Pharma news highlights: Chinese bribery scandal, possible pharma merger

Ed Silverman shares his thoughts on some of the latest pharma news stories from the last four weeks, including an update on the bribery scandal in China and how it has affected global pharmaceutical companies, as well as Teva's plans to restructure, Bayer's plans to take India's IPAB to court and rumors of a possible pharma merger...

(Continued from "Pharma news highlights: China, CRO bonuses and hiring trends")

After a respite last month, we are back with a summary of the latest events in the fast-paced pharmaceutical world. As always, recent developments underscore that a great deal can occur in just a short amount of time. So here are some of the highlights...

Possible Roche / Novartis merger

One month ago, Roche director Pierre Landolt unexpectedly told a reporter that a merger with Novartis may make sense "from an objective standpoint" and lead to a "pharmaceutical champion". What appears to have been an off-the-cuff remark was made shortly after a changing of the guard got under way at both drugmakers.

Roche had named Lufthansa CEO Christoph Franz, who is also one of its board members, to succeed Franz Humer as chairman, a move that came only a few weeks after Jorg Reinhardt replaced the controversial Dan Vasella as Novartis chairman. The shifts were suddenly seen as some kind of opportunity to create a new climate between the traditional rivals.

Speculation was fueled further when Roche CEO Severin Schwann told The Financial Times that "if the right opportunity (for a partnership) comes up, we would be extremely open to talk with Novartis as we would be with all the other players....If it makes sense for both companies, why not sit together and talk? It's a very professional relationship we have with Novartis."

"If it makes sense for both companies, why not sit together and talk?"

Now, though, he is quashing the possibility of something later. In remarks after Roche released earnings, Schwann says that the families that control 50 percent of Roche voting shares are not interested. "Nothing has changed with regards to Roche's position toward Novartis. The familiar Hoffmann and Oeri have repeatedly stated they're committed to Roche's independence."

Teva Pharmaceuticals in restructuring talks

Faced with an outcry over plans to eliminate 800 jobs in Israel as part of a global cost-cutting campaign, Teva Pharmaceuticals has temporarily frozen plans to fire those workers while talks are held simultaneously with the government and key labor unions.

The drugmaker, which is one of the biggest employers in Israel, backed off amid outrage that the government provided roughly $3.4 billion in tax breaks between 2006 and 2011 in order to encourage capital investment, while not paying any corporate taxes.

Teva employs about 8,000 people in Israel and intends to cut 5,000 jobs globally as it prepares for patent expiration next year on its best-selling Copaxone treatment for multiple sclerosis. The move is part of a plan to accelerate a $2 billion cost-cutting campaign announced late last year.

The head of the opposition Labor Party suggested that Teva should cancel the layoffs entirely and CEO Jeremy Levin ought to take a cut in pay before forcing hundreds of employees out the door. Teva shareholders recently approved a 2013 compensation package in which he receives a base salary of $1.5 million and a bonus of up to $3 million.

Update on Chinese bribery scandal

The Chinese bribery scandal is starting to hurt big pharma. Of nine multinational drugmakers queried, seven acknowledged the bribery scandal has been a drag on operations in China. One large drugmaker, for instance, noted that prescribers are reluctant to grant access to sales reps.

Which ones are hurting? Of course, there is GlaxoSmithKline, which was the initial focus of the Chinese government probe. The others registering pain are Merck, Eli Lilly, Roche, Sanofi, AstraZeneca and Novartis, according to an investor note by Tim Anderson at Sanford Bernstein. Pfizer and Bristol-Myers Squibb declined to respond, although these drugmakers are likely to be taking a hit, as well.

In the scheme of things, China does not yet represent a huge piece of business for most of the drugmakers. AstraZeneca had the most exposure as China accounted for 6.9 percent of sales in this year's second quarter, followed by Roche at 5.2 percent and Sanofi with 4.6 percent. Across the board, sales from China were up from the same period a year ago, but then the scandal broke in June.

"In the scheme of things, China does not yet represent a huge piece of business for most of the drugmakers."

The wider impact is the extent to which the hit on business in China slows growth in the so-called emerging markets that global drugmakers have repeatedly cited as a hot spot for the future. The premise is that these markets – notably, Brazil, Russia, India and China – have pent-up demand and inadequate domestic suppliers.

Yet, emerging market growth has slowed and the sluggishness began before the bribery scandal, according to Anderson. He calculates growth in the third quarter in 2012 was 8 percent for eight of the nine multi-national drugmakers (Bristol-Myers did not provide data) and fell to 6.9 percent in this year's first quarter and fell another 5.7 percent in this year's second quarter.

This is an issue for Sanofi, for instance, which derived about one-third of its revenue in this year's second quarter from emerging markets. Similarly, emerging markets constituted roughly 26 percent of revenue for Roche, Glaxo and Novartis. But there are other likely reasons besides the bribery scandal for the slowdown, Anderson writes, such as price cuts in India and currency weaknesses.

J&J's new board of directors

In an interesting move, Johnson & Johnson added Mark McClellan, who served as agency commissioner from 2002 to 2004 and then headed the Centers for Medicaid & Medicare Services from 2004 to 2006, to its board of directors. McClellan, of course, brings high-level insights into regulatory and reimbursement policies to one of the world's largest purveyors of healthcare products.

