Pfizer Struggles to Maintain Lipitor Sales Will Aggressive Discounting and Rebating Pay Off?

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1 Pfizer Struggles to Maintain Lipitor Sales Will Aggressive Discounting and Rebating Pay Off? Research February 6, 2012 Rusty Jones Companies: Pfizer (PFE) Ranbaxy (OTC: RBXZF) Watson (WPI) Products: Lipitor (atorvastatin) Generic atorvastatin Using payor rebates and patient discounts, Pfizer (PFE) has gone to great lengths to retain sales of Lipitor in the U.S. since generic atorvastatin became available on November 30, 2011 According to our Source Healthcare Analytics data, Pfizer currently has 41% of the atorvastatin market compared to 37% for Ranbaxy s (RBXZF) generic and 22% for Watson s (WPI) authorized generic. Lipitor is retaining more of its market share compared to other blockbuster drugs losing patent exclusivity in the last two years. However, Dynamics Claims data suggest that payors are moving aggressively to switch patients to generic atorvastatin in spite of Pfizer s efforts. Patient out of pocket costs and patient abandonment data suggest Pfizer will soon dip below 35% atorvastatin share. Although the data suggest that Pfizer s strategy is modestly successful, the cost of copay cards and rebate programs ultimately may be greater than the benefit of retaining Lipitor market share. inthought will continue to leverage Source Healthcare Analytics data to track branded and generic atorvastatin sales and usage metrics. Rusty Jones Leon Henderson, MD Ben Weintraub, PhD rusty.jones@wolterskluwer.com leon.henderson@wolterskluwer.com ben.weintraub@wolterskluwer.com

2 Ten weeks into the launch of generic atorvastatin, some interesting metrics are starting to show the degree to which Pfizer s aggressive efforts to maintain market share of Lipitor (branded atorvastatin) are paying off. These metrics include the frequency with which U.S. insurance payors are approving Lipitor and the average copay that is being charged for Lipitor vs. generic atorvastatin. Lipitor lost patent protection in the U.S. on November 30, With sales reaching $8.9 billion in the 12 months prior to generic atorvastatin, Lipitor was the best-selling drug of all time. The degree to which Pfizer can preserve branded Lipitor sales in the face of generic competition will have a significant impact on Pfizer s bottom line. Furthermore, how well Pfizer s strategy plays out will impact the approach taken by pharmaceutical companies facing future patent cliffs. Due to the robustness of the Source Healthcare Analytics sample (82% of U.S. prescription volume) and a unique ability to measure managed care reimbursement through the Dynamic Claims product, Source Healthcare Analytics offers a robust view of the generic atorvastatin launch, with some leading indicators such as patient out of pocket costs and payor discounting that will help to quantify Pfizer s success in protecting branded Lipitor sales. Today, Watson and Ranbaxy are the sole manufacturers of generic atorvastatin. Watson has the authorized generic version of Lipitor. An authorized generic is a branded drug launched under its generic name at a reduced price, in this case driven by an agreement between Pfizer and Watson labs. Ranbaxy was the first to challenge the Lipitor patents, and holds the rights to market generic atorvastatin calcium for the first 180 days after the U.S. patent expired. Figure 1 shows the prescription of the three atorvastatin formulations in the U.S., quantitating total dispensed atorvastatin pills across both new and refill prescriptions. Figure 1: U.S. Atorvastatin Sales by Manufacturer Source: Source PHAST Weekly Prescription Data. Rusty Jones February 6, 2012 Page 2

3 Figure 2: Generic Erosion of Lipitor Compared to Other Recent Blockbusters Facing Generics Source: Source PHAST Retail Weekly. Manuf Count = the number of generic drug makers selling that product. Behind the Prescription Numbers Figure 2 shows that with 41% market share, Pfizer is ahead of the game, at least compared to Aricept and Cozaar, both blockbuster drugs that lost patent protection in the last two years. However, our Source Dynamic Claims data show that Pfizer may be losing more ground than the traditional prescription data suggest, especially on the important battle ground of managed care coverage. Dynamic Claims data offers a more detailed look into the Lipitor market share by compiling pharmacy claims (the financial transactions that transpire between the pharmacy and the managed care plan when a prescription is filled). This allows a view into the tactics that managed care organizations use to control access to branded and generic products. Metrics available through Dynamic Claims include how often Lipitor and other drugs are submitted to a plan, how much a patient must pay to receive the prescription, how often the plan denies payment (rejected claims), and how often a branded product is switched for a generic. Rebates and Discounts Pfizer has employed several managed care strategies to maintain its brand share with Lipitor, including aggressive rebating with payors and the use of copay cards to reduce patient out of pocket costs to compete with generic copays. Rebating is a common practice for branded products where the manufacturer will pay managed care organizations in exchange for a more favorable Rusty Jones February 6, 2012 Page 3

