GlaxoSmithKline's discounts to the Florida state Medicaid program are not out of line with agreements with other states, CEO J.P. Garnier told the Bear Stearns "virtual" healthcare conference Sept. 24.

GSK is understood to have reached a deal with the state to expand coverage for its products in Florida, although details have not been finalized.

Garnier advised investors not to be overly concerned about the impact of the Florida supplemental rebate law. "When you see the discounts that we give to Florida, it's really nothing to write home about," he declared.

While Florida "was a lot of talk, in reality, all our major molecules are there and we had to give them the discounts we give a lot of other states."

"The difficult state formulary is still California," Garnier added. The California Medi-Cal program has been collecting supplemental rebates for a decade.

Several key GSK products were not included in Florida's initial formulary after the supplemental rebate law took effect July 1. Significant GSK products not covered included: the diabetes drug Avandia (rosiglitazone maleate), the migraine product Imitrex (sumatriptan) and the allergy nasal spray Flonase (fluticasone propionate). While Flovent (fluticasone propionate) and Serevent (salmeterol xinafoate) are on formulary, the combination asthma product Advair (fluticasone/salmeterol) is not listed.

The supplemental rebate law mandated a discount of at least 10% on top of the standard 15% Medicaid rebate (¹ Also see "Pfizer Florida Formula: Free Goods In Exchange For Formulary Status" - Pink Sheet, 21 May, 2001.).

Garnier's comments are the latest indication that the industry is prepared to live with the Florida program. The Pharmaceutical Research and Manufacturers of America is suing to block the program, but the initial ruling in the case was not in PhRMA's favor (² Also see "PhRMA v. Florida" - Pink Sheet, 24 September, 2001.).

Two PhRMA members, Pfizer and Bristol-Myers Squibb, have completed deals with Florida that use disease management services, with guaranteed savings targets, in lieu of traditional rebates to secure formulary access.

During a Bear Stearns presentation Sept. 26, Pfizer CEO Henry McKinnell explained the company's decision to work with Florida.

"To understand what we're really doing here, you have to understand that the four diseases targeted by these programs cost the Medicaid program approximately $700 mil.," McKinnell said. "The drug component of that cost is about $70 mil. So by saving the state money on the $700 mil., we can take their attention away from the cost-saving initiatives on the $70 mil."

Pfizer is guaranteeing savings of $33 mil. in exchange for on-formulary status for all of its products (¹ Also see "Pfizer Florida Formula: Free Goods In Exchange For Formulary Status" - Pink Sheet, 21 May, 2001.). Bristol's agreement calls for $16.3 mil. in savings (⁴ Also see "Bristol Follows Pfizer Formula For Access To Florida Medicaid" - Pink Sheet, 10 September, 2001.).

During the analysts conference, Garnier also downplayed the effect of rapid uptake of generic versions of fluoxetine (Lilly's Prozac) on GSK's selective serotonin reuptake inhibitor Paxil (paroxetine).

"We have had zero activity in terms of formulary switches, and we have long lead times with some of our managed care accounts with our contracts. I don't expect this to break the golden rule," he maintained.

"I believe that the noise level is going down and that the total fluoxetine prescriptions will not change dramatically and that we will continue to prosper," he said. In the past few weeks, "nothing much is happening in terms of the market share shift."

When asked whether managed care organizations are requiring Paxil price discounts in light of generic fluoxetine, Garnier said that while it is an "ongoing trend" overall, "I would not exaggerate the impact on our business. It's been there, but it's not substantial."

Garnier suggested that the rapid uptake of fluoxetine generics does reflect a change from historical patterns. "We're going to see these kinds of brutal switches in the future," Garnier said. Generic erosion no longer unfolds over "three months or six months," he said. "It is happening within weeks."

"We were certainly aware that some of the PBMs wanted to make a bit of a commercial out of this substitution by showing their clients that they can save them money day one and not wait six months to [switch] every prescription of Prozac," the exec said.

While some health management organizations, such as Kaiser Permanente, typically reach full substitution immediately, there was also a "particularly aggressive effort from Express Scripts and Medco to convert those prescriptions right away," Garnier said.

