A

PROJECT REPORT
ON

IMPACT OF PATENT EXPIRY ON

PHARMACEUTICAL INDUSTRY
FOR

MASTER OF MANAGEMENT STUDIES (MMS)

UNIVERSITY OF MUMBAI

SUBMITTED TO
MARATHA MANDIR’S
BABASAHEB GAWDE INSTITUTE OF
MANAGEMENT STUDIES
MUMBAI CENTRAL

UNDER THE GUIDANCE OF

Prof.Dr.C.M.SANKARAN KUTTY

SUBMITTED BY
SWAPNIL.S.WARGAONKAR
BATCH 2009-2011 & ROLL NO.120
MARKETING

1
 CERTIFICATE

This is to certify that ________________________________________ has

successfully completed the project work as a part of academic fulfillment of Masters

of /Management Studies (M.M.S.) semester IV examination.

Name & Signature of Project Guide

Date : _________________

DIRECTOR
BGIMS

2
3
 DECLARATION

I, Swapnil Satish Wargaonkar of Master of Management Studies (Semester IV) of

Babasaheb Gawde Institute of Management Studies (BGIMS), hereby declare that I have

successfully completed this Project on “Impact of Patent Expiry on Pharmaceutical

Industry” in the academic year 2010-11 The information incorporated in this project is true

and original to the best of my knowledge.

_____________________________

Signature

4
 ACKNOWLEDGEMENT

This project would not have been possible without the guidance, help & cooperation of a

number of people. I extend my gratitude to all these people who helped me some or the

other way to complete my project.

My sincere thanks to Prof.Dr.C.M.Sankaran Kutty who considered my candidature for

final project & thus provided me with an opportunity get an insight of current

pharmaceutical industry.

I owe my sincere thanks to Dr. Sunil Karve, Director of Maratha Mandir’s Babasaheb
Gawde Institute of Management Studies, Mumbai Central who helped me greatly in
winding up my project and has been inspiring me throughout.

I also want to thank all my other teachers who introduced me to various concepts of
management & provided me with the confidence of entering the corporate world.

I also extend my gratitude to all my friends & my family for their love & support.

Swapnil.S.Wargaonkar

5
 TABLE OF CONTENTS
Chapter Contents Page
No
1 Executive Summary 8

2 Introduction 9

2.1 Statement of the problem 9

2.2 Significant of the study 9

2.3 Purpose 10

2.4 Objectives 10

2.5 Hypothesis 11

3 Research design and methodology 12

4 A Conceptual framework 14

5 Trends in Pharmaceutical Industry 16

6 Generic Drug Industry 22

7 Review of Literature 27

8 Case study & Market Research 32

8.1 Case study 1 – MERCK “ZOCOR” 32

8.2 Case study 2 – PFIZER “LIPITOR” 46

8.3 Anticholesterol drug market of India and Market survey 53

9 Presentation and Analysis of data 56

10 Findings 66

11 Results 68

12 Recommendations/suggestions 70

13 Limitations 72

6
14 REFERENCE SECTION
14.1 Appendix
73
14.2 Bibliography 76

14.3 Webliography 77

7
 LIST OF TABLES

Number NAME PAGE NOS

1 Blockbuster drugs 16
2 Original drugs that did not get launched in India 17
3 Acquisitions by MNC’s 20
4 Indian company review of patent fights 25
5 Strike rate of Indian company in patent fight 26
6 Price of Zocor v/s Leschol 36
7 Price of branded Lipitor v/s generic lipitor 52

LIST OF CHARTS

Number NAME PAGE NOS

1 Sales of Merck including Zocor 33
2 Sales of Merck including Zocor 34
3 PBMC Medco & Merck review 37
4 Medco, Zocor and other Merck products sale 38
5 Zocor sales through its life cycle 38
6 Net income of Merck 42
7 Pfizer v/s Wyeth sales and other assets comparison 48

LIST OF FIGURES

Number NAME PAGE NOS

1 Caudet 50
2 Caudet 53

8
1. EXECUTIVE SUMMARY

While studying marketing as a major subject the most important and interesting thing that I
came across was the rapid growth rate of pharma industry in India as well as worldwide and
different factors affecting it. Being a B.pharmacy graduate, the recent up and downs in
pharma industry alongwith the highly volatile market due to major Mergers&Acquisitions
attracted me to do research on the same.

The purpose of my project is to identify the reasons behind the major M&A’s done by many
MNC’s as well as their buyouts in India and other emerging markets. In this reference we
propose and examine a retail audit market survey alongwith case studies of MNC’s like
Pfizer & Merck which identify the factors that led to decrease in revenue and market share
of organization that holds patented drug as well as factors contributing to M&A’s.

A wide range of measurement techniques are used in the study. The research design selected
for this study is exploratory. The sampling method adopted for research work was
convenient sampling method. The respondents have been located at various towns across
Mumbai city. The research work gave an insight into the impact that a patent expiry of block
buster drug has on pharma industry worldwide and different strategies adopted by the same
to overcome it as well as current scenarios in India w.r.t patenting laws, patent expiry &
generic drug market.

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2. INTRODUCTION

• Companies holding patents for the products of pharmaceutical products face serious
threats, once the patent expires its validity.
• Many firms are facing problems on account of these issues. Not much study has
been done in this area w.r.t Indian market. Hence this study is carried out.

2.1 STATEMENT OF PROBLEM

“TO STUDY THE IMPACT OF PATENT EXPIRY OF BLOCK BUSTER DRUG

ON PATENT HOLDING PHARMACEUTICAL INDUSTRY IN ANTICHOLESTEROL
DRUG MARKET”

2.2 SIGNIFICANCE OF THE STUDY:

The significance of this study arises out of the need for identifying the issues that weaken
the growth of pharma industry. Issues such as:

1. Patent expiry of blockbuster drug in pharmaceutical industry in anticholesterol drug

market citing comparative example of ZOCOR (simvastatin) of MERCK and
LIPITOR (atorvastatin) of PFIZER.

2. To understand the rise of Generic drug market in world as well as India due to less
entry barriers

3. To understand the Patenting policy in India and world

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2.3 PURPOSE:

1. To analyze the impact of generic drug manufacturing industry on pharmaceutical

industry

2. To understand the financial impact on pharmaceutical company during post patent

expiry period

3. To understand the strategies adopted by pharmaceutical companies to

• Retain the market share

• Increase revenue

• Attract investors to invest in the organization

• As well steps taken to promote brand/sales

2.4 OBJECTIVES OF THE PROJECT

1. A project is an essential part of MMS curriculum

2. The project was conducted “To study Impact of patent expiry on a pharmaceutical
company” w.r.t Anticholesterol drug(statin) market

3. To study the strategies adopted by pharmaceutical companies during post patent

expiry period

4. To study the outcome of the strategies implemented by the organization

5. To study the impact of patent expiry on beneficiaries i.e generic drug

industry/market

6. To study opportunities available to generic companies in India

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 7. To study and analyze local Indian market(metro city) via market research for:
Generic version of patent expired product in Anticholesterol drug market

&

Competition in market prior to launch of generic version of patent expired product in

Anticholesterol (statin) drug market

8. To study the current trend in International market w.r.t to patenting and other
regulatory as well as free trade agreement for medicines

2.5 HYPOTHESIS:

The study is based on the hypothesis that :

• Generic drug manufacturing companies are at an advantageous position for
launching the generic version of patent expired product or where a patent(s) is/are
not in force.

• Patent expiry of blockbuster drug leads to loss of market share of a company

• Patent expiry of blockbuster drug leads to decrease in revenue of a company

3. RESEARCH DESIGN

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I. Research Objective:
➢ To Monitor Trends
• Sales(Market)
• Brand Competition
➢ To Understand Distribution
• Width & Depth
• Shelf Competition

I. Research type:
➢ Syndicated/Continuous: Retail audit

I. Sampling :
➢ Sampling Universe – Medical shops.
➢ Sampling/Coverage Area – Mumbai/Thane
➢ Sample Size – 50
➢ Sampling method: Random

I. Research Methodology: The study is a cross sectional study and data was
collected at single point of time.
Data Collection Method:
• As the study was about analyzing local Indian market (metro city) via market
research for generic version of patent expired product/launch of generic
version of patent expired product in Anticholesterol (statin) drug market
primary data was directly collected from the Medical shops and was a
mandatory requirement.

• As well as to corroborate with the data collected regarding Merck and Pfizer
case studies Interviews were scheduled with respondents working for pharma
MNC.

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 • Also information regarding anticholesterol drugs market in India, the
manufacturer’s of anticholesterol drugs, the expected growth in this market
etc was also required. So secondary data is also included in this project.

I. Research Measuring Instrument :

• The Measuring Instrument adopted in this research report is the
Questionnaires which are filled in by the Medical shop owners/operators
themselves.
• So that first hand information is available directly from the POP.

