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By Michael Fitzhugh

Burrill Report editor's note: The original version of this story mischaracterized Medco's (NYSE:MHS) role in the discussions with Pfizer. The company has acted on behalf of a small handful of clients that have chosen to diverge from Medco's generic strategy related to Lipitor. It says all rebates all rebates arising from such programs are retained by clients and that Medco retains no rebates.

Medco said its generic strategy related to Lipitor, which will be adopted by more than 99 percent of its clients, provides that retail pharmacies will not be restricted from dispensing the generic. The company also said that to ensure adequate supplies immediately upon patent expiration, it will dispense Lipitor as the generic product. In all cases, members with prescription that allow for generic substitutions will pay the generic co-payments and clients will pay the same amount as specified by their contracts, independent of whether the generic or the branded Lipitor, used as the "house generic", is dispensed.

Below is a corrected version of the story (Nov. 21):

Pfizer (NYSE:PFE) is reported to be discussing with some health plans agreements that could insulate Lipitor against competition at the expense of employers, the government, and other insurance plan sponsors.

The company is said to be working to ensure that patients taking Lipitor continue to receive the brand name drug for the next six months, even as lower-cost generic versions of Lipitor become available December 1. The deal could help Pfizer retain as much as 40 percent of Lipitor users through May, reports Bloomberg, protecting nearly $700 million in revenue that Pfizer could lose without the strategy.

Pfizer loses patent protection on the cholesterol drug at the end of November, putting an abrupt end to the blockbuster's enormous contribution to the company's earnings. Sales of Lipitor, the best-selling drug of all time, contributed $10.7 billion to the company's revenue in 2010.

But while patients will see the cost-savings associated with using a generic right after November 30, that doesn't mean they'll necessarily receive the generic version of the drug, which will be supplied in the United States by Watson Pharmaceuticals (WPI). Instead, some pharmacies could be instructed on behalf of health insurers to provide brand-name Lipitor to customers, even if they have a prescription for atorvastatin, the generic version of the drug.

Under the strategy, some insurance plan sponsors could pay full price for branded Lipitor even while Pfizer provides rebates to health plans significantly lowering the cost of the drug.

The plans have drawn scorn from Pharmacists United for Truth and Transparency, which first brought them to public attention. The group is critical of what it sees as a lack of transparency in the pharmacy benefit management industry.

Through May 2012, the plan will fend off competition from both Watson and Ranbaxy Laboratories (OTC:RBXZF), the other company that is preparing to manufacture generic versions of Lipitor. After that, the market will open to other generics manufacturers.