Thursday, March 01, 2007

Generics=Channel Strife?

Will generics be the next battleground between branded drug makers and their wholesalers?

Pay attention to Pfizer’s latest victory against generic Lipitor in Denmark. Here’s the summary:

“Pfizer Inc., the world's largest drugmaker, said Friday a court in Denmark blocked the sale of a generic version of the company's best-selling drug, the cholesterol-reducer Lipitor. The company said the Bailiff's Court in Copenhagen issued a preliminary injunction against the country's largest drug wholesaler Nomeco AS, preventing it from selling a generic version of Lipitor made by Indian drugmaker Ranbaxy Laboratories Ltd.” (Full story: Pfizer gets court injunction against generic Lipitor wholesaler in Denmark)

Note that Pfizer’s victory is against Nomeco (the wholesaler), not Ranbaxy (the manufacturer).

Will this type of conflict spill over to the U.S.? Consider the following three points:

  1. The U.S. is moving toward reimportation legislation. There are bills before both the House and Senate. In Europe, wholesalers are big winners from importation because they absorb most of the price differences between countries. (See Importation Illusions.)Thus, importation legislation could be very good for the big wholesalers (AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson(NYSW:MCK)) as they would have the opportunity to become a legitimate conduit for imported products.
  2. Wholesalers generate more profits from generics than branded drugs. Generic drugs now subsidize the distribution of much more expensive branded pharmaceuticals. (First noted back in May Will unbundling crush pharmacy profits?)
  3. Intellectual property protection for pharmaceutical companies is under attack around the world. Keep an eye on a crucial case in India in which Novartis is defending its Gleevec patent. If they lose, then the world will have a new source of generics long before most U.S. patents expire. (See Novartis files suit against India ruling on drug patents.) The New England Journal of Medicine just published an article that argues in favor of India’s attempt to seize the patent. (See Taking TRIPS to India.)

Taken together, these three points suggest the potential for friction in manufacturer-wholesaler relationships due to the potent interaction of generics and importation legislation. I'll be curious to see if any manufacturers address this issue in the next round of wholesaler agreements.

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