I. Data Interpretation :
• The interpretation of the data was purely done on logical grounds. Based on
the findings from the questionnaire filled in by shop owners the data was
feed into an excel sheet

I. Data Analysis :
• The data collected was from 50 respondents and analysis was done critically
taking into consideration every aspect viewed.
• The analysis is shown in the form of graphs, pie-charts & tables

I. PERIOD OF STUDY: 3 months

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Chapter 4. A Conceptual framework

What is Drug?

• Substance used in the diagnosis, treatment, or prevention of a disease or as a

component of a medication. Such a substance as recognized or defined by the U.S.
Food, Drug, and Cosmetic Act

Definition:
• All medicines for internal or external use of human beings or animals an all
substances intended to be used for or in diagnosis,treatment,mitigation or prevention
of any disease or disorder in human being or animals including preparation applied
on the human body for the purpose of repelling insects like mosquitoes

• Substance other than food intended to affect the structure or any function of the
human body or intended to be used for the destruction of or insects, which causes
disease in human beings or animals

• All substances intended to be used as components of a drug including empty gelatin

capsules

• Such devices intended for internal or external use in diagnosis, treatment, mitigation,
or prevention of disease or disorder in human beings or animals

What are Branded Drugs?

• A Branded Drug has a trade name and is drug manufactured by a well established
pharmaceutical company, protected by a patent. It cannot be produced or sold by any
other company

What are Generic Drugs?

• Drug which is produced and distributed without patent protection

• Generic drugs are chemical equivalents of name-brand drugs that contain the same
active ingredients as the original formulation

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 • According to the U.S. Food and Drug Administration (FDA), generic drugs are
identical or within an acceptable bioequivalent range to the brand name counterpart
with respect to pharmacokinetics and pharmacodynamics properties

• The generic drug may still have a patent on the formulation but not on the active
ingredient

• Generally less expensive than their name brand counterparts, are manufactured and
marketed by other companies and, in the 1990s, accounted for about a third of all
prescriptions written in the United States

• For approval of a generic drug, the U.S. Food and Drug Administration (FDA)
requires scientific evidence that the generic drug is interchangeable with or
therapeutically equivalent to the originally approved drug. This is called an "ANDA"
(Abbreviated New Drug Application)

What are Patents?

 A patent is an official right, to be the only person or company allowed to make or

sell a new product for a certain period of time

 As per the FDA Regulation the patent of any medicine can last for 17 years. After
which the generic version of the drugs is released

Indian scenario

 In India patent implementation took place 2004-2005

 So pre 2004-05 drugs don’t qualify for protection under patents right

16
Chapter 5. Trends in Pharmaceutical Industry

For purpose of this study Blockbuster drug is defined as:

• A blockbuster drug is a drug generating more than $1 billion of revenue for its
owner each year
• "A blockbuster drug is one that achieves acceptance by prescribing physicians as a
therapeutic standard for, most commonly, a highly prevalent chronic (rather than
acute) condition. Patients often take the medicines for long periods."
• A report from URCH Publishing estimated that about one third of the pharma market
by value is accounted for by blockbusters. About 125 products are blockbusters.
• Top seller was Lipitor marketed by Pfizer with sales of $12.5 billion
• In 2009 there were a total of seven new blockbuster drugs, with combined sales of
$9.8 billion

DRUG NAME COMPANY TREAT 2009

Lipitor Pfizer Cholesterol $12.5 billion

Nexium AstraZeneca Heartburn/ $6.3 billion
gastric reflux
Plavix Bristol-Myers Blood thinner $5.4 billion
Squibb
Advair diskus GlaxoSmithKline Asthma/COPD $5.6 billion

Seroquel AstraZeneca Atypical anti-psychotic $4.5 billion

Zyprexa Eli-lilly Neurodisease $5 billion

Cymbalta Eli-lilly Neurodisease $3 billion

Table 1

Why MNC’S not bring blockbuster drug to India

 “Lack of Patent Recognition”

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  India lagging in research output

 Country Ranks 9th In Patents Filed, 12th In Granted

 “Copy Market”

 Approvals are not happening fast enough, In three years now, only about nine drugs
have got product patents. The process needs to be fast and clear.

Some Original Drugs that did not get launched in the Indian market

Company Use Brand/Drug

AstraZeneca Cholesterol lowering Crestor (Rosuvastatin)

Johnson&Johnson Antibiotic Levaquin

Pfizer Cholesterol lowering Lipitor (Atorvasatin)

Table 2

IMS Forecast on Global Pharma Market

 Growth in 2010 à 4 - 6%

 Expansion Through 2014 à 5 - 8%

 Growth single digit :

• New product introductions decreased

• Patent losses increased
• Increase in generic demand and approvals
• New products not expected to generate same magnitude of sales as compare
to products losing patent protection. (no blockbuster)

Current Indian Scenario:

• The domestic pharma sector continued its strong show in 2010 and recorded a 16.5%
growth during January-December 2010

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 • Cipla topped the list with the highest market share 5.21%, cough medication Corex
(Pfizer) was the largest-selling brand in the organized retail market

• During 2010, Corex, the largest selling drug, recorded annual sales of Rs 205 crore

• The Rs 46,787-crore pharma market has been on an upswing over the last four years
with a growth of 13-17%

• Mumbai patent office rejects Abbott’s and Bristol-Myers Squibb drug application for
HIV drugs in December 2010.

• Abbott’s application for Lopinavir & Ritonavir (LPV/r) as it “lacked inventive step”

• BMS’s application for Atazanavir bisulphate (ATV) as it “lacked inventive

ingenuity”

• All the 3 drugs are recommended by the WHO for second-line AIDs therapy while
LPV/r is also sometimes used as first line therapy for infants born with HIV

• Market growth for 2011 forecast in the range of 15-17%

Trends in Pharmaceutical Industry:

 The pharmaceutical industry is most profitable industries of all businesses in U.S. &
in annual Fortune 500 survey à return of 17% on revenue.

 USA accounts almost half of the global pharmaceutical marketà$289 billion in

annual sale followed by the EU and Japan.

 Emerging markets such as China, Russia, South Korea and Mexico outpaced that
market, growing a huge 81 percent.

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 Number of methods for foreign companies to explore opportunities in India.

• Outsourcing: Recently there has been a move from outsourcing lower value and
manufacturing activities to more research-based capabilities

• Licensing is being used to establish a common platform in order to gain rapid in-
market acceptance and create a complete therapy range

• Franchising: US-based Medicine Shoppe International. For instance, has entered the
market as Medicine Shoppe India and plans to expand to 1,000 stores

• Joint ventures with domestic partners bring local expertise and a local network and
require government approval. Pharmaceuticals are deemed a high priority area so
approvals can be quick.

• Some multinational companies such as Pfizer and Novartis are taking advantage of
the potential in India through partially or wholly owned subsidiaries.

So far, India has witnessed five major pharma deals starting from

• Ranbaxy – Daiichi Sankyo

• Dabur Pharma – Fresenius
• Matrix – Mylan
• Orchid – Hospira and
• Abbott - Piramal

Acquisitions of Indian Generic companies by MNC’s

No Year Acquirer Target Company

Company Country

1 Jun’08 Daiichi Sankyo Japan Ranbaxy Laboratories

Co Ltd

2 Aug’08 Fresenius Kabi Germany Dabur Pharma

AG

3 Jun’09 Pfizer (Animal U.S. Vetnex Animal Health Ltd (earlier ICICI
Health Venture acquired from Ranbaxy)
Business)

4 Jun’09 Vetoquinol SA France Wockhardt (Animal Care Subsidiary)

5 Jul’09 Abbott U.S. Wockhardt (Nutrition Business)

20
 Laboratories

6 Jul’09 Sanofi Aventis France Shantha Biotech (Hiked stake from 60%
through to 80%)
Merieux
Alliance

7 May’10 Abbott USA Piramal Healthcare(Sale of Business)

Laboratories

Table 3

The world over, the pharmaceutical Industry is undergoing a paradigm shift in the
way it conducts business:

• To sustain its growth trajectory.

• With research pipelines running dry and patents of many blockbusters nearing
expiry, MNCs have to rejig their business model to survive

With the increase in life expectancy, most Governments in developed countries are
battling with ballooning healthcare expenditure:

• Increasingly looking at generics to contain healthcare costs e.g United Kingdom and
USA

• Countries like Japan who scoffed at generics are beginning to take a second look at
generics, albeit grudgingly

Even the most diehard research based companies have started exploring generic
business:

• Generics is a high volume low margin business, when one looks at the world as a
market and also at the biosimilars opportunity, the margins look encouraging.

