Update: Pfizer and Lipitor (Show me the money!)Posted: November 19, 2011 Filed under: Strategy Leave a comment
I posted a few days ago about Pfizer’s strategy for dealing with the upcoming loss of exclusivity for it blockbuster drug Lipitor. Well, there is more news on that front, this time concerning the Federal Trade Commission’s (FTC) interest in the deals Pfizer made with pharmacy benefit managers (PBMs).
As reported by Pharmalot, the FTC has started calling around, asking about the details of the contracts. It’s not an official investigation yet, but does show that the federal government is concerned that Pfizer is participating in anti-competitive practices. However, if you read the letters from the PBMs to pharmacies that were leaked, it does appear that Pfizer (through the use of discounts) is making the continued use of branded Lipitor the cheapest option out there. If you check out page three of the link, you’ll see that Catalyst Rx is being offered a 31% discount, which bring the cost of Lipitor for the insurance company to just under what generic Lipitor would cost in the first six months after the patent expires.
In addition, it appears that my guess that Medco was passing on all of the discount to the insurance provider was correct. Coventry (which relies on Medco to manage its pharmacy benefits) had this to say…
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.
So it would appear that Pfizer is isn’t doing anything underhanded at all. They are providing discounts which makes Lipitor the lowest cost option, even after generic become available.
However, the question remains, why is Pfizer doing this? Is it simply to cash in on another 6 months of Lipitor profit (albeit at a lower margin and smaller overall market)? That could be, but I would guess that this the first stage of a multistage strategy to keep Lipitor profits flowing (or at least a significant portion of them).
As I mentioned in my previous post, keep an eye out in the next 3-4 months for news about Lipitor and Pfizer. If there is a long-term plan involved, Pfizer should start rolling out the next stage soon.
What on earth is Pfizer up to with Lipitor?Posted: November 15, 2011 Filed under: Strategy Leave a comment
Now it’s not everyday that you see something this unexpected in the pharmaceutical industry, so I have to comment.
It’s old news at this point, but Pfizer’s Lipitor, the best selling drug in the history of the industry, will lose its market exclusivity on November 30, 2011. At it’s peak, Lipitor had annual sales of over $13 billion dollars, so this is no minor event. A lot of people in the industry were wondering how Pfizer would deal with this and it appears we’re getting a sneak preview of their strategy.
Today, a number of news agencies reported on a letter that Medco Health Solutions (one of the largest pharmacy benefit managers in the US) sent to a number of pharmacies. The letter basically stated “…even though generic Lipitor will become available, keep filling prescriptions with Lipitor from Pfizer.” Now why on earth would they do that? Typically, as soon as drugs lose their market exclusivity (usually because a patent expires) generic drugs flood the market and the price drops very quickly. Why would Medco want pharmacies to keep prescribing the more expensive, branded version of Lipitor? Well, if we read the news reports, we quickly find out why…
“Pfizer has agreed to large discounts for benefit managers that block the use of generic versions of Lipitor, according to a letter from Catalyst Rx, a benefit manager for 18 million people in the United States.”
Get out the pitchforks!!! Pfizer is colluding with pharmacy benefit managers (PBMs) to keep generics out! Just another example of multinational corporations, drunk with power, steamrolling the little guy, right? At least that’s what it sounds like if you listen to Geoffrey F. Joyce, an associate professor of pharmaceutical economics and a health policy expert at the University of Southern California…
“This is just an egregious case. Clearly there’s been some negotiation between Pfizer and the large P.B.M.’s saying we’re going to make this cost-beneficial to them, but the plan sponsors are going to eat it.”
OK, before you get too worked up, a quick lesson on PBMs. PBMs are hired by insurance companies and by employers with health plans to manage their drug expenses. In fact, they compete with each other, trying to provide the best plans they can. That’s why it seems like your prescription drug benefit changes every year when its time to re-enroll in your employer’s health plan. Do you really think Medco is going to negotiate an agreement where Pfizer gives them a discount on Lipitor and they pocket the entire thing? Hardly.
What’s happening here is Pfizer has negotiated with the PBMs and agreed to a rebate structure that basically undercuts the yet-to-arrive generic versions of Lipitor. Although the prices of generic drugs are less than the branded price, they typically only drop 20-30% in the first six months because the first generic version gets 6 months exclusivity (they are the only one who can sell generic Lipitor). After the 6 months of exclusivity are up, the drug basically becomes a commodity and the price drops 80-90% compared to the branded version. What Pfizer is doing here is providing some pretty hefty discounts to the PBMs (probably 20-30%), undercutting the generic companies and making branded Lipitor the most attractive option from a price perspective. Those hefty rebates that the PBMs negotiated? They aren’t keeping them. That money will filter through to the insurance providers and employer-sponsored plans. If it didn’t, Medco would be in a world of hurt.
Now that we have that figured out, the more interesting question is “What on eath is Pfizer up to with Lipitor?” There has to be some strategy behind this because once the 6 month generic exclusivity runs out, the price is going to drop even more and Pfizer is unlikely to agree to a 80-90% discount. There has been talk of an over-the-counter (OTC) version of Lipitor coming out, but that would take over a year to get approval from the FDA.
