Patent Non Grata?

Almost lost in the recent buzz about Sanofi-Aventis’s potential $20 billion purchase of Genzyme was an interesting comment made by Sanofi’s CEO, Christopher Viehbacher.  As noted in the FiercePharma newsletter, he believes patent-protected products are dangerous to Sanofi’s health (FiercePharma Dirty Word).  More specifically, Viehbacher said he wants to find businesses where products are protected by mechanisms other than patents to avoid the steep revenue drops when drugs come off patent, a major problem for big pharma (Forbes article and AP article).  My interpretation:  rather than depending a few blockbusters (which will go bust), a big pharmaceutical company should diversify over a range of products, including generics, accept slower but smoother revenue growth, and be ready to on price and value.

Profits without relying on patent monopolies is Business 101:  build brands and customer loyalty, enter or create new markets, and invent new products that meet a need at an attractive price.  In the AP story, Veiehbacher cited Sanofi’s “emerging markets” strategy, particularly in the so-called BRIC countries (Brazil, Russia, India and China), which accounts for 30 percent of Sanofi’s sales, and he expects this action to double to $18 billion by 2013.  The company is also competing on price, made possible in part by local manufacture:  “We can produce as low-cost as any Indian generic company.”  I’m interested to see if Sanofi will be willing, ready, and able to compete with the Indian companies outside the BRIC market in Africa and Southeast Asia.  My guess is that he has a new business team running the numbers right now.

Viehbacher became Sanofi’s CEO in late 2008, leaving a top position at GlaxoSmithKline (GSK), and it may be not coincidence that his vision includes diversification away from patented products, low-cost manufacture, and new market entry.  GSK, as I noted in my posting of January 28, 2010, has my vote as the leading big pharma in building a global health business.  Abbas Hussain, GSK’s president of its emerging markets business summarized the company’s emerging market strategy for the online Harvard Business Review which included the statement:  “The pharmaceutical industry must balance the drive to build a sustainable business through increased market share, volume, and profits with a global commitment to work with governments and other stakeholders to support efforts to deliver our medicines and vaccines to as many people as possible.”  (HBR Blog).  Could not have said it better myself.

Unfortunately, this line of thinking is lost on the academic/government/NGO complex which seems fixated on patents and patent-holders as barriers to access to essential medicines.  Members have been beating this drum for a number of years, most recently as I noted in last week’s posting, by advocating for Unitaid’s patent pool concept.  Access to drugs depends on many other factors other than access to patents.  A more measured approach to improving big pharma’s drug access activities is the Access to Medicines Index, a ranking of companies put together by a Netherlands-based non-profit funded by Gates and the Dutch and UK governments among others (Access to Medicines).  While I haven’t read the Index through, it looks to be comprehensive, covering 27 companies (20 innovators and 7 generics) and using a total of 106 indicators that measure activity in four strategic and seven technical areas.  NB:  GSK is their number one.

Another company that has demonstrated that a licensing-based approach to revenue is a good substitute for a patent-based approach is Gilead.  As described in a recent article in the journal of the American Enterprise Institute (caveat needed) and mentioned in my posting of last week, Gilead has nonexclusively licensed one of its antiretroviral therapeutics, Viread, to 13 Indian drug manufacturers, several of whom are providing competitively-priced drug in the developing world markets.  And this despite the Indian government’s denial of Gilead’s patent application for the drug (American article).  Gilead gets a 5% royalty on sales in new markets and licensees monitoring those markets for counterfeits; the licensees get a top-quality product with manufacturing technology transfer and support of regulatory filings.  And those proving the treatment get more drug options.

In building their global health markets, big pharma may be finding patents are personae non gratae.

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