What the drug companies will do to keep profits and stop competition-love the free market!
"TRENTON, N.J. – If brand-name prescription medicines cost you as little as generic pills, which would you choose? A few drugmakers are betting Americans will stick with the name they know.
By Paul J. Richards, AFP/Getty Images
Pfizer offers copay coupons for some medicines, such as cholesterol-lowering Lipitor.
They've begun offering U.S. patients coupons to reduce copayments on brand-name medicines and compete with new generic versions of the drugs. The medicines include staples in the American medicine cabinet — cholesterol fighter Lipitor, blood thinner Plavix and blood pressure drug Diovan — along with drugs for depression and breast cancer.
Pfizer Inc. tested the new trend last year and now offers copay coupons that can bring insured patients six of its medicines for as little as $4 a month each. That includes Lipitor, which was taken by more than 3.5 million Americans until generic competition arrived last Nov. 30.
Experts predict more drugmakers will do the same for some of their big sellers, as the companies weather big revenue drops from an unprecedented wave of top-selling drugs whose patents are expiring. The trend is the latest attempt by drugmakers to hold onto business at a time when they are increasingly under siege. Drug companies including Pfizer, Merck & Co. and Bristol Myers-Squibb Co. are squeezed by rising research costs, the weak global economy and pressure from Europe, China and elsewhere to reduce drug prices.
So, they're trying a new tactic to temporarily slow the loss of billions of dollars in sales to new generic competition.
"On a big drug, every day that you can delay the sales drop is a happy day at the drug company," says Erik Gordon, a professor at the University of Michigan's Ross School of Business who follows the drug industry.
Developing drugs is very expensive. It requires up to a decade of laboratory research and then patient testing, costing $1 billion or more, to win government approval to sell a drug. In return, the drug's maker gets the exclusive right to sell the drug for about 10 to 15 years, until the patent expires. That allows the companies to recoup those costs and hopefully turn a profit.
After that, generic copycats sold by other companies flood the market, costing just a fraction of the brand-name drug's price, even though they're chemically identical.
Often, one generic drugmaker has the exclusive right to sell its copycat version for the first six months after the branded drug's patent expires. In those cases, the generic's price is only about 25 percent lower than for the branded drug. Other times, there are multiple generics right away. Either way, once several generics are on sale, their prices usually plummet to about 90 percent below the brand-name price. Nearly all patients then switch to a generic.
Lipitor, once the world's top-selling drug, provides a window into the use of coupons.
A month's supply of brand-name Lipitor costs about costs about $175 without insurance. For insured patients, the copayment is typically $25 to $50, well above the average copayment of about $10 a month for most generic drugs.
Under Pfizer's Lipitor For You coupon program, Pfizer absorbs up to $75 of the patient's out-of-pocket cost. Insured patients pay only $4 a month, unless their copayment is higher than $79 a month. Uninsured patients get the $75 off each prescription and then pay the remaining $100 or so.
While the deal slashes Pfizer's profit, the company still makes more money than it would if all its customers defected from Lipitor to a generic. Ian Read, CEO of New York-based Pfizer, recently said the strategy on Lipitor alone brought the company hundreds of millions of dollars in extra profit.
The coupons work only with private insurance, though. Patients with Medicare or other government health insurance are barred from using them.
Not surprisingly, commercial insurers don't like the coupons, because their share of the cost for a brand-name drug is much higher than for a generic pill. Virtually all prescription plans automatically switch patients to a new generic drug the next time they refill their prescription. The plans also move the drug from the copayment level for most brand-name drugs, usually around $25, to their highest copayment level, often $50 to $75 per prescription.
The coupons throw a wrench into insurers' strategy of getting as many patients as possible to take generic drugs, which account for about 80 percent of all prescriptions filled in the U.S.
A study late last year by the Pharmaceutical Care Management Association, a trade group for prescription benefit managers, estimated copay coupons could raise prescription drug spending by $32 billion over the next decade.
"That's adding to overall health care costs," says Robert Zirkelbach, spokesman for another industry group, America's Health Insurance Plans, and "is going to ultimately mean higher premiums for everybody."
Many insurers are fighting back.
Express Scripts Holding Co., the largest U.S. prescription benefit management company, says more than half the insurance plans it services have policies requiring patients to pay an extra fee for staying on the brand-name drug. With the advent of coupons, more insurers are likely to institute similar policies, says Everett Neville, head of pharmaceutical strategies at Express Scripts, which processes prescriptions for about 100 million Americans.
