Cheap, Shy, or Just Misbehaving? PFE Sells Viagra Direct to Consumers

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Richard Evans / Scott Hinds / Ryan Baum

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May 7, 2013

Cheap, Shy, or Just Misbehaving? PFE Sells Viagra Direct to Consumers

  • PFE announced direct to consumer sales of Viagra; orders placed on Viagra.com will require a legitimate US prescription, and will be filled by CVS
  • Viagra is a perennial favorite of drug counterfeiters. The National Association of Boards of Pharmacy (NABP) counts more than 10,000 online pharmacies dispensing to US customers but operating outside of state and/or federal regulatory compliance; more than 8,000 of these will either issue prescriptions or dispense prescription products without one. Thus patients too embarrassed to ask for a prescription, and/or those with off-label plans, can avoid physicians
  • Beyond being shy and/or misbehaving, men are cheap. Years ago when Levitra and Cialis ended Viagra’s ED monopoly, we asked men to ‘build’ an optimal ED drug by allocating 100 points among their preferred drug attributes, with more points given to the more important features. Men gave as many points to low price as to speed of onset, and twice as many points to low price as to duration of effect. Price matters – a lot
  • The typical Viagra Rx is $160 – $190 at retail (6 to 7 pills at about $27 each). Viagra is not covered by Part D, so not many men over 65 have coverage. A little more than two-thirds of commercial plans cover ED treatments, but most require co-payments well above the prevailing tier-2 $30 for ‘preferred’ brands. Counterfeits are available for $1 to $3 / pill – cheaper than the best co-pay
  • For all of these reasons ‘online pharmacies’ will remain attractive to men who are cheap, shy, or misbehaving. PFE’s online service can only cater to men with legitimate prescriptions that are willing to pay either retail, or their applicable co-pay. Notably, most commercial drug benefits will not pay for drugs received by mail, unless the prescription is filled by the payor’s own mail order operation. Thus outside of CVS (who administers PFE’s program) there may be many men with drug benefits that cover Viagra, but that will not cover prescriptions sourced from Viagra.com
  • Thus on net, the marginal utility of Viagra.com is that it serves men who are: 1) sufficiently self-confident to talk to their doctors (and thus get legitimate US prescriptions); 2) willing to pay either retail or their share of retail; 3) if covered, belong to a commercial plan that will cover a mail Rx dispensed out of network; AND, either: 4) too shy to have the Rx filled at retail; and/or who prefer the convenience of Viagra.com over any mail alternative their plan may offer. The initiative makes total sense – but offers very little answer to men’s motives for buying counterfeits – so the counterfeits will continue

Background

PFE on Monday announced plans to sell Viagra online directly to US patients through its Viagra.com website. Fulfillment will be handled by CVS

PFE premised the change in policy on the large and increasing impact of counterfeits. The policy raises a number of questions; our primary concern is whether PFE’s move heralds a broader trend toward direct to (US-based) consumer sales from multiple drug manufacturers across a wide list of drug products – and we believe it does not

Counterfeiting is a substantial problem for US prescription drugs broadly; the National Association of Boards of Pharmacy (NABP) estimates that 1 to 2 pct of drugs sold in North America are counterfeit. Counterfeiting occurs predominantly outside of the traditional and tightly regulated drug channels – drugs bought from creditable retailers and wholesalers in the US generally are very trustworthy; however the opposite is true for drugs purchased online. NABP’s survey efforts show that as of March 2013, 10,082 online pharmacies were selling drugs in the US outside the scope of compliance with state and federal pharmacy regulations[1]. Viagra has at one point been, and may still be, the most counterfeited prescription drug in the US

Cheap, Shy, or Off-Label

We can think of three primary reasons men might choose not to fill a prescription at a traditional pharmacy: 1) they don’t have a ‘legitimate’ prescription; 2) the cost is too high; and/or 3) they’re too embarrassed

Of the 10,082 online pharmacies selling drugs to US consumers and operating outside of regulations, most are willing to issue a prescription without a live consult (6,078), and/or to dispense prescription medications without a valid prescription (8,861). Thus for men who are too embarrassed to initiate an erectile dysfunction (ED) conversation with their physician, or who want the drug for off-label use, illegitimate online pharmacies provide a path around the physician

For men with legitimate prescriptions, the remaining issues are cost and potential embarrassment. We believe costs are a significant hurdle, and a key reason US-based demand for online Viagra counterfeits is so high. In 2003, as the 2nd and 3rd (Cialis, and Levitra) options for ED were entering the US market, we conducted research with men who were candidates for, and/or were currently using, prescription ED therapy. In one element of the survey, we asked men to construct the ideal ED product by assigning a total of 100 points to any or all of the attributes in Exhibit 1, with the number of points given to any particular drug characteristic indicating its level of importance. A memorable finding was that men cared as much about cost as speed of onset, and nearly twice as much about cost as about duration of effect – all of which argues that men care very much about cost. A little more than two-thirds of commercial drug benefit plans cover Viagra, but co-pays can be well above the prevailing tier 2 ‘preferred brand’ average of $30 – so even men with drug benefit coverage may find their out-of-pocket costs for Viagra to be a significant issue, and accordingly may be motivated to find cheaper sources. Importantly, Medicare Part D does not cover ED drugs, thus a large percentage of men over 65 will pay retail. US prescriptions average 6 to 7 tablets (which is consistent with rate of monthly use in our survey), thus at $27.36 per tab the average prescription is $164.16 to $191.52. Online (presumably counterfeit) prices are around $3.50 per pill, and as low as $1.00 for large orders. Online prices are thus cheaper than most co-payments for men who have coverage, and of course much cheaper than paying US retail

