(PFE) Watson Pharmaceuticals Joins Pfizer for Generic Lipitor

November 30, 2011 was a big day for Pfizer, Inc. (PFE) with its blockbuster cholesterol drug, Lipitor, losing exclusivity in the US. With so many drugs losing exclusivity, why is the loss of exclusivity of Lipitor such a major event? Well, Lipitor has been a huge revenue generator and its loss of exclusivity could very well represent the biggest generic opportunity in recent times. Lipitor sales came in at $10.7 billion in 2010 with sales for the first nine months of 2011 coming in at $7.6 billion.

Pfizer Goes Aggressive

Typically, whenever a branded drug loses exclusivity, it witnesses a rapid erosion in sales with the entry of generic versions. However, Pfizer is trying to turn the tide in its favor by adopting several steps to minimize the impact of genericization, especially during the six-month first-to-file exclusivity period when the number of generic launches will be limited. These initiatives could help Pfizer retain 40% market share despite the loss of exclusivity.

Pfizer has tied up with generic player, Watson Pharmaceuticals (WPI) for an authorized generic version of Lipitor. With this move, Pfizer could very well retain many patients as the drug will be manufactured and supplied to Watson Pharma by Pfizer. Pfizer will get a share of the net sales from Watson Pharma’s sales of the product.

Besides this, Pfizer has approached pharmacy benefit managers (PBMs) and NDCs to block generics. Pfizer is also working on getting branded Lipitor in the tier I formulary level on different health insurance plans for easier co-pays. With co-pays being higher at tier II or III, Pfizer is trying to ensure that users opt for its branded Lipitor, which would be a cheaper option at tier I.

Of course, the company is meeting different levels of success with this plan. While some formularies are placing generics in tier II or III, others are following the norm by placing the generic versions on tier I. According to an article issued by The Wall Street Journal, one of the largest health insurers in the US, UnitedHealth Group Inc.’s (UNH) United Healthcare, will encourage members to continue using branded Lipitor instead of generic versions of the drug due to its cheaper pricing.

Another tactic adopted by Pfizer to push branded Lipitor is the launch of a new program in September called the “Lipitor For You” program. This program not only includes assisted co-pay, it’s also targeted towards the support of certain patients.

Lipitor also has high mail-order utilization and Pfizer is adopting aggressive tactics to maintain its position in the mail order business. Longer-term, Pfizer may adopt the over-the-counter (OTC) route for Lipitor.

Limited Competition During Exclusivity Period

Pfizer’s authorized generic version will be facing limited competition during the six-month exclusivity period. Ranbaxy Laboratories Ltd. is the first company to gain FDA approval for its generic version of Lipitor. Ranbaxy’s version, which was launched recently, is being manufactured by Ohm Laboratories.

Ranbaxy has tied up with generic player Teva Pharmaceuticals (TEVA) for its version of Lipitor. While the companies have not disclosed any details on the agreement, we think Teva will be responsible for marketing generic Lipitor in the US.

Ranbaxy will enjoy six months exclusivity as it was first-to-file for approval of generic Lipitor. Once the six-month exclusivity period expires, additional players like Mylan (MYL) and Dr. Reddy’s Laboratories (RDY) could enter the market provided they gain FDA approval for their generic versions of Lipitor. Teva has received tentative approval from the FDA for its generic version of Lipitor and is planning to launch the product in May 2012 once Ranbaxy’s 180-day exclusivity period expires.

Our Take

We think Pfizer’s strategy might work and help the company maintain a decent share during the six-month exclusivity period. However, we expect a rapid erosion in Lipitor sales with the entry of additional players in the market post the six-month exclusivity period. Pfizer has a Zacks #2 Rank (short-term Buy rating). Longer term, we have a Neutral recommendation on Pfizer.

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