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How Merck's "Price Freeze" on HIV Drugs Kept Prices Red Hot

Merck (MRK) has annoyed HIV patients with a verbal sleight of hand over the price of its Isentress anti-AIDS drug, which costs nearly $13,000 a year and must be taken with other drugs that can cost in total $20,000 a year.

When the drug was launched in 2007, Merck justified its cost because it was a "salvage therapy" for "treatment experienced HIV patients." That's the slightly insulting industry lingo for an HIV patient who has already been on other drugs and is running out of options.

But in July last year Isentress was also approved for first-line use, meaning that it now competes with all the other HIV drugs on the market and is available for a much larger patient population. Merck now claims that Isentress was priced as a "first-line treatment."

So which is it? HIV activists want to know. If it's a first-line drug, why hasn't price competition set in, as it did with another HIV drug, Crixivan, which Merck launched at a discount to competitors?

There are two reasons that hasn't happened. First, in 2008, when it was still a salvage therapy, Merck generously announced that it would freeze the price of Isentress until December 2010. At the time, that sounded reasonable -- Isentress is a new type of anti-retroviral, an "integrase inhibitor," the first of its kind, and patients were hopeful that it would be a success.

It was too successful, as it turned out. When the FDA gave it first-line approval, that left Isentress's price frozen at the salvage therapy level -- $348 to $540 more per year than other first-line drugs, the activists claim.

You can see why they're angry: Merck appears to be adopting whatever tactics are necessary to justify the highest price it can get. Here's what Margaret McGlynn, Merck's president of global vaccines and infectious diseases, told the AIDS Healthcare Foundation in 2007:

ISENTRESS provides unique value to patients and caregivers as the first integrase inhibitor, and at a wholesale acquisition cost (WAC) of $27 per day, it is priced comparably with ritonavir-boosted protease inhibitors, the most frequently prescribed therapy for treatment experienced HIV patients.
"Treatment experienced patients" is the key phrase there. Now compare that with what Merck svp/general manager for infectious diseases Patrick Bergstedt said in January 2010:
When ISENTRESS was approved, we established its price with the expectation that it would become first-line treatment.
So it was priced as a "first-line treatment" even when it was launched only for "treatment experienced patients"? Hmmm.

The AHF bought ad banners at the Whitehouse, N.J., train station, which serves commuters to Merck's HQ, urging execs to "Do the Right Thing." A "wanted" poster featuring Merck CEO Richard Clark was also published (pictured). Even CalPERS, the giant, socially responsible California pension fund, was persuaded to write to Merck, asking whether the price couldn't come down a bit now that the drug's market has gotten so much bigger.

Where is this going? Nowhere fast, is my guess. Merck's annual report shows that Isentress more than doubled its sales last year to $751.8 million (see page 5). The consensus seems to be that Isentress is simply better than many other HIV drugs. And Isentress will be an ingredient in Gilead (GILD)'s new four-drug "quad" combo-pill blockbuster. As long as dying people keep coming up with the money, Merck has no incentive to end its "price freeze."

Hat tip to Shearlings Got Plowed. Related: