By James DeGiulio —
Pfizer's exclusive right to sell atorvastatin, the active pharmaceutical ingredient in the blockbuster cholesterol drug Lipitor, ended yesterday, November 30, the day generic competitors are licensed to enter the market as agreed upon during settlement of past patent litigations. It was a day the pharma giant has been dreading for quite some time. This dread is well founded: on average, once a drug goes off patent, the patent holder's market share typically falls by a staggering 89% in the first 6 months. However, thanks to several innovative strategies, Pfizer's Lipitor, which has enjoyed a commanding 40% share in the cholesterol drug market, stands a good chance of being the exception to this trend, according to a recent article in The New York Times ("Facing Generic Lipitor Rivals, Pfizer Battles to Protect Its Cash Cow"). The sector outlook appears to be optimistic — investor studies have upgraded Pfizer's rating, and expect the company to retain much of its market share even now that the patent has expired. The strategies implemented by Pfizer, assuming they survive governmental scrutiny, may provide a model for brand companies facing blockbuster drugs going off-patent.
Pfizer has employed a multi-pronged approach to retain its position in the cholesterol market for these next critical 180 days. First, Pfizer has several authorized generics deals in place. For example, an authorized generic from Watson Pharmaceuticals went on sale yesterday. However, Watson's drug is manufactured by Pfizer, and Watson has to give about 70 percent of its profits to Pfizer.
Perhaps more importantly, Pfizer has dropped the price of Lipitor considerably, and continues to aggressively discount the drug to match any price and maintain brand loyalty. Pfizer's prices are currently undercutting most of the imminent generic competition on price. Pfizer has also made it known that its new discounts can easily be adjusted to beat any responsive reduction in the expected generic pricing. Pfizer has a huge margin because of the relatively low cost of materials for Lipitor. And with their manufacturing and volume advantage over generic competitors who are just getting off the ground, Pfizer can afford to drop the price considerably and continue to profit off of Lipitor.
Pfizer is also providing incentives to customers to stay on the brand drug. They have offered a reduced co-payment of $4 a month versus the $10 customers would pay for many generic prescriptions. Pfizer's program, called "Lipitor for You," offers a $4 co-payment card and direct delivery of Lipitor. The program is limited to privately insured customers. However, the discounts can also be applied to many Medicare prescription drug plans, which have agreed to dispense Lipitor even if patients ask for generics. Pharmacy benefit management company CVS/Caremark has notified pharmacies that the generic form of Lipitor would not be covered for 29 prescription drug plans it manages for Medicare Part D. Instead, brand Lipitor will be filled, but only a generic co-pay will be applied. Any prescription claims for generic atorvastatin will be rejected. Pfizer, the benefit managers and some insurers insist all of the new discount will be passed along to consumers, companies and other payers. While this remains to be seen, CVS/Caremark has already lowered its premiums for the government and Lipitor users.
Pfizer's tactics to protect its market share have naturally drawn scrutiny. Many of these strategies may call into question the incentive system created to foster the development of generic drugs, as they arguably extend Pfizer's patent monopoly beyond its expiration. The Federal Trade Commission and several Senators are investigating Pfizer's agreements with pharmaceutical benefit manager and generics companies. Senators Max Baucus (D-MT), Chuck Grassley (R-IA) and Herb Kohl (D-WI) have written letters to Pfizer and those who have aligned with Pfizer, asking for information about agreements aimed at limiting the sale of generic atorvastatin. According to these letters, the Senators believe that "just about everyone wins except consumers and taxpayers."
Not all companies have aligned with Pfizer — some companies have rejected their advances. Express Scripts and Medco Health Solutions, both large pharmacy benefit managers, are recommending that its clients not accept Pfizer's deals under the reasoning that it could cost them more in the long run. However, these companies will still use Lipitor as a "house generic" because Pfizer has guaranteed to match the price and assured a supply.
Late yesterday, Ranbaxy Laboratories, the first filer against several patents covering Lipitor, was granted FDA approval for its avorstatin calcium, despite a federal investigation into falsifying records resulting in the production and sale of medications that failed to meet FDA standards. Ranbaxy has a deal with Teva Pharmaceuticals, which already sells a generic Lipitor in Canada, to help supply the drug. Once Ranbaxy's 180-day initial generic exclusivity has expired and all generics can produce avorstatin calcium, it may be inevitable that Pfizer finally loses its considerable market share. Pfizer expects up to eight generics to compete for market share after the 180-day exclusivity period expires.
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