Sandoz wants to be known as the generic manufacturer that focuses on difficult-to-make products.

The company emphasized its expertise in this area at an investors conference, held Sept. 3 at Sandoz headquarters in Holzkirchen, Germany. Company executives noted that 27 percent of Sandoz products are difficult to make and that the company has more than 110 such compounds in development, including 25 biosimilars.

"This is the centerpiece of our strategy," Sandoz CEO Andreas Rummelt said.

Sandoz defines difficult-to-make products as those that many other companies cannot develop or produce because the dosage form is distinct, the active pharmaceutical ingredient is limited or the formulation is complex. Such drugs currently on the market include Sandoz's human growth hormone Omnitrope , its fentanyl patch, the beta blocker metoprolol succinate (AstraZeneca's Toprol XL ) and its leuprolide implant (Abbott's Lupron ) for prostate cancer.

Other generic manufacturers are also targeting this more lucrative segment of the market. Mylan, for example, said many of its products fall into that category, including its fentanyl patch, paroxetine ER (GlaxoSmithKline's Paxil ) and omeprazole (AstraZeneca's Prilosec ).

In response to an analyst's question, Rummelt said that 30 percent of all generics on the market are difficult-to-make products.

Technology, In-House Manufacturing Are Key

Sandoz said its technological expertise, in-house manufacturing capabilities and experience as the first generic company to market biosimilars give it an edge over its competitors.

For example, Rummelt said Sandoz developed the technology to develop the fentanyl patch in-house. He said this enabled Sandoz to be the first fentanyl generic in most markets and to be the only generic for a significant period before another competitor came along.

Sandoz execs also touted the company's experience with its two biosimilars - the human growth hormone Omnitrope, which was approved in Europe and the U.S. in 2006, and the erythropoiesis stimulating agent Binocrit , which launched in Germany last year.

While Sandoz is able to capitalize on its technological know-how and manufacturing resources to produce additional biosimilars, it will face increasing competition. At one point, eight ESA products were on the market in Germany. As a result of the competition, Shire recently announced it was withdrawing its Dynepo (¹ Also see "Sandoz Hones Biosimilars Strategy" - Pink Sheet, 5 September, 2008.).

Other companies are building a portfolio of biosimilars. Teva said it expects to launch its first biosimilar in Europe, a generic of Amgen's Neupogen (filgrastim), at the end of 2008. It has other undisclosed biogenerics in its pipeline. Barr, which Teva is seeking to acquire, has four biogenerics in development, only two of which it has revealed, a generic of Neupogen and a generic of an erythropoietin stimulating agent.

Sandoz declined to identify any of the 25 biosimilars in its pipeline.

In other areas, Sandoz said it was well positioned to get onto the market early when brand name drugs go off-patent. It has 108 ANDAs pending with the FDA, more than 50 percent of which have paragraph IV challenges and 15 of which Sandoz believes have first-to-file status. By comparison, Teva has 149 pending ANDAs, 50 of which have first-to-file status and Mylan has 109 pending ANDAs, 22 of which have paragraph IV certification and potential first-to-file status (see chart: "² Sandoz Metrics of Success ").

Sandoz declined to name the products for which it is first to file, but in an interview, Cowen analyst Brett Kaplan said four Sandoz drugs are particularly interesting: enoxaparin (Sanofi-Aventis' Lovenox ); glatir (Teva's multiple sclerosis drug Copaxone ); metaxalone (King's Skelaxin muscle relaxant); and piperacillin/tazobactam (Wyeth's anti-infective Zosyn ). Kaplan said Sandoz was the first to file an ANDA for glatir, metaxalone and piperacillin/tazobactum.

Pharma Unit vs. Generic Stand-Alone

While Sandoz is trying to brand itself as the leader in hard-to-manufacture generics, it has another distinctive quality. It is the only large generics manufacturer to operate within a major pharma company. Ranbaxy would be the second, if Daiichi Sankyo is successful in its bid to acquire the company.

Being a unit of Novartis has some disadvantages. It is unable to compete against Novartis products and its business model is very different from that of a brand-name company, which could create some culture clash.

Standard & Poor's noted in a recent report on big pharma-generics combinations that the two differ in product development time frames and life cycles, sales structure and profit margins. It pointed out that in the first quarter of 2008, Sandoz's operating margins were about half that of Novartis'.

Sandoz, which became the second largest generics company after its acquisition of Hexal and Eon Labs in 2005, has been successful in competing with stand-alone generics companies. But it may have trouble overtaking Teva, the No. 1 generics company, particularly after Teva completes its acquisition of Barr (³ Also see "Teva’s Acquisition Of Barr Will Boost Research For Molecules Large And Small" - Pink Sheet, 28 July, 2008., p. 25).

An analyst asked how Sandoz would attempt to equal the playing field for the U.S. part of its business in light of this consolidation. Bernard Hampl, CEO of Sandoz U.S., replied that size is not everything.

"The success in this marketplace will really be who can bring the most value products [i.e. those that are difficult-to-make] to the market in time," he said. If you become too big, that "can be a disadvantage at a certain point, because the big players, the Walgreens and the Wal-Marts of this world, they know they can only get the most competitive price when there is still competition."

Sandoz noted that its sales growth in the U.S. in the first half of 2008 has been significantly behind expectations because of launch delays in the U.S