Zocor to beat generic price

Merck unveils plan for prescription drug as patent runs out

From wire reports

June 23, 2006

NEW YORK -- Merck & Co., which loses its U.S. patent protection today on the cholesterol-lowering drug Zocor, will immediately begin pricing its brand-name drug below that of one of its main competitors.

Zocor is the second-most widely prescribed statin. The patent expiration pits Merck squarely against generic drugmakers such as Teva Pharmaceutical Industries Ltd., whose version of the drug will cost pennies per pill. Pfizer Inc., the world's largest drugmaker, makes the brand-name statin, Lipitor, which costs about $3 per pill.

Merck said yesterday that it would price its Zocor cholesterol pill below Teva's generic version, an unprecedented move by the drugmaker to salvage sales of its best-selling product. Zocor posted $4.4 billion in sales for Merck last year. Teva may begin selling its generic copy of Zocor today.

The Zocor patent loss also opens the door for an all-out battle between drug and health insurance companies over pricing for brand-name and generic versions.

WellPoint Inc. and UnitedHealth Group Inc., the two largest U.S. health insurers, received discounts on Zocor from Merck, officials at both insurers said yesterday.

Merck's discounting signals that big drugmakers are willing to use new tactics to prevent erosion of sales to generics, analysts said. Merck is attempting to fend off generic competition by initiating a price war.

"Merck has come to health plans and pharmacy benefits managers offering a significant discount on brand-name Zocor," said Robert Seidman, chief pharmacy manager at WellPoint.

Seidman declined to disclose the discounted price. "Obviously, it is lower than the price of the generic," he said.

About 70 U.S.-approved drugs, 14 of them with combined 2004 sales of $27 billion, are expected lose patent protection in the next five years. Generic versions typically sell for 80 percent less than brand-name drugs.

Some insurers, such as Aetna Inc., the third-largest U.S. insurer, have declined Merck's discount offer and will continue to promote generic drug use among its members.

Aetna said yesterday that it would buy copies of Zocor from Teva rather than accept Merck's discount.

To other insurers, Cigna Corp. and Humana Inc., will ask patients to pay higher co-payments for Merck's Zocor than generic, officials said yesterday. Neither would say if Merck had offered them price breaks on Zocor.

UnitedHealth said it would reduce the patient cost, or co-payment, for Zocor, also known as simvastatin, to $10 as part of an agreement negotiated with Merck. Patients who use Teva's version will pay five times as much out-of-pocket.

UnitedHealth will charge patients less for the brand-name drug because Merck is offering to sell Zocor for less than the price offered by Teva, said spokesman Mark Lindsay.

"As of Friday, the marketplace has changed for simvastatin, and it's our intention to be competitive in this new marketplace," said Ian Spatz, Merck's vice president for public policy.

U.S. shares of Teva, an Israeli company, fell $1.02, or 3.2 percent, to close at $31.25 on the Nasdaq stock market.

Merck's shares slipped 2 cents to $35.25, and Pfizer's shares lost 4 cents to $22.65, both on the New York Stock Exchange.

Merck's discounts on Zocor "signal a new battlefield in the price competition war that generic industry participants will have to face," wrote Robert Uhl and Alan Meyers, analysts at Friedman, Billings, Ramsey & Co., in an investment report yesterday.

The analysts reduced their estimate on generic Zocor sales this year by $62 million to $265 million and downgraded their rating on Teva shares.

Merck declined to discuss specific price arrangements. Discounts for health plans are generally offered as rebates, Spatz said.

Merck will also allow Dr. Reddy's Laboratories Ltd. of Hyderabad, India, to sell Zocor as a generic drug in return for a share of the revenue. Under such agreements, big drugmakers can protect some of their market share by allowing another company to sell its drug at generic prices without the brand name.

Beating generic competitors to market with an even cheaper version of its own drug might help Merck hang on to Zocor users for as long as a year, said Stephen W. Schondelmeyer, a health economist at the University of Minnesota at Minneapolis.

"When the first generation of generics comes on the market, the big chain pharmacies like to pick one and stick with it for six to 12 months," he said.

Eric S. Elliott, president of Aetna's pharmacy management program, said offering a brand-name drug at a generic price would confuse consumers and undercut efforts to persuade patients to use the cheaper copies.

"We have had conversations with Merck about a contract that would put Zocor in a generic tier," Elliott said then. "At this time, we have not signed that deal."

Aetna health plan members now pay $30 a month for a Zocor prescription. By comparison, patients pay $45 per month for Pfizer's Lipitor, the world's best-selling cholesterol drug. Generic drugs cost patients $15 per month.

"More brand pharmaceutical companies are either launching their own generic versions or creating alliances with other companies for authorized generics," said C. Anthony Butler, an analyst at Lehman Brothers. "The novelty is the negotiation at the managed-care level."

In response to Zocor competition, Pfizer plans to start a voucher program intended to minimize the costs of Lipitor to patients, said a spokeswoman.

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From June Hughes, July 7, 2006

Subject: Zocor

I had a conversation about Zocor with a pharmacist at Costco. He said Zocor, which now is a formulary, is cheaper than the generic. We all need to put the pressure on Caremark to recognize that fact. I plan to call Caremark today to do just that!