• This has resulted in spate of MNCs acquiring or tying up with Indian generic
companies e.g PFIZER

• Indian companies with their US / EU FDA approved , low cost manufacturing

facilities and strong ANDA and para IV pipelines and well trained field force are
becoming potential targets.

The strategy is simple. Once capture Indian market of generic drugs and medicines
and then sell them at the price of their choice.

21
Chapter 6. Generic Drug Industry

GENERIC DRUG INDUSTRY

• Generic drugs can save patients and insurance companies substantial costs.

• The principal reason for the relatively low price of generic medicines is that
competition increases among producers when drugs no longer are protected by
patents.

• Companies incur fewer costs in creating the generic drug, and are therefore able to
maintain profitability at a lower cost to consumers.

• The costs of these generic drugs are so low that many developing countries can
easily afford them. For example, Thailand has imported millions of doses of a
generic version of the blood-thinning drug Plavix (used to help prevent heart
attacks), at a cost of 3 US cents per dose from India, the leading manufacturer of
generic drugs

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 • Generic manufacturers do not incur the cost of drug discovery, and instead are able
to reverse-engineer known drug compounds to allow them to
manufacture bioequivalent versions.

• Generic manufacturers also do not bear the burden of proving

the safety and efficacy of the drugs through clinical trials, since these trials have
already been conducted by the brand name company

When a generic drug can be produced

When a pharmaceutical company first markets a drug, it is usually under a patent that allows
only the pharmaceutical company that developed the drug to sell it.

Generic drugs can be legally produced for drugs where:

• The patent has expired,

• The generic company certifies the brand company's patents are either invalid,
unenforceable or will not be infringed,

• For drugs which have never held patents, or

• In countries where a patent(s) is/are not in force.

The expiration of a patent removes the monopoly of the patent holder on drug sales
licensing. Patent lifetime differs from country to country, and typically there is no way to
renew a patent after it expires

STRATEGIES BY GENERIC COMPANIES

Abbreviated New drug application ( ANDA )(Exclusivity period)

• The U.S. Food and Drug Administration offers a 180 day exclusivity period to
generic drug manufacturers in specific cases.

• During this period only one (or sometimes a few) generic manufacturers can produce
the generic version of a drug.

• This exclusivity period is only used when a generic manufacturer argues that a
patent is invalid or is not violated in the generic production of a drug, and the period
acts as a reward for the generic manufacturer who is willing to risk liability in court
and the cost of patent court litigation.

23
 • There is often contention around these 180 day exclusivity periods because a generic
producer does not have to produce the drug during this period and can file an
application first to prevent other generic producers from selling the drug.

Exclusivity "bonus" provided for by the Hatch-Waxman Amendments:

Drug Price Competition and Patent Term Restoration Act, informally known as the
"Hatch-Waxman Act" [Public Law 98-417], is a 1984 United States federal law which
established the modern system of generic drugs. The informal name comes from the Act's
two sponsors, representative Henry Waxman of California and Senator Orrin Hatch of Utah.

Hatch-Waxman amended the Federal Food, Drug, and Cosmetic Act. Section 505(j) 21
U.S.C. 355(j) sets forth the process by which would-be marketers of generic drugs can
file Abbreviated New Drug Applications (ANDAs) to seek FDA approval of the generic.
Section 505(j)(2)(A)(vii)(IV), the so called Paragraph IV, allows 180 day exclusivity to
companies that are the "first-to-file" an ANDA against holders of patents for branded
counterparts.

Hatch-Waxman Amendments grant generic manufacturers the ability to mount a validity

challenge without incurring the cost of entry or risking enormous damages flowing from any
possible infringement. Hatch-Waxman essentially redistributes the relative risk assessments
and explains the flow of settlement funds and their magnitude. Hatch-Waxman gives
generics considerable leverage in patent litigation: the exposure to liability amounts to
litigation costs.

A prime example:

Simvastatin (Zocor), created and manufactured by U.S. based pharmaceutical Merck & Co.,
which lost its US patent protection on June 23, 2006. India-based Ranbaxy Laboratories (at
the 80 mg strength) and Israel-based Teva Pharmaceutical Industries (at all other strengths)
received 180 day exclusivity periods for simvastatin; due to Zocor's popularity, both
companies began marketing their products immediately after the patent expired.

INDIAN GENERIC INDUSTRY

INDIAN Scenario:

• INDIA will be one of the top 10 sales markets by 2020

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 • Around $70 billion worth of drugs are expected to go off patent in the US over the
next three years
• Domestic Indian companies account for 35% of ANDAs highlighting the future
potential of the respective companies.
• Highest number of US-FDA approved plants, outside the US, is located in India
• India is already producing 20 percent of the global requirement for generic drugs
increases its attractiveness

• Over the next five years, products that currently generate more than $142 billion in
sales are expected to face generic competition, including Lipitor, Plavix and
Zyprexa.

• India is third largest generic supplier in the world in volume of medicines,

supply amounting roughly Rs.40,000 crores annually
• As per IMS health India july2010 Indian pharmaceutical market reached Rs.45,180
crore
• Total turnover of Indian pharma industry at end of 2009 was Rs,94,680 crore

Source: Report by Pricewaterhouse Coopers (PwC), Global pharma looks to India:

Prospects for growth.
Indian firms have a good success rate in fighting patent holders in the US. (ANDA)
According to a recent report by Royal Bank of Canada (RBC) Capital Markets analysing
patent litigations in the US between 2000 and 2009, Indian pharmaceutical companies have
played this game fairly well. Going by the report, in more than half the cases, Indian drug
companies have either won or entered into an out-of-court settlement with the innovator
drug company.

25
 Table 4

In the case of Mumbai-based Lupin, the success rate

(both in court and out-of-court settlement) stands
as high as 75 per cent, compared to 61 per cent and
63 per cent for Hyderabad’s Dr. Reddy’s Laboratories
and Gurgaon-based Ranbaxy Laboratories, respectively.

26
Chapter 7. Review of literature:
Analyst Interviews: Pharma and Biotech Industry Outlook

By Zacks Investment Research on July 20, 2010

The pharmaceutical industry has witnessed major changes over the past few quarters, with
performance being affected by factors like sluggish prescription trends, intensifying generic
competition and limited late-stage catalysts. The next five years are expected to reflect a
significant imbalance between new product introductions and patent losses.

According to IMS Health, this is the main reason global

Table 5
pharmaceutical market growth will be restricted to the mid-
single digits (5-8%) through 2014. Over the next five years, products that currently generate
more than $142 billion in sales are expected to face generic competition, including Lipitor,
Plavix and Zyprexa.

At the same time, new products are not expected to generate the same level of sales as
products losing patent protection. With revenue growth stalling or slowing down, companies
have been resorting to cost-cutting and share buybacks to drive bottom-line growth.

M&A Activity

With most of the big pharma companies already facing or likely to face patent challenges for
their blockbuster products, the companies have been looking towards mergers and
acquisitions (M&A) and in-licensing deals to make up for the loss of revenues that will arise
with key products losing patent exclusivity.

We saw huge M&A activity over the last few quarters. Major deals include Abbott
Laboratories’ acquisition of Advanced Medical Optics and the pharmaceuticals business of
Solvay Group, Johnson & Johnson’s acquisition of Mentor Corp., Pfizer’s acquisition of
Wyeth, the merger between Merck and Schering-Plough, and Merck KGaA’s acquisition of
Millipore Corporation.

Sanofi-Aventis’ impending acquisition of TargaGen, a privately-held US biopharmaceutical

company, is aimed at boosting its oncology portfolio. Another big player, Celgene Corp), is
also on an acquisition spree to boost its oncology portfolio. The company will acquire
Abraxis BioScience Inc by year-end, having already acquired the privately-held Gloucester

27
Pharmaceuticals earlier in the year. Mylan intends to purchase Irish injectable drug maker
Bioniche Pharma Holdings Ltd. shortly.

Elsewhere, companies have been looking towards biotech firms to build their product
portfolios. Prime examples include Johnson & Johnson’s acquisition of Cougar
Biotechnology, Roche’s acquisition of Genentech, Bristol-Myers Squibbs’ acquisition of
Medarex, Sanofi-Aventis’ acquisition of Fovea Pharmaceuticals SA, Astellas Pharma’s
acquisition of OSI Pharmaceuticals and Abbott’s acquisition of Facet.

We expect this M&A trend to continue. We also expect a significant pickup in in-licensing
activities and collaborations for the development of pipeline candidates. Instead of
developing a product from scratch, which involves a lot of funds, pharma companies are
going shopping for mid-to-late stage pipeline candidates that look promising.

Small biotech companies are also game for in-licensing activities and collaborations. Most
of these companies find it challenging to raise cash, thereby making it difficult for them to
survive and continue with the development of promising pipeline candidates. Therefore, it
makes sense for them to seek deals with pharma companies that are sitting on huge piles of
cash.