4 position within a plan formulary. Because a better formulary position is expected to drive increased use of the branded product, both the manufacturer and the managed care plan should benefit from the rebate approach. On top of its rebating strategy, Pfizer is also employing the widespread use of copay cards. These copay cards lower a patient s cost to obtain their Lipitor prescription all the way to $4 a copay value consistent with many generic products. Copay cards are a supplemental strategy to rebating, allowing Pfizer to reach patients who want Lipitor at a more affordable rate than the copay their plan would charge. While the use of rebating and copay cards are important strategies for many branded products today, Pfizer is being considerably more aggressive than is typical. Discount cards are usually available to a more targeted audience, usually with the greatest financial need, but Pfizer is making these cards available to almost any eligible patient. (By law, Medicare and Medicaid patients are not eligible for copay assistance.) Dynamic Claims Data To measure how aggressive Pfizer has been in its approach to rebating with managed care plans, we looked at the top payors for Lipitor over the last year. In a single month since generic atorvastatin became available, the average amount paid by patients for a Lipitor prescription dropped by 18%, due to coupon cards and more aggressive formulary positioning. Average patient payment amount, as measured by Source Dynamic Claims dropped from an average of $36.95 for November 2011 to an average of $30.45 in December 2011 for the top Managed Care Organizations (Top Commercial Plans Only excludes Medicare and Medicaid). These data shows that Pfizer acted quickly and aggressively to lower patient costs. Because most plans will make updates to their formulary in January, watching how the average patient payment trends continue in 2012 will show whether Pfizer s discount approach is really saving patients money, and whether those patient savings are resulting in additional Lipitor sales. Figure 3: Average Lipitor Patient Copay Amount Among the Top Nine Commercial U.S. Payors Source: Source Dynamic Claims Rusty Jones February 6, 2012 Page 4

5 Figure 4: Lipitor Reversal and Rejection Rates Rejections and reversals both increased as soon as generic atorvastatin became available. Source: Source Dynamic Claims Payors Response Even with the lowered patient out of pocket costs seen in Figure 3, Pfizer has retained less than half the total atorvastatin pill count ten weeks after the generic became available (Figure 1). According to data from Dynamic Claims, managed care plans are approving Lipitor for dispensing at 35% of their prior rate (when comparing the average number of approved Lipitor claims per month for the first 11 months of 2011 to December 2011, top managed care organizations). Since the 35% approval volume is lower than Lipitor s market share of 41%, the claims data suggest that Lipitor volumes will continue to decline. Despite the rebates, managed care plans are still financially motivated to put their patients on generic atorvastatin. A far more compelling look at how plans are responding to the availability of generic atorvastatin is the percentage of claims that are rejected by a plan and the percentage of time a patient reverses (abandons) his or her prescription. A managed care plan s most direct method of controlling cost comes from simply rejecting the claim for an expensive branded product once a generic option becomes available. However, many plans will take a gentler approach Since the 35% approval volume is lower than Lipitor s market share of 41%, the claims data suggest that Lipitor volumes will continue to decline. with their patients, using higher copay amounts to control access to branded products. By increasing the copay for a branded medication, the manufacturer passes along the higher cost to the patient for continued access to the branded prescription. Dynamic Claims data measure price sensitivity to these copayment increases by looking at the percentage of prescription claims that are reversed (abandoned) at the pharmacy by the patient the most common reason for abandoning a prescription is that the patient feels the copayment is too high to continue with the branded product. In Figure 4, the sharp increase in both plan rejection rate and reversal rate for top Lipitor payors shows that plans are moving aggressively to migrate patients to generic atorvastatin. Monitoring rejection and reversal rates in the coming months will ultimately determine whether Pfizer s rebating strategy and widespread copay card availability have successfully slowed the erosion of branded Lipitor sales. Rusty Jones February 6, 2012 Page 5

6 Is it Worth It? Even if Pfizer is successful at forestalling the generic erosion of Lipitor, the question is, Is it worth it? Pfizer is well on the way to becoming the lead payor for branded Lipitor, meaning that even if Pfizer sells more pills, its profit per pill is plummeting. Matching the number of dispensed prescriptions to the quarterly Lipitor revenues reported by Pfizer will quantify this issue, but these early data suggest that Pfizer s best efforts, sure to be expensive, are only temporarily outpacing the performance of recent generic erosions of branded blockbuster drugs. It will be interesting to look at copay card use in more detail to determine whether these cards are really helping Pfizer s bottom line. Look for updates to the patient payment amount, plan approval, patient reversal, and coupon card data to be available in the coming weeks as this managed care battle unfolds. Copyright 2012 Wolters Kluwer Pharma Solutions All rights reserved Wolters Kluwer inthought Research Reports provide unbiased analysis and ideas based on the needs and direction of clients. The material herein, while not guaranteed, is based upon information believed to be reliable and accurate. We do not: (a) give investment advice; or (b) advocate the sale or purchase of any security or investment. The material herein is not to be deemed an offer or solicitation on our part with respect to the sale or purchase of any securities. Any copying, redistribution or republication of the analyses provided by Wolters Kluwer Pharma Solutions, or the content thereof, for commercial gain is strictly prohibited. Rusty Jones February 6, 2012 Page 6