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HOECHST PROKINE "GIVEAWAYS" EXCEED 10,000 VIALS, IMMUNEX CHARGES

Executive Summary

HOECHST PROKINE "GIVEAWAYS" EXCEED 10,000 VIALS, IMMUNEX CHARGES in a breach-of contract suit. The two companies collaborated on the development of granulocyte-macrophage colony stimulating factor, approved by FDA for use in certain cancer patients in March 1991. Hoechst and Immunex co-promote GM-CSF in the U.S., with Immunex selling the drug under the tradename Leukine (sargramostim). Hoechst has exclusive rights outside of the U.S. Immunex has sole U.S. manufacturing rights. In the suit, Immunex alleges that Hoechst and its subsidiaries Behringwerke AG and Hoechst Roussel Pharmaceuticals. have breached their contract by flooding Immunex's customer base with free samples. Hoechst Roussel is Hoechst's U.S. business. Hoechst is "shipping large supplies of Hoechst GM-CSF as free samples to Immunex's hospital customers," Immunex charged. While Immunex and Hoechst compete nationwide, Immunex has buying contracts with an undisclosed number of hospital purchasing groups for Leukine, including American Healthcare Systems and Voluntary Hospitals of America. The Hoechst "giveaways" include those two customers, an Immunex spokesperson said. The relationship with AmHS does not involve minimum purchases or volume discounts, but instead offers the group purchasing organization equity incentives to buy GM-CSF from Immunex rather than Hoechst or other competitors ("The Pink Sheet" Oct. 14, 1991, T&G-1). In the case of VHA, however, Immunex announced last March that it had signed an exclusive three-year supply agreement covering GM-CSF ("The Pink Sheet" March 11, 1991, p. 15). "We intend to prove that Hoechst has flooded Immunex's customer base with free GM-CSF in a deliberate attempt to undermine Immunex's investment in GM-CSF and intimidate Immunex in contract negotiations with Hoechst," a press release said. "Obviously, Immunex cannot afford to compete below cost with a giant firm like Hoechst. We have confirmed giveaways of approximately 10,000 vials of product and believe that is not the full extent of the giveaway program." A Hoechst spokesperson said the company was "surprised to hear of the suit," and intends to "defend vigorously" against it. Hoechst's license to GM-CSF runs until 1995, an Immunex spokesperson said. Immunex originally licensed full worldwide marketing rights to Behringwerke, but re-acquired the right to co- market in the U.S. in 1989. "Immunex alleges that Hoechst violated its agreements with Immunex by failing to market GM-CSF as required by contract, failing to pay royalties to Immunex, and interfering with Immunex GM-CSF customer contracts," the release states. "Immunex also alleges that the [Hoechst Roussel] giveaway program violated the federal Prescription Drug Marketing Act, which prohibits firms from giving away drugs as free samples without appropriate safeguards." The Hoechst giveaways have resulted in much lower than expected first quarter sales for Leukine, Immunex said. The company now expects to report a loss for the period, "although it will be significantly less than our loss for the first quarter in 1991 when Immunex lost $4.2 mil." In a Feb. 13 research report, Smith Barney analyst Denise Gilbert projected 1992 sales of GM-CSF of $50 mil., lowered from earlier estimates of $60 mil. Gilbert noted that Hoechst had been giving away product when it neared its expiration date, and also noted that Schering-Plough was providing the drug free under a compassionate use program. That product is licensed from Genetics Institute to Sandoz/Schering-Plough. In a January presentation to the Hambrecht and Quist healthcare conference, Immunex President Michael Kranda predicted that despite rapidly increasing sales in 1991, demand for Leukine and GM-CSFs in general would "grow more modestly" this year. Nonetheless, Kranda said that Immunex expected to be "solidly profitable" for the year. After the big loss in the first quarter 1991, Immunex earnings increased steadily for each consecutive quarter, to a cumulative $802,000 on revenues of $62.6 mil. for the year. Almost half of 1991 revenues were due to Leukine, the company said in its annual report. Immunex now says that "if the effect of the giveaway program cannot be reversed," the company will not meet its revenue targets for the current year. However, the firm adds that the suit will not "significantly affect" its development program for GM-CSF, and that the company will still go ahead with plans to seek a broader label this year. The drug originally was approved for the acceleration of bone marrow engraftment in cancer patients who require autologous bone marrow transplants. On Dec. 31, the agency approved an added indication, for treatment of cancer patients when autologous and allogeneic bone marrow transplants fail or when marrow engraftment is delayed ("The Pink Sheet" Jan. 6, T&G-2). The company currently is seeking approval for use in chemotherapy patients. Immunex also is working on other oncology products, including a second- generation colony stimulating factor, PIXY 321 ("The Pink Sheet" Feb. 3, p. 6). Filed April 2 in King County, Wash. superior court, the suit charges breach of contract, business interference and unfair competition. Immunex has retained the Seattle firm Perkins, Coie as legal counsel.
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