Merck is setting the lowest global price for DuPont's non-nucleoside reverse transcriptase inhibitor Stocrin/Sustiva at a 17% discount to the lowest price for Crixivan.

Merck announced March 7 that it would offer Stocrin (efavirenz) to developing countries at a price of $500 per patient per year ($1.37 per day) and Crixivan (indinavir) at a price of $600 per year ($1.64 per day).

The relative prices of the two HIV therapies approximate the ratio of catalog prices in the U.S., where Sustiva lists for $13.14 per day AWP and Crixivan for $16.71. The discounted prices offered by Merck are roughly 10% of the U.S. AWPs for the drugs.

A more realistic comparison may be between the direct-to-wholesaler prices cited by DuPont when it launched Sustiva in 1998: $10.95 per day for efavirenz versus $12 per day for Crixivan. DuPont has not raised the price of Sustiva since then; Merck has taken some Crixivan price increases.

The discounted price for Sustiva is 12.5% of the 1998 direct-to-wholesale price, while Crixivan is being offered at 14% of direct price.

DuPont manufactures efavirenz globally and supplies it to Merck for sale in select markets as Stocrin. DuPont has sole rights to efavirenz in the U.S. and in several other large markets, including France, Germany, Italy, Spain, the U.K. and Canada. Merck manufactures Crixivan in Virginia for all markets.

Merck characterizes the discounted prices as its "lowest possible prices" for the two drugs. The company emphasizes that it will not make a profit at those prices.

Merck is careful not to describe the discounted prices as reflecting its costs for the drugs, but the distinction is unlikely to be meaningful from the perspective of critics of the industry's profitability.

On a per milligram basis, efavirenz' "lowest possible price" is three times the price of indinavir: .22[cents]/mg versus .07[cents]/mg. When Sustiva was approved in the U.S., DuPont maintained that its production process is more expensive on a kilogram-to-kilogram basis than Crixivan's.

The relative prices of Sustiva and Crixivan in the U.S. are not tied to manufacturing costs. DuPont positioned Sustiva as an alternative to Crixivan in standard HIV cocktails. Its launch price was well above the level of other NNRTIs, but slightly below Crixivan (which is itself a relatively low-cost protease inhibitor).

Merck's discount offer for Stocrin is not a joint effort with DuPont. DuPont said it was made aware of Merck's discount plans, but noted that Merck is responsible for all pricing actions in markets where it has rights to efavirenz. The discount program will have no effect on payments to DuPont, the company said.

Drug companies have historically been reluctant to take steps that appear to reveal profit margins on individual products.

The sensitivity is not limited to international access issues. FDA's Treatment IND program, for example, allows sponsors to recover the costs of investigational agents, but most manufacturers opt to provide drugs free of charge rather than potentially limit their flexibility on launch prices.

Merck described its decision to publish the discounted Crixivan and Stocrin prices as a desire "to increase transparency in addressing the global health challenge of HIV/AIDS." Merck acknowledged that previous efforts to work with governments on discounted prices were moving too slowly. The company was criticized for maintaining confidentiality for its prices.

Merck acknowledges that even the "lowest possible price" is too high for many markets to afford, but by announcing the prices the company hopes to make it easier for other governments and organizations to mobilize to pay for the products.

The discounted prices will be available in sub-Saharan Africa and on a case-by-case basis for other developing countries facing an HIV epidemic, Merck said.

The prices will be made available to all customers in eligible countries, including governments, non-governmental organizations and private purchasers. Three African countries (Senegal, Uganda and Rwanda) that agreed to previous discounts from Merck will receive the new, lower price.

Merck will continue to try to prevent diversion of the discounted products to developed markets. "The only condition is that the medicines must be used in the country where they are sold, and not exported," Merck said. The company plans to work out appropriate controls with each country.

Preventing the physical transfer of discounted drugs into developed markets is probably a lesser challenge compared to preventing purchasers and policy makers in other markets from demanding access to the "lowest possible price."

Merck's tolerance for the risks of the discount program reflects the continued attacks on the industry's image over access to HIV drugs, which reached a crescendo surrounding the opening of litigation in South Africa seeking to prevent compulsory licensing of HIV drugs.

Merck may also see the Crixivan/Stocrin program as an opportunity to advance the debate in the U.S. and other industrialized countries over global pricing disparities.

Merck maintains that industrialized countries are ready to accept that economic differences and the urgency of the HIV epidemic justify tiered pricing.

Past efforts by manufacturers to offer lower prices in the developing world have been met by calls for similar price cuts in developed markets, and by skepticism that steeply discounted prices are unprofitable for manufacturers.

Remarks by University of Minnesota PRIME Institute Director Stephen Schondelmeyer, PhD, during a 1998 Presidential Advisory Council on HIV/AIDS meeting reflect the pressure manufacturers feel over discount programs.

Schondelmeyer criticized Glaxo Wellcome for failing to cut the price of Retrovir in the U.S. by 75%, as it had done for developing countries.

In response to the argument that U.S. prices help subsidize the discounted price, Schondelmeyer said: Glaxo is "still making a profit selling at [25% of the U.S. price] in the rest of the world. I don't buy that they are giving the drug away."

Merck's support for transparency stops short of providing an accounting of its costs to support the claim that it will not profit at the discounted prices.

If the discounted prices are taken as a surrogate for production costs, then Merck's gross profits on Crixivan are approximately $3,800 per patient per year in the U.S., while DuPont's profits on Sustiva are about $3,500 per patient per year.

Merck appears to be well positioned among the leading HIV drug producers to take the risk of publicizing a lowest global price.

While Crixivan was a fast launch for Merck in 1996, newer protease inhibitors have captured larger market shares, and Merck no longer lists the HIV therapy as one of its key products. For 2000, sales of Crixivan and Stocrin combined were down 20% to $530 mil.

Merck's R&D focus in HIV is on vaccines rather than new chronic therapies, so the company is not jeopardizing one of its key future markets.

In a worst case scenario where Merck is forced to offer Crixivan and Stocrin at the "lowest possible price" worldwide, the company is risking just over 1% of its $40.36 bil. in global revenues (including Medco), and less than 3% of its $20.25 bil. global pharma business.

DuPont may be in a more difficult position with Sustiva. The chemical company is in the process of spinning off its pharma division, and Sustiva is one of the company's few on-patent products. Its other major asset is the royalty stream from Merck's Cozaar.

Sustiva generated $386 mil. in sales in 2000 for DuPont, an increase of 83%.

If Merck is able to defend the tiered pricing in HIV, it could help the company establish a model for globalizing its expanding infectious diseases portfolio, including the recently approved antifungal Cancidas, the pending injectable antibiotic Invanz, and extensive R&D programs in vaccines.

Merck is not the only company thinking about new business models for the developing world. During a Feb. 22 analysts meeting in London, GlaxoSmithKline CEO J.P. Garnier emphasized the importance of establishing "new rules of engagement" to allow the pharmaceutical industry to do business in the developing world.

"You can generate a larger proportion of your sales if you accept rules of engagement with the developing world that are different from the rules of engagement you put into practice in Europe and the U.S. and Japan," Garnier said. "I think we can gain from that and grow faster in the developing world. We certainly have the infrastructure in place."

Merck HIV Discount Plan Sets DuPont Sustiva Price Floor At $500 Per Year

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