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August 29, 2007
Joint Ventures - Insurance Without the Hefty Price Tag of a Merger or Acquisition
As many companies in the pharmaceutical world look with more than a touch of concern at their drug development pipelines, Schering-Plough hopes to find solace in a combination of two products - neither of which is currently under a Schering-Plough patent. The FDA has agreed to consider the company's application for a product that would be the combination of Claritin - a Schering-Plough drug whose patent expired in 2002 - and Merck's Singulair, which is still under patent.
And it will be for some time: Singulair's patent is good until 2012 unless the generic companies can produce a legal miracle. So, why would Merck let Schering-Plough undermine its drug with so many years of solid growth to go? The answer lies in a joint venture agreement crafted in 2000, when both drugs were still under patent. This agreement allows both companies to share equally in the profits of a combination drug treating allergies or high cholesterol using properties from each company - even if they are expired.
Merck has been profiting handsomely from this agreement already. The company has overseen Vytorin, a combination of Merck's Zocor - patent long expired - and Zetia, a jointly-developed drug itself between the two companies. While Schering-Plough is entitled to a majority of the Zetia profits, however, they're only entitled to 50% of Vytorin's profits. Merck's addition of Zocor to the mix costs them almost nothing since it is off patent, but those sales of Vytorin over Zetia are netting them millions. It's now Schering-Plough's turn to profit from the venture. "The combination product will compete with Singulair," Merck spokesman Ian McConnell told the WSJ Health Blog. He did add that the combination pill will "provide another alternative for patients and caregivers." Tellingly, Schering-Plough will be leading sales, marketing, and regulatory activities.
Still, this agreement points to an alternative to the radical acquisition suggestions floating around like the Pfizer-Wyeth merger rumor recently discouraged by Fortune writer John Simons. As companies' patents begin to sunset, they should look at their portfolios in search of a combination product in their primary therapeutic areas. If they can't find one, maybe they should look in someone else's portfolio. After all, their patent isn't going to last forever, either, and it's better to share half of the profits of a combination drug than trying to compete with a half-dozen generic companies who slash the price of the drug by over 80 percent of its value.
While these joint ventures limit the potential windfall, they also don't have all the potential danger of an acquisition. And with so many significant patents expiring in the next few years, a disaster is less desirable than ever. Pfizer must have gotten the message, as the announcement this week to collaborate with Bristol-Myers-Squibb on diabetes and obesity has them both sharing in the expenses - and also the profits.
Posted by Jeremy Spivey at August 29, 2007 09:50 AM