The Law of Karma states that “for every event that occurs, there will follow another event whose existence was caused by the first, and this second event will be pleasant or unpleasant according as its cause was skillful or unskillful.’ Apparently Merck has decided to create some karma of its own, deciding that it has had just about enough from generic manufacturers that want to make generic versions of its branded drugs. In a move that has already shaken up some folks, Merck has aggressively targeted leading generic company Teva Pharmaceuticals by pricing its brand-name cholesterol drug, Zocor, below the generic price for some customers, just prior to it going off-patent, which is Friday, June 23.

What’s at stake is Teva’s profits from its 180-day exclusivity period (gained by being the first to challenge the validity of Merck’s patents) and perhaps industry-wide profits in the future. For a generic, this 180-day window is critical and possibly pivotal in filing strategies since this 180-day window affects the profitability of the generic company to not only develop a drug but to risk the litigation to overturn the patent in question.

What Merck has done is negotiate separate deals with health insurance companies like United Health and Well Point under which patients will be able to get Zocor at a lower cost than the generic version. Although the total number of people involved at present looks to be a fairly modest minority of the total population, the threat in such a move sets a fairly clear precedent.

Under the deal, members of United Health Group Inc. will pay around $10 for a month’s supply of brand name Zocor and $40 for a generic after the drug loses patent protection on Friday. Both Merck and United Health say the arrangement demonstrates how market competition drives down costs, and that’s good for patients.

Of course, that’s not the way you’re going to hear it from Merck. From Merck’s point of view, this is just the competitive market working itself out and that this great for consumers since they will benefit from lower-cost drugs.

Teva Pharmaceuticals said that the United Health Group-Merck contract will not significantly affect the company’s sales since the specific United Health program covers less than 5% of the insured US citizens. The company’s generic Zocor is expected to receive the final approval from the FDA after the expiration of the branded version later this week.

However, George Barrett, CEO and president of Teva North America, said other health plans had spurned Merck’s offer of low-cost Zocor and that his company is considering legal action over the issue. Still, he expressed optimism about the prospects of Teva’s version of Zocor. Litigation is still pending about whether Teva is entitled to the six months of exclusivity and Barrett declined to say whether it would launch its product on Friday.

What will be interesting to watch is whether other large pharmaceutical companies like Pfizer, GlaxoSmithKline, and Novartis follow suit and what the government decides to do about this and when something will be done about it (recall 2006 is an election year).

Consumer advocates typically cheer lower prices but in this instance they worry that a short term benefit for patients will ultimately result in long term problems. They say moves such as Merck’s undermine generic companies’ chances to generate the profits that fuel their ability to conduct research and challenge drug company patents — eventually resulting in fewer cheap medicines.

Generic companies make most of their profits when awarded six months of market exclusivity because 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.

‘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 the deal between Merck and United Health. ”Merck is taking an end run around the generic drugs laws to make sure there are no generic drugs,” Schumer said.

When the dust settles, it is unlikely that Congress will let the branded pharmaceutical industry choke off the generics through authorized deals and predatory pricing. However, since a solution to this will not happen overnight, what we will likely see is a period of uncertainty and legal wrangling as people debate and lobby for their respective needs and interests and reap the results of the karma they have created.

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