PBMs Liked Zocor Deal

September 13, 2006

Pharmaceutical Executive

Volume 0, Issue 0

Drug makers used aggressive contracting to retain marketshare after launch of generic simvastatin

Pharmacy benefits managers were more likely than managed care organizations to accept Merck's discounted price for Zocor after the launch of generic simvastatin, a new study by Cognet-X finds.

In the wake of Merck's surprising decision to slash the price of Zocor to compete with Teva's simvastatin, 80 percent of PBMs placed Zocor on tier 1, compared with only a quarter of MCOs, according to a Cognet-X survey of 74 health plan executives. The exact number of health plans that had been offered the discounted price from Merck was not disclosed, but Sharon Bender, director of strategic initiatives at Cognet-X, said that the "vast majority" received the proposal.

"The MCO respondents seemed to view this process as being counter to the generics-first message," Bender said, adding that executives at PBMs were more likely than their MCO counterparts to believe that other drug makers will follow Merck's lead.

In a separate report, Cognet-X, a healthcare research and consulting firm that conducts weekly audits of PBM and MCO executives, looked at how other product teams responded to the launch of generic simvastatin.

It found that AstraZeneca, Pfizer, and even Merck, in its co-promotion deal with Schering-Plough for Vytorin (ezetimibe, simvastatin), used more aggressive contracting to increase market share.

"Contracting isn't always a main focus during a quarter," Bender said. But the release of generic simvastatin "really put pressure on the manufacturers of the competing brands."

Pfizer in particular vied for exclusivity for Lipitor (atorvastatin). The company said it would discontinue rebates if Lipitor were not given exclusivity on tier 2--its predominant strategy for holding on to market share.

AstraZeneca also offered rebates when Crestor (rosuvastatin) was placed on a preferred tier. However, "they weren't so much pushing exclusivity as acknowledging the new generic reality," Bender said.

For Vytorin, much of the focus was on unrestricted formulary access, as well as better rebates for tier-2 status.

Bender called the different approaches "striking," and said they might speak to the companies' negotiating styles, and how much lost revenue companies are willing to trade in return for preferred status.

The tactics also were met with different degrees of success, according to Cognet-X. Lipitor appeared on the preferred tier of 77 percent of MCO formularies last month, compared with 81 percent in August 2005. Crestor experienced an upward trend; it was a preferred drug on 53 percent of MCO formularies, compared with 29 percent the previous year. Vytorin received preferred status on 73 percent of formularies, compared with 37 percent the previous year.

The report also found that while MCO executives were far more likely to say that Vytorin represents the best value (63 percent compared with 23 percent for Lipitor and 14 percent for Crestor), they also admit that cost is a key factor for deciding formulary status.

Companies are also using other tactics to retain market share.

Pfizer, for instance, has been conducting additional studies to show that Lipitor is more effective than simvastatin in cutting cardiovascular risks, according to Adam J. Fein, president of Pembroke Consulting, who was not involved with the Cognet-X report. "They've taken the approach of creating some consumer resistance to being switched," Fein said, adding that physicians are also reluctant to switch patients who are doing well on a particular treatment.

Fein also noted that other companies might imitate Merck's strategy--though perhaps more quietly.

In the past, companies would raise a brand's price before and immediately after the launch of a generic, in order to reap additional profits at the end of a product's lifecycle. Now, generic substitution happens at a much faster speed, and new tactics are required, Fein noted.

"In the short term, this is a win for the healthcare system," Fein said. "I think the payers have been pretty happy with this strategy--it benefits them, and in some ways it lowers healthcare costs."