Lipitor, the best-selling prescription drug in history, lost its patent protection on Wednesday. But Pfizer is not going gentle into that good night. The company is trying multiple tactics to keep its enormously profitable drug in patients’ medicine cabinets for another six months or more: setting up its own mail-order Lipitor pharmacy; offering discounts on copayments that make the drug cheaper to customers than most generics; and launching an advertising blitz to persuade patients that they need Lipitor, not just any old statin, to keep their cholesterol under control.
The company is also trying something innovative. Pfizer has been contracting directly with health plans and pharmacy-benefit managers to ensure that they keep dispensing the brand-name drug instead of a generic substitute. This is an effort to hold onto its market share over the next six months, when only two generic versions will hit the market—and before the prices fall too much.
On its face, this tactic may seem like a good thing for consumers: Pfizer describes it as a means of letting patients buy the brand-name drug at generic prices. But, really, the strategy is likely a windfall for Pfizer at the expense of some employers, who’ll have to pay more. It may also represent a payday for the pharmacy-benefit managers who are cutting the deals. Members of Congress have long muttered about outlawing so-called pay for delay deals, in which drug companies pay big settlements to generic manufacturers to hold off on making drugs of their own. In some ways, the Lipitor deals amount to the same thing—keeping customers buying the brand-name drug even after generics go on sale.
Indeed, Pfizer’s strategy may be paving a path for its industry. With 11 brand-name blockbuster drugs scheduled to go off-patent in 2012—including Plavix, another heart-related drug, sold by Bristol-Myers Squibb and Sanofi Aventis—Pfizer’s counterattack tactics are likely to become increasingly common. With Lipitor, the stakes are huge. Pfizer earned more than $5 billion in the U.S. alone last year from the statin, which controls cholesterol levels, reducing the risks of heart attack and stroke. Executives at Watson Pharmaceuticals, a company that is offering an “authorized generic” of Lipitor, told its investors that they expect Pfizer to retain a 40 percent share of the market. Even with a steep discount, that’s big bucks.
Pfizer’s strategy also highlights the growing significance of the largely unregulated pharmacy-benefit managers, known as PBMs. These are middlemen that large employers and health plans hire to administer their drug benefits and minimize costs. The Federal Trade Commission is considering a proposed merger between Express Scripts and Medco, two of the biggest PBMs; together, they would hold almost 40 percent of all U.S. prescriptions.
As the Lipitor case shows, drugmakers frequently offer “rebates” to PBMs in exchange for favored status on their formularies. Some percentage of those savings is typically passed on to companies that buy the plan, but contract terms between PBMs and employers—unavailable to the public—vary widely. According to letters released by the Pharmacists United for Truth and Transparency, a group of mostly independent pharmacists who feel squeezed by PBMs, Pfizer is offering benefit managers rebates on brand-name Lipitor (in one case, amounting to $47 for a 30-day supply) to undersell its generic competitors. In exchange, participating PBMs are offering Lipitor to their customers for a copay of just $10; in some cases, the PBMs won’t accept generic prescriptions at all. Other terms of the deals are unclear, but industry critics say that Pfizer may have offered further financial inducements; a company spokesman declined to comment on the details of its contracts with the PBMs.
For a number of reasons, these deals may be better for Pfizer and the PBMs than for employers and consumers. Pfizer spokesman MacKay Jimeson said the company’s goal is to “help patients who want to stay on Lipitor have access to the brand.” The contracts, however, may serve to reduce patients’ choices by removing generic substitutes from a PBM’s formulary. That could be an especially expensive decision if, during these deals’ six-month duration, generic manufacturers lower their prices. The deals also increase the likelihood that Pfizer will retain market share even after the six months are up. Patients who ask their doctors specifically for Lipitor are likely to keep refilling that prescription for an entire year, even if prices for generics plunge as other competitors enter the market, according to Susan Hayes of Pharmacy Outcomes Specialists, an industry consultant.
The strategy may also raise legal questions. By removing generics from their formularies, several pharmacy consultants said, PBMs may run afoul of state laws that require pharmacists to offer generics whenever available. Geoffrey Joyce, who teaches pharmaceutical economics at the University of Southern California, reported that an FTC official phoned him to make inquiries.
Traditionally, PBMs have championed generic drugs, which enable them to lower costs and expand their business. But they look for savings wherever they can, said Mark Merritt, president of the Pharmaceutical Care Management Association trade group. He predicted that brand-name drug manufacturers will probably become increasingly competitive to keep market share after their drug loses its patent protection. The companies and the health plans that hire them, he noted, are sophisticated purchasers who know how to cut a shrewd deal.
When it comes to deals between pharmaceutical companies and PBMs that pit a brand-name drug against a generic, “this is the only one that is happening right now,” Meritt said. “But it could be a harbinger of things to come.”
This article appears in the Dec. 3, 2011, edition of National Journal.