Pfizer and Hospira: It’s Not About Generics

2 Mins read
Did somebody say generic?

Did somebody say generic?

Did somebody say generic?

Did somebody say generic?

Leading newspapers, including the Wall St. Journal and New York Times, misunderstand the strategy behind Pfizer’s proposed purchase of Hospira. Here’s what the Journal had to say:

Pfizer Inc. said Thursday it would buy smaller rival Hospira Inc. in a $16 billion deal that would transform the New York pharmaceutical company into a leading player in the emerging market for lower-priced knockoffs of costly biotech drugs. …[B]ig drug companies like Pfizer are now borrowing from the playbooks of generic makers and developing copycat versions of each other’s biotech drugs.

Actually, no. What Pfizer is really doing is returning to the strategy that led to its Lipitor heyday: making “me-too” versions of existing drugs and differentiating them through marketing backed up by clinical research. This is not about intensive competition on pricing.

Generic drugs are considered equivalent to the brand name product. Pharmacists can and do substitute generic drugs for the branded original and for one another at will. A patient who receives a prescription for an off-patent drug like ZOCOR will find that the pharmacy automatically substitutes generic simvastatin from any one of the many manufacturers. When the patient goes back to refill the prescription they are likely to get simvastatin from a totally different manufacturer. Undifferentiated markets like this are driven by price competition, and prices are typically 90 to 99% less than the original.

Copies of biotech drugs –which are just starting to become available– are very different. They can not be substituted interchangeably by pharmacists because they differ at least subtly from the original product. An unsophisticated marketer might try to compete purely on price, offering a discount from the price of the original. That may happen –but we’re probably only talking about a 10-25% discount, not 90-99%.

A clever marketer like Pfizer is likely to take a much different approach. Lipitor wasn’t the first statin in the market. It wasn’t the second, third or fourth either. When it launched in 1997 there were already three blockbuster statins on the market. Payers liked the idea of having multiple parties with similar products to negotiate with, and they tried with a certain amount of success to generate competition based on price.

Yet Pfizer came in with an aggressive campaign to differentiate its product from the others and ended up being the biggest seller by far. To me the difference between the various biosimilar versions of a product is akin to the difference among the various statins.

Products that come later to market don’t have to compete on price if they can differentiate in some other way. I’d be shocked if Pfizer isn’t thinking this way about the Hospira deal.

photo credit: Sorry… what exactly is in this can again? via photopin (license)

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