"I Pray for the Welfare of Your Company..." - Pharmaceutical Executive

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"I Pray for the Welfare of Your Company..."
And why not? Big Pharma's drugs fill Teva's pipeline. CEO Isræl Makov says he's not the enemy. To prove it, he offers lessons in survival.


Pharmaceutical Executive


Zocor's patent was set to expire on June 23, 2006. In December 2000, Ivax, then an independent company, was the first Paragraph IV challenger for the 5 mg, 10 mg, 20 mg, and 40 mg doses, while Ranbaxy was the first to file a patent challenge for the 80 mg dose. Teva finished out of the running—for the moment.

The stakes were high. A patent worth $4.4 billion dollars in brand sales hung in the balance. Merck made a surprise move and delisted the Zocor patents. It withdrew them from the Orange Book, apparently reasoning that if there was no patent, there could be no patent challenge. Ivax countered with a Citizen's Petition to FDA, arguing that it deserved exclusivity for following Hatch-Waxman protocol. Teva filed a petition too, arguing against exclusivity for its competitor. Eventually, Teva acquired Ivax—and with it, the status of first filer. Then Teva withdrew its original petition advocating non-exclusivity.

FDA eventually ruled that no company could claim the market for itself. It looked like there would be multiple generic entrants for Zocor, and the price would drop steeply. Undeterred, Teva sued FDA. And as the clock on the Zocor patent wound down, a federal judge ruled in favor of Teva. In a last-ditch effort, Sandoz attempted to block Teva's exclusivity. Finally, just one day before the patent on Merck's blockbuster expired, Teva won its case—and the right to be the sole purveyor of "simva" for six months.

"They survived the delisting, got through the FDA obstacle and the court process favorably, and then they got through other generic companies' protests," says Glass. "That's pretty good."

LESSON #3

Authorized Generics: What, Me Worry?

Authorized generics have challenged the generic manufacturers' role as pricing aggressor. Innovative companies create new drugs. When patents expire—or are invalidated—generic companies take over. "This is the cycle," says Makov. "We see it as very natural. But they want to extend the protection. The truth of the story is that it's not rivalry from our side; it's rivalry from their side. Every time we go to the market, they try to stop us with a huge fight."

Makov fought back against Pfizer, which released an authorized generic version of its epilepsy drug, Neurontin (gabapentin). But in Teva v. Crawford, the District Court of Appeals of the District of Columbia ruled against Teva in 2005, stating that Hatch-Waxman did not prevent a patent owner from reselling its own product at a cheaper price.

Most Teva execs will tell you that authorized generics violate the spirit of Hatch Waxman. They are unfair, unjust, and in the long run, bad for consumers. Branded companies argue just the opposite: More competition, specifically during the six months of market exclusivity, helps drive down prices. However, one thing is certain: Branded companies will try to stem their revenue losses with authorized generics and a variety of other tactics. "The branded industry is going to fight tooth and nail to minimize the impact of generics, be that through authorized generic deals, building up their own in-house generics division, or lowering the price of their branded drug to combat the generic," says Wood Mackenzie's Milton.

Merck's pricing strategy for Zocor provides a good example. As Teva began its six months of marketing exclusivity for generic simvastatin, Dr Reddy's began selling an authorized generic. Then, in a move that surprised most of the industry, Merck offered rebates to selected insurers, drastically cutting the price of its own drug.

"Typically, when a generic becomes available, the brand's rebates and contracts tend to go away," says Tim Heady, CEO of UnitedHealth Pharmaceutical Solutions, who was one of the architects of the deal. UnitedHealth offered to keep Zocor in the second tier and put the generic in the third tier, if Merck was willing to continue its rebate program. "But then we [agreed] that we would be willing to put them in the first tier if they increased the rebate," says Heady.


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