We would recommend investors to put their money in biotech stocks that have attractive
pipeline candidates or technology that can be used for the development of novel
therapeutics. Therapeutic areas which could see a lot of in-licensing activity include
oncology, central nervous system disorders, diabetes and immunology/inflammation.

Emerging Markets

Another recent trend seen in the pharmaceutical sector is a focus on emerging markets.
Companies like Mylan Inc., Pfizer, Eli Lilly, (GlaxoSmithKline and Sanofi-Aventis are all
looking to expand their presence in India, China, Brazil and other emerging markets. Until
recently, most of the commercialization efforts were focused on the U.S. market — the
largest pharmaceutical market — along with Europe and Japan.

However, emerging markets are slowly and steadily gaining more importance and several
companies are now shifting their focus to these areas. IMS Health estimates that these
markets will grow 14-17% through 2014, while major developed markets will grow only 3-
6%. Although the U.S. will retain its position as the single largest market (estimated growth:

28
3-6% annually in the next five years), China will soon become the third largest market in the
world.

According to IMS Health, China’s pharmaceutical market is expected to continue to grow

more than 20% annually, and contribute 21% of overall global growth through 2013.
Growth in emerging markets could help stabilize the base business during the industry’s
2010-15 patent cliff.

Will acquisitions of Indian pharma companies benefit or harm Indian patients?

In June, Abbott Laboratories acquired Piramal Healthcare's domestic formulations business.

While this deal is very different from the Ranbaxy-Daichii Sankyo deal, it is likely to be as
much of a gamechanger as the latter. Express Pharma asked key industry professionals to
share their views on the long term impact of this deal and specifically, to debate whether in
the long run this trend will benefit or harm Indian patients. Excerpts from their opinions...

ABSTRACT:

“Pharmaceutical industry recently witnessed sale of some crown jewels of the national
industry to foreign companies.

The most significant among them are acquisitions of Ranbaxy, Dabur Pharma and Shantha
Biotech. Ranbaxy for its size, investment in R&D and a rich pipeline of products going off
patents; Dabur Pharma for its investment in oncology research and a very rich pipeline of
off-patent oncology products; and Shantha Biotech for its research in vaccines and its
potential as a major supplier of vaccines to the developing world. A common thread running
across the sale of these jewels was inability of their promoters to generate further resources
to pursue the high-risk high-reward strategy. Unfortunately for the country, there was no
other commercially viable alternate funding mechanism to save them from divestment by
promoters.”

Tapan Ray, Director General, Organization of Pharmaceutical Producers of India

(OPPI) expressed following view,
“I do not envisage any significant impact on overall competition between the
generic players for M&A moves, as there will be mounting competition from more

29
number of new entrants and emerging players, entry barriers in Indian generic pharma
market being quite low”

D G Shah, CEO, Vision Consulting Group expressed following view,

“It is obvious that the Indian patient will be deprived of vaccines and oncology products
at prices that these companies would have offered as Indian entities. Moreover, one
cannot argue that access to new drugs of original research would not have been possible
without these acquisitions. On the contrary, it can be said that in spite of acquisitions,
new drug may not be accessible for a variety of reasons, unaffordable pricing being the major
reason”

Dr Ajit Dangi, President & CEO, Danssen Consulting expressed following view,
“The intense competition in the pharma business coupled with authorities like the
NPPA and regulations like DPCO firmly in place the prices are unlikely to go up.
Most MNCs have now realised that aggressive pricing in emerging markets will
not only delay market penetration but will result in loss of market share. Hence
there is a trend in adopting India centric pricing”

Smitesh Shah, Chairman & Managing Director, Calyx Chemicals &

Pharmaceuticals expressed following view,
“It would be foolhardy to assume that prices in potentially the most competitive
drug market in the world are going to move up thanks to a large M&A deal. Every
therapeutic segment in domestic market has fierce competition; which has
consistently benefited the Indian consumer (i.e. patient)”

Observations:

• More strategic collaborations between Indian and global pharma companies,

especially in the generic space in near future
• In the globalised economy such type of business consolidation initiatives are
inevitable

30
 • It is obvious that the Indian patient will be deprived of vaccines and oncology
products at prices that these companies would have offered as Indian entities. But the
access to new drugs of original research would not have been possible without these
acquisitions
• On the contrary, it can be said that in spite of acquisitions, new drug may not be
accessible for a variety of reasons, unaffordable pricing being the major reason. Not
only new, but even the existing off-patent medicines may also become inaccessible
from the new owners for various reasons such as rationalization of product portfolio,
price increases to pay for the premium paid by the acquirers, discontinuation of
product for inadequate margin, etc.
• Authorities like the NPPA and regulations like DPCO firmly in place the prices are
unlikely to go up. Hence there is a trend in adopting India centric pricing.

• Less than 40 percent of Indian population has access to essential medicines, there is
enough room for all segments of the industry ie. branded , branded generics and
generic generics to survive

• The present trend of MNC - Indian companies collaboration, therefore, will benefit
the Indian patients

8.Case study and Market research

I.1 CASE STUDY

NOS 1

31
 • Merck Serono (EMD Serono in the United States and Canada) is a pharmaceutical
company headquartered in Geneva, Switzerland with 2009 sales of US $27.43billion

• In September 2006, Merck KGaA announced its intent to purchase the majority
of Serono shares from Ernesto Bertarelli and the Bertarelli family

• The Merck-Serono merger was announced on September 21, 2006

• Merck KGaA is a completely separate company from the US company Merck &
Co.. Therefore, in the US & Canada, Merck Serono is known as EMD Serono, Inc.

• Zocor a anticholesterol drug belonged to cardiovascular division of Merck Serono

• Zocor got US FDA Aprroval-1991

• Launch in USA market 1992

ZOCOR (simvastatin) product launch

Chart 1

32
  Chart 1 shows total sales of Merck including Zocor sales and revenue generated
from Medco Health solutions,Inc

➢ In August 2003, Merck completed the spin-off of Medco Health Solutions, Inc.,
enabling investors to evaluate both companies purely on the basis of their individual
annual financial statements

➢ Hence in chart 2 the total revenue of Merck Serono has been showed as US$22.5
billion excluding the revenue earned from Medco health solution

➢ 2005-Total sales decreased 4% for the year due to VIOXX withdrawal in 2004-$80
million settlement

POST 2002 sale

Chart 2

MARKETING STARTEGY

Marketing strategy is a process that can allow an organization to concentrate its limited
resources on the greatest opportunities to increase sales and achieve a
sustainable competitive advantage

Following were strategies adopted by Merck Serono to boost their sales of Zocor

• Product Differentiation: Product differentiation is the process of distinguishing

a product or offering from others, to make it more attractive to a particular target
market. This involves differentiating it from competitors' products as well as a firm's
own product offerings

• Pricing: Competitive pricing of the product is another strategy adopted

33
 • Vertical Integration: Vertical integration describes a style of management control.
Vertically integrated companies in a supply chain are united through a common
owner

I. PRODUCT DIFFERENTIATION:

 4S-Clinical trials 1995-1996

 F.D.A. approval-1998

 Heart Protection Study (HPS) - ZOCOR 40 mg

 BRISTOL MYERS SQUIBB-Pravachol used to lower cholesterol and triglycerides

in the blood

1) 4S-Clinical trials on scandavians simvastatin survival study

• Due to which FDA officially approved it as a product to save lives and prevent heart
disease.(post heart attack).

• New prescription sale of Zocor rose -80% -$460million in first 9 months of 1995.

1) BRISTOL MYERS SQUIBB-Pravachol

• Conducted study on pre heart attack and angina in those patients with elevated
cholesterol.
• In 1995 -post heart attack patients < patients with high cholesterol who had not
suffered heart attack. Merck thought of conducting similar study as Bristol but didn’t
thus left an opportunity for competitors to establish market presence.

• Product differentiation from competitor BRISTOL MYERS SQUIBB-Pravachol

• 4S-Clinical trials claim secondary heart attack preventionà sale of Zocor rose -80%
-$460million in first 9 months of 1995.

• F.D.A. approved Zocor for reducing the risk of stroke in patients who have high
cholesterol and heart disease Merck's shares rose $1.6875, to $129.875, April 2,
1998.

34
 • 26% increase in sales to 6.7 billion -2001 from previous year 5.45 billion

3)Heart Protection Study (HPS) –

A study conducted by Merck Serono of ZOCOR showed that ZOCOR 40 mg is the first
and only cholesterol-lowering medicine proven to save lives by reducing the risk of heart
attack and stroke in a broad range of high-risk patient

II. PRICING:

 Launch of Sandoz’s-Leschol(anticholesterol) but at wholesale cost in USA only

Drug 20mg(10 tab) 40mg(10 tab)

Zocor $54 $91.20
Leschol $30.60 $34.20

Table 6

 Leschol earned 60% more prescriptions in its first year than Zocor had.

