Pfizer’s Lipitor Strategy Changes the Generics Game

Lipitor, the best-selling drug of all-time, off patent in the US

Pfizer’s patent on the cholesterol-lowering medication Lipitor expired on Wednesday, opening the door to generic competitors in the US.

Lipitor came on the market in 1997, and has yielded nearly $100 billion for Pfizer, which according to CNBC represents about a quarter of Pfizer’s total revenue over the past decade.

When a drug’s patent expires, the first generic company to file is usually granted a six-month period of exclusivity to offer the generic version of the drug. Following the initial six-month exclusivity period, additional generics companies are allowed to also offer the drug and the market quickly becomes commoditized.  Typically, the exclusivity period results in prices 25% below the original brand price, followed by continued price erosion to as much as 80% or more as multiple generics enter the market.  In the past, upon patent expiration, the original drug maker would often raise the price of the brand to offset some of the volume decline and usually shift commercial focus to its newer products.  Ultimately the brand would retain less than 10 percent of the market share by volume (usually 3-5% after a few years).

However, Pfizer – in an effort to preserve the value of the Lipitor brand – has implemented a new, aggressive post-patent strategy to maintain as much of the Lipitor market as possible. Pfizer claims more than one-third of its Lipitor patients prefer to stay on Lipitor.

Pfizer’s strategy includes:

—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, direct marketing to patients and its http://www.LipitorForYou.com site.

—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.

—Keeping U.S. marketing spending nearly level through the patent expiration date.

— Negotiating never-before-seen exclusive deals with some insurance plans (e.g., Coventry Health Care), pharmacies and prescription benefit managers (e.g., Medco Health Solutions, Catalyst Rx, CVS/Caremark and Express Scripts) to exclusively offer Lipitor at heavily discounted prices to block pharmacists and mail-order services from dispensing generic Lipitor.

In a memo from CVS/Caremark, a pharmacy benefit management company, and dated Monday, pharmacies were notified that the generic form of Lipitor, called atorvastatin, would not be covered for 29 prescription drug plans it managed for Medicare Part D. Instead, any prescription claims for generic atorvastatin will be rejected with a notice saying: “Brand Lipitor will pay at generic co-pay.”

Watson launches generic

US-based Watson Pharmaceuticals immediately announced its launch of an “authorized generic” version of Lipitor, atorvastatin calcium, under an exclusive supply and distribution agreement with Pfizer, whereby Pfizer manufactures the drug and Watson sells it with its brand name, sharing net sales with Pfizer until 2016.

Watson CEO Paul Bisaro said he had thought Pfizer would retain about 25% of Lipitor users for the next six months, but he now believes that number to be 40% to 45%.”

“This is sort of the new generation of brand protection,” he added.

Here is an interview with Watson CEO, Paul Bisaro, discussing Pfizer’s new strategy Lipitor strategy.

Meanwhile generics company Ranbaxy continues to have problems

Ranbaxy, India’s largest drug maker, is the other company entitled to sell generic Lipitor during the six-month, post-patent exclusivity period. However, an actual launch depends on whether FDA regulators lift a ban that has kept Ranbaxy from exporting some products to the United States following quality control lapses at the firm’s Indian factories.  According to estimates from Mumbai-based analysts surveyed by Bloomberg, Ranbaxy is estimated to generate as much as $650 million from generic Lipitor sales.  However, that number is likely to be modified if Ranbaxy is limited to sales outside the United Sates.

Patients seem to benefit from Pfizer’s new strategy

 Patients stand to benefit from a program that offers the branded drug at the same lower price or lower than its generic version.  While generic medicines are supposed to work the same as brand drugs for nearly everyone, some patients prefer the brand, especially if costs are comparable.  Thus far, Pfizer’s new strategy seems to be popular among Lipitor users, saying sign-ups for its $4 discount card have exceeded its goals.

Pfizer after Lipitor

 As companies compete for market share of the cheaper generic version of Lipitor, Pfizer is left hunting for new sources of revenue to replace the cash flow from its blockbuster.  However, it is well documented that pharmaceutical companies have been struggling to come up with new blockbusters, as discussed in this Forbes article.

