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.
They've begun offering U.S. patients coupons to reduce co-payments on brand-name medicines and compete with new generic versions of the drugs. 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 co-pay coupons that can bring insured patients six of its medicines for as little as $4 a month each. 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 top-selling drugs whose patents are expiring.
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.
So, they're trying a new tactic to temporarily slow the loss of billions of dollars in sales to new generic competition.
"On a big drug, every day that you can delay the sales drop is a happy day at the drug company," says Erik Gordon, a professor at the University of Michigan's Ross School of Business who follows the drug industry.
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, even though they're chemically identical.
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.
Lipitor, once the world's top-selling drug, provides a window into the use of coupons.
A month's supply of brand-name Lipitor costs about $175 without insurance. For insured patients, the co-payment is typically $25 to $50, well above the average co-payment of about $10 a month for most generic drugs.
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, unless their co-payment is higher than $79 a month. 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.
The coupons only work with private insurance, though. Patients with Medicare or other government health insurance are barred from using them.
Not surprisingly, commercial insurers don't like the coupons, because their share of the cost for a brand-name drug is much higher than for a generic pill. Virtually all prescription plans automatically switch patients to a new generic drug the next time they refill their prescription. The plans also move the drug from the co-payment level for most brand-name drugs, usually around $25, to their highest co-payment level, often $50 to $75 per prescription.
The coupons throw a wrench into insurers' strategy of getting as many patients as possible to take generic drugs, which account for about 80 percent of all prescriptions filled in the U.S.
A study late last year by the Pharmaceutical Care Management Association, a trade group for prescription benefit managers, estimated co-pay coupons could raise prescription drug spending by $32 billion over the next decade.
"That's adding to overall health care costs," says Robert Zirkelbach, spokesman for another industry group, America's Health Insurance Plans, and "is going to ultimately mean higher premiums for everybody."
Many insurers are fighting back.
Express Scripts Holding Co., the largest U.S. prescription benefit management company, says more than half the insurance plans it services have policies requiring patients to pay an extra fee for staying on the brand-name drug. With the advent of coupons, more insurers are likely to institute similar policies, says Everett Neville, head of pharmaceutical strategies at Express Scripts, which processes prescriptions for about 100 million Americans.