Blockbuster Drugs, Including Lipitor, Reaching the End of their Patents

By Lena Mualla *

Boxes of Lipitor medicationLipitor, the best selling prescription drug in the U.S. and in the world, will be available in a generic form at the end of this month, when Pfizer’s patent expires.  Lipitor is used to lower users’ cholesterol levels.  Ranbaxy, a generics manufacturer based in India, struck a deal with Pfizer, the current patent holder.  As a result of that deal, Ranbaxy will have exclusive rights to the generic form of Lipitor, atorvastatin, for six months.  Since generics are legally required to contain the same active ingredients as the name brand, the generic is essentially equivalent to the name brand, yet much cheaper.

Under the Hatch-Waxman Act, which provides a whole array of incentives so that generics manufacturers can mount litigation against patent holders without the normal financial risk, the exclusivity provision is just one of many meant to entice generics manufacturers into competing with current patent holders.  Basically, due to the Act, Ranbaxy will be in an excellent position to reap the rewards of a market shift at Pfizer’s expense.  An added bonus may also hit CVS and Walgreens, who are both expected to increase the price of their shares by about 10%.  Representatives from both stores have remained cautious in their outlook, taking care to note other factors that may come into play.

Apparently, Pfizer is not letting go easily.  It has already tried extending its patent based on various technicalities.  Now it is trying, quite successfully, to pay pharmacy benefit managers to not sell the generic.  At the end of the month, once the patent runs out, patients can expect their copayments to drop from $25 to $10 upon switching to the generic form of Lipitor.  The real drop off will come after May 31, when the six-month exclusivity period is up.  At that time, other generics manufacturers can compete with Ranbaxy.

daily pill storage caseLipitor is not the only drug coming out in generic form; four other major drugs that have patents expiring this year are the following, in order of sales: Zyprexa, Levaquin, Concerta, and Protonix.  Those five, including Lipitor, had sales of over 10 billion dollars in 2010.  In addition, five more major drugs will lose their patent protection next year: Plavix, Seroquel, Singulair, Actos, and Enbrel.

These common, household prescription drugs are clearly raking in vast sums of money.  However, the share of those profits is going to take a major shift.  As this article indicates, CVS and Walgreens have a great opportunity to cash in on the patent expirations, since each company depends on prescription drug sales for over 60% of its sales.  Also, Ranbaxy is a no-brainer, sure to gain based on its exclusivity agreement with Pfizer, as well as continued profits following the May 31 expiration date.  Not to mention, consumers will pay much less out of pocket for their monthly medication supply for these drugs.  Experts predict savings to consumers of billions of dollars; the savings to the U.S. healthcare system are projected to be $6.7 billion.  Conversely, we can expect that Pfizer, Eli Lilly, Johnson & Johnson, Bristol Myers Squibb, and other manufacturers will experience a dip in their profits as a result of these patent expirations.  Experts indicate a hit of billions.  This is no surprise, given that generics are, on average, 71% cheaper than brand name drugs.

Despite the recent litigation launched against Ranbaxy and Pfizer alleging price-fixing, Ranbaxy is set up nicely to do well given the exclusivity agreement for the manufacture of the number one selling drug worldwide.  The recent suit, likely meritless, alleges price-fixing and seeks disgorgement of profits.  However, given that the Hatch-Waxman provides for the exclusivity period arrangement, the suit is unlikely to succeed.  As this case demonstrates, it is good policy to encourage potential competitors to challenge current patent holders.  Otherwise, instead of a six-month exclusivity period with a single competitor, Pfizer could have held on a little longer to its exclusive rights as patent holder.  In the end, consumers will be the primary beneficiaries of the patent expiration on Lipitor and other prescription drugs.

*  Lena Mualla is a second-year law student at Wake Forest University School of Law.  She holds a Bachelor of Arts in Government and International Politics from George Mason University.  Ms. Mualla, a Fulbright award recipient, taught English in Indonesia prior to entering law school.  Upon graduation, she intends to practice international law or environmental law.