Cheaper Zocor? Critics smell a rat

NEW YORK -- It's a novel approach in the long battle between brand-name drugs and generic rivals: Merck is slashing the price of its cholesterol drug, Zocor, so low for one insurance plan that members will pay less for it than for the generic version.

That tactic has some consumer advocates fearing a movement among big pharma that would weaken the generic industry and compromise the country's source of low-cost drugs.

Under the deal, members of UnitedHealth Group will pay about $10 for a month's supply of Zocor, or $40 for a generic version, after the drug loses patent protection Friday. Merck and UnitedHealth say the arrangement demonstrates how market competition drives down costs. That's good for patients, they say.

Consumer advocates typically welcome lower prices, but in this instance, they worry that a short-term benefit for patients will result in long-term problems. They say moves such as Merck's undermine generic companies' chances of generating the profits that allow them to do research and challenge drug company patents, which could result in fewer cheap medicines.

Companies that make generics earn most of their profits when they are awarded six months of market exclusivity. A lack of competition means they don't have to sell their product at an enormous discount to the brand. If the brand chops its price, the generic may be forced to follow suit.

Teva Pharmaceutical Industries was widely expected to have six-months of exclusivity. With Merck's decision, U.S.-traded shares of the Israeli company plunged $3.40, nearly 10 percent, to $32.27. Shares of Merck rose 35 cents to $35.27.

Zocor's sales totaled $4.4 billion last year. A.G. Edwards & Sons analyst Albert Rauch lowered his revenue projections for Teva's generic version of Zocor for the second half of this year to $65 million from $385 million. Merck's action "demonstrates how vulnerable the generic industry is to pricing," he said.

Sen. Charles Schumer, D.-N.Y., accused Merck of engaging in predatory pricing and called its actions "a legal bribe." He has asked the Federal Trade Commission to investigate. "Merck is taking an end run around the generic drugs laws to make sure there are no generic drugs," he said.

Merck's vice present of public policy, Ian Spatz, said the arrangement with UnitedHealth is nothing more than typical marketplace price competition.

Tim Heady, CEO of UnitedHealth's pharmacy benefit management arm, said this is the first time a generic has ever cost more than a name-brand drug, but that he expects more deals.

That is what some consumer advocates fear.

"I'd begin to worry if ... [similar deals] take off," said Alex Sugerman-Brozan, director of the Prescription Access Litigation Project, a nonprofit group that sues drug companies for practices it alleges are illegal. "It puts pressure on the generic companies."