Pfizer's Lipitor: A New Model for Delaying the Effects of Patent Expiration

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.

Comments

[The Dog Ate My Homework]

"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."

How are marketing strategies an extension of patent term? Ranbaxy is now free to compete, and in six months everyone else will be free to compete. As a result of that competition, Pfizer is lowering its price (and no one's asserting that it's dumping Lipitor on the market below cost). That's how things are supposed to work. If anything, this is proof that incentive system for generics *does* work.

Seems like the politicians are upset not because Pfizer did something wrong, but because Pfizer is acting intelligently, and worse, it isn't acting like the evil corporation that those politicos make all innovative drug companies out to be.

[K.M.Senthil Kumar]

Is there any provision in Hatch-Waxman act that allows sharing and supplying of the drug from TEVA to Ranbaxy? Does a deal between Teva and Ranbaxy violate any one of the provisions in the Hatch-Waxman Act? or Irrespective of any provision, the act does not preclude such sharing and supplying of the two business entities that is one which is the holder of 180 days exclusivity in the USA (Ranbaxy) and the other generic company(Teva) which does not have such entitlement.

[K.M.Senthil Kumar]

Is there any provision in Hatch-Waxman act that allows sharing and supplying of the drug from TEVA to Ranbaxy? Does a deal between Teva and Ranbaxy violate any one of the provisions in the Hatch-Waxman Act? or Irrespective of any provision, the act does not preclude such sharing and supplying of the drug between two business entities that is one which is the holder of 180 days exclusivity in the USA (Ranbaxy) and the other generic company(Teva) which does not have such entitlement.

[skeptical]

It would seem to me that these actions easily cross over the bridge from patent law to anti-trust law.

The deep discounting may actually backfire, as people may realize that the patent holder has been gouging the public by charging prices that were only supported by the patent exclusivity effect.

I recognize that people in the industry recgonize that such profits support all those efforts on drugs that do not make it to the market place, but your average consumer does not care that his outrageous cost for a little pill is paying for something he is not getting, and the deep discounts show how much the consumer "should" have been paying for years.

Consumer advocacy groups can use this price disparity against the pharma companies, who have shifted normal business risk to the consumer through the inflated pricing afforded by the patent system.

Perhaps in the name of equity someone in the legislature will come up with the concept of fair pricing. For pharma patents, careful and accurate development records could be tied to how much a company could charge for a product. Flexibility could be achieved by allowing the producer to decide the payback period, but once that period is reached, pricing controls could be enacted and public gouging avoided.

As for "market-share," I think any projections based on current actions are more like angels dancing on the head of a pin.

[Girish Malhotra]

Pfizer adopted the current posturing out of desperation and had few choices. Pharma model has been to develop and sell blockbusters and move on. The expired patents become generics product.

Pfizer has the manufacturing technology and can out price generics. It is trying to do that. It is too early to say that Pfizer strategy will pay off as that battlefield is getting ready.

Most of the BIG pharma should have done that to prevent generics coming in but they did not as their pipeline was delivering. Now the pipeline is sputtering and the Pfizer strategy is a natural.

In addition, Pfizer in latent terms is admitting that they might not have many revenue generators in the pipe.

Thanks.

Girish MALHOTRA

[James Demers]

"The deep discounting may actually backfire, as people may realize that the patent holder has been gouging the public by charging prices that were only supported by the patent exclusivity effect." Really? Prices supported by exclusivity are precisely what patents are for. Nobody is going to be surprised by a 90% price reduction.

Were it not for patents, Lipitor would not exist at all. Thanks to patents, it does. For the term of the patent, Pfizer charged what the market would bear (a market where alternative drugs were available), and for the indefinite future we will enjoy its benefits at free market prices. The system is working as intended.

Pfizer's tactics going forward are subject to scrutiny: the line between leveraging their production advantages and illegally dumping product below cost is a thin one. That said, consumers certainly win if pricing is close to the actual cost of manufacture.

I have a problem with "rebates" and "incentives" paid to consumers who aren't paying the bulk of the cost of a drug. It's a mystery to me how the law can distinguish these from illegal kickbacks.

[Skeptical]

"Really? Prices supported by exclusivity are precisely what patents are for. Nobody is going to be surprised by a 90% price reduction."

Yes, Really.

James, you speak like a patent attorney - missing the heartbeat (and financial pain) of what the rest of the country is going through.

You quite missed the fact that I alluded to such with my comment of "I recognize that people in the industry recgonize that such profits support... but your average consumer does not care..."

What you view as "nobody" is the rather large bulk of people outside of the patent world who are affected with the real world prices of drugs (and who vote).

These "nobodies" don't care how the patent system has been set up and don't care if the drugs would not be there in the first place if there was not a patent system.

What they do care about is how much they have to spend for a drug they need to take. What they do care about is the PERCEPTION that they have been gouged when a price reduction of 90% happens only because of a patent protection stoppage.

This, more than any "exercising cat with a laser" patent, speaks to the patent system being broken, because THIS directly affects the individual and their immediate financial situation.

You need to get out of your patent law office and grab the pulse of the country if you want to understand the forces that will shape patent law in the future.

(my apologies as this seems overly personal - it is not meant to be personal, but I see this type of myopia far too often).

[Don't Call Me MM]

"What you view as "nobody" is the rather large bulk of people outside of the patent world who are affected with the real world prices of drugs (and who vote)."

Let me see if I get this. Voters may express a preference for immediate savings to themselves in the form of cheap drug prices now, after someone else has already invested in developing the drug, thus assuring no new drugs in the future, over the long-term sensible policy that gives drug developers monopoly rents for a limited time to encourage development of new drugs?

Wow! What a novel idea! Thanks for enlightening us, Skeptical.

/sarcasm off/

[Skeptical]

Don't Call Me MM,

Your sarcasm is at best misplaced, at worst disingenuous.

This is not Patently-O, so please make your comments mean something just a little bit more.

James' comments seemed to have been made in a patent-intensive-but-real-world-vacuum and represents a dangerous mindset to have, even on a patent board discussion thread.

Your comment, on the other hand, adds nothing of value, and that type of smarmy post is better left for other venues.

[Lonnie H. Young]

No cmment now, I need this material for my research.