 Merck slashed priced of Mevacor and Zocor by as much as 32% but raised prices on

many of its other drugs

III. VERTICAL INTEGRATION:

 Vertical integration describes a style of management control

 Vertically integrated companies in a supply chain are united through a common

owner
 Medco health solution advertised for the Merck its various products including Zocor

 Merck bought Prescription Benefits Management Company (PBM)-MEDCO-

$6billion in 1993

35
 Post acquisition Merck volume increased by 10% in 2nd quarter of 1994 and 15% in
third quarter

 MEDCO power was its ability to make recommendations to pharmacists

eg:1992 Medco entered in agreement with Bristol-Myers Squibb to recommend that
pharmacists switch patients from Mevacor to Pravachol and where after Pravachol
sale rose quickly by 35%

 Merck Medco primarily includes Merck-Medco sales of non-Merck products and

Merck-Medco pharmaceutical benefit services, principally sales of prescription
drugs through managed prescription drug program, as well as services provided
through programs to manage patient health and drug utilization

 Medco practiced sending disparaging letter to doctors indicating that competitor’s

drug did not offer a clinical advantage.

 After Medco acquisition Merck volume increased by 10% in 2nd quarter of 1994 and
15% in third quarter.

Chart 3

• Chart 3 shows the segregated revenue of Merck obtained from Medco Health sol &
Merck Serono

36
 Chart 4
 Chart 3 shows the segregated revenue of Merck obtained from Medco Health sol,
Merck Serono Zocor sales and other Merck Serono product sales

PATENT EXPIRY OF ZOCOR

 During patent expiry (2005) Zocor was $4.5 billion drug.

 In 2008 30% of Merck sales were affected due to patent expiration.

Chart 5 shows revenue earned by Zocor over its life cycle till patent expiry
Strategies adopted by Merck Serono to avoid market share
loss:
Strategy 1:

Pharmacy benefit managers managed care organization:

• Found that by prescribing low cost generic statin instead of high price brand
US$2300-5000 per year could be saved per patient i.e. US$8 billion annually

• On this basis they started switching patients from branded to Zocor since 2005 in
preparation for Zocor’s patent expiry

37
Strategy 2: Agreement:
Authorized Generic:
• Generics sold under license from the patent holder are known as authorized
generics; they are not affected by the 180 day exclusivity period as they fall under
the patent holder's original drug application

• Here due to continuous threat from generic drug maker to Patent holding company,
parent companies provide license to generic manufacturer. This helps the patent
holding company to gain out of the deal in terms of royalty benefits

• To beat generic company --Dr.Reddy’s lab has an agreement with Merck to make
generic version of Zocor which is sold where generic market is prevalent or patent
implementation is not taken seriously.

• Merck received royalties on patent and know how licenses & other rights amounted
to $209.3 million.

• In addition, since Merck itself manufactures at least some versions of Dr.

Reddy's authorized generic simvastatin.. An 80 mg, 30-count bottle of Dr. Reddy's
simvastatin obtained July 6, 2006, states it is made by Merck Sharp & Dohme
(Merck & Co.'s name outside the U.S. to avoid conflicts with Merck KGaA) in the
UK, just like 80 mg Zocor, and has a Merck & Co. logo on the bottom; except for
omitting the "80" on one side, the tablets are visually identical to 80 mg Zocor,
including "543" on the other side which is the key part of the National Drug
Code for 80 mg Zocor.

• In Israel –TEVA Pharma produce the generic form of Zocor

Strategy 3:

Pricing:

38
 • Reduce pricing of drug from $25 to $10-this helps to reduce the competition from
the generic companies as well

Strategy 4:

Drug variation:

• Introduce spin-offs of their branded drugs with tweaked indication adding suffixes
like “XR” (Wyeth antidepressant EffexorXR) or “XL”(as in Forest Lab’s
antidepressant Wellbutrin XL) to reflect improvement

Strategy 5:

Drug Combination:

• VYTORIN (Zocor+ Zeita of Schering-Plough)

Strategy 6:

Later patent on processes & intermediates related to most economical method of

manufacture of active ingredient as well as novel composition & formulation

Strategy 7:

Filling the vaccum created by loss of blockbuster drug with another potential blockbuster

Outcome of strategies:
Outcome 1:

Vytorin failure - 41.5 million dollars in damages

• The United States District Court for the District of New Jersey gave their approval to
a preliminary settlement on one of the largest class action lawsuits of 2009 against
the companies totaling $41.5 million to be paid out to patients, insurance companies,
and individual insurance claims.
• The class action lawsuit claims that both companies made a significant profit from
the medication by overstating the efficacy of the medication compared to competing
anti-hyperlipidemic medication and subsequently inflating the price

39
 • The settlement awards a total of 41.5 million dollars in damages to be split
accordingly: $12,450,000 to consumers, $14,525,000 to insurers, and $14,525,000 to
insurers who are settling their claims individually.
Both companies were implicated in another court-ordered settlement.
• On January 14, 2008, the New York Times reported that a clinical trial of Zetia
designed to show that the drug could reduce the growth of fatty plaques in arteries
instead showed a growth of plaques. The trial was called the ENHANCE trial and in
April 2006, Merck and Schering-Plough completed research.
• The companies had initially planned to release the findings in March 2007, however,
the companies missed several planned deadlines. In December 2007, the companies
finally agreed to publish the results "soon" after the delays were publicized in news
reports.
• In July, 2009 both Merck and Schering-Plough agreed to pay 5.4 million to settle
charges related to a separate violation of consumer protection laws
• In that case, attorneys general from 35 states and the District of Columbia alleged
that the companies intentionally delayed the release of results from the ENHANCE
trial in order to promote the efficacy of the two medications and market them as
superior alternatives to traditional therapies.

Outcome 2:
Sales of Zocor decreased gradually and there were low profit margin as selling price of
Zocor were lowered.

Outcome 3:
Investors were losing faith due to unethical practice carried out by company to promote
product also there were no new drug discovery by company.

Outcome 4:
2007 -$4.85 billion pretax charge related to the U.S. VIOXX Settlement Agreement

40
 Chart 6

Further steps to bolster adopted strategy and attract investors:

Strategy:
MERGER & ACQUISITION:
Bought Schering-plough in November 2009 for $41.1 billion.

Strategic Benefits of the Transaction

Complementary Product Portfolios and Pipelines Focused on Key Therapeutic

Areas:
• By leveraging the combined company's expanded product offerings, Merck
have opportunities for life-cycle management through the introduction of
potential new combinations and formulations of existing products
• The transactions will double the number of potential medicines Merck has in
Phase III development, bringing the total to 18
• The combined company will have a more diverse portfolio across important
therapeutic areas, including cardiovascular, respiratory, oncology, neuroscience,
infectious disease, immunology, women's health and other areas

Cardiovascular:

41
 • The consolidation of the cholesterol drugs ZETIA (ezetimibe) and VYTORIN²
(ezetimibe/simvastatin) into Merck's cardiovascular portfolio will simplify the
combined company's approach to the cardiovascular market and create new
opportunities to leverage the cholesterol franchise through new medicine
combinations.
• Finally, the addition of Schering-Plough's Thrombin Receptor Antagonist, a
potential first-in-class antiplatelet therapy, among other late-stage development
candidates, further complements Merck's Phase III cardiovascular development
portfolio and will position the combined company to continue offering
meaningful products for patients in this important therapeutic area.

Neuroscience:
• Schering-Plough's strong R&D capabilities in this area complement Merck's
ongoing neuroscience development efforts, which include both migraine and
sleep product candidates.

• Schering-Plough brings several promising late-stage candidates, including

SAPHRIS (asenapine), an antipsychotic drug for the treatment of schizophrenia
and bipolar disorder, and BRIDION (suggamadex), a novel anesthesia reversal
agent.

Infectious Disease: Schering-Plough's strong portfolio of HCV candidates.

• Boceprevir, is well-aligned with Merck's programs in this critical disease area.

Immunology: Schering-Plough brings distribution rights outside the United States.

• REMICADE (infliximab), its well-established biologic product for

inflammatory/immunological diseases
• SIMPONI (golimumab), which was filed in Europe in March 2008, as well as a
number of other promising products in development.

42
 Women's Health: Merck expects to benefit from a solid portfolio of:
• Women's health products including GARDASIL [human papillomavirus
quadrivalent (types 6, 11, 16 and 18) vaccine, recombinant]
• A broad range of contraceptive options and biologic and
• Small molecule fertility drugs, which will allow it to strengthen relationships
with women's healthcare providers

Other Areas: Schering-Plough brings to the combined company a leading Animal

Health business with strength in vaccines and small molecules, as well as many
attractive consumer health brands such as CLARITIN, COPPERTONE, DR.
SCHOLL'S and MIRALAX.

