and with this lawsuit pharma risks biting the hand that feeds them. Merck comments that the US government forces pharma companies to sign contracts, acknowledging the negotiated prices are fair, which Merck claims is a violation of free speech protected by the First Amendment. In addition, Merck states that the Inflation Reduction Act also violates the Fifth Amendment that requires the US government to pay just compensation for private property taken for public use. The lawsuit explains the Inflation Reduction Act would force pharma companies to negotiate prices below market value for specific drugs covered by Medicare.”

Merck’s lawsuit claims that pharmaceutical companies do not have a choice on the conditions of the negotiation and is seeking a court to rule those aspects of the Inflation Reduction Act as unconstitutional. Furthermore, Merck aims to prevent the Department of Health and Human Services from having Merck sign any agreements on drug prices set by the Inflation Reduction Act.

Fan notes: “Merck’s lawsuit is the first of its kind against the Inflation Reduction Act. It would be surprising if more pharma companies do not do the same and challenge the law over procedural reasons. Many other pharma companies, like Biogen and Sanofi, have quickly expressed support for Merck’s lawsuit and agreed with the latter’s description of the Inflation Reduction Act as extortion. Any successful claim against the Inflation Reduction Act could massively undermine the negotiation powers of the bill.”

Success for Merck and other pharma companies attempting the block the Inflation Reduction Act through litigation is far from guaranteed. Governments in other countries around the world routinely engage in price negotiation for reimbursable medicines.

Milena Izmirlieva, Director of Health Economics and Market Access Research and Analysis at GlobalData, comments: “The US is unique in that it had – up until the passing of the Inflation Reduction Act – a specific ban on government negotiation of pharmaceutical prices. The US is also unique in that drug prices tend to go up for branded drugs after patent expiry. The Biden administration would argue that by removing this ban – in a very limited and gradual manner – the Act simply restores the normal state of affairs whereby buyers and sellers negotiate on the price of goods. Other countries, which have free market economies and free speech, allow government entities to negotiate pharmaceutical prices with producers, without violating these freedoms, so Merck may have a difficult time proving its case.”

GlobalData’s Price Intelligence (POLI) service is the leading pharmaceutical pricing tool in the market, providing comprehensive data, analytics and analysis of pricing and reimbursement around the world every day.