For men with legitimate prescriptions and a willingness to pay the out-of-pocket costs associated with filling the prescription at a legitimate pharmacy, the remaining issue is any embarrassment associated with doing so. Clearly this effect exists, but sizing the effect is challenging. Evidence on first prescription compliance and subsequent refill rates is mixed, and where data exists it’s impossible to gauge the relative effect of embarrassment / social stigma as compared to the more mundane compliance headwinds that affect all drug categories. The best (immediately) available study is a survey of Taiwanese ED patients; of the men who gave reasons for discontinuing sildenafil (57 pct discontinuation rate within 3 months, on par with rates observed in the US), ‘inconvenience in obtaining sildenafil’ was cited by 28.9 pct, where ‘high cost’ was cited by 37.8 pct (Exhibit 2). We acknowledge the obvious risks of extrapolating these findings to the US market, and so offer them only as context – however our sense is that cost is a bigger issue in the US than embarrassment in filling the prescription

Viagra.com will sell only to patients with legitimate US prescriptions, and excluding promotions will charge standard US prices – accordingly Viagra.com is only truly relevant to men who have legitimate prescriptions and are willing to pay ‘standard’ out of pocket costs – co-pays in the case of patients with applicable drug coverage, and full retail otherwise. Notably, many commercial beneficiaries with policies that cover Viagra may not be able to fill their prescriptions on Viagra.com. Most commercial drug benefits are accepted in nearly all US retail outlets; however most commercial drug benefits only cover drugs dispensed at mail if those drugs are dispensed from the payor’s own mail-order pharmacy – thus with the potential exception of CVS (who is managing fulfillment for Viagra.com), many men with legitimate prescriptions and applicable drug coverage may still not be able to order from the site

Where to from here? Why this is only about Viagra …

In response to parallel trade and counterfeiting, PFE famously instituted a mandatory direct-to-pharmacy distribution program in Europe. This made great sense for Europe, but we don’t see it happening here in the US. In Europe, a person with a legitimate prescription and willing to pay their fair share at retail was very likely to be dispensed a drug that had been made for a different country (and in particular a lower priced country, reducing PFE’s profits) or even a counterfeit (parallel trade in a single manufacturer’s products introduces multiple versions of trade dress, and multiple additional intermediaries, thus greatly enabling counterfeits). At the moment these circumstances do not exist in the US – a patient with a legitimate Rx standing at a legitimate pharmacy counter (or ordering from a credentialed mail provider) is very unlikely to be dispensed either a correct drug made for a different jurisdiction[2], or a counterfeit

Not only does PFE not face the same motives for direct distribution in the US as exist in the EU, the operational hurdles of selling to individual customers cannot be underestimated. Brand manufacturers typically ship to warehouses – either wholesalers’ warehouses or the facilities of retailers (e.g. CVS, WAG, etc.) who have their own warehouses. Shipments are rarely below the level of a ‘case’, and are typically on the order of magnitude of a ‘skid’, i.e. a pallet of multiple cases. Using HDMA[3] data, we roughly estimate the typical brand manufacturer to customer warehouse shipment is on the order of 3,700 prescriptions, is worth well over a half million dollars, and is cleared through electronic payments made under letters of credit by the parties’ banks. And, orders come to manufacturers electronically, and route directly to manufacturers’ distribution centers. Nothing about this operating footprint prepares a manufacturer for shipping ‘eaches’ with average values below $200 against credit card information, prescriptions, and addresses coming in by internet, phone, and fax. Think of it this way – at our assumed average shipment value of +/- $500k, PFE’s US distribution centers would have handled about 48,000 orders last year, and the great majority of these would have gone to about 200 different customer warehouses. If PFE only sold Viagra directly to consumers through its website, it would imply upwards of 8 million shipments to several million addresses annually. Just to handle this single product, PFE’s total number of US orders would increase more than 150 fold, and ship-to addresses would increase by a multiple of 5,000 or more

  1. “Internet Drug Outlet Identification Program: Progress Report for State and Federal Regulators”, NABP, April 2013
  2. EU countries share a common drug regulatory structure, so a drug approved for sale in a cheaper jurisdiction can be legally sold in a more expensive jurisdiction. Virtually no drugs made for non-US markets are FDA approved, and state and federal regulations and enforcement are sufficiently tight that non-approved drugs cannot be sold in large volumes by legitimate US retailers
  3. Health Distribution Management Association
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