[why&next] Dual Pressure from U.S. Drug Price Negotiations and Patent Expiry on Keytruda... Outlook for Alteogen Royalties

Global pharmaceutical company Merck has indicated that its immuno-oncology drug Keytruda (ingredient name: pembrolizumab) will face dual pressures from drug price negotiations and patent expiry. As a result, concerns have been raised over potential downward pressure on royalty income for Alteogen, which provides technology for the subcutaneous (SC) formulation of Keytruda. Since both factors could undermine Alteogen’s royalty base, the market is paying close attention.

According to industry sources on April 16, Merck stated in its annual report to shareholders released on April 8 (local time) that Keytruda is expected to be selected for U.S. government drug price negotiations in 2027, with negotiated prices to take effect from January 2029. This means the government-led price negotiation program under the U.S. Inflation Reduction Act (IRA) will be formally applied to Keytruda.

This directly affects Alteogen’s royalty income. Alteogen receives royalties from Merck equivalent to 2% of the net sales of Keytruda SC formulation, Keytruda Qurex. If the drug price drops, the net sales-which form the royalty base-will also decrease.

Additionally, there are concerns that the timing of the price reduction coinciding with the expiration of Keytruda’s core substance patent in December 2028 and the intensification of biosimilar competition could result in double pressure on Alteogen just as it enters the royalty-earning phase.

원본보기 아이콘

In the same report, Merck specified that the useful life of intangible assets related to Keytruda Qurex is set until December 2030. The useful life refers to the period during which an asset is expected to generate economic benefits, and is determined by comprehensively considering patent duration, maintenance of market exclusivity, and changes in the competitive environment. While the useful life of intangible assets held by Merck generally ranges from 2 to 24 years, the six-year period applied to Alteogen’s technology license is comparatively short.

Some interpret Merck’s selection of 2030 as the useful life as being closely linked to the overall sales cycle of Keytruda. Alteogen emphasizes that its patent for the SC formulation technology is valid until 2043, enabling long-term royalty collection. On the other hand, some observers point out that since Merck views the core profit period for Keytruda Qurex as lasting until 2030, expectations for large-scale royalties beyond that year should be tempered.

Experts say it is premature to draw firm conclusions about the impact of either variable. In the first round of IRA drug price negotiations, the official list price reductions ranged from 38% to 79%, but analyses suggest that the impact on actual net sales, which reflect rebates and other factors, was limited. Since Keytruda is expected to be selected for negotiations in 2027 and applied in 2029, the real effect on royalties will only become clear once the negotiations conclude.

There is also a view that the useful life cannot be definitively used as a basis for revenue forecasts. Jinhan Bae, a professor at Korea University Business School, explained, “Setting the useful life is an area of estimation and relates to the intentions of the user. The company paying royalties may argue that profits will not be significant after patent expiry, while the company receiving royalties may expect substantial profits to continue past that point.” He added, “Depreciation is a cost issue and is separate from revenue forecasting.” An accountant specializing in pharmaceutical audits commented, “The useful life of intangible assets is set within a range that allows for reasonable estimation of future sales. In practice, periods longer than five years are often considered highly uncertain, so a shorter period is commonly used.”

Merck plans to actively respond to the anticipated decline in sales after patent expiry by shifting to SC formulations and expanding indications. Merck CEO Robert Davis stated at this year’s J.P. Morgan Healthcare Conference, “We will maintain market share and maximize the revenue curve even after the patent expires.”

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.