Saturday, December 03, 2011

Another Cagey Move

This article has been bugging me for several days. It's about Pfizer and that pharmaceutical company's plan to keep sales up for its blockbuster drug Lipitor which came off patent protection this week. At first reading, the article appeared to contain some unalloyed good news for consumers.

Lipitor is so valuable that Pfizer is practically paying people to keep taking its blockbuster cholesterol medicine after generic competition hits the U.S. market this week.

Pfizer has devised discounts and incentives for patients, insurers and companies that process prescriptions that will, at least for the next six months, make the brand name drug about as cheap as or cheaper than the generics. Pfizer also has spent tens of millions of dollars this year on marketing to keep patients on Lipitor, which loses patent protection Wednesday.

Here's a brief summary of this "marketing plan":

—Offering insured patients a discount card to get Lipitor for $4 a month, far below the $25 average copayment for a preferred brand-name drug and below the $10 average copay for a generic drug. Pfizer is promoting this heavily through ads, information distributed at doctors' offices and its site. Pfizer, based in New York, said Tuesday that sign-ups have exceeded its goals.

—Paying pharmacies to mail Lipitor patients offers for the $4 copay card and to counsel patients that Lipitor lowers bad cholesterol more than rival drugs and helps prevent heart attacks and strokes.

—Keeping U.S. marketing spending nearly level until the last minute, versus the typical two-thirds drop in a drug's final year under patent. From July through September, Pfizer spent almost $90 million on doctor sales calls and free samples, about the same as a year earlier, according to Cegedim Strategic Data. Ads targeting patients fell about 60 percent to $19 million. All that will soon taper off.

—Negotiating unusual deals with some insurance plans and prescription benefit managers, the companies that process prescription claims for insurers or employers, to block pharmacists from dispensing generic Lipitor. Pfizer is giving them rebates that bring their cost for Lipitor down to the price of a generic or slightly less — if they agree to dispense only Lipitor for the six months before additional generic competition slashes prices. The move has generated some controversy and means many of the 3 million Americans taking Lipitor won't be able switch to the generic.
[Emphasis added]

So, what's the problem? For the next six months, patients will have the benefit of much lower costs for the drug and insurers (including Medicare) will have to pay less as well. Surely this is a good thing, isn't it?

Well, yes. At least for six months. Sort of. This time.

Keep in mind that Pfizer has already made its nut on this drug, which indeed has been very successful at lowering cholesterol. Now it's pretty much all gravy, a gravy that is still pouring billions of dollars into the company. Pfizer wants even more of that gravy. This time, and the next time with the next blockbuster drug. And, as a result there are some losers in this deal.

Meanwhile, Watson Pharmaceuticals Inc. looks to be the biggest loser in this. It has a deal to distribute an "authorized generic" version manufactured by Pfizer but sold under Watson's brand, with Pfizer keeping an estimated 70 percent of the price.

Watson CEO Paul Bisaro said he had thought Pfizer would retain about 25 percent of Lipitor users for the next six months, but now "it looks like it will be 40 to 45 percent."

Bisaro said that could reduce his company's anticipated profit next year.
. [Emphasis added]

So much for honor among thieves, eh? Pfizer makes a deal with Watson to give them access to the formula for a price, and then queers the deal by undercutting Watson's opportunity to make some money on the "authorized" generic. And that's what makes me uneasy.

If Watson had known that Pfizer was going to institute this marketing plan, would the generic company have cut the same deal? That's unlikely. What's the incentive? Indeed, and here's the crucial point, what's the incentive for other company's to jump into the generic market after a patent expires? They won't make any money for another six months at least, and that's a long time in terms of business plans.

In other words, why even bother with manufacturing and marketing generic drugs?

I think this is actually a rather ingenious move by Pfizer to freeze out generic drugs from the market place. With them gone, there would be no reason to lower the prices on the patented drug as Pfizer has done this time. Soon, even that will be unnecessary, and patients and insurers will be stuck with the full price.

Pretty cagey, that.

And, once again, we lose.

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