NEW YORK – During a call to discuss Q2 financials on Tuesday, Merck reported that sales of its bestselling checkpoint inhibitor Keytruda (pembrolizumab) rose 19 percent compared to the same quarter last year, but during the call the drugmaker also doubled down on its opposition to a Medicare price negotiation provision in the Inflation Reduction Act (IRA).
That law gives the Centers for Medicare & Medicaid Services (CMS) the power to negotiate costs for high-spend drugs like Keytruda, which has a list price of $10,897.12 per dose every three weeks or $21,794.24 per dose every six weeks. Merck maintains that allowing Medicare to negotiate drug prices could stymie innovation and is taking the government to court in "principled" protest.
CMS is expected to announce the first 10 drugs subject to price negotiations in September. Although it is not entirely clear how these drugs will be chosen, CMS has said it will select from among the drugs that are costing Medicare the most and from among those that have been on the market for at least a decade, or seven years for small-molecule drugs or 11 years for biologics.
Given Keytruda's high list price, Merck is likely bracing for the possibility that Keytruda, which will start losing market exclusivity in the US in 2028, will be on the CMS list. "Merck is taking a principled stand against the negative long-term impacts of the price negotiation provision of the IRA, which we believe amounts to unconstitutional price setting that violates several provisions of the US Constitution," Merck CEO Rob Davis said during the call. "This misguided policy does not strike the right balance between incenting investment and innovation and improving affordability and access." Based on this argument, Merck filed a lawsuit against the US Department of Health and Human Services in June.
Three other drugmakers — Bristol Myers Squibb, Astellas, and Johnson & Johnson — as well as the trade group Pharmaceutical Research and Manufacturers of America (PhRMA) and several other industry organizations have also filed similar lawsuits against the US government. "We are going to take this to the fullest, which means we'll take it through district court, and if need be, into circuit court, and ultimately the Supreme Court," Davis said. "That's the strategy [but] this is going to take a while to play out." Davis said Merck is hoping to have the legal kerfuffle resolved before 2026, when CMS would begin enforcing the negotiated prices for its initial drugs, but he said he would not expect any substantial updates on this lawsuit in the nearer term.
For the three months ending June 30, Keytruda brought in $6.27 billion, compared to $5.25 billion in Q2 2022. Merck's revenues from pharmaceutical products increased 6 percent during Q2 to $13.46 billion from $12.76 billion during the year-ago quarter. Rahway, New Jersey-based Merck reported $15.04 billion in total Q2 2023 revenues, up 3 percent from $14.59 billion in Q2 2022, and exceeded analysts' expectations of $14.45 billion. Adjusting of exchange rates, overall revenues in Q2 increased 7 percent year over year.
The drugmaker is continuing to expand Keytruda's reach by moving it into earlier treatment lines, into new cancer types, and into new combinations with other agents. A recent example is Merck's work with Moderna to develop Keytruda plus the personalized neoadjuvant mRNA cancer vaccine V940 in adjuvant melanoma. During the second quarter of this year, Merck shared data from the Phase II trial of this combination, and subsequently, launched a Phase III trial in July.
Merck attributes Keytruda's Q2 sales growth to its expanded use in metastatic renal cell carcinoma and certain types of head and neck cancer as well as in earlier-stage cancers, including high-risk early-stage triple-negative breast cancer.
"Keytruda's growth has been exceptional in recent quarters, outperforming our expectations," Merck CFO Caroline Litchfield said during the call. Looking ahead, she said that Merck continues to expect strong year-over-year growth for the checkpoint inhibitor, "but not quite at the levels experienced in recent quarters." This slightly muted growth expectation, Litchfield said, reflects the fact that Merck will launch fewer new indications for the immunotherapy in coming years and accounts for the "impact of continued pricing headwinds," particularly in European markets.
Meanwhile, Lynparza (olaparib), the PARP inhibitor that Merck commercializes with AstraZeneca, brought in $310 million in alliance revenue during Q2 2023, up 13 percent from $275 million in Q2 2022. Merck attributes Lynparza's growth to increased demand in international markets.
Merck posted a net loss of $5.98 billion, or $2.35 per share, in Q2 2023 versus net income of $3.94 billion, or $1.55 per share, in Q2 2022. On a non-GAAP basis, Merck posted a loss per share of $2.06, which was lower than the $2.18 loss per share that analysts had estimated on average.
Merck updated its revenue projections for 2023. Back in April, Merck said it was expecting to bring in between $57.7 billion to $58.9 billion in worldwide sales in 2023 and non-GAAP EPS in the range of $6.88 and $7.00. Now, the firm expects to bring in between $58.6 billion and $59.6 billion in worldwide sales and non-GAAP EPS in the range of $2.95 and $3.05. This EPS expectation factors in the one-time charge of $10.2 billion, or $4.02 per share, that Merck expects to spend acquiring the precision immunology firm Prometheus Biosciences.