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Executive Summary

SmithKline Beecham appears inclined to use its authorized generic supplier formula to try to stretch cimetidine revenues beyond the approaching patent expirations in major markets. At an April 12 meeting with financial analysts in New York City, SmithKline Beecham (SB) outlined a three-pronged strategy to defend its revenues from cimetidine (Tagamet). Two of its tactics for continuing cimetidine revenues beyond patent expiration have been discussed by the company for more than five years: line extensions and the introduction of an OTC version. The third tactic is newer: referred to in a slide prepared for the April 12 meeting as a joint effort by SmithKline Beecham and "partners" to market the ulcer drug. The "partnership" approach presumably will be modeled on the company's experiment with Rugby in the U.S. for marketing a generic version of Dyazide that began on Oct. 1, 1990 ("The Pink Sheet" Aug. 27, p. 3). Under that arrangement, SB gave Rugby an exclusive to generic Dyazide before the separate approval of independent generic copies. While giving up part of the revenues from exclusive control of the premium-priced brand, SB has tied itself into a potentially longer stream of revenues from a well-entrenched generic firm. Rugby currently sells its generic version of triamterene and hydrochlorothiazide at about a 25% discount to Dyazide, according to the "Red Book." Dyazide had sales of $ 237 mil. in 1990, up 27%, SmithKline Beecham's annual report says. At the time of the Dyazide deal, SB indicated that, if the licensing approach were successful, it would use a similar tactic for other major drugs coming off patent in the future. From that perspective, the Dyazide deal was important to SB as a warm-up to see how the trade and financial community would respond to the simultaneous marketing of an important brand and an authorized generic. The financial community, in particular, has responded to the Dyazide program favorably. In fact, SB's new pharmaceutical management group has been attracting attention for the improved profit results that the company is squeezing out of its existing and maturing product line. The generic deals are apparently being interpreted as clever ideas and are taking some of the pressure away from an intense scrutiny of SB's future product possibilities. One major difference for an authorized distributor of generic cimetidine (compared to the Dyazide experience) will be the probable presence of other generic versions. The Rugby/Dyazide deal has benefited from the continued inability of other generic sponsors to get copies approved by FDA. By 1994, SB may not have the extra protection of a confused ANDA program and a difficult- to-copy product. SB's defensive measures for cimetidine revenues ($ 1.2 bil. in 1990) are likely to be established in Europe, where patents begin to expire this year. Cimetidine goes off patent in Germany, the U.K., Italy, Japan, Holland, and France before the May, 1994 U.S. patent expiration date. Patent protection expires first in Germany, in September. SmithKline is believed to be close to choosing a generic marketing partner to sell cimetidine supplied by SB in that market. Market share data presented at the April 12 meeting also show that SB has been promoting Tagamet aggressively in the managed care setting. The drug's share of the managed care market grew to 36.8% in 1990, SmithKline Beecham said, while its share of the retail market declined to 21.1%. The managed care segment also has been successfully penetrated by the broad spectrum penicillin Amoxil, with a 50.6% share of that market, and by the cephalosporin Ancef, with a 57.2% market share. Amoxil (amoxicillin) is "the most widely prescribed medicine in the U.S.," SmithKline Beecham noted in its annual report, with sales of $ 436 mil. worldwide. The company's second billion dollar a year product is expected to be the broad spectrum penicillin Augmentin (amoxicillin/clavulanate). It continues to hold the number two spot in the worldwide oral anti-infective market (behind Lilly's Ceclor) with a 7% market share and $ 793 mil. in sales. For 1990, Augmentin posted 47% sales growth, third-best among the company's products. The antibiotic ointment Bactroban (mupirocin) posted a 58% sales gain, while the hepatitis B vaccine Engerix-B doubled its sales to $ 160 mil. and has captured more than half of the hospital market with 52% compared to Merck's Heptavax-B's 48%. By 1996, Augmentin is expected to account for 20%-25% of SmithKline Beecham's total pharmaceutical sales, the company said. At the company's target growth rate for all prescription sales of 8%-10%, that projects to between $ 1.5-$ 2.1 bil. in annual Augmentin sales in 1996. The projections for Augmentin were part of a profile of the company's sales by product in 1996. Tagamet/cimetidine is projected to generate 10% of the company's business, down from 27% this year, while "new products" are expected to generate 25% (or about $ 2 bil.) of sales by 1996. Pharmaceuticals Division Vice Chairman and Exec VP-R&D George Poste highlighted three of 10 launches SB expects in the next five years: the NSAID Relafen, the serotonin reuptake inhibitor Aropax, and the anti-emetic Kytril. Imminent, Poste said, is the nonsteroidal anti-inflammatory Relafen (nabumetone), for which an NDA was filed in 1986. Last year, SmithKline said it hoped to receive an "NDA Day" for the drug "in the near-term" ("The Pink Sheet" April 9, 1990, p. 9). Relafen still has not had an NDA Day, SmithKline Beecham said. The company continues to hope for one and is projecting a 1992 U.S. launch for the product. Poste presented data for nabumetone showing "equivalent anti- inflammatory and analgesic efficacy" to Ciba-Geigy's Voltaren (diclofenac) and Syntex' Naprosyn (naproxen). Relafen is "very well tolerated" in the elderly, Poste said, and SmithKline apparently intends to differentiate the product based on its safety profile. The NSAID has been used in 60,000 patients worldwide, Poste said, including 4,500 in 75 controlled trials. A U.S. launch for the anti-depressant Aropax (paroxetine) is forecast for 1992 or 1993, the company said. Launches in Europe already have begun, the company noted. In comparison to Lilly's Prozac (fluoxetine) and Pfizer's sertraline, Aropax has a "superior pharmacokinetic profile," Poste said. Aropax also has "no effect on weight" and the "optimal dosage [is] established," he added. SmithKline Beecham predicted a 1993 approval for the anti- emetic Kytril (granisetron). The chemotherapy adjunct's anti- emetic efficacy is "sustained for seven days after a single dose," Poste said. SmithKline abandoned Phase II trials for granisetron as a treatment for migraines when animal studies revealed a risk of liver tumors ("The Pink Sheet" March 5, In Brief). SmithKline projected seven other European and/or U.S. launches in the next five years: the vasodilating beta blocker Kredek (NDA pending for hypertension), the I.V. antihypertensive Corlopam (NDA pending), the hepatitis A vaccine Havrix (Phase III), the irreversible proton pump inhibitor pantoprazole (formerly SK&F- 96022, Phase II), the herpes treatment famciclovir (Phase II), the potassium channel activator lemakalim (Phase II), and the dopamine D-2 receptor agonist ropinirole (Phase II/III). Continued post-merger rationalization should improve profit performance, the company told the analysts. Cost-cutting through site closing, personnel cuts, and overhead reductions contributed to a 5.1 point margin improvement in 1990, and should add another 3.5 points in 1991, the company said. After a 321-person reduction in 1990, the company plans to reduce its total payroll by an additional 267 people in 1991 down to 4,478.

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