Harbingers of Change - Pharmaceutical Executive

ADVERTISEMENT

Harbingers of Change
What to watch—and watch out for—in the bottom half of '07


Pharmaceutical Executive


6. Dangerous Liaisons



The Perils of Deal Making

There's an old fable about a scorpion that asks a frog for help in crossing a river. The frog is hesitant to help, aware that the scorpion could sting him at any point. The scorpion presents a reasonable case: It is in his interest not to sting the frog, for he would drown on the dying frog's back. Persuaded, the frog lets the scorpion climb on his back and starts swimming. But halfway across, the frog feels the scorpion's sting. As numbness overtakes his limbs, the frog berates the scorpion for killing them both, and asks, "Why?" "I couldn't help myself," the scorpion replies. "It is my nature."

The Harbinger In early 2006, Apotex threatened to launch a generic form of Sanofi-Aventis' Plavix (clopidogrel) "at risk." Plavix was a nearly $3.5 billion product in the United States, where it was marketed by Bristol-Myers Squibb. BMS and Apotex tried to strike a deal that would delay launch of the generic entry until the product's patent expiration in 2011, but the Federal Trade Commission (FTC) rejected their proposal. During another round of negotiations, Apotex won important concessions from BMS, and they crafted another deal.

After FTC opposed the second deal, Apotex went ahead with its launch in August. In theory it was the largest "at risk" launch ever, but, practically speaking, the real risk was minimal. According to its agreement with Apotex, BMS was required to wait five days before filing an injunction—long enough for Apotex to flood the market with at least a five-month supply of the generic and send Plavix's prescription share plummeting to 21 percent. What's more, according to the agreement, though the courts upheld the patent, Apotex's total debt to BMS is capped at 50 percent—rather than the usual triple—of damages.

The Change Since 1998, there has been ample incentive for generics companies to be the first to challenge branded products in the US market. The first competing generic is granted 180-days' market exclusivity, without the need to successfully defend a patent challenge in court. At the same time, according to an FTC study, generics applicants prevailed in nearly 75 percent of patent cases from 1992 to 2000. Given that history, generics companies have become adept at sensing when they have a good chance of success.

The Apotex/BMS arrangement, however, reflects a new level of sophistication among generics companies. It also exposes the plight of branded manufacturers in contending with current laws. Winning in the marketplace is now as dependent on legal strategy as on marketing savvy.

The Implications For branded manufacturers, one big lesson of the Plavix case is that there are dangers in settling with generics companies to avoid court battles. Generics makers, no longer content with crumbs off the table, are developing ways to walk off with the whole buffet. The strategy of defending a patent through one-off deals is truly "defending at risk."

Today, companies must have a patent strategy to cover a product's full life cycle. To prepare for a patent challenge, branded companies need to take scenario planning to a tactical level. Legal counsel is pivotal to that strategy—and pharmaceutical patent attorneys will likely proliferate, rising to positions of power at pharma companies.

But the biggest question is how far legislators will go to support the introduction of lower-cost generics. Is Congress satisfied that the Hatch-Waxman Act achieves its goal of encouraging generics competition while still providing incentives for pharma innovation? If not, can reforms be crafted that actually achieve that balance? The signs are not encouraging. In July, several senators introduced a bill to ban authorized generics during the 180-day exclusivity period. A subsequent bill aimed to provide a regulatory pathway for follow-on biologics—a concept that Congress continues to actively pursue. In addition, FTC Commissioner Jon Liebowitz has expressed support for legislation banning "payoff settlements" between branded and generics companies, such as the arrangement originally planned between BMS and Apotex.

It is clear that legislators continue to have an interest in branded companies' maneuverings—and that patent disputes like the Plavix case raise the visibility of the complex issues, for better or worse.


ADVERTISEMENT

blog comments powered by Disqus
Management effectiveness
Harbingers of Change

Source: Pharmaceutical Executive,
Click here