The Economist | Dec 3rd 2011 | NEW YORK | from the print edition
FOR some years the big
drugmakers have been dreading an approaching “patent cliff”—a slump in sales as
the patents on their most popular pills expire or are struck down by legal
challenges, with few new potential blockbusters to take their place.
This week the patent on the best-selling drug in history expired—Lipitor, an anti-cholesterol pill which earned Pfizer nearly $11 billion in revenues last year. In all, blockbusters with a combined $170 billion in annual sales will go off-patent by 2015.
This week the patent on the best-selling drug in history expired—Lipitor, an anti-cholesterol pill which earned Pfizer nearly $11 billion in revenues last year. In all, blockbusters with a combined $170 billion in annual sales will go off-patent by 2015.
What is supposed to happen now
is that lots of copycat firms rush in with “generic” (ie, chemically identical)
versions of Lipitor at perhaps one-fifth of its price. Patients and health-care
payers should reap the benefit. Pfizer’s revenues should suffer. The same story
will be repeated many times, as other best-selling drugs march over the patent
cliff (see chart).
But generics makers may face
delays getting their cheaper versions to market. Ranbaxy, a Japanese-owned
drugmaker, struggled to get regulators’ approval for its generic version of
Lipitor, and only won it on the day the patent expired. More important,
research-based drug firms are using a variety of tactics to make the patent
cliff slope more gently. Jon Leibowitz, chairman of America’s Federal Trade
Commission (FTC), is concerned by drugmakers filing frivolous additional
patents on their products to put off the day when their protection expires.
Another tactic is
“pay-for-delay”, in which a drugmaker facing a legal challenge to its patent
pays its would-be competitor to put off introducing its cheaper copy. In the
year to October the FTC identified what it believes to be 28 such settlements.
American and European regulators are looking into these deals. However, legal
challenges against them have faltered, and a bill to ban them is stuck in
Congress.
To encourage generics makers
to challenge patents on drugs, and introduce cheaper copies, an American law
passed in 1984 says that the first one to do so will get a 180-day exclusivity
period, in which no other generics maker can sell versions of the drug in
question, as Ranbaxy supposedly won with Lipitor.
However, Pfizer is exploiting
a loophole in the 1984 law, which lets it appoint a second, authorised
copycat—in this case, Watson, another American firm. According to
BernsteinResearch, under the deal between the two drugmakers Pfizer will
receive about 70% of Watson’s revenues from its approved copy of Lipitor. More
unusual, Pfizer has cut the price of its original version, and will keep
marketing it vigorously. So Ranbaxy faces not one, but two competitors.
This strategy has precedent,
says David Risinger of Morgan Stanley, but the scale and structure of Pfizer’s
scheme is unmatched. Patients with a special discount card from Pfizer will
make co-payments (their contribution to the pills’ costs under their health
plan) of just $4 for a month’s worth of the original Lipitor, compared with
about $10 for many generic medicines. Pfizer is also offering Lipitor for a
generic price to big firms such as Medco, which manage health schemes’ prescription
costs.
All this may raise Pfizer’s
sales by nearly $500m in the first half of 2012 compared with what they would
otherwise have been, says Tim Anderson of BernsteinResearch, with revenues then
falling after the 180 days are over. Medco argues that Pfizer’s scheme will
save money for all parties, and ensure a steady supply of the drug (Ranbaxy’s
regulatory struggles are bound to have caused some concern).
Others fear that Pfizer’s
tactics may drive up costs for the employers who sponsor health plans, thanks
to the complexities of co-payment schemes, and confuse patients lectured for
years about the merits of generics. Express Scripts is advising the health
plans it works for to reject Pfizer’s deals for Lipitor. The biggest worry is
that Pfizer’s strategy, if copied, will make the 180-day exclusivity period
worth far less, and thus discourage generics firms from challenging patents in
the first place.
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