Express Scripts Holding Company (MM) (NASDAQ:ESRX)
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5 Years : From May 2012 to May 2017
Pharmacy-benefit manager Express Scripts Inc. (ESRX) will soon make an adjustment that raises out-of-pocket costs for some customers filling prescriptions of Pfizer Inc.'s (PFE) cholesterol-lowering drug Lipitor, underscoring the drug maker's challenge of keeping sales high in the face of generic competition.
The blockbuster pill began competing late last year with an authorized copy sold by Watson Pharmaceuticals Inc. (WPI) and a competing generic from Ranbaxy Laboratories Ltd. (500359.BY). The price pressure from a three-way contest--plus since-resolved questions about Ranbaxy's availability--is encouraging health plans to push generics after a slow start, said Everett Neville, chief trade relations officer at Express Scripts.
The move to lower Lipitor incentives and encourage generics has "happened for a significant piece of our business," Neville said. This pressure, which Neville said he's seeing more broadly, has contributed to Pfizer falling short of the 40% market-share goal it was reportedly seeking to keep.
Express Scripts, which manages drug benefits for companies and health insurers, will downshift branded Lipitor to the third "tier" on its national formulary starting Feb. 1. That means some people filling prescriptions who are covered by Express Scripts will pay a higher co-payment to get the branded drug than they do now, because branded Lipitor is currently on the second tier.
The generics are already on the first tier, Express Scripts said. Co-pay prices vary by plan design, but a generic might cost $10 while a tier 2 drug costs $30 and a tier 3 costs $60.
The national formulary generally applies to companies who hire Express Scripts, but not health plan clients, because they tend to make their own formulary decisions. Express Scripts is awaiting a regulatory decision on its plan to buy rival benefit-managed Medco Health Solutions Inc. (MHS) in a deal that would make Express Scripts the industry's biggest firm.
Express Scripts also runs a large mail-order pharmacy, and on that front it has a deal with Pfizer to get branded Lipitor at a low price. Because Express Scripts sells the Pfizer-made pills as a generic through the mail, the formulary change won't raise co-pays for mail-order prescriptions.
"We expected that, after Lipitor lost patent exclusivity, the majority of Lipitor patients would receive a generic version when they fill their prescriptions at the pharmacy," Pfizer said in a statement. The company noted that many pharmacies and insurance companies have plans to automatically switch patients to generics even if they're prescribed branded pills.
But such changes took place more slowly than usual after Pfizer started facing generic competition, according to Neville. Slowing the use of generic Lipitor were questions about whether Ranbaxy would gain approval and enter the market, plus Pfizer's efforts to maintain Lipitor share through steps like cutting discounting deals with health plans and offering co-pay bargains to consumers.
IMS Health data cited in a Goldman Sachs research note shows branded Lipitor had 32% market share for the week ended Jan. 13, after holding steady around 37% for much of December, the first month generics were available.
AmerisourceBergen Corp. (ABC), one of three major U.S. wholesalers that serve as intermediaries between drug makers and pharmacies, said that generic usage rates have normalized after looking unusually low last month. The wholesaler feels "very reassured by the fact that the conversion rate is now approaching 70% and looks like it could go up from there," Chief Executive Steven Collis said on an earnings call Thursday.
Wholesalers also tend to reap higher margins from generics, and Collis has been critical of Pfizer's efforts to maintain branded Lipitor sales while questioning the drug maker's success.
Pfizer was widely believed to be targeting a 40% market share for branded Lipitor for the first six months after the introduction of competing generics. After six months, more competitors are expected to enter the market and further erode Pfizer's share.
Goldman estimates Lipitor has hung onto significantly more market share than Merck & Co.'s (MRK) cholesterol drug Zocor did at the same point after it began facing generic competition in 2006. At that time, Merck also was more aggressive than historical norms in trying to preserve branded Zocor sales amid generic competition, offering discounts on the brand.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; email@example.com
--Peter Loftus contributed to this report.