Pfizer Move To Block Generic Lipitor Attracts FTC

Pfizer Move To Block Generic Lipitor Attracts FTC

November 18th, 2011 // 2:08 pm @ jmpickett

There is nothing like a deal with a pharmacy benefit manager to generate intrigue. The recent arrangements that Pfizer struck with several PBMs and health plans to block prescriptions for generic versions of its best-selling Lipitor cholesterol pill are prompting all sorts of reactions, from outrage to confusion.

Some pharmacists, for instance, are angry because they will be denied the higher margins that come with selling generics and one group is claiming the deals will cost employers, union and government agencies more money (back story). But since the specific terms of the various contracts are not disclosed, there is lingering uncertainty about who wins and who loses.

For example, beyond Pfizer, PBMs, health plans and their clients, what about consumers? As of November 30, when the Lipitor patent expires, they will be able to obtain the brand-name drug at the same co-payment level as any generic that becomes available, according to these letters. However, the murkiness surrounding the arrangements has stirred interest at the US Federal Trade Commission.

In response to the reports of the Lipitor deal, the FTC is calling around to learn more about the contracts, according to one source who received such a call from the agency’s health care division this week. “They wanted to know more about the Lipitor deal,” this source tells us. “They mentioned a long-simmering frustration with PBMs.” An FTC spokesperson declined to comment.

Of course, making phone calls is not the same thing as opening an investigation. For the moment, this constitutes conducting due diligence or simply getting an education. But the agency interest does reflect long-standing interest in peeling back the curtain on how PBMs operate and the behind-the-curtain pricing arrangements that, ultimately, determine how much the public is charged for drugs.

“There is a lot of interest about the terms in these contracts (between PBMs and health plans),” says Geoffrey Joyce, an associate professor of clinical pharmacy and pharmaceutical economics and policy at the University of Southern California. “There has been a clamoring for transparency. But the situation changes on a case-by-case basis dependent upon what is in the PBM contract.”

In this instance, one consideration may be the implications for the flow of lower-cost generics in a way that could limit market competition. “These programs could reduce the incentive for expansion of the generic market,” says Enrique Seoane-Vazquez, who directs the International Center for Pharmaceutical Economics and Policy at the Massachusetts College of Pharmacy and Health Sciences.

The curiosity also comes as the FTC reviews the $29 billion acquisition of Medco Health Solutions by Express Scripts, a deal that is generating considerable controversy of its own, since critics charge that too much market concentration will result (see here). By some reckonings, the newly merged PBMs would control one-third of the total 2011 PBM market share and 60 percent of the market for mail-order drugs.

As for the Lipitor deal, Medco insists it is not secretly generating an extra profit at the expense of health plan clients, as Pharmacists United for Truth and Transparency has been arguing. “Our concern is who is profiting,” says pharmacist Dave Marley. Pharmacies generally earn higher margins on generics, but this is more pronounced after a brand-name drug loses patent protection and a generic is launched with a six-month exclusive marketing window.

The generic price is usually higher at the outset, because rivals are not allowed to enter the market until the six-months period has lapsed. Two generic versions of Lipitor are expected shortly. One will be supplied by Watson Pharmaceuticals, which has a deal with Pfizer to sell a so-called authorized version. And Ranbaxy Laboratories is expected to market the other, assuming its manufacturing problems with the FDA are satisfied in time (see here).

But Tim Wentworth, group president of employer and key accounts at Medco, says the suspicion is unfounded. “All rebates that are generated by this deal are retained by Coventry (whose pharmacy benefits are administered by Medco). Medco retains no rebates. Coventry did an economic analysis for a six-month exclusivity period,” he tells us. “We didn’t cut the deal on behalf of this plan. We aren’t in the rebate flow. The deal they cut goes to straight to the plan…We’re no better or worse off… I’m uncategorically saying Medco is not retaining any incremental profit.”

A Coventry spokesman confirms the deal was cut directly with Pfizer. “Most of Coventry’s fully-insured members will save money on Lipitor when we pass on the savings by lowering their pharmacy co-pay to the amount they would pay for the generic. We think our members will appreciate the change and lower co-pays, but it also reduces our bottom-line cost of Lipitor, which helps Coventry keep coverage more affordable.” He declined, though, to offer any specifics.

One industry expert such thinking is not surprising as health plans clamor to lower prescription drug costs. “The real issue is that a payer would only agree to the deal if it saved them money,” says Adam Fein of Pembroke Consulting, which advises drugmakers, and who writes the DrugChannels blog.

“Pfizer appears to be cannibalizing itself, but if they did nothing, almost all of the market share would go to the first generic version in the market and Lipitor sales would go down dramatically,” he continues. “These kind of battles are going to become more common as more big sellers go generic. Pfizer is kicking it off. This is a big one, though, because payers and pharmacies want to capture profitability. There’s a lot of money at stake and you’ll see the noise level increasing.”

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