In a bid to make its drug pricing practices more transparent, Merck & Co. has released a short report addressing the annual price increases of its product portfolio between 2011 and 2016. This product portfolio encompasses all human health pharmaceutical and vaccine products marketed by the company.
Key findings from the report include:
- Calculation of the list price and net price fluctuations over the 2011–2016 period. The List Price (WAC) year-over-year has risen from 7.4% in 2010 to 9.6% in 2016. However, the Net Price change, which takes into account rebates, discounts and returns, has increased at more modest rates of 3.4% in 2010 and 5.5% in 2016.
- The average discount given across its US product portfolio has dramatically increased from 27.3% in 2010, to 40.9% in 2016.
- From 2010–2016, the company spent more than $50B on R&D.
These figures suggest that at the same time that list pricing is increasing at a substantial rate, so are the rebates and discounts the company is paying out. This reflects the increasingly competitive market for branded drugs, which has led to greater bargaining power from middlemen such as pharmacy benefits managers (PBMs) and insurers. The savings from the rebates that are negotiated by payers may not reduce costs for patients, as those that negotiate said discounts will take a cut before passing any savings along. Thus, depending on the size of the discount negotiated, patients may see little benefit.
Merck & Co. also highlighted the increasing costs of R&D for developing novel medicines, thereby distancing themselves from the likes of Turing and Valeant Pharmaceuticals, companies that merely repackage existing, older drugs for substantial profit.
Merck & Co. is the first big pharma to release this type of pricing transparency report, but J&J has also indicated they will expand their disclosures on drug pricing and R&D costs later this year. As more companies follow suit, a clearer picture of pharma pricing practices will emerge, hopefully making the debate over drug pricing regulations more data-driven.