The list price for Merck's(MRK) - Get Report newly approved hepatitis C drug is significantly lower than competing therapies offered by Gilead Sciences(GILD) - Get Report and Abbvie(ABBV) - Get Report , which means a new price war could be heating up.
On Thursday night, the U.S. Food and Drug Administration approved Zepatier, a single, daily pill combining two medicines to treat two different forms of hepatitis C. Merck said the list, or gross, price for Zepatier (ZEH-pa-teer) will be $54,600 for a 12-week regimen.
The price of Merck's drug is 32% lower than Gilead's Harvoni, which has a blended sticker price of $80,000 for eight and 12-week regimens. The list price of Abbvie's Viekira Pak is $83,000 for 12 weeks.
"We expect this price -- as well as our comprehensive access strategy to seek broad coverage across commercial and public segments -- will help broaden and accelerate patient access to treatment," said Merck spokesperson Pam Eisele.
Merck wouldn't mind bringing home billions of dollars in new revenue from Zepatier as well, which is the real reason behind the decision to undercut Gilead and Abbvie on price.
There's a lot at stake here. Gilead's two hepatitis C drugs, Sovaldi and Harvoni, dominate the market currently. Together, the two drugs are expected to deliver approximately $18 billion in sales to Gilead in 2015. (The company reports 2015 earnings next week.)
Gilead's hepatitis C business has thrived despite tons of criticism about the high price of its drugs (most recently this week from the Massachusetts Attorney General) and despite efforts by Abbvie to negotiate exclusive, discounted access deals with some major insurance companies and pharmacy benefit managers like Express Scripts.
Merck's Zepatier list price of $54,600 might look like a bargain and win praise from politicians, but it's also a bit misleading because almost no one pays the list price. A car dealer might try to sell you a new model for the sticker price of $29,999 but an educated buyer almost always drives away in his new car purchased at a negotiated, discount price.
The same goes for hepatitis C drugs. The list price of Gilead's Harvoni is $80,000 but insurance companies and government healthcare providers like Medicaid get discounts. The real, or net, price of Harvoni is 40-50% lower than the list price, Gilead has said.
Merck may also be compelled to offer similar discounts to win Zepatier customers.
"What I can tell you is that while we believe our list price is in the range of current net pricing in this market, we plan to be competitive in all segments of the market," said Merck spokesperson Eisele.
Whatever the actual, net price of Zepatier turns out to be, Merck's willingness to set a deeply discounted list price could pressure Gilead and Abbvie to lower the net prices of their competing hepatitis C drugs. This would be a dramatic, table-turning event for biotech and pharma because historically, companies have not competed on price.
It remains to be seen if price competition in hepatitis C bleeds into other disease areas. There's good reason to believe it won't just yet. All these new hepatitis C drugs cure nearly all patients in eight or 12 weeks. That means Gilead, Abbvie and now Merck are in a race to treat as many hepatitis C patients with their drugs before the pool of treatable patients runs out.
There is no race to patient zero in other highly competitive diseases like rheumatoid arthritis or multiple sclerosis because current drugs like Humira from Abbvie or Tecfidera, sold by Biogen, are not curative. Patients stay on these drugs for years as chronic therapy, so there's less incentive for companies to compete on price. They all benefit by keeping drug prices higher.
One more reason could be behind Zepatier's lower price, not mentioned by Merck: The drug may not be as effective or convenient as Gilead's Harvoni. The FDA label for Zepatier recommends doctors screen genotype 1a hepatitis C patients for mutations in the virus, which if present, lower the drug's cure rate. This genetic testing is not routinely done for hepatitis C patients today and is not included in the Harvoni or Viekira Pak labels.
The Zapatier label also recommends doctors test patients treated for elevated liver enzyme levels, a potential negative side effect. Viekira Pak's label also includes a recommendation for liver monitoring but Harvoni's does not.
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.