European Pharma to Surge Ahead Of US? - Pharmaceutical Executive

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European Pharma to Surge Ahead Of US?
The next two years may see a shake up in the world's current top pharmaceutical companies, with Pfizer likely to be the only US firm to remain in the top five by sales.


Pharmaceutical Technology Europe


Nathan Jessop
Although the leading pharmaceutical companies are often termed multinationals, their regional origins are still important. Several studies have suggested that the idea of a global company that transcends national boundaries is an oversimplification of how businesses operate because such companies still retain many features of their national origin when expanding internationally. This effect is observed in the work culture that reflects operational decisions and a perceived preference for home-country nationals at the top of the organisation. This position is illustrated by GlaxoSmithKline, which originated in the UK. Although the company generates 96% of its sales elsewhere in the world, its British CEO, Andrew Witty, has reiterated that the company remains British and that it will maintain its main base in the UK despite the difficult operating environment (1).

Pharmaceutical company rankings

US pharmaceutical companies have tended to be high in the industry sales rankings. Therefore, as 2011 drew to a close, predictions that US company Pfizer was about to be displaced by French firm Sanofi as the world's leading pharmaceutical company in terms of sales came as a surprise and drew considerable media attention (2,3). After nine years of staying ahead of its rivals and being active on the merger and acquisition front, little evidence had indicated that Pfizer would be surpassed.

Evaluate Pharma analysed companies' sales forecasts to 2016 and revealed the likelihood of a general shake-up in the rankings, with a number of European companies set to perform strongly against their previously dominant US rivals (4). The analysis suggested that by 2014, Pfizer would be the only remaining US pharmaceutical company in the top five. Pfizer is expected to slide to third, while Swiss companies Novartis and Roche will take second and fourth places, respectively. Meanwhile, GlaxoSmithKline will come in fifth, while US company Merck & Co. will slip to sixth, despite its $41-billion (€30.8 billion) acquisition of Schering-Plough in 2009.

Pfizer's decline

The major factor in Pfizer's commercial dip is considered to be the loss of US-patent protection for its blockbuster cholesterol-lowering statin Lipitor (atorvastatin), which occurred in November 2011. Launched in 1998, Lipitor reached peak sales of $12.9 billion (€9.7 billion) in 2006, accounting for 27% of Pfizer's revenue (5). In 2009, Pfizer acquired Wyeth in a $68-billion deal (€51 billion) to offset the impending loss of Lipitor's patent, but the product continued to represent a major source of sales; in 2010, Lipitor achieved sales of $10.8 billion (€8.1 billion), representing 15.8% of Pfizer's sales (5).

The impending loss of patent protection led to India's Ranbaxy to develop a generic atorvastatin for the US and other markets. Starting in 2003, the company began launching patent challenges against Lipitor patents in several markets (6). Pfizer resisted strongly through its own legal counterattacks, but in 2008 it agreed to give Ranbaxy a license to sell atorvastatin in the US market, which became effective 30 November 2011. In addition, Ranbaxy will have exclusivity for 180 days before other companies can enter the market (6), while other agreements with Pfizer will also give Ranbaxy a license to sell atorvastatin in Canada, Belgium, the Netherlands, Germany, Sweden, Italy and Australia (6).

The US is a key market for Ranbaxy, as it represents 70% of Pfizer's Lipitor sales (6). During its 180-day exclusivity period, Ranbaxy could generate as much as $650 million (€488 million) in sales. Ranbaxy also formed a partnership with Israel's Teva, which is the world's largest generic manufacturer. Teva has a strong distribution network in the US that should help Ranbaxy keep ahead of other competition such as Watson Pharmaceuticals, which is also seeking to introduce a generic version of atorvastatin.

Although most attention has focused on Lipitor, Pfizer has several other products that have either recently lost patent protection, or will do shortly. Between 2010 and 2012, it was estimated that drugs representing 42% of Pfizer's pharmaceutical revenue were set to lose patent protection, including the antipsychotic Geodon (ziprasidone HCl), erectile-dysfunction drug Viagra (sildenafil citrate), overactivebladder drug Detrol (tolterodine) and eye-pressure lowering drug Xalatan (latanoprost ophthalmic solution) (5).

Sanofi's rise

Sanofi's rise in the rankings has been achieved through a steady focus on mergers and acquisitions, which started in 1999 with an allFrench tie-up with Synthélabo in a $30-billion (€22.5billion) deal (4). Then in 2004, while Novartis was still considering a bid for Aventis, Sanofi moved in to create Sanofi-Aventis in a $63-billion (€47billion) winning deal that the French government supported strongly to preserve jobs in France (7).

Sanofi eventually dropped the name Aventis, thus signifying that it was the driving force within the merged company. In February 2011, Sanofi bought Genyzme with a $20.1-billion (€15.1billion) cash offer, which was seen as a shrewd move to replenish its R&D pipeline, due to Genyzme's strong biotech focus (8). In November 2011, Sanofi announced a 26% rise in third-quarter net profit, which included sales from newly acquired Genzyme.

