MICHELE NORRIS, host:
Two of the world's largest drug companies are reeling from a bold attack by a small Canadian company. Today a company called Apotex began shipping a generic version of the blood thinning drug Plavix. Together Bristol Myers and Sanofi-Aventis have sold $6 billion of Plavix last year.
As NPR's Snigdha Prakash reports, some analyst says Bristol's future as an independent company is now at stake.
SNIGDHA PRAKASH reporting:
There are many reasons why the prescription drug industry is among the most profitable in the nation. One of the most important is that drug companies enjoy a long market monopoly on their products. The drugs are covered by patents, and competitors can't rush in with cheap copies. The patents are meant as incentives to encourage innovation to keep drug prices and industry profits high.
The patent protection isn't absolute except for the first few years of the patent. After that, generic drug makers may copy and sell the drug if they can find a way to make it that doesn't infringe on the patents. When that happens, the drug's price tumbles, says Jon Liebowitz, a commissioner of the Federal Trade Commission.
Mr. JON LIEBOWITZ (Federal Trade Commission): Prices go down about 30% when the first generic enters the market. Usually. Prices go down up to 80% when more generics enter, and that's usually six months after the first generic does.
PRAKASH: Sales of the branded version of the drug all but evaporate, and companies do everything they can to delay the dread event. Until a few days ago, Bristol Myers and Sanofi thought they done that with Apotex. Earlier this year they signed a deal with Apotex under which the company would have held off on selling generic Plavix until 2011, just a few months before a key patent on Plavix expired.
Bristol and Sanofi even agreed to pay Apotex some $40 million in exchange. But the deal was rejected by government regulators, and last month the justice department opened an unusual criminal investigation into it. On Wall Street, analysts speculated that the companies would now have to go to court to resolve the patent dispute. Instead, yesterday Apotex announced it would start shipping generic Plavix right away.
Ms. JAMIE REUBEN (Morgan Stanley): I've covered the drug industry for more years that I want to say, but I have never seen anything like this happen before.
PRAKASH: Jamie Reuben is a stock analyst at the brokerage firm Morgan Stanley.
Ms. REUBEN: As you and I speak right now, Apotex is selling the product now to pharmacy benefit management companies like Medco and Express Script. They're are also selling product to wholesalers, as well as chains like Walgreen's.
PRAKASH: Reuben says pharmacists and insurers will automatically substitute generic Plavix for the brand name drug. She says Bristol, which sells Plavix here in the U.S. to prevent heart attacks and strokes, will be hit especially hard.
Ms. REUBEN: Keep in mind that Plavix is a $4 billion blockbuster in the U.S. That represents approximately 30% of Bristol Myers earnings.
PRAKASH: And she says because it's so dependent on Plavix, Bristol may become a more attractive target for acquirers as it sales of Plavix are cut in half by the generic. Brand name companies have prevailed over generic makers in several high profile patent disputes recently, including over Lipitor, the world's best selling drug.
But Reuben sees today's developments as a sign of the times. She says generic companies are flexing their legal muscles more and more. And she says the failure of the three way deal over Plavix suggests that even large payments may not be enough to keep generic drug makers at bay.
Snigdha Prakash, NPR News, Washington.
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