Battle Heats Up Over Generic Versions of Lipitor; Retail Chains Sue Pfizer

In a previous note, I discussed the tension between pharmacy benefit managers (PBMs) and Pfizer. The latter company has lost patent protection for its blockbuster Lipitor (see: Pfizer Cuts Deal with PBMs to Continue to Profit from Lipitor). Five retail drug store chains, lead by Walgreen, are now suing Pfizer over this same matter (see: Pharmacies Sue Pfizer Over Lipitor):

Five retailers joined a legal battle against Pfizer,...accusing the drug maker of using anticompetitive tactics to delay the introduction of competing generic copies of Pfizer's blockbuster cholesterol-lowering pill Lipitor. The lawsuit ...by Walgreen....adds to litigation against Pfizer in the wake of Lipitor's loss of U.S. market exclusivity last November, which triggered the launch of lower-priced generic versions and began eroding sales of the brand-name drug....The lawsuit alleges Pfizer used "an overarching anticompetitive scheme" to delay generic Lipitor until November. Specifically, the drug maker was accused of the following: defrauding the U.S. Patent and Trademark Office to obtain a Lipitor patent; filing a sham citizen petition with the U.S. Food and Drug Administration; and securing a 2008 agreement with Ranbaxy Laboratories Ltd....that barred Ranbaxy from selling generic Lipitor until November 2011. Like other lawsuits, the latest suit also alleges that Pfizer's arrangements with pharmacy-benefit managers forced purchasers to buy more brand-name Lipitor at higher prices—and less lower-priced generic versions—than they would otherwise have bought....Pfizer used an aggressive strategy to preserve Lipitor market share as it lost exclusivity, offering discounts to consumers and certain payers. Pfizer has defended those arrangements by saying that many patients wanted to keep using branded Lipitor, and that its contracts didn't add cost to the health-care system. The latest lawsuit alleges, however, that retailers paid hundreds of millions of dollars more for drugs containing Lipitor's active ingredient than they would have paid if Pfizer hadn't taken these actions.

It was news to me that generic drugs are high profit items for the national drug store chains (see: Record quarter for Walgreen; Expiring patents give drug chain a boost). By way of contrast, the pharmaceutical manufacturers realize their highest profits from patented biotech drugs, particularly for the treatment of cancer. The pipelines for new drugs has been problematic in recent years but now apparently shows signs of life (see: Drug Makers Refill Parched Pipelines). Nevertheless, Pfizer has been relentless in protecting its market for Lipitor, even cutting sketchy deals with PBMs and generic drug manufacturers. 

What we are now seeing is a high-stakes, pharmaceutical poker game in the U.S. with the following players: Big Pharma, manufacturers of generic drugs, PBMs, and retail pharmacy chains. Interestingly and as pointed out in a recent Forbes article, the generics will dominate in the exploding global marketplace (see: Why Big Pharma Won't Get Its Piece Of The $1.2 Trillion Global Drug Market). Here's a fascinating quote from this latter article about the strategic direction of pharmaceutical companies in the developed world:

But more than anything else, the drug business in Europe, the U.S., and Japan will be focused on cancer and diabetes. Want an explanation for why AstraZeneca and Bristol-Myers Squibb bid for Amylin Pharmaceuticals? Look no further. That may not be enough to make up for the massive waves of patent expirations that are still going to be buffeting the drug business, though. [For the period of 2012-2016], more than $127 billion in annual sales will be lost as drugs go generic. 

Comments

[Joe Plandowski]

I just read your morning blog regarding Battle Heats Up Over Generic Versions of Lipitor; Retail Chains Sue Pfizer. You made a statement in the blog that brought back memories from over 20 years ago when I got the education you just received; that is: "It was news to me that generic drugs are high profit items for the national drug store chains."

Back then I had an opportunity to work for a short time at a startup company called Allscripts Pharmaceuticals which sold pre-packaged pharmaceutical products to physicians for dispensing directly to their patients, thereby bypassing the local pharmacists. We obviously were disliked by local pharmacists. Allscripts Pharmaceuticals eventually morphed into Allscripts Healthcare Solutions (MDRX), the large software house delivering integrated clinical software applications including acute care electronic health records, clinical and practice management, revenue cycle management software, clearinghouse services, stand-alone electronic prescribing, and document imaging.

At Allscripts I learned quickly why the local friendly pharmacist is suggesting a generic product at $20 when the patented, brand named product sells for $100. The phamacist is not committing financial ruin when he or she does this because the patented product has a profit margin of $5 while the generic product carries a profit margin of $10. Little known fact, but true. Back to the basics --- the price is incidental, it's only the profit margin that matters.
Thanks,
Joe Plandowski
847-840-3077