Novartis Pursuing Generic Biologics; Says Brand And Generic Lines Co-Exist

Novartis is positioning itself at the forefront of companies seeking approval of generic biologics with a pending application for human growth hormone.

"Since we are one of the first companies who are in the development of generic...biopharmaceuticals, we are in a quite extensive discussion process with the U.S. FDA, as well as in Europe, to clarify what is necessary for the registration," Generics Head Christian Seiwald said during an analysts meeting in Zurich Jan. 23.

"Now what we have done so far is that we have submitted...the first product, the human growth hormone, to the FDA as well as to European registration authorities," he said.

Seiwald listed biologics among the key growth drivers for the generics industry, predicting that "biopharmaceuticals will...become a target over the next five years since a number of important products are losing their patent protection....We see a lot of potential from biopharmaceuticals."

For Novartis, the generic division will play a broader role in biologics production.

"We will serve further as a biotech center of the group. We are producing important substances for pharma and for animal health. We want to build our own generic business, and we want to leverage our biotech expertise...for other companies," he said.

FDA is drafting guidances on how to use a 505(b)(2) application to obtain approval for "interchangeable" human growth hormone and insulin. The products are thought to have characteristics that make showing equivalence easier than other recombinant proteins (¹ (Also see "Generic Somatropin NDAs Would Require Human Immunogenicity Tests – FDA" - Pink Sheet, 22 Apr, 2002.), p. 14).

Novartis made a separate presentation on the generic division during the analysts meeting - underscoring the company's commitment to generics at a time when other large brand name firms are exiting the business.

Novartis has made three acquisitions in the generic sector over the past two years. In 2002, the Swiss company acquired the Slovenian firm Lek for $790 mil. (² , p. 19). In 2000, Novartis bought Apothecon from Bristol-Myers Squibb and BASF's generics unit (³ (Also see "Apothecon To Continue As Bristol Unit After Sale Of Generics To Novartis" - Pink Sheet, 18 Dec, 2000.), p. 5).

Novartis is following up the recent acquisition activity by reviving the Sandoz name to represent its global generics line. The name was discontinued in 1996 after Sandoz merged with Ciba-Geigy to form Novartis (⁴ (Also see "SANDOZ WAKES: CIBA MERGER GIVES COMPANY FOCUS THROUGH END OF DECADE; NOVARTIS WILL BE 8TH LARGEST U.S. FIRM, LOOKING FOR $1.5 BIL. IN SAVINGS WORLDWIDE" - Pink Sheet, 11 Mar, 1996.), p. 3).

Sandoz will fold 14 regional generic companies - including Geneva and Apothecon in the U.S. - into one umbrella business unit. Lek will retain its separate identity for now.

Unifying generics under one name gives the business a global identity, Seiwald said. "Customers show much greater trust in large, international generic companies."

A unified business could also help build Novartis' generic Rx share; an increasing number of prescriptions for multi-source products indicate a specific generic manufacturer, the exec noted.

The Sandoz name has greater than 90% aided awareness in Europe among physicians, pharmacists and patients, Seiwald said. "Sandoz also represents our key attributes: high quality, trust, innovation and global reach....We believe that Sandoz will become the most respected generic brand globally."

Novartis is building its generics portfolio as a number of its peers - like Bristol and Wyeth - are exiting the business altogether. Wyeth discontinued the ESI Lederle oral generics business in 2001, then sold the anesthesia/critical care portfolio to Baxter in June 2002 (⁵ (Also see "Baxter Adding $200 Mil. In Critical Care Rx Sales Via ESI Lederle Deal" - Pink Sheet, 17 Jun, 2002.), p. 19).

Novartis CEO Daniel Vasella was asked whether there is a conflict between the brand and generic businesses, particularly given the aggressiveness with which the generic divisions challenge patents.

"You have to protect patents strongly, [but] once the patent is gone, we believe that we should have a rapid substitution of these drugs by generics, which will force the pharmaceutical industry to innovate," Vasella said.

U.S. Pharmaceuticals President Paulo Costa echoed those comments. "There is no rationale to support intellectual patent protection beyond [the] patent expiration date," Costa said.

Novartis dismissed investor concerns that the generics business is hindered by the branded side. "There was not any case or any moment where we had some pressure, or we couldn't do the business the way we wanted to do," Seiwald maintained.

"The generics business has total independence and autonomy from the pharmaceutical business," Costa agreed.

"I see the president of the generic business probably twice a year in our board meetings, and we probably talk on the phone maybe a couple times more during the year and that's about it. So they do have full autonomy to run the business and we don't interfere with that at all."

Novartis' ownership of the generic divisions makes it easier for the company to pursue acquisitions, Seiwald added. "I mean, with all respect to our numbers and to our size, I think an acquisition like Lek without the background of Novartis would have been much more difficult to proceed."

The generic business is also attractive politically in the U.S., Seiwald noted. "President Bush very clearly stated most recently that he very strongly supports generic penetration." FDA took that message to the Generic Pharmaceutical Association annual meeting the week of Jan. 27.

Novartis' generics sales were up 25% in local currencies to approximately $1.55 bil. in 2002, driven by amoxicillin/clavulanate (equivalent to GlaxoSmithKline's Augmentin ). Operating income for the generics business increased 44%.

Geneva's share of the Augmentin market ramped up to 58% in November, Novartis said. The generic was introduced in July. Augmentin's share was 25% in November, while Teva, which introduced its generic version in November, gained a 17% share.

Novartis is booking sales of its Augmentin generic, but is placing earnings in a reserve in the event it loses GSK's appeal of a patent suit (⁶ (Also see "From The Quarterly Conference Calls" - Pink Sheet, 5 Aug, 2002.), p. 35). GSK is appealing a May 22 court decision found in Geneva's favor (⁷ (Also see "Augmentin Patent Appeal On Fast-Track; GSK Braces For Generics" - Pink Sheet, 27 May, 2002.), p. 20).