Big pharma finds a new way to put the squeeze on generics

Big pharma finds a new way to put the squeeze on genericsBranded pharmaceutical companies have pioneered a number of clever techniques to repel generic competition: lawsuits that ensure delay of generic entry and threaten financial ruin for generic makers, next generation products (think Nexium) that are subtle variations of products losing protection, and authorized generics that effectively cut the market in half during the traditional period of exclusivity enjoyed by the first generic entrant.But big pharma has typically kept the prices of its off-patent medications at high levels relative to generics. It's been viewed as the best way to maximize profits. After all, if someone actually wants the branded product when a cheap, identical product is available, let them pay for the privilege.But now Merck appears to be launching an intriguing new strategy. When statin drug Zocor loses patent protection on Friday, it will be offered in the cheapest tier on UnitedHealth's formulary. Meanwhile Teva's generic will be in the highest tier. That means Merck must be pricing Zocor below the generic --either directly or via rebates. Sounds nuts, doesn't it?Why would Merck do such a thing? The Wall St. Journal says Merck's objective is to maintain market share, but I think it's a little more complicated than that. I don't know for sure what they're thinking but let me speculate:

• Many states specify automatic generic substitution, meaning patients will get the Teva product even though it's more expensive. That might encourage some states to scrap or loosen the automatic substitution requirements, which would benefit Merck in the rest of its portfolio
• Underpricing the generic is really just a more extreme version of the authorized generic strategy. The idea could be to deter generic companies from filing in the first place. That could allow branded drugs to go off patent and still maintain both price and share. It's a tactic that is unlikely to work