Merck loses protection for patent on Zocor

By Alex Berenson

June 23, 2006, NY Times

This is the day that Merck — and Pfizer — have long dreaded.

Today, Merck's cholesterol-lowering drug Zocor loses its United States patent protection, becoming the largest-selling drug yet to be opened to cheap generic competition.

That change will cost Merck billions of dollars a year. But it could be nearly as damaging to Pfizer, whose rival cholesterol drug, Lipitor, is the world's most popular medicine, with global sales last year of $12 billion. Now insurers are hoping to convince patients and doctors that cheap clones of Zocor will make full-priced Lipitor an unnecessary luxury.

Zocor, which until now has sold for about $3 a daily pill, generated sales last year for Merck of $3.1 billion in the United States and $4.4 billion worldwide.

But beginning today, three other drug companies will be legally allowed to sell simvastatin, the active ingredient in Zocor. And starting this December, any company will be allowed to make simvastatin, as long as it can prove that its version is chemically equivalent to Zocor.

As a result, the price of a dose of simvastatin will probably drop 30 percent or more in the next few days, and by as much as 90 percent next year, to about 30 cents a pill. Merck has already told insurers that it will cut the price of branded Zocor to be competitive with generic simvastatin, an unusual move that analysts say may cause the price of the generic to fall quickly over the next few months.

The falling price of Zocor will save insurers and patients billions of dollars a year — and cost Merck a similar amount. But it may have even more impact on Pfizer, the world's largest drug company, analysts say.

Pfizer's Lipitor, which has been comparably priced with Zocor and had United States sales alone of $8 billion, is the most profitable medicine yet invented.

Lipitor, whose patent runs until 2011, and Zocor are both statins, drugs that slow the liver's ability to produce low-density lipoprotein cholesterol, often called bad cholesterol because it can build up in blood vessels and lead to heart attacks and strokes. In clinical trials, both drugs substantially reduce bad cholesterol, though Lipitor is more potent than Zocor. At its highest dose, Lipitor lowers bad cholesterol by 57 percent, compared with 47 percent for Zocor.

But because most patients on statins do not require the highest doses, many doctors consider Zocor comparable to Lipitor.

And anticipating the arrival of inexpensive generic versions of Zocor, many insurers in recent months have given Zocor a preferred position, enabling patients to get a month's supply for a co-payment of only $10, while moving Lipitor to a second- or third-tier status, with co-payments of $20 to $35.

That strategy by insurers appears to have had an impact on Lipitor's market dominance.

In the first quarter, United States sales of Lipitor rose to $1.97 billion, up 3 percent from the period in 2005. But sales of Zocor jumped 13 percent, to $830 million, even though Merck has largely stopped promoting Zocor in advance of the patent expiration.

And in terms of new prescriptions, Lipitor's market share has eroded since the beginning of the year, down 4 percentage points of market share, to 35 percent. Meanwhile Zocor has gained 2 points, to 16 percent, according to prescription data from Salomon Smith Barney.

That trend may now accelerate, analysts say.

"Lipitor is poorly positioned strategically," said Albert Rauch, an industry analyst at A. G. Edwards, a regional brokerage firm based in St. Louis.

The challenges go beyond generic Zocor. For years, Pfizer tried to promote Lipitor as the most potent statin, arguing that patients should use the drug that lowered their cholesterol the most, Mr. Rauch said. But now Lipitor faces competition from two drugs that lower cholesterol even more than Lipitor.

One is Vytorin, made by Merck and Schering-Plough, which combines Zocor and Zetia, another cholesterol-lowering drug that has a different mechanism of action than statins. Merck is now heavily promoting Vytorin, which had sales of $378 million in the first quarter — about double its sales for the period last year.

The other Lipitor challenger is Crestor, a drug from AstraZeneca that is generally considered the most potent statin.

As a result, Lipitor is being squeezed between cheap simvastatin and the new, stronger alternatives, Mr. Rauch said. "Some people may want lower cost, some may want higher potency."

David S. Moskowitz, an industry analyst at Friedman, Billings Ramsey & Company, said Lipitor would continue to lead the cholesterol-lowering market because it works well and doctors and patients are very familiar with it. But Lipitor will probably lose another 5 to 6 percentage points in market share, Mr. Moskowitz said.

Concerns about Lipitor's shrinking share have hit Pfizer's stock, which is down 3 percent this year and near an eight-year low, while the average drug company stock is up 3 percent. Pfizer closed yesterday at $22.65, down 4 cents. Meanwhile, Merck has risen 11 percent this year. To fight back, Pfizer is pointing to data that shows Lipitor's effectiveness in cutting heart attacks and strokes. Since introducing Lipitor a decade ago, Pfizer has conducted more than 400 clinical trials on the drug, said Dr. Michael Berelowitz, a senior vice president at Pfizer. Crestor and Vytorin, the newer statins, have not yet shown that they can reduce heart disease as effectively as Lipitor, Dr. Berelowitz said.

"Other agents come in and all they can talk about is that they lower cholesterol and LDL," he said. "They have none of the evidence of cardiovascular risk reduction and mortality risk reduction."

And Zocor is simply not as potent as Lipitor, Dr. Berelowitz said.

But health insurers argue that most patients do not need the 57 percent reduction in cholesterol that the 80-milligram dose of Lipitor provides.

At Blue Cross of Northeastern Pennsylvania, which covers about 600,000 people, 81 percent of people taking Lipitor are taking 20 milligrams or less a day. Only 4 percent are taking 80 milligrams, said Frank Koronkiewicz, director of pharmacy management for Blue Cross of Northeastern Pennsylvania.

Patients on lower Lipitor doses can easily be switched to Zocor, Mr. Koronkiewicz said.

"We believe they're very similar," he said. "Zocor has innumerable studies proving its effectiveness and its safety."

At the beginning of 2006, Blue Cross of Northeastern Pennsylvania put Zocor on its first tier of preferred drugs, while switching Lipitor to its third tier. Zocor, as a result, costs patients $10 a month, compared with $35 for Lipitor. The insurer mailed letters to patients taking Lipitor to inform them of the change and encourage them to try Zocor.

The results have been striking, Mr. Koronkiewicz said. Since January at the insurer, Lipitor's market share has fallen to 34 percent, down from 55 percent. Zocor's has almost doubled, to 31 percent.

"I think there's further room for movement," he said.