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Cos. prepare for the dive off the patent cliff

BY Alaric DeArment

NEW YORK —If the drug industry were a buddy movie, branded drug companies would be Louise, generic drug companies would be Thelma and both would be hurtling toward the edge of the Grand Canyon in a 1966 Ford.

After years of generous profits, both sides of the global pharmaceutical industry face the so-called patent cliff, the period over the next decade when a large number of the blockbuster drugs that have generated billions of dollars in revenue in the United States and abroad will lose patent protection.

Pfizer’s cholesterol-lowering drug Lipitor (atorvastatin) had $7.8 billion in U.S. sales and earned $13.65 billion globally in 2008, according to IMS Health, but that number will drop when Indian drug maker Ranbaxy begins marketing its own version of the drug in 2011. As a report released in October by professional services firm Deloitte noted, drugs representing more than $74 billion in sales will lose patent protection by 2012.

Branded drug companies will feel the effects of this sooner than generics companies as they lose monopolies on blockbuster products ranging from Lipitor to Eli Lilly & Co.’s schizophrenia drug Zyprexa (olanzapine). Under the terms of the Hatch-Waxman Act of 1984, the first generics company to win regulatory approval from the Food and Drug Administration for a generic version of a drug gets to directly compete with the branded drug for six months after the patent expires; after the exclusivity period, the drug becomes fair game, and literally dozens of generics companies might sweep in to make versions of their own.

In recent years, this has generated huge profits for generics companies thanks to a slew of blockbuster drugs losing patent protection. But as the number of expiring patents on blockbusters begins to taper off, so will the opportunities to pull in large profits from generic versions, and some analysts have predicted that this will lead to a consolidation trend among generics companies.

Among branded drug companies, the trend toward consolidation already has begun, notably with Pfizer’s acquisition of Wyeth and Merck & Co.’s acquisition of Schering-Plough Corp.

“With so many rapidly changing dynamics—the patent cliff, healthcare reform and still-dry capital markets—the trends in life sciences industry consolidation are almost certain to continue with a growing emphasis on those deals with companies involved with late-stage developed compounds,” Deloitte & Touche partner Phil Pfrang said. “Healthy companies have good cause to pursue deals that promise faster revenue streams and profits. Likewise, cash-strapped companies—particularly firms with rich research and development pipelines—are likely to seek deals rather than face other alternatives.”

But even some companies that must deal with the patent cliff don’t see the need, including Lilly. According to published reports, Lilly CEO John Lechleiter said at the Reuters Health Summit in New York that despite the patent cliff, Lilly was in a position that wouldn’t require it to make acquisitions, foreseeing growth for such drugs as the cancer drug Alimta (pemetrexed), the antidepressant Cymbalta (duloxetine hydrochloride), the impotence drug Cialis (tadalafil) and the new cardiovascular drug Effient (prasugrel).

According to a recent report by market analysis firm Datamonitor, the best bet for branded drug companies is to get back to the basics and renew focus on drug research and development instead of diversifying into such fields as retail pharmacy, medical devices, animal health and health insurance in order to mitigate the effects of the patent cliff. Datamonitor noted that companies for which pharmaceuticals accounted for more than 90% of revenues—such as Lilly, AstraZeneca, Pfizer and Merck—had above-average operating margins, while those that had diversified, such as Abbott and Johnson & Johnson, had belowaverage margins. This was because, while diversifying could potentially offset declines in sales growth, declines in operating margin would negate the benefits.

“In broad terms, Datamonitor’s analysis indicates that moving toward and remaining in the branded pharmaceutical sector offers the greatest rewards,” study author Pam Narang stated. “However, it should be noted that the path a given company takes will depend very much on its starting position.”

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Hy-Vee names new president

BY Alaric DeArment

WEST DES MOINES, Iowa A 28-year employee of Hy-Vee has become its new president, according to published reports.

The company appointed Randall Edeker as president of the supermarket chain Thursday at the company’s annual meeting, succeeding Ric Jurgens, who had served as president since 2001 and will maintain his position as chairman and CEO.

Edeker had previously served as EVP and COO.

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Tricare expands vaccination coverage to pharmacies, clinics

BY DSN STAFF

NEW YORK Convenience and value. That’s what community pharmacy and their retail clinic partners deliver to their patients. And that’s what the Department of Defense is counting on in covering immunizations at local pharmacies and identifying convenient care clinics as network providers — two separate pieces of news issued within the past month that really underscore the importance of pharmacies and retail clinics in the delivery of health care today.

Prior to these announcements, military personnel interested in getting their flu shots had to schedule an appointment with their doctor, as Tricare only covered the cost of shots delivered in a doctor’s office.

“As a convenient and accessible healthcare provider, pharmacy is uniquely positioned to offer services for patients, such as vaccinations,” stated Steve Anderson, president and CEO for the National Association of Chain Drug Stores. Anderson noted that as of earlier this year, pharmacists have the ability to immunize patients in all 50 states. “[This] presents an important opportunity for pharmacists to counsel patients during their visit, and an additional healthcare provider from which to obtain these vaccinations.”

It’s also quite a bit of opportunity for pharmacy — Tricare provides healthcare coverage for 9.5 million eligible beneficiaries. Those beneficiaries pick up almost 2.3 million prescriptions every week, and 1.2 million of those at retail pharmacies, according to Tricare .

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