LONDON, UK (GlobalData) - Large pharmaceutical companies are in the midst of a wave of patent expirations that is threatening their profitability. As drugmakers face numerous impending patent expirations, they are exploring new options to squeeze revenue out of expiring products. One of the most important tools in pharmaceutical companies' arsenal is co-pay coupons, designed to let patients obtain branded drugs for generic prices. Unfortunately for these companies, a group of health plan providers has sued to force them to stop using co-pay coupons. These coupons are just one of many creative tools that companies are using in the face of generic challengers. Payers are hoping to put a limit, however, on what companies can get away with.

As pharmaceutical companies navigate a wave of patent expirations, a prevailing strategy that they are using is the issuance of co-pay coupons for branded drugs. Usually the co-pay for branded drugs, which is the out-of-pocket expense of prescriptions for consumers, is higher than for generic competitors. In order to keep customers from switching to generics, branded drugmakers issue these patients coupons covering the extra out-of-pocket cost of the branded version. However, this only tells half of the story. Behind the scenes, insurance companies and health plans must also pay more for the branded drug than for the generic version. The payers claim that co-pay coupons hide the true costs of branded drugs from patients, which will lead to increased premiums and put more strain on payers and the healthcare system in general. More importantly, they are arguing that this practice is also illegal. As a result, a group of health plans has filed suit against eight top pharmaceutical companies, including Pfizer, Merck & Co., GlaxoSmithKline, Novartis, Amgen, AstraZeneca, Bristol-Myers Squibb, and Abbott Laboratories.

A handful of drugs from these eight companies, all of which face patent expirations in the near future, accounted for more than $67 billion in global sales in 2010. This represents about 8% of worldwide drug spending for the year. 2011 saw the patent expiration for history's biggest selling drug, Lipitor. But the real pain for the industry comes this year, when these 8 companies alone will watch more than $26 billion worth of sales come off patent. Companies must become increasingly creative to find ways to make up for revenue lost to generic competition, but they must also be aware that any new strategy will come under intense scrutiny.
This expert insight was written by GlobalData's leading healthcare industry dynamics analyst, Dr. Jerry Isaacson. If you would like an analyst comment or to arrange an interview, please contact us on the details below.

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