Drugmakers have offered coupons for several years on brand-name drugs that don't have generic competition. Those were meant to attract patients taking a rival brand or just starting treatment for a new condition. The coupons are usually prominent on the drug's official website, and many Internet sites offer coupons for an array of drugs.
But in the current decade, drugs with more than $110 billion in annual U.S. sales have patents expiring, according to IMS Health, a huge health-care research firm. So holding onto customers for even a few extra months can mean many millions of dollars in additional revenue.
Consider Lipitor. The cholesterol-lowering medicine had reigned for a decade as the world's top-selling medicine ever. Sales peaked at $13 billion a year, about half in the U.S.
Lipitor's U.S. patent was set to expire at the end of November. Well before then, Pfizer began offering coupons giving patients $50 off each Lipitor prescription in hopes of keeping many of them loyal. Pfizer also signed unprecedented deals with dozens of insurers that lowered their portion of the cost of Lipitor to what a generic would cost them — if they covered only branded Lipitor for six months.
That meant both patients and insurers had a big financial incentive to stick with Lipitor for a while.
On Nov. 30, two slightly cheaper generic versions hit pharmacies, one from India's Ranbaxy Laboratories and an "authorized generic" manufactured by Pfizer and sold by its partner, generic drugmaker Watson Pharmaceuticals Inc., of Parsippany, N.J.
Pfizer's coupon strategy worked. The "Lipitor For You" program, which includes support such as lifestyle coaching, health tips and heart-healthy recipes, signed up more than 750,000 people. "We never expected that," said Albert Bourla, head of the Pfizer unit that sells off-patent medicines.
Data from IMS Health show generics grabbed about two-thirds of Lipitor's prescriptions within five months — a big loss but far less than what would have happened without the coupon program.
"What Pfizer did was something amazing," says Praful Mehta, senior health care analyst at industry consultant IHS Global Insights in London. By courting patients and accepting lower profit margins, "they made sure they kept their revenue."
On May 30, three more generic Lipitor versions hit U.S. pharmacies. Prices for all the generics plunged overnight to around $15 a month. Pfizer then ended its subsidies to insurers because it would be too costly to make up the difference between that amount and the $175 price of Lipitor.
But the company hasn't given up on retaining some patients.
Pfizer extended Lipitor For You through December 2014 and raised its maximum subsidy from $50 to $75 per month. That means most insured patients using the coupons still can get Lipitor for less than their monthly copay for a generic drug, unless their insurer charges that extra fee to make up the difference between the brand and generic costs.
By the end of June, about 85 percent of Lipitor users had defected to a generic. Without the coupons, nearly all would have done so. Read, the Pfizer CEO, said the company maintained three times the usual market share a drugmaker gets after a generic hits the market.
Because pills generally cost only a dime or so to make, Pfizer still profited. It reported about $300 million in U.S. Lipitor sales in the second quarter, down from $1.2 billion a year earlier, plus another $1.1 billion in sales in other countries
Pfizer now offers $4 co-pay coupons for five other drugs: breast cancer pill Aromasin, antidepressant Effexor XR, bipolar disorder treatment Geodon, Revatio for high blood pressure and Caduet, which combines Lipitor with blood pressure medicine Norvasc.
Other companies are following Pfizer's lead. Switzerland's Novartis AG is offering coupons to patients with commercial insurance valid through December 2013 for $4-a-month copays on its Diovan and Diovan HCT, with the company covering the next $50 in out-of-pocket costs. Bristol-Myers Squibb, based in New York, began offering copay coupons for stroke-preventing pill Plavix when its U.S. patent expired in mid-May. As the world's second-bestselling medication, Plavix brought in about $9 billion last year for Bristol and partner Sanofi SA of France.
Some companies whose blockbusters are getting many generic rivals at once have chosen not to offer coupons, figuring the rock-bottom prices of those generics would prevent the company from retaining enough patients to make it worth their while. Merck's Singulair asthma and allergy pill, the world's 11th-best-selling drug last year at about $5.5 billion, went off patent on Aug. 3. The company said it expects about 90 percent of sales to evaporate within two months.
Still, experts say coupons aren't likely a passing fad given the number of drugs coming off patent.
"It's good for consumers, because they don't bear the cost and they can stay on the brand," says Les Funtleyder, health care fund manager at private equity fund Poliwogg."