Pfizer has not released its projected losses due to the patent expiration, but its company forecasts call for sales in 2012 of $63-63.5 billion, versus $67.8 billion in 2010. Lipitor global sales were over $10 billion last year, and Morningstar analyst Damien Conover estimates a sales figure of $3.8 billion in 2012 – still among the top of drug sales.

Ramifications for the pharmaceutical industry

Pfizer’s aggressive strategy may offer lessons for drug makers facing similar losses of patent protection for other blockbuster drugs over the next few years, and may chart a new path for shifts between the big pharmaceutical companies and generic rivals.  However, it’s important to remember this new model makes the most financial sense during the first six months following patent loss when significant margins still exist, but thereafter it seems the current generics model will remain unchanged.

This new strategy also highlights an emerging trend seen within the pharmaceutical industry wherein the lines between traditional “pharma” companies and “generics” companies are becoming increasingly blurred as their markets begin to overlap.  For a deeper look at this please see Bourne Capital Partner’s October 2011 Generics Report.

Other notes:

European Lipitor patent coverage – As of July 2011, Lipitor had already gone off patent in Spain, Finland and Norway, but elsewhere across the EU the drug remained protected as Pfizer seeks six-month extensions in at least 11 other markets, including the UK, France and Germany.

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About Bourne Partners

As a healthcare-focused merchant bank, Bourne Partners provides financial advisory, direct investment, alternative assets and management consulting services to our client-partners. We play an active role in helping businesses grow by creating long-term, profitable relationships that extend beyond single transactions. It is our focus on relationships and long-term results that has yielded us an impeccable track record of client satisfaction . Our direct and indirect investments in sector-leading companies – often through our relationships with top-tier Private Equity funds – allow us to learn about the best-of-the-best from the inside and apply that knowledge to the companies we serve. At Bourne Partners, we operate within a specific set of core boundaries: integrity, accountability, teamwork, loyalty and commitment are the driving forces behind everything we do.
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5 Responses to Pfizer’s Lipitor Strategy Changes the Generics Game

  1. This is really fascinating, You’re an excessively skilled blogger. I’ve joined your rss feed and look ahead to looking for more of your excellent post. Also, I have shared your site in my social networks

  2. A March 14, 2013 article from FiercePharma “Forget $4 generics. Free Lipitor copies are the new drug promo”: Lipitor as a loss leader? That’s the approach Wegmans’ pharmacies are taking. As the Philadelphia Inquirer reports, the grocery store chain offers generic versions of Lipitor for free, as a way to bring in new pharmacy customers. And the promotion must be successful–Wegmans just extended it through the end of this year. “Lipitor is such a well-known brand, and you might have some that are reluctant to leave the brand-name version,” Wharton School’s Barbara Kahn told the Philadelphia Inquirer. “But free is definitely a way to incent people to change. That is pretty innovative.”

  3. And Dr. Fein from Drug Channels offers this insight into Wegmans Lipitor strategy: March 14, 2013 Drug Channels “What Free Generic Lipitor Says about Pharmacy’s Future” A pharmacy’s profits on a generic Lipitor prescription are still double the brand-name prescription’s profits. At this stage in the generic life cycle, few other pharmacies are foolhardy (or desperate) enough to give up these superior generic profits. Wegmans’ willingness to race to the bottom illustrates the inexorable downward economics facing retail pharmacy in coming years.

  4. [4/30/13] Pfizer reported a dip in quarterly sales: 9%, to be exact, to $13.5 billion. The disappointing numbers come despite surprisingly strong sales from Lipitor. While Lipitor no longer has patent protection, Pfizer has managed to hold on sales of the drug in the face of generic competition. The pill generated $626 million, more than analyst estimates of $530 million, and remains Pfizer’s fifth-biggest product.

  5. [6/13] When drugmakers face the patent loss on blockbuster products, they might try a number of tactics to soften the blow. Price hikes ahead of the loss are popular, as are pay-for-delay deals to get a few extra months of exclusivity. Discounts and coupons sometimes work. A new AARP study says Pfizer employed all of these tactics when Lipitor faced generic competition and worries that the company’s aggressive defense will become the blueprint for the industry.

    FiercePharma http://www.fiercepharma.com/story/aarp-fears-pfizer-tactics-defend-lipitor-could-become-model/2013-06-13#ixzz2W7UTpTCu

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