Express Scripts reached a 90% generic substitution rate for Prozac within weeks of generic fluoxetine's Aug. 2 launch, compared to the typical uptake of 75% after six months. Merck-Medco reported a similar substitution rate (⁵ [A#00630350003]).

Prozac's large market share inspired some of the "less aggressive managed care accounts" to go the "extra mile, including writing to physicians, phone campaigns and so forth to remind them to write the product generically," Garnier said.

Garnier cautioned analysts against relying too heavily on market share data for new prescriptions during the fluoxetine switch period, maintaining that the index can be "very misleading."

"If you are a Prozac patient and you go to the pharmacy and they switch your drug to a generic...sometimes it gets counted as a new prescription, which it isn't," he said.

Paxil's broader label affords it a better position relative to its competitors, Garnier said. Paroxetine is indicated for panic disorder, social anxiety disorder and generalized anxiety disorder, as well as depression and obsessive/compulsive disorder.

The anxiety market holds a bigger growth opportunity for SSRIs than the antidepressant market, he said. While SSRIs have "conquered" the antidepressant market, they are "just getting established" in anxiety. "There's a lot of runway space there for Paxil."

Of the 72 mil. prescriptions written for anxiety for the 12 months ending July 1, 33% were for SSRIs, compared to 76% of the 90 mil. antidepressant Rxs, Garnier said. SSRI scripts for anxiety grew 29% over the period, compared to an 11% growth in scripts for depression.

Garnier also assured analysts that Paxil's "murky" patent situation will not have a major impact on the overall business. GSK is in litigation with a number of generic firms, and has listed 10 paroxetine patents in the "Orange Book." "Paxil, even though it's a big product, only represents 10% of our sales," he told analysts.

GSK has not completed its search for acquisitions or licensing agreements. "We are going to continue to look outside, we do not believe that we have the monopoly on good science or good commercial products, and we're going to pick up whatever we can," Garnier said.

"I think that we have shown that we can be a very good partner, with successes such as Paxil, and people have taken notice and are certainly talking to us. We expect to announce more of the same in the next few months."

One model GSK will not follow, Garnier declared, is the $2 bil. licensing deal between Bristol and ImClone for C225 (⁶ Also see "Bristol Paying $2 Bil. For ImClone C225; New Milestone For Inlicensing Deals?" - Pink Sheet, 24 September, 2001.). "I do not intend to buy ImClone-like assets at that price," he said.

GSK prefers to sign earlier-stage agreements similar to those it recently penned with the Japanese firms Shionogi and Tanabe. The Shionogi joint venture gives GSK access to the HIV compound, S-1360, now in Phase II (⁷ Also see "GSK/Shionogi Joint Venture Will Have HIV Integrase Inhibitor In Phase II" - Pink Sheet, 30 July, 2001.). GSK signed a letter of intent with Tanabe on Sept. 11 to develop and market a range of preclinical compounds.

"We have taken a partial hold of their pipeline forever," Garnier told analysts. "Anything coming out of their pipeline goes to us and then we finish up with development of those early molecules, at our cost....Essentially, this is a little bit like having a hook into two drug discovery pipelines."

"At the same time," he said, "we want to convert [our own] early-stage pipeline. There are 22 molecules in the clinic which I follow personally because they all could be blockbusters. We're going to try and move as many as possible into position for launch in 2004-05."

GSK is working on selecting products to accelerate in development, a process Garnier equated to the "gold pass" system at Walt Disney World, through which customers can avoid waiting in long lines.

GSK expects its Centres of Excellence for Drug Discovery R&D program to help identify those drugs with the most potential. The six teams - each responsible for different therapeutic areas - are now "alive and kicking," Garnier said.

While GSK is not yet "raising the flag of success" on the CEDDs program, there is "more excitement...in those buildings than I have ever witnessed in my years as a pharmaceutical executive," Garnier declared. "The parking lot is not empty at 5 p.m. as it was when we were a monolithical R&D enterprise."

GSK Florida Medicaid Deal Close; Discounts Are Not "Difficult," Garnier Says

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