Expanded Global Presence with Geographically Diverse Revenue Base:

• Schering-Plough generates 70 percent of its revenue outside of the United
States, including more than $2 billion in annual revenue from emerging
markets. This will dramatically accelerate Merck's own international growth
efforts, including the company's goal of reaching top five market share in
targeted emerging markets.
• In addition, with a more geographically diverse mix of business, the combined
company is expected to generate more than 50 percent of its revenue³ outside
the United States.

Increased Manufacturing Capabilities:

• Add more capacity to support anticipated growth in biologics and sterile
medicines. Merck will achieve even greater synergies by applying its lean
manufacturing and sourcing strategies to the expanded operations.

Financial Benefits of the Transaction:

• Strong Financial Profile: The combined 2008 revenues³ of the two companies
totaled $47 billion. Post-transaction, the combined company will have a strong
balance sheet with cash and investments balance of approximately $8 billion.

43
 • Commitment to Maintain Merck Dividend: Current level annual dividend of
$1.52 per share, which, on an as-converted basis, represents a threefold increase for
Schering-Plough shareholders

• Substantial Cost Savings: Of approximately $3.5 billion annually beyond 2011.

• Accretive to Earnings: The transaction is anticipated to be modestly accretive to

non-GAAP EPS¹ in the first full year following completion and significantly
accretive thereafter.

Complementary Product Portfolios and Pipelines Focused on Key Therapeutic Areas:

Doubles the number of potential medicines Merck has in Phase III development,
bringing the total to 18.

I.1 CASE STUDY NO 2

 Pfizer Incorporated is a global pharmaceutical company, ranking number one in

sales in the world with 2010 revenue of over US $67.8 billion

44
  The company is based in New York City, with its research headquarters
in Groton, Connecticut

 It produces Lipitor (atorvastatin, used to lower blood cholesterol); the neuropathic

pain/fibromyalgia drug Lyrica (pregabalin); the oral antifungal medication Diflucan
(fluconazole), the antibiotic Zithromax (azithromycin), Viagra (sildenafil) forerectile
dysfunction, and the anti-inflammatory Celebrex (celecoxib) (also known as Celebra
in some countries outside the USA and Canada, mainly in South America). Its
headquarters are in Midtown Manhattan, New York City

Interesting Things of Lipitor

 Blockbuster cardiovascular anticholesterol(atorvastatin)

 Annual sales > $12 billion in 2009

 IMS Health Publishes Analysis: Most widely prescribed drug in the world

 Developing a combination therapy

 US patent expiry date June 2011

Generics for Lipitor (Claims by Pfizer)

 Until now no generic version is available for lipitor.

 The medicines available in the name of generic lipitor may be fake, substandard, and
potentially dangerous spurious drugs due to copy markets.

 Produce after exclusivity period after the expiration of patent

 So far Ranbaxy lab is the only generic manufacturer who has rights to manufacture
generic Lipitor and sale in USA

45
Strategies to retain market share post patent expiry:
➢ Merger & Acquisition: The phrase mergers and acquisitions (abbreviated M&A)
refers to the aspect of corporate strategy, corporate finance and management dealing
with the buying, selling and combining of different companies that can aid, finance,
or help a growing company in a given industry grow rapidly without having to create
another business entity

➢ Biotech for innovation: Inorder to look out for new blockbuster drugs Pfizer is
moving towards biotechnology for invention and development of new drugs

➢ Drug Combination : Combining 2 or more marketed or non marketed drugs for

developing new potent drug

➢ Agreements: Right to license manufacturing or marketing or both is given to other

organization under agreement done between them

Strategies adopted by Pfizer

Strategy 1:
MERGER & ACQUISITION:
January 2009 : Pfizer bought Wyeth for US $68 billion
Wyeth buyout helps Pfizer’s India ops
1. Sunil Lalbhai’s Atul Ltd holds a 6% stake in Wyeth

2. Pfizer has started the integration process by inducted three Wyeth directors —
• Anoop Sharma, business unit director for women’s healthcare
• Suresh Muddana, business unit director for specialty and vaccine
• Wyeth medical director, Shilpa Patil — to the board

46
 Chart 7

 Pfizer did not have a business unit structure in place. Now, with the merger, three
business units have been formed.
 Wyeth has around 250 employees. This is on all fronts from purchase of raw
materials to manufacturing to sales and distribution.

 Pfizer’s acquisition of Wyeth complements its products in India.

 The company now rides on Wyeth’s human vaccine portfolio and women’s
healthcare products, along with several other products, offering a varied basket to the
end consumer.

Strategy 2:

Big Pharma Looks to Biotech for Innovation:

Its recent tie-up with Aurobindo pharma from India for RnD on new biotech drugs.

Biotech’s to fill in gaps in the development pipeline. Recent deals include:

• Roche-ReMynd

• Eli Lilly-Anacor Pharmaceuticals

• J&J-Ortho-Anchor Therapeutics

47
 • Shire-Acceleron Pharma

• BristolMyers-Squibb-Zymogenetics

Sanofi Aventis bought out Shantha Biotech for for its research in vaccines and its potential
as a major supplier of vaccines to the developing world

Strategy 3:
Combination therapy:
➢ Combining 2 or more marketed or non marketed drugs for developing new potent
drug

1. TORCETRAPIB
Lipitor is not interchangeable with competing products like Zocor. Pfizer is also looking to
defend this space by testing Lipitor, which lowers LDL or "bad" cholesterol, in combination
with the experimental drug torcetrapib, which appears to raise HDL, or "good" cholesterol.
According to some analysts, this combination could add billions of dollars in potential sales,
if the tests are successful and the drug is FDA approved.

2. Caduet
Combination drug of atorvastatin & amlodipine besilate

Figure 1

Strategy 4: Agreement
➢ Right to license manufacturing or marketing or both is given to other organization
under agreement done between them

1) Authorized Generic:

48
 • Generics sold under license from the patent holder are known as authorized
generics; they are not affected by the 180 day exclusivity period as they fall under
the patent holder's original drug application.

• Here due to continuous threat from generic drug maker to Patent holding company,
parent companies provide license to generic manufacturer. This helps the patent
holding company to gain out of the deal in terms of royalty benefits.

For eg: Current scenario in India:

Abbott, Ranbaxy settled patent suit:

• Abbott Laboratories has settled a patent litigation case against Ranbaxy, allowing it
to launch generic version of US drug maker’s cholesterol lowering medicine
“Tricor” (generic-Fenofibrate)
• In June 2010 Ranbaxy informed Abbots about its plan to launch its generic version
of Tricor in 45 mg and 145 mg dosages.
• Although the patent is supposed to expire by 2018 wherein 3 other drug makers
wanting to launch their version of the same drug ahead of patent expiry.
• Abbott has already settled terms with TEVA for 145mg dose of same medicine that
permits the Israeli firm to launch its low price version by March 2011.
• The settlement has been reached “Terms of settlement are confidential”

Strategy 5: Competitive Pricing

• Pricing of Lipitor brand/generic in USA

• Here the table shows the price of branded Lipitor as well that of generic Lipitor

• Thus after patent expiry Pfizer could launch the product at competitive price
inorder to retain market share as well avoid competitor from expanding its
market

49
Product Type Dosage Quantity Price

Lipitor Generic 10mg 90 tablets $82.00

Lipitor Generic 20mg 90 tablets $90.00

Lipitor Generic 40mg 90 tablets $99.00

Lipitor Generic 80mg 90 tablets $125.00

Lipitor Brand 10mg 90 tablets $108.00

Lipitor Brand 20mg 90 tablets $138.00

Lipitor Brand 40mg 90 tablets $158.00

Lipitor Brand 80mg 90 tablets $218.00

Table 7

50
 8.3 INDIAN ANTICHOLESTEROL DRUG MARKET:

• The global cardiovascular market is about $115 billion, out of which about $36
billion is the market for cholesterol reducing drugs.
• Indian domestic demand is a fraction of the global opportunity.
• India, which has over 60 million people suffering with heart diseases, has a cardiac
drug market valued at Rs 3,600 crore, growing at a rate of 15 per cent every
year(2008)
• The estimated size of the Indian market is Rs 580 crore ($145 million) for anti-
cholesterol drugs(2007)
• Anticholesterol drugs- Statin : Atorvastatin,Simvastatin,Rosuvastatin,Lovastatin
- Fenofibrate etc

PFIZER Vs RANBAXY
• Ranbaxy now holds a six-month marketing exclusivity for its low-cost version of the
product, as it was the first generic drug maker to challenge Pfizer's patent for Lipitor.

• Ranbaxy will also be allowed to start selling copies of Caduet. (Combination drug of
atorvastatin & amlodipine besilate).