However, his arrival can also be seen as a needed bid by the healthcare giant to strengthen its wobbly compliance record. In addition to serving on the science, technology and sustainability committee, McClellan will sit on the regulatory, compliance and government affairs committee. This makes sense not only because of his experience, but because of recent events that have preoccupied J&J.

Although its stock has become a favorite on Wall Street thanks to success with new prescription drugs, J&J is still struggling to recover from quality-control problems that led to a consent decree with the FDA and forced a key plant that produces many over-the-counter products to close three years ago. Recently, J&J execs predicted that will be ready for an FDA inspection later this year.

"The episode contributed to countless product recalls and shortages over the past three years."

The episode contributed to countless product recalls and shortages over the past three years. Meanwhile, J&J continues to negotiate a settlement to various federal government probes into the marketing of the Risperdal antipsychotic, and is enmeshed in litigation over recalled hip replacements and allegations that internal analyses of higher-than-projected failure rates were never disclosed.

Among many other things, McClellan can be expected to provide Gorsky and his team with needed advice on how to navigate the FDA as plans proceed to bring the OTC plant and perhaps he can add some finishing touches on the Risperdal settlement, which has been dragging on. Credibility is at stake and McClellan is there to ensure this scarce commodity is attainable.

Bayer files court case in India

Seven months after India's Intellectual Property Appellate Board rejected an appeal from Bayer, which was fighting a compulsory license that permitted the sale of a generic version of its Nexavar cancer drug, the drugmaker has now filed a challenge with the Bombay High Court.

The license was issued last year after Indian authorities determined that Nexavar pricing was deemed too expensive for most people in India. The license was issued to Natco, a large Indian generic drugmaker, which must pay Bayer 7 percent royalties on its sales. The challenge is not a surprise, though. At the time the IPAB upheld the license, Bayer quickly announced that an appeal would be filed.

The fight is going to be closely watched, however, because of the ongoing tussle over intellectual property rights in India. Drugmakers have complained bitterly that the Indian government has failed to respect these rights and enlisted politicians in Washington DC to argue their case. Various US officials from Congress and the US Patent & Trademark Office derided the Bayer decision, for example.

"We strongly disagree with the conclusions of IPAB," a Bayer spokesperson says. "The order of the Intellectual Property Appellate Board weakens the international patent system and endangers pharmaceutical research. The challenges faced by the Indian healthcare system have little or nothing to do with patents on pharmaceutical products as all products on India's essential drug list are not patented."

"The fight is going to be closely watched, however, because of the ongoing tussle over intellectual property rights in India."

MHRA cracks down on manufacturers

For the second time in four months, UK's Medicines and Healthcare Products Regulatory Agency has tagged Wockhardt for manufacturing problems at a key facility. The latest infraction led the regulator to withdraw certification for the same facility that prompted the FDA to issue a warning letter last July after employees played hide-and-seek with requested documents, among other things.

"We have issued a statement of non-compliance against Wockhardt's site in Chikalthana, India after recent inspections identified a number of manufacturing issues that breach Good Manufacturing Practice (GMP) guidelines," an MHRA spokesperson says. The drugmaker, however, can continue exporting some critical drugs to the UK to avoid shortages of essential medicines.

The move by the MHRA underscores the heightened scrutiny being placed on drugmakers in India. The FDA, for instance, is reportedly planning to follow the same system of facility inspections in India that is followed in the US and other developed countries. Toward that end, the agency has expanded its inspection team from 12 to 19 people, and opened two more offices.

Concerns have mounted in the wake of the scandal involving Ranbaxy Laboratories, which recently agreed to pay $500 million to the US Department of Justice to settle criminal and civil charges associated quality control problems at its plants in India. Violations included fabricating in-house test data and concealing these activities from FDA inspectors by falsifying records. A consent decree remains in force.

Wockhardt has also been on radar screens before. The MHRA last July issued a recall of 16 medicines after finding a plant in Waluj, India, failed to meet good manufacturing practices. And last May, the FDA issued a so-called import alert that effectively banned several drugs from entering the country, following a failed inspection. At the time, Wockhardt acknowledged the action could cost some $100 million in revenue. Last year, Europe accounted for about 27 percent of overall sales.

About the author:

Ed Silverman is a prize-winning journalist who has covered the pharmaceutical industry for the past 16 years. In addition to editing Pharmalot, he is currently an editor-at-large for Med Ad News.

Previously, he was a bureau chief for The Pink Sheet, the venerable industry newsletter, and a contributor to its sister publication, In Vivo magazine. Before that, Silverman worked as a business writer for The Star-Ledger of New Jersey, one of the nation's largest daily newspapers, where he conceived and launched Pharmalot. During his 13-year tenure, he closely followed a variety of topics of concern to those who work for, and with, drug makers – drug development; mergers and acquisitions; regulatory oversight; safety and pricing controversies, and marketing issues.

Prior to joining The Star-Ledger, Silverman spent six years at New York Newsday and previously worked at Investor's Business Daily, among other newspapers. He has a master's degree in journalism from New York University and a bachelor's degree in accounting from Binghamton University. Tethered to his laptop and Blackberry, Silverman lives in suburban New Jersey with his wife, three children, a sizeable Labrador retriever and a sneaky beagle.

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