Merck to Enter “Generic Biotech” Market; 20% Cut in Drug Prices Paid by Medicare Said to Equal 5% Less Profit for Biggest Drug Firms

In an article dealing with numerous facets of the state of the pharmaceutical industry and Merck in particular, The Economist stated that Merck has announced a “bold $1.5 billion plan to enter the nascent market for “biosimilars,” which are the biotech equivalents of generics….The reason to think Merck may succeed, argues Tim Anderson of Sanford Bernstein, a research firm, is that it has found a way to make biosimilars by culturing them inside yeast cells. This could be much cheaper and more reliable than the usual method, using mammalian cells.”In attempting to gauge the effect of potential governmental price bargaining with drug manufacturers as part of prospective health care reform initiatives, The Economist reports that:

“The more likely outcome is that government health schemes will start demanding discounts from drugs firms, and will buy more generics. Dr Anderson has crunched the numbers, and he reckons this need not lead to disaster. He reckons that a 20% cut in drugs prices paid by Medicare, America’s health-care system for the old and disabled, will shave profits at the biggest drugs firms by a mere 5%.”It is, however, unclear whether the 5% number reflects only the impact of a 20% cut in Medicare pricing, or whether that number includes similar cuts in Medicaid pricing and any projected reverb impact wrought through similar price cuts sought by insurers. Read full article here.