Lipitor Pricing – It’s Value Based

Introduced in 1997, Lipitor produced $13 Billion of revenue per year at its peak.  Although there have been some alternatives available for quite a while, none work as well as Lipitor.  But that is coming to an end. 

November 2011, Lipitor’s patent expired.  Although Pfizer will be using many tricks to maintain some high pricing for their branded product, they have already released their own generic version at half the price of Lipitor.  Experts believe that within 6 months many companies will have generics and the prices will stabilize around 10% of Lipitor’s current price.

Nothing earth-shattering here, just a great example of watching Value Based Pricing in action.  While the patent protection existed, Pfizer was able to capture a very large premium for Lipitor.  The alternatives were nowhere near as good, and customers find huge value out of preventing heart attacks.  Hence, people paid these high prices. This is “value in use”, the functional value of the product.

Now that the patent has expired, alternatives that work as well as the original (i.e. generics) will be coming onto the market.  Customers will have a choices.  Pfizer can no longer capture the “value in use”, they must charge for the value based at least partly on the prices of the alternatives.  This is “value in choice”.

Another dynamic we can expect to see.  The alternatives to Lipitor that were less effective but less expensive will suffer greatly.  As Lipitor generic prices plummet, so will sales of the Lipitor alternatives.

Lipitor, under patent protection, had the Pricing Power that Warren Buffet looks for.  Without patent protection, all pricing power is gone.

 

Mark Stiving, Ph.D. – Pricing expert, speaker, author

Photo by colros