All I can say is, keep an eye on Pfizer. They are up to something and it’s a strategy that the pharmaceutical industry has never seen before.
How NOT to commit Medicare fraud…Posted: November 2, 2011 Filed under: Strategy Leave a comment
Last week, Amgen announced their third quarter earnings which included a $780 million charge related to a legal settlement they entered into with the federal government and a number of states concerning “illegal sales and marketing practices”. Now $780 million dollars is a large amount of money by anyone’s measure, but if you read the third quarter report, it sounds like there were some “questionable” actions on the part of Amgen, but it’s all worked out now and we can get on with business, right?
If you read the Massachusetts whiteblower lawsuit court documents, it appears that Amgen committed some very serious crimes which weren’t the action of just one or two employees, but rather an intentional marketing tactic that involved a large number of Amgen employees all the way up to senior management. And if you live in the US and pay taxes, you should be very, very mad.
The product in question is Amgen’s Aranesp, a erythropoetin analogue, which stimulates the production of red blood cells in the body. It is used in patients undergoing chemotherapy (since many anti-cancer drugs damage bone marrow, where red blood cells are made) and patients with chronic kidney disease (since erythropoetin is made in the kidneys) to boost their levels of red blood cells. It’s a very profitable drug for Amgen, with total sales just north of $2.5 billion dollars in 2010. Now this is where things get a little complicated… Aranesp is a longer-acting version of another Amgen product, Epogen, the first erythropoetin analog that was originally used for dialysis patients. When Epogen was developed, Amgen outlicensed the rights to Epogen, outside of use in dialysis, to J&J, which sells it’s version as Procrit. So as you can imagine Amgen’s current strategy: get patients who use Epogen or Procrit to use Aranesp, since why would you want to share the market with J&J?
Now that we have the background laid out, we can get down to the details of the case. Aranesp is sold in either vials (as pictured above) or as prefilled-syringes. Since it’s impossible to to get all of the liquid out of a vial, or inject all of the liquid in a syringe, manufacturers of injectable drugs often “overfill” their products, or basically add a little bit more of the drug to the vial or syringe, so that when a physician or patient administers the drug, they get the full dose. How much do they need to overfill? Less than 10% typically.
Well, someone at Amgen had a smart idea that they could overfill the vials or syringes of Aranesp by more than 10%, then “hint, hint, nudge, nudge”, let doctors know that they are actually getting more drug than what they paid for. Why would they do that you ask? Well, doctors can bill insurance companies and Medicare for each dose of Aranesp they give patients (they actually bill in 5ug increments). So if a doctor orders 5 vials of Aranesp (each one overfilled by 20%), they can actually bill for the 6 doses of Aranesp they actually gives patients (basically pooling the extra 20% until it adds up to a full dose). Amgen was giving physicans a kick-back for using Aranesp, paid for by YOU, the taxpayer (in the case of Medicare/Medicaid patients).
Now you might be thinking this was a scheme devised by a few rogue Amgen employees, working on their own accord. Well, you’d be wrong. Nevermind the fact that sales reps don’t have any control over how much “overfill” is included in each vial or syringe of Aranesp (that’s a decision made by manufacturing), there is also the fact that information on how much the vials were overfilled and how much extra money physicans could make charging insurance companies for the overfill amount was sent out by Amgen’s medical affairs department (document below is from this link).
And to top it all off, it appears that Amgen’s CEO, Chris Sharer, knew about the overfill scheme the entire time. An email from a Senior Manager of Medical affiars reads as follows…
… an email dated January 6, 2006 from Edwin Mar, Senior Manager of Medical Information, to Helen Torley, Vice President and General Manager of Nephrology, and Leslie Mirani, Vice President of Sales, states: “In regards to your request to provide EPOGEN overfill historical information to [CEO] Kevin Sharer, these are the information I have available so far regarding EPOGEN 1.0 mL vial fill volumes.” The email goes on to provide the overfill amounts for Epogen from 1993 through January 2006:
(1993-Q4/2002) – 1.168 mL
(Q4/2002-Q1/2004) – 1.144 mL
(Q1/2004 – present) – 1.111 mL
Yup, you read that right, the older erythropoetin analog that Amgen wanted patients to stop using? They started to reduce the overfills in that product to ensure that doctors were only getting a kick-back for Aranesp.
I’m literally at a loss for words. The pharmaceutical industry has taken a lot of heat (rightly so) for their off-label marketing of drugs and other nefarious activities, but this takes the cake. This is not some sales rep promoting a drug for an unapproved condition (in that case, at least the patient is getting what they paid for), this is a deliberate, organized scheme to defraud both private insurance companies, Medicare/Medicaid and in the end, you, the American taxpayer. Honestly, I think anyone associated with this scheme, from the CEO down to the account managers needs to be fired and the whole organization rebuilt, from the ground up. I mean, how else do you rid a company of the mentality that thinks this is OK?