The manner in which the Genzyme acquisition went ahead has been contrasted with the way in which Sanofi took over Aventis. The Genzyme deal was very long and drawn out (taking 9 months), but Sanofi was the only company involved. It was obvious the merger would go ahead, but there were many negotiations over price. In contrast, there was never a clear cut regarding the winner of Aventis as the company had also been approached by Novartis (and there were rumours that GlaxoSmithKline was interested too) (1). The deal was about politics as well as price because a lot of outside players were involved, with the critical one being the French government. The SanofiAventis merger is often considered a messy affair because of the French government's heavyhanded intervention; French politicians were quoted as saying that they wanted to create a "national champion" (7, 9). In Europe, the final decision regarding mergers tends to rest with shareholders, whereas in the US, the directors have the major say. While the US process would not feature overt involvement from the government, the Genzyme merger shows that it can still result in a very long and drawn out process.

Like Pfizer, Sanofi has faced its own patentexpiry challenges and has been scouring the market for a source of new revenuegenerating products. It lost a US patent challenge for its topselling blood-thinner product, Lovenox (enoxaparin), in a legal case in 2007 (1), and Sandoz, the generic arm of Novartis, has been selling a generic enoxaparin and eroding sales for Sanofi's product since 2010. In 2010, Sanofi generated around $30.1 billion (€22.6 billion)—around 7% of its revenue—from its anti-clotting drug Plavix (clopidogrel), which is marketed jointly with BristolMyers Squibb, but faces patent expiry in May 2012 (8). In 2006, Canadian generics manufacturer Apotex marketed a generic Plavix, but was ordered to halt production in November 2011.

Interestingly, in September 2011, Pfizer agreed to let Sanofi sell a generic version of Lipitor in France (8). This agreement was part of a programme designed by France's Strategic Council of Health Industries, which fosters agreements between business and government. Such deals give the original manufacturer a tax break if it allows a genericsdrug manufacturer to produce and sell copies as the branded drug's patent expires. Specifically, the French government hopes that this will keep local production sites open and boost employment (10).

Regarding future growth, another area Sanofi sees as important is emerging markets. In 2010, Sanofi's emergingmarket sales rose by 16% (11). However, some have criticised the company as being too optimistic. In 2011, Sanofi admitted that it had underperformed in Turkey due to "significant price decreases", as well as in eastern European markets because of the ongoing economic crisis (10). Even so, the company retains faith in emerging markets, pointing out that 2010 sales increased by 47% in China and by 19% in Brazil (11).

Outlook

The idea that European pharmaceutical companies are set to outperform their US counterparts should be welcome news to politicians, who are eager for the pharmaceutical industry to continue to invest in Europe. According to the European Federation of Pharmaceutical Industries and Associations (EFPIA), the European pharmaceutical industry represents 19.2% of total EU private R&D expenditure and 3.5% of EU manufactured exports (12). For several years, EFPIA has been lobbying European politicians to move away from harsh costcontainment approaches and to create a friendlier environment for the pharmaceutical industry, particularly as some companies have chosen to make new investments elsewhere, such as in the US or emerging markets. Between 1990 and 2008, for example, R&D investment in the US grew 5.6 times, compared with only 3.5 times in Europe (12).

Whether Sanofi's surge to the top of the rankings, followed by some of its European colleagues, represents a true strengthening of European pharmaceutical competitiveness is hard to say. Pharmaceutical companies remain unhappy with operating conditions in Europe, even if they have their origins in the region. Over the next couple of years, it will be interesting to see whether European companies such as Sanofi, GlaxoSmithKline, Novartis and Roche decide to increase their investment in Europe now that their future financial performance looks promising.

References

1. A. Clark, "Big firms have allowed themselves to be seen as detached from society" (The Guardian, 2011). www.guardian.co.uk, accessed 9 Dec., 2011.

2. T. Staton, "Sanofi set to rev past Pfizer in pharma rankings" (FiercePharma, 2011). www.fiercepharma.com, accessed 9 Dec., 2011.

3. K. Grogan, "Sanofi to topple Pfizer as sales league leader next year" (PharmaTimes, 2011). www.pharmatimes.com, accessed 9 Dec., 2011.

4. Evaluate Pharma, "Pfizer to lose crown to Sanofi as world's biggest drug maker" (2011). www.evaluatepharma.com, accessed 9 Dec., 201).

5. M. Alazraki, "The 10 Biggest-Selling Drugs That Are About to Lose Their Patent" (Daily Finance, 2011). www.dailyfinance.com, accessed 9 Dec., 2011.

6. Ranbaxy, "Ranbaxy and Pfizer settle Lipitor litigation worldwide" (2008). www.ranbaxyusa.com, accessed 9 Dec., 2011).

7. BBC News, "Aventis and Sanofi set for merger". (2004). http://news.bbc.co.uk|~http://news.bbc.co.uk/ , accessed 9 Dec., 2011).

8. Reuters, "Sanofi to buy Genzyme for more than $20 billion" (2011). www.reuters.com, accessed 9 Dec., 2011).

9. The Pharmaletter, "Agreement on Sanofi-Aventis/Genzyme deal prompts lawyer comment on Europe/USA differences on takeovers" (2011). www.thepharmaletter.com, accessed 9 Dec., 2011).

10. K. Grogan, "Sanofi signs deal with Pfizer to sell generic Lipitor" (PharmaTimes, 2011). ww.pharmatimes.com, accessed 9 Dec., 2011.

11. A. Torsoli, "Sanofi May Be Too Optimistic in Emerging-Markets Forecast" (Bloomberg, 2011). www.bloomberg.com, accessed 9 Dec., 2011.

12. EFPIA, "Improving Europe's competitiveness" (2011). www.efpia.org, accessed 9 Dec., 2011.

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