Merck’s Balancing Act
by Josh Nathan-Kazis
[cover story in current issue of Barron’s]
[excerpt beginning on page 16:]
"For the foreseeable future, though, Keytruda remains vital to Merck's future. The company is betting on its strategy -- call it Keytruda 2.0 -- to extend the financial value of the drug well past its expiration.
"Today, every dose of Keytruda is administered intravenously during a 30-minute session at a hospital or clinic. Merck is currently testing a new version of Keytruda that could be quickly injected into the skin.
"That new subcutaneous version would be more convenient for patients and doctors and would have big commercial benefits for Merck. It would mean that the biosimilar versions of intravenous Keytruda that hit the market in 2028 would need to compete with Merck's new subcutaneous version, which competitors would not be allowed to copy, leaving an open avenue for Merck to hold on to significant Keytruda revenue.
"Merck executives say the new version of the drug could also be exempt from from the Medicare price negotiation program.
“[Merck CEO Robert] Davis told investors in April that roughly half of Keytruda volume could move to a subcutaneous version by 2028. He implied there would be a competitive price for the treatment to achieve ‘quick adoption,’ presumably an effort to stave off competition from biosimilar offerings.
“It’s a somewhat daring approach to replace billions in annual revenue, particularly since the subcutaneous treatment approach remains in trial. Even so, analysts say the idea has connected with investors.
“ ‘Nobody thinks it’s a home run, like every payer is going to let this happen,’ says Daina Graybosch, an analyst at Leerink Partners who covers the stock. ‘But people assume that there’s a certain proportion of patients and payers that will have a real access reason to use this.’
“Still, if the plan falls through, the stock could take a hit. ‘For investors, it would be a big deal,’ Graybosch says.
“Data from a key trial of the subcutaneous version of Keytruda are expected later this year. Those results need to be positive for Merck to move forward as planned. The trial combines Keytruda with an enzyme called hyaluronidase that helps disperse injected drugs throughout the body.
“Merck has already abandoned a plan for a subcutaneous Keytruda without that enzyme. A trial of that treatment met its predefined goal, but analysts at South Korea-based Shinhan Securities who spotted the results in a federal database highlighted slightly higher death rates among lung cancer patients who took the subcutaneous shot than among those who took intravenous Keytruda. The company says the differences weren’t significant.
“As Barron’s reported in June, Merck chose not to publicize those results, a decision at odds with its transparent approach to other Keytruda trials.
“A successful trial for subcutaneous Keytruda won’t resolve the other issue hanging over Merck — whether the new treatment will be exempt from Medicare price negotiation. The answer will come down to how the next administration interprets a portion of the Inflation Reduction Act that empowers Medicare to negotiate some drug prices — leaving plenty of uncertainty for investors.
“The Centers for Medicare and Medicaid Services (CMS) has yet to issue guidance for the 2028 price negotiation process. CMS can negotiate new Medicare prices for many drugs 13 years after approval, but existing guidance suggests that timeline gets reset when an older drug is combined with another medicine. That’s what Merck intends to do with Keytruda.
“Davis said Merck is ‘quite confident’ that subcutaneous Keytruda will be exempted from the price negotiation program, based on the language the CMS has published so far.
“That may not be the final word, however. Richard Frank, a senior fellow at the Brookings Institution and director of the think tank’s Center on Health Policy, says that the guidance leaves open too many questions. ‘You could add aspirin to anything and call it a combination product,’ Frank says. ‘Obviously, they are not going to allow that to happen.’
“In comments he submitted to CMS, Frank said that the guidance on combination drugs ‘doesn’t offer sufficiently complete direction.’ He told Barron’s that he expects CMS to clarify the guidance this fall.”
[article continues to end]
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