New coupons aim to keep people off generic drugs

Monday - 8/20/2012, 2:41pm EDT

By LINDA A. JOHNSON
AP Business Writer

TRENTON, N.J. (AP) - If brand-name prescription medicines cost you as little as generic pills, which would you choose? A few drugmakers are betting Americans will stick with the name they know _ and can pronounce.

They've begun offering U.S. patients coupons to reduce copayments on brand-name medicines getting their first generic competition to about the same as for the new generic drug. The medicines include staples in the American medicine cabinet _ cholesterol fighter Lipitor, blood thinner Plavix and blood pressure drug Diovan _ along with drugs for depression and breast cancer.

Pfizer Inc. tested the new trend last year and now offers copay coupons that can bring insured patients six of its medicines for as little as $4 a month out of pocket. That includes Lipitor, which was taken by more than 3.5 million Americans until generic competition arrived last Nov. 30.

Experts predict more drugmakers will do the same for some of their big sellers, as the companies weather big revenue drops from an unprecedented wave of patent expirations.

The trend is the latest attempt by drugmakers to hold onto business at a time when they are increasingly under siege. Drug companies including Pfizer, Merck & Co. and Bristol Myers-Squibb Co. are squeezed by rising research costs, the weak global economy and pressure from Europe, China and elsewhere to reduce drug prices.

They haven't been able to come up with enough new drugs to replace revenue from an unprecedented number of blockbusters, drugs with annual sales topping $1 billion, that are losing patent protection. The industry has shed tens of thousands of jobs in the last several years to compensate for that revenue loss, but for some that hasn't been enough to keep profits from falling.

So they're trying a new tactic to temporarily slow the loss of billions of dollars in sales to new generic competition.

"It's not a game changer, but with drug sales every little bit helps because they're so high on profit margin," says Les Funtleyder, health care fund manager at private equity fund Poliwogg. "It's good for consumers, because they don't bear the cost and they can stay on the brand."

WINNERS AND LOSERS

Developing drugs is very expensive. It requires up to a decade of laboratory research and then patient testing, costing $1 billion or more, to win government approval to sell a drug. In return, the drug's maker gets the exclusive right to sell the drug for about 10 to 15 years, until the patent expires. That allows the companies to recoup those costs and hopefully turn a profit.

After that, generic copycats sold by other companies flood the market, costing just a fraction of the brand-name drug's price.

Generic drugs are chemically identical to the original brand-name ones, and work the same in nearly all patients. But their names are chemical terms unpronounceable for most patients. Generic Plavix, for example, is called clopidogrel bisulfate.

Often, one generic drugmaker has the exclusive right to sell its copycat version for the first six months after the branded drug's patent expires. In those cases, the generic's price is only about 25 percent lower than for the branded drug.

Other times, there are multiple generics right away. Either way, once several generics are on sale, their prices usually plummet to about 90 percent below the brand-name price. Nearly all patients then switch to a generic.

Brand-name drugmakers say they don't just cut their prices when generics arrive because insurance plans would get all the benefit. Coupons instead give loyal patients savings of as much as $100 a month _ often even if they don't have insurance. That makes the brand more affordable for patients who want to stay on it.

For example, a month's supply of brand-name Lipitor costs about costs about $175 without insurance. For insured patients, the copayment is typically $25 to $50, well above the average copayment of about $10 a month for a generic drug.

Under Pfizer's Lipitor For You coupon program, Pfizer absorbs up to $75 of the patient's out-of-pocket cost. Insured patients pay only $4 a month _ less than a generic drug copayment _ unless their copayment is higher than $79 a month; the insurer pays the remaining cost. Uninsured patients get the $75 off each prescription and then pay the remaining $100 or so.

While the deal slashes Pfizer's profit, the company still makes more money than it would if all its customers defected from Lipitor to a generic. Ian Read, CEO of New York-based Pfizer, recently said the strategy on Lipitor alone brought the company hundreds of millions of dollars in extra profit. He called the program "a great success."