Drugmakers Seek to Outwit Generic-Drug Competitors
The day of reckoning is here. As patent protection expires for top-selling drugs, some firms are scrambling to stay one step ahead of generic-drug competitors. As Amy Ritter wrote last week, Pfizer is drawing scrutiny by asking pharmacy benefit managers to block pharmacies from filling prescriptions with generic alternatives to Lipitor, in exchange for a discount on the product. Rep. John Sarbanes (D-MD) asked the Federal Trade Commission to take action against this arrangement, but another tactic is also causing concern.
Drug companies, including Pfizer, are wooing insured consumers by offering copay coupons, which reduce the amount of money that the latter must spend for a branded drug. These coupons are intended to discourage a patient from switching to a generic therapy. To redeem the coupons, consumers often must submit personal information that allows the firms to promote products to individual patients.
The coupons may help consumers, but they oblige plan sponsors, such as employers or state governments, to pay high prices for branded drugs when generic alternatives are available. Drug companies can prevent plan sponsors from knowing when enrollees have redeemed the coupons by processing them through a “shadow claims system,” according to a statement from the Pharmaceutical Care Management Association. Copay coupons will increase costs for these sponsors by $32 billion over the next decade, according to research from Visante.
At a time when state governments and private companies are pinching pennies, it’s hard to believe that they will allow drug companies to use these tactics for very long. Arrangements such as Pfizer’s agreement to manufacture generic Lipitor for Watson, in exchange for a share of net sales, seem comparatively more benign. Deals like this don’t appear to constrain patients’ choice or force payors to spend more than necessary for a given drug. They might be the “least bad” option for drugmakers without new blockbusters on the horizon.
If Pfizer is offering PBMs a rebate for keeping branded Lipitor as the preferred atorvastatin for patients, as long as the net price of the brand is within spitting distance of the generic, then why the uproar? Pfizer would never offer the rebate if it were not for the generic competition, therefore, the brand-to-generic system achieves its purpose. PBMs will not be easily lured into accepting trifling rebates that don’t net out to approximate the lower price of the generic. If PBMs can block the generic, then they can obviously block the brand. PBMs are looking for the best deal for themselves and the best arrangement for the patient. If they can keep the patient on the same pill, the same color, and same pill shape and reap the benefits of a lower net cost – then everyone wins, right?
On top of that, if Pfizer offers a co-pay coupon, then the patient continues to win. Branded co-pays are generally twice that of generic co-pays, which means the patient pays more of the drug’s cost. The co-pay coupon usually just drives the branded co-pay costs down to a generic level. Yes, co-pay coupons given to patients encourage brand use, and brands are generally more expensive than generics. BUT if Pfizer is offering a rebate to PBMs on the brand rendering the net price to approximate the generic cost, everyone wins – except the generic company. Hey, but that’s competitive market forces in action.
Typically, the generic comes out at a price 10-20% less than the brand. The generic company reaps huge profits until enough players saturate the market to drive the price down to peanuts. Generic companies make all their profit in the first year of a generic’s launch. If Pfizer wants to keep it’s market share, and compete with generics, why not? Why should government get involved?