Figure 2
• Ranbaxy Laboratories and Pfizer entered into a lawsuit settlement, under which
Ranbaxy had agreed not to sell generic versions of Lipitor in US until November
2011.

51
 • As per the agreement, Ranbaxy got the license to sell atorvastatin on varying dates in
other seven countries including Canada, Belgium, Netherlands, Germany, Sweden,
Italy and Australia.

• Ranbaxy started selling Atorvastatin as “Lipogen” to South Africa in 2010june

ABBOTT v/s RANBAXY:

• Abbott Laboratories has settled a patent litigation case against Ranbaxy, allowing it
to launch generic version of US drug maker’s cholesterol lowering medicine
“Tricor” (generic-Fenofibrate) although the patent is supposed to expire by 2018
wherein 3 other drug makers wanting to launch their version of the same drug ahead
of patent expiry.

PFIZER V/S DR.REDDY’S:

• Dr Reddy’s Laboratories too has filed an abbreviated new drug application (ANDA)
with the American drug regulator seeking approval to market an 80 mg dosage
strength of Atorvastatin calcium, which Pfizer sells under the Lipitor brand. Pfizer
has filed a patent infringement case against the Hyderabad-based company in the US
district court of Delaware

PFIZER V/S LUPIN:

• Lupin too has managed to wrest some control over Lipitor as the American drug
regulator has granted the Mumbai-based company permission to seek approval for a
copy of the cholesterol drug.

• But unlike Pfizer’s Lipitor, which is in tablet form, Lupin’s would be a capsule

Market Survey:

To study and analyze local Indian market (metro city) via market research for:
Generic version of patent expired product in Anticholesterol drug market

52
 &

Competition in market prior to launch of generic version of patent expired product in

Anticholesterol (statin) drug market

Study and Analysis gave an insight into Anticholesterol market for Mumbai city
w.r.t:

• Different drugs available for treatment in anticholesterol drug market

• The number of existing brand/branded generics in Mumbai market consisting same
drug molecule “Atorvastatin” but similar or different formulation
• Competition in the market
• Pricing adopted by different brands

53
 1. ANALYSIS OF DATA

Observation:

I. Number of General Practioners in vicinity of medical shop?

DATA

0 2genera 3genera 4genera 5genera 6genera 15gener

general 1general l l l l l al
Nos of praction praction praction praction praction praction praction praction
G.P er er er er er er er er
Nos of
shops 5 1 2 4 13 10 9 1

Chart 8

Observation:
• 29% of the shops had 4 G.P in their vicinity
• 2% of the total shops had 15 G.P in their vicinity while
• 11% of shops

I. Number of Consultants/specialists in vicinity of medical store?

DATA

Nos of
specialist 1spc 2spc 4spc 5spc 6spc 10spc 15spc
s 0 spcl l l 3spcl l l l 7spcl 8spcl 9spcl l l

54
Nos of
shops 6 5 10 12 6 2 2 1 0 0 1 1

Chart 9

Observations:
• 26% of the total shops had 3 specialist in their vicinity
• 2% of the total shops had 15 specialist in their vicinity while
• 13% os the total shops had 0 specialists in their vicinity

I. Number of hospitals in vicinity of medical stores?

DATA

0 2 3 4 5
Number of hospit 1 hospit hospit hospit hospit
hospitals als hospital al al al al
Nos of
shops 6 24 10 4 5 1

Chart 10

Observations:
• 48% of the total shops had 1 hospital in their vicinity
• 2% of the total shops had 5 hospitals in their vicinity while
• 12% of the total shops had 0 hospitals in their vicinity

55
 I. What percentage of total inventory constitutes medicines for heart patient?

DATA

Inventory for
cardiac
patients Nos of shops
1%-10% 6
11%-20% 11
21%-30% 24
31%-40% 6
41%-50% 2

Chart 11

Observations:
• 49% of the total shops had inventory in range of 21%-30% for cardiac patients out of
total inventory stocked in shop

I. Which are the anticholesterol drugs stocked for heart patients?

DATA

Drugs shop
Atorvastatin 50
Simvastatin 43
Rosuvastatin 29
Fenofibrate 41

56
 Clopidrogel 10
Prevastatin 2
Lovastatin 9

Chart 12

Observation:
1. Atorvastatin
2. Rosuvastatin
3. Fenofibrate
4. Aspirin
5. Clopidrogel
6. Simvastatin
7. Lovastatin
8. Prevastatin
9. Atorvastatin combination(Ezetimibe/Fenofibrate etc)

I. What is the percentage of individual drug sold of the entire total drugs sold to heart
patient?

DATA

% of
Atorvastatin
sold out of total Nos of
inventory shops
30%-40% 12
41%-50% 4
51%-60% 7
61%-70% 12
71%-80% 11
81%-90% 4

Chart 13

57
Observation:
• 24% out of total shops had atorvastatin sold in the range of 61%-70% out of total
inventory for anticholesterol drug
• 24% out of total shops had atorvastatin sold in the range of 30%-40% out of total
inventory for anticholesterol drug

I. What are the sales (quantity) of Atorvastatin per week/strips and next best sold drug
in that category?

DATA

Sales Shops
1 - 20
strips/week 8
21-40
strip/week 28
41-60
strip/week 11
61-80
strip/week 3
81-100
strip/week 1

Chart 14

Observation:
• 55% out of the total shops had sales of 21-40strips/week
• 2% out of total shops had sales of 81-100 strips/week

I. Of the total sales of Atorvastatin what percent constitutes branded and non
branded/generic?

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 DATA
Branded 47
Generic and Branded
generic 3

Chart 15

Observation:
• 94% out of the total shops had stockes Generic & Branded generic
• 6% of shop had Branded medicines

I. What are the different strengths (x mg) of atorvastatin tabs/cap sold and which
strength is sold maximum?

DATA

• Atorvastatin is available in various strengths of 5mg, 10mg, 20mg, 40mg,

60mg, 80mg

Chart 16

Observation:
• Atorvastatin is available in various strengths of 5mg, 10mg, 20mg, 40mg,
60mg, 80mg of which highest selling strength is 10mg
• 93% out of the total shop had 10mg as the highest selling strength

I. Different Brands of Generic Atorvastatin available?

Number of
Brand shops
name having it
genx
vast 50
stator 50
storvas 50
atorsave numb 50
aztor er of50
atorfitstrength shops50
atorlip10mg 42
50
20mg 3

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 tonact 8
lipicure 6
x tor 4
catt 2
pleotur 1
atorvaa 5
modlip 1
zivast 9
tg tor 3
atormac 1
atocor 1

Chart 17

Observation:

All 50 stores were having the brand

Brand name/Mfg Quantity/number Price in Rs.

Genx vast(Gen x) 10mg/10 tablets 12
Stator(Nicholas) 10mg/10 tablets 38
Storvas(Ranbaxy) 10mg/10 tablets 120
Ator save(Eris) 10mg/10 tablets 72
Aztor(Sunpharma) 10mg/10 tablets 83
Atorfit(Ajanta) 10mg/10 tablets 36
Atorlip(Cipla) 10mg/10 tablets 85

Table 8

Depending upon the clinical trials being carried and reputation of company generic
Atorvastatin was available at different prices with same weight and quantity

1. FINDINGS

1) From Observation 1,2,3 its clear that

• Majority of the medical shops are either situated near
a) General Practioners or Consultant/Specialists and Hospitals
b) Consultant/specialist or General Practioners and Hospitals

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 c) Hospitals or General Practioners and Consultants/specialist

• As the number of hospitals in vicinity of shops increased the per week sale of
Atorvastatin increased but sales also declined as number of hospitals
increased further suggesting that the sales depends on the 2 factors
a) Type of hospital
b) Competition in market

• Shops situated near hospitals had higher sales figure of 80-100 strips/week

(Hospital in vicinity of the shop that showed sales of Atorvastatin 80-100

strips/week was J.J Hospital situated at Byculla)

1) 8%-45% of total inventory was constituted by drugs for cardiac heart patient this
gives an indication that
➢ Indians are at greater risk of heart related disease
➢ On an average 1/4th of medicinal store inventory is stocked with drugs for
treating cardiac heart patients.

1) Of the different drugs stocked for cardiac patients majority of them are for treating
➢ Cholesterol level
➢ Blood thinners that reduce platelet counts to increase blood flow e.g.:-
clopidrogel,aspirin

1) Highest selling drug in anticholesterol segment was

➢ 2% out of total shop had Rosuvastatin as highest selling drug along with
Atorvastatin
➢ 98% out of total shop had Atorvastatin as highest selling drug and hence
constituted major percentage of inventory

1) Atorvastatin constituted almost in the range of 30%-90% of inventory of

anticholesterol drug stocked for heart patients.

