Thursday, December 1, 2011

Time Out for Some Drug Pricing Issues

I try to stay focused in this blog on the ethics of the medicine-Pharma relationship and so as a rule steer clear of drug pricing issues as such. Of course drug prices indirectly affect the ethics of medicine as physicians try to figure out how an increasing number of their patients can gain access to needed medications.

Linda A. Johnson of AP did a recent story--
--about Pfizer's struggle to keep making profits off its best-selling drug, Lipitor, which is about to go off patent. (Brand-name Lipitor sales at about $11B annually are now fully 20% of Pfizer's business.) Unfortunately her article obscures as much as it reveals. (Readers who understand the economics of drugs better than I do please feel free to chime in with comments.)

Quick recap of the generic weirdness according to the Hatch-Waxman act: As a method of incentivizing generic competition, Congress granted special privileges to the first generic manufacturer to come up with an FDA-approved bioequivalent product for the brand-name drug. The generic company that's first to the finish line gets a 6-month period of exclusivity before other generics can jump into the market.

That means that a brand-name drug goes from being a monopoly to being a duopoly for 6 months, then the real free market takes over. During the duopoly period, it is common for the generic competitor to be priced only a bit lower than the brand-name drug price. That means that the generic firm can make quite hefty profits off its drug for the 6 months, and the brand-name company can often extend its period of profits since it's not really being undercut all that much by the competition. Then 6 months later the price really falls as everyone and his proverbial duck can get into the game, and it's only then that consumers really benefit.

The company that's the lucky winner in the generic lottery, according to a press release just out, is Ranbaxy Pharmaceuticals, Inc. which is a wholly owned US subsidiary of the largest generic drug firm in India--itself a most interesting development, but that's for another post. Neither the press release nor the AP article says what Ranbaxy will charge for its generic atorvastatin (aka Lipitor) during its lucky 6 month window.

Now back to Johnson's report--she states that Pfizer is working hard to maintain brand loyalty among its customers, unlike the usual behavior of the brand name company which is to throw in the towel when the generic competition appears and profits drop. They are working as hard as they can to price brand-name Lipitor at lower than the generic price, at least during the 6-month window. That includes issuing copay cards for pharmacies allowing $4/month Lipitor prescriptions, and trying to lock pharmacies into special discounts on the condition that they don't substitute a different generic brand.

What's not clear to me at least is what the overall game plan is once the 6 month window is over. Does Pfizer figure it can lock in business during the time when the only generic competitor is relatively expensive, and then later reap the benefits when the generic competition becomes dirt-cheap? Or is it actually the case that Pfizer figures it can make decent money even selling its Lipitor at generic prices for the long haul?

What's also not clear is that it's hardly possible that this plan was Pfizer's Plan A. As we discussed in the past--
--the usual Plan A of the brand-name firm is "pay-for-delay," cutting a sweetheart deal with the first generic competitor to lie low and not challenge the brand-name drug for an extra 6 months, assuring that the big profits keep rolling in for that half-year. It's not clear whether Pfizer tried various ways to buy off Ranbaxy and came up empty-handed, or whether the current sales strategy is in fact the result of a secret deal that Pfizer managed to cut. Hopefully we'll hear more on this soon.

Addendum 12/1/11: Apparently three US senators had some concerns similar to mine:
Also in this news coverage by Duff Wilson at the NY Times, it's shown that I might have been in error above in saying that the first kid on the generic block was Ranbaxy, contrary to what their press release said. Watson Pharmaceuticals has FDA approval and is actually shipping generic atorvastatin as we speak. But Watson has a deal with Pfizer to make the "approved" generic. One press account says Ranbaxy has approval for its generic, another (Wilson-NYT) indicates that it's been held up, so I really don't know what the score is at this point. Stay tuned for further exciting adventures.

Addendum 12/8/11: Two more counties heard from... First, Merrill Goozner both on his Gooznews blog and in the Fiscal Times:
--adds a bit more detail, and clarifies that both the Watson and the Ranbaxy generics are approved and out there, so it's both-and not either-or. Then a group in the New England Journal of Medicine, including our old friends Drs. Joseph Ross and Harlan Krumholz:
--provide a bit more detail, in the context of trying to calculate how much savings the US public could look forward to in coming years as a result of atorvastatin being available generically--they figure about $4.5B annually by 2014, assuming that full savings are realized. They then discuss how Pfizer could mess up the picture. Their worst-case scenario is that the sweetheart deals Pfizer has cut might discourage some generic makers from getting into the competition and that would be the main way prices would be kept higher than otherwise. So bottom line, still more questions than answers as to how all this will play out.


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