$400Mn Pfizer Settlement For Drug Kickbacks?

Most of you know about the $35 Genotropin settlement between the Department of Justice and Pfizer. About $20 million of that settlement relates to kickbacks to a pharmacy benefit manager, to improve formulary position.

What you don't know is what will happen next, and who that pharmacy benefit manager is, or COMPANY Q as it is called in the non-prosecution agreement.

Of course, I'll tell you the name of COMPANY Q: It is ExpressScripts.

And here's what happened, according to the deal between DOJ and Pfizer: Genotropin overpaid ExpressScripts to improve formulary position.

And what will happen to ExpressScripts, you may now wonder? One major competitor, Caremark, already agreed to pay $137.5M to settle kickback charges.

So of course it is logical if ExpressScripts is next, after all, ExpressScripts has repeatedly disclosed to the Securities and Exchange Commission that they are under investigation by the DOJ for this type of issue.

But the story doesn't end there.

Genotropin didn't simply pay that extra money, a couple of million dollars every year, out of the Genotropin budget. No, for some interesting reason, the money came from the Bextra/Celebrex budget.

I still don't know quite what went on here, but it sure looks to me like Bextra/Celebrex got something out of the deal. Like improved formulary placement . . . sooooooooooo is it just me or is a Department of Justice settlement related to both Pfizer's Bextra/Celebrex and ExpressScripts next?

And here is where things get really interesting. Genotropin sales in the US have been around $200 million. Bextra/Celebrex sales at its peak were over $4 billion and are now around $2 billion. So 10 to 20 times as much money.

Does that mean Pfizer will end up ponying up 20 times what they paid for the Genotropin kickback charges, or around $400 million? And will ExpressScripts pay maybe $50 to $100 million?

And why have they not settled yet?

Here's a complication: With Genotropin Pfizer could easily just blame Pharmacia. Even though they allegedly continued some of the inappropriate selling to anti-aging docs long after they bought Pharmacia, DOJ let them off the hook on that one. But with Bextra/Celebrex Pfizer was part of the marketing from the beginning, as a 50% co-promotion partner with Pharmacia. No place to hide. So I would guess Pfizer is right now negotiating with DOJ about how they can avoid being named. And who knows. DOJ wants a big settlement. Don't we all? So maybe Pfizer can buy themselves out of this one too . . . kind of like, OK, OK we'll pony up $400 million, on the condition that DOJ agrees to put out this nice press release we have written blaming Pharmacia, and if we can get this nice non-prosecution agreement in which DOJ agrees it was Pharmacia management who were the bad boys and girls.

When that deed is done, you'll see the settlement in the news.

What is Pfizer's comment on this?

It is right there, in their most recent annual report: "We have been considering various ways to resolve these matters":

"Since 2003, we have received requests for information and documents from the Department of Justice concerning the marketing of Genotropin as well as certain managed care payments. In 2005, the Department of Justice informed us that it is investigating Pharmacia’s former contractual relationship with a healthcare intermediary. We are in discussions with the Department of Justice seeking to resolve the Genotropin and healthcare intermediary matters.

Since 2003, we have received requests for information and documents concerning the marketing and safety of Bextra and Celebrex from the Department of Justice and a group of state attorneys general. We have been considering various ways to resolve these matters."

ENDS

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