Merck Slashes Zocor Price

Merck lost patent protection on Zocor. But now the company wants to win a price war with Teva, the generic company that challenged its patent.

In an unprecedented move by a brand name manufacturer, Merck announced last month that it would reduce the price of Zocor to undercut Teva's price for simvastatin, the generic drug.

After declining to challenge Teva in court, Merck appears to be building a new strategy for the battle with generic manufacturers. Instead of fighting for the patent, Merck is fighting to retain Zocor's market share.

That strategy has prompted some insurance companies like UnitedHealth to offer Zocor at a lower co-pay than the generic--at least until Teva's six months of marketing exclusivity come to a close.

"This is really a short-term arrangement," said Tim Heady, CEO of UnitedHealth Pharmaceutical Solutions. "We all thought there'd be a lot of generics coming to market."

At least one insurer, Aetna, has said it will continue to offer the generic at a lower price to avoid sending the wrong message to consumers.

But Heady noted that in an age of consumer-directed healthcare, customers should be more sophisticated about pricing issues. "We don't underestimate that there is some confusion," he said. "But it doesn't help [consumers] to believe that a generic is always cheaper when it's sometimes not."

Merck did not respond to a request for comment.

Edward Thwaite, president of EW Thwaite Associates, a generic consulting firm, noted that the move is particularly unusual since Merck is already collaborating with drug maker Dr. Reddy's on an authorized generic for Zocor.

"I don't think it's a trend; I think it's a fluke," he said about Merck's pricing strategy for the brand name drug. "Authorized generics have become the operational standard when a brand goes off-patent."

But Lee Bromberg, founding partner of law firm Bromberg & Sunstein, noted that the pricing maneuver would allow Merck to capitalize on the goodwill Zocor has earned through branding efforts.

"There's a large segment of the consuming public that will insist upon the brand name drug, and not accept generic substitutes," he said. "I think [aggressive pricing] is something new that we're seeing now. If Merck is successful in this strategy, I think we'll see other companies explore it."

Michael Russo, a partner at consulting firm The Bruckner Group, noted that there's another reason why Merck would be interested in investing in the Zocor brand: Vytorin, its Zocor/Zetia (ezetimibe) hybrid developed with Schering-Plough.

"There's no incentive to extending the life of a brand if the brand has run its course," he said. "I think the impetus is to keep the brand alive, because that gives them leverage for switching [patients to Vytorin]."

Pfizer's Reaction

Pfizer meanwhile expressed confidence that Zocor competitor Lipitor (atorvastatin) would be able to hold onto its market share.

"I believe there's probably going to be a peaceful coexistence," said Walt Johnston, Pfizer's group leader of cardiovascular marketing. "When Lipitor was introduced, it was a quantum leap in the marketplace. Lipitor is a better product and a better value than Zocor."

Pfizer has developed an extensive, three-prong marketing plan to support Lipitor, Johnston noted. On the professional front, the company is planning to promote the message that Lipitor is different from its competitors, and it has optimized its field force. It also launched a consumer advertising campaign in March.

"They're very intelligently running additional studies on outcome benefits," Russo observed. "They've really built up a wealth of knowledge."

Johnston noted that Pfizer is unlikely to change the price of Lipitor because of generic competition in the category.

Thwaite said that generic simvastatin was unlikely to have a significant spillover effect on the rest of the category. "In the past, therapeutic substitution hasn't been a big deal; it hasn't had a major negative impact," he said. "This one may be somewhat different, but it won't be catastrophic."