2) Of the different strengths of Atorvastatin available

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 ➢ 10mg was the highest selling strength in 40 shops as it is recommended for
the patients on the recovery stage and post recovery stage to maintain low
cholesterol level

1) Atorvastatin sales were in range of 10-100 strips per week(10 tab/strip)

2) All the above findings suggest that atorvastatin is the most potent and highly
efficient drug to treat high cholesterol level in human

3) As almost 90% of the shops audited had Branded drugs which suggest that
➢ PFIZER’S “LIPITOR” should be best selling drug as per International FDA
norms but this is not the case.
➢ Neither any Pharma company licensed by Pfizer is selling the branded drug.

In India Atorvastatin manufactured and sold by following companies are termed as branded
drugs:
1. Ranbaxy-Storvas
2. Dr.Reddy’s
3. Cipla(Atorlip)
4. Nicola Piramal(Stator)
5. Sun Pharma(Aztor)
6. Ajanta Pharma(Atorfit)
7. Genx pharma-Hetero lab(Gen X vast) etc...

➢ This also indicates that medical shop owners are least informed about the
difference between branded and generic drug

➢ Since Atorvastatin is prescription based drug so major influencers over here

are General Practioners,Surgeons,Consultants in private clinics and hospitals
1. RESULTS

Hypothesis 1:
Generic drug manufacturing companies are at an advantageous position for launching the
generic version of patent expired product or where a patent(s) is/are not in force

1. As stated in the initial context and from the findings of the study it is quite
evident that generic drug manufacturing companies are at an advantageous
position for launching generic drug under different brand name
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 2. e.g.: Ranbaxy is already selling generic Atorvastatin under brand name
“Stator” in local Indian market as well as in South African market under
brand name “Lipogen”

3. In India due to majority of population lying in low income group the

affordability to purchase branded drug is still less as compare to Europe and
America which acts as limiting factor for prescribing branded drug by
Medicinal Practioners

4. Also government policies are framed to support Indian generic

manufacturers to certain extent

5. A recent acceptance to prescribing generics has been seen in USA post

recession in order to save money in process from insurance claimed by
patients in USA

Hypothesis 2 & 3:

Patent expiry of blockbuster drug leads to loss of market share of a company

Patent expiry of blockbuster drug leads to decrease in revenue of a company

1. Yes Patent expiry of blockbuster drug lead to loss of market share and eventually
decrease in revenue for company

2. Due to presence of Hatch-Waxman Amendments it grant generic manufacturers the

ability to mount a validity challenge thus getting the exclusivity period for of 6
months to manufacture and produce generic version officially in USA as well as in
other countries

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3. e.g.: Ranbaxy has won the ANDA application for Lipitor and will be launching the
generic version of Lipitor in USA in November 2011

4. As Ranbaxy enters USA it will lead to price war since generics are cheaper and eat
away the market share and revenue of Pfizer

5. Another major reason to it is was The Patient Protection and Affordable Care Act,
which President Obama signed on March 23, 2010, authorized the Food and Drug
Administration to approve generic versions of biologic drugs

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 1. SUGGESTION/CONCLUSION

 PFIZER’s LIPITOR a $12 billion drug will have its market share and revenue
reduced in next 5 years due to generics

 SWOT
1. Strength-
 Multinational company
 vast experience
 RnD facility
 NPD capacity
 Huge Funding

1. Opportunity- Diversify into neutraceuticals,health products through parent

company or by subsidiary

2. Weakness-different legislation in different countries affect its market expansion

i. Patent expiry

1. Threat – generic drug manufacturers

 Strategies by Pfizer to fill the vaccum created by patent expiry

1. Buyout Indian generics

2. Price reduction prior to expiry saying it has achieved efficiency in production
or other new strategic facility built-up.
3. New drug combination/new product development.

➢ Buyout not a solution..So here instead of pumping money to retain market share they
could use the money to diversify….

➢ Diversification into Health(nutraceuticals) /medicated food this will lead to identifying

products that help in Brand Building for next 5 years causing Brand equity development

65
➢ Additionally take steps for social causes and justify pricing which is higher due to
continuous chemical trials

➢ In India pharmacovigilance obligation plays less hurdle as compare to USA.As equity

builds up automatically Indian people trust in Pfizer increases so prior to lawsuit people
will think twice
[Market is created that people in India going to suffer from heart disease]

➢ Pfizer should launch innovative medicated food product/health food at affordable price
which will be used by people either in case to prevent disease or patient on the verge of
recovery. Diet is main issue & limited diet is given to patient undergoing cure treatment.
So pricing has to be deliberate & penetrative to capture market share as market develop
for the product

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 1. LIMITATION

• Since the sector selected to study was very large it was not possible to have in depth

knowledge (commercial and technical) of all the drugs from cardiac division as well

as study the other category of blockbuster drugs whose patents are due to expire.

• Because of time and money constraint primary data was collected from Mumbai city

while all India figures were referred from secondary data of trusted source

• Many of the information regarding deals/agreements done between Patent holder and

the generic company for manufacturing and sales of drug are not available because

confidentiality of the information restricts it to be published

• While collecting primary data, Hospital pharmacy and Medicinal Practioners were

not questioned or interviewed due to trade secrets or other reasons

• Was not able to judge the highest selling brand in Atorvastatin market due to lack of

companies confidential retail/sales data

1. APPENDIX

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 ANTICHOLESTEROL (STATIN MARKET)

1) Name of medical store:

__________________________________________________________________________
____________________

2) Address/location/contact no’s of shop:

__________________________________________________________________________
_____________________

3) Year of establishment: __________

4) Number of G.P(General Practioners) in vicinity:

5) Number of specialists/consultants:

6) Number of hospitals in vicinity:

7What percent of total inventory constitutes medicines for heart patient:

8) Which are the anticholesterol drugs stocked for heart patients?

(Eg: Atorvastatin, Simvastatin, lovastatin etc)

Drug 1:_____________________________________

Drug 2:_____________________________________

Drug 3:_____________________________________

Drug 4:_____________________________________

Drug 5:_____________________________________

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9) What is the percentage of individual drug sold of the entire total drugs sold to heart
patient?
E.g. Simvastatin: 30%, lovastatin: 27 % (Starting with maximum sold drug)

Drug 1:______________________________________

Drug 2:______________________________________

Drug 3:______________________________________

Drug 4:______________________________________

Drug 5:______________________________________

10) What are the sales (quantity) of Atorvastatin per week/strips and next best sold drug in
that category?
Drug 1 _____________ : ______________
______________
Drug 2 ____________: ______________
______________

11) Of the total sales of Atorvastatin what percent constitutes branded and non
branded/generic?
Branded:

None branded (generic):

12) What are the different strengths (x mg) of atorvastatin tabs/cap sold and which strength
is sold maximum?
______________________________________________________________________
____

______________

13) What are different branded/non branded drugs in anticholesterol medicine available at
your store?(Tick the ……... appropriate brand/non brand and mention if any other brand
available )

Gen X vast (Genx pharma-Hetero lab)

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Stator (Nicolas)

Storvas (Ranbaxy)

Ator Save (Eris lifescience)

Aztor (Sunpharma)

Atorfit(Ajanta pharma)

Atorlip (Cipla)

Others
__________________________________________________________________________

__________________________________________________________________________

70
 BIBLIOGRAPHY

1. Risk sharing in the pharmaceutical industry – The case of out licensing

Author “Dr.Gerrit Reepmeyer”- University of St.Gallen Switzerland

2. Pharmaceutical industry Antitrust handbook(2009)

“American Bar Association”

3. The law & economics of generic drug regulation

“Christopher Scott Hemphill”

4. Generic drug entry prior to patent expiration

“An Federal trade commission study July 2002”

5. Pharmaceutical Patent Issues

“Orrin G Hatch”-2002

6. Leading pharmaceutical Innovation

“Oliver Gassmann, Maximilian von Zedtwitz, Gerrit Reepmeyer”

7. Business World Magazine – Issue “March 2010”

8. PricewaterhouseCoopers report – Issue “April 2010”

WEBLIOGRAPHY

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http://www.business-standard.com/india/storypage.php?autono=317986

http://www.financialexpress.com/news/lipitor-busters/746838/0

http://timesofindia.indiatimes.com/business/india-business/Indian-pharma-sector-grows-at-
165-in-2010/articleshow/7356869.cms#ixzz1C4g8BgbX

www.expresspharmaonline.com

http://www.pfizer.com/investors/financial_reports/financial_reports.jsp

http://phx.corporate-ir.net/phoenix.zhtml?c=73184&p=irol-reportsannual

http://www.merck.com/finance/annualreport/ar2005/financial_section.html

http://www.merck.com/investors/financials/home.html

http://www.pharmaceutical-drug-manufacturers.com/pharmaceutical-industry/

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