Lipitor: How Pfizer Hopes to Slow the Decline

November 3, 2011
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By all rights, Pfizer’s Lipitor revenues should drop like a stone once the drug loses US patent protection at the end of the month. And I think it’s likely that over time prescription Lipitor sales will whither away. Pfizer’s original plan was to replace Lipitor sales with those of torcetrapib, a new and improved drug that would sustain and expand the Pfizer franchise. That didn’t work out when the drug failed in late stage development.

By all rights, Pfizer’s Lipitor revenues should drop like a stone once the drug loses US patent protection at the end of the month. And I think it’s likely that over time prescription Lipitor sales will whither away. Pfizer’s original plan was to replace Lipitor sales with those of torcetrapib, a new and improved drug that would sustain and expand the Pfizer franchise. That didn’t work out when the drug failed in late stage development.

Now Pfizer is left with the tough task of defending Lipitor against cheaper, but theoretically identical, products. According to the Wall Street Journal (Forget Generics, Pfizer Has Plenty of ‘Lipitor for You’) the company is confident that it can succeed, at least to a reasonable degree.

Pfizer said Tuesday it is striking deals with drug-benefit plans and providing discounts to patients to encourage continued use of branded Lipitor, and to preserve a big chunk of its nearly $11 billion in annual sales.

If Pfizer succeeds, it will only be because of the strange and somewhat dysfunctional structure of the health insurance market.

In general, health insurers seek to pay less rather than more for a drug. They do this with formularies, which discourage the use of pricey drugs through higher co-pays and prior authorization requirements. When a generic is available, there should always be a significant financial incentive for the patient to choose it rather than the branded product. However, Pfizer is likely to undermine this in a couple of ways:

  • By providing coupons or co-pay cards to patients, which cancel out the differential between the co-pay for Lipitor and the generic equivalent and effectively block health plans’ attempts to give patients “skin in the game”
  • Making rebate or market share incentive deals with pharmacy benefit managers (PBMs) to enable those companies to make significantly more margin from Lipitor than from the generic

These deals cut into Pfizer’s margins but preserve sales revenue, cost the patient nothing, and put money in the pockets of PBMs.

So who loses?

The main losers are whoever is paying health insurance premiums, i.e., employers and individuals. Everyone’s premium is higher than it could be to the extent that Pfizer is successful in its strategy. That’s because ultimately health plans end up paying more when Lipitor is used rather than a generic.

It’s worth noting that Massachusetts is the only state in the country that forbids the use of co-pay coupons by drug makers. I support that policy because it helps contain costs.