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Our generics business unit, now unified under the Sandoz brand,
has become a world leader in its industry by combining organic growth
and strategic acquisitions – a strategy that continued to pay dividends
last year.
Lek, the Slovenian generics company acquired
by Novartis in 2002, provided one of the highlights of 2003 with its
US launch of omeprazole, a cost-effective generic alternative to the
anti-ulcer treatment Losec/Prilosec®. It was the world’s biggest-selling
prescription medicine during the late 1990s until patent protection
expired. Lek had already marketed omeprazole successfully in Slovenia
and certain other European markets where the drug no longer had patent
coverage.
Another new Sandoz product launched last
year is loratadine, a generic version of the blockbuster antihistamine
Claritin® used to treat allergy.
Sales in 2003 were also fueled by buoyant
demand for Amoxicillin Clavulanate Potassium (AmoxC), the generic
version of the antibiotic Augmentin®. AmoxC was launched in July 2002,
but Sandoz remained the sole supplier of a cost-effective generic
alternative for several months following a US court ruling invalidating
certain Augmentin® patents challenged by Sandoz.
Investing for Global Cost Leadership
While Sandoz already markets more than 400
generic products, a steady stream of new products is crucial to
success. The next few years are expected to spur rapid growth in
the global generics market, where annual sales have reached USD
60 billion. Blockbuster medicines representing combined annual sales
of USD 20 billion will lose patent protection between 2004 and 2006,
offering lucrative targets for generic manufacturers.
Worldwide sales in the generics retail market
are projected to climb at an average annual rate of 10% between 2003
and 2008, slightly higher than the 8.4% growth projected for patent-protected
prescription drugs during the same period. To make the most of that
opportunity, Sandoz already has applications pending with US regulators,
seeking authorization to launch more than 40 new
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generic products once patents expire on the original branded medicines.
Speed of development is crucial to success
in generics. Underscoring its global reach, Sandoz has one of the
industry’s biggest development programs, with teams of scientists
now based in India and Slovenia, as well as the US and Austria.
Vertical integration at Sandoz also provides
valuable synergies and a nimble production network that speeds the
flow of new products to market. Sandoz is a major producer of bulk
active pharmaceutical ingredients, including anti-infectives, where
it ranks as world leader in bulk amoxicillin penicillins as well as
the cephalosporin 7-ACA business.
As the generics industry becomes increasingly
global, cost leadership is essential for success. Sandoz has invested
about USD 100 million in recent years to upgrade its plants in Austria
and Slovenia, and new factories are also under construction in India
and Poland.
Protecting First Mover Advantage
In the fiercely competitive US market,
prices of original, patent-protected medicines can fall significantly
following the introduction of generic competition. This is partly
the result of a complex system of legislative incentives to encourage
the development of cost-effective generic products. However legislation
leads to frequent legal disputes.
AmoxC is an example of how battles in court
usually precede battles in the market. The key US patents on Augmentin®
were due to expire in 2002, but GlaxoSmithKline PLC (GSK), which discovered
and developed the antibiotic, claimed that additional patents provided
another round of coverage lasting until 2018.
Sandoz challenged the patents extending
beyond 2002, and in May 2002 the US District Court for the Eastern
District of Virginia agreed and invalidated them. Sandoz launched
AmoxC two months later, and this confident move was vindicated when,
late last year, the Court of Appeals for the Federal Circuit affirmed
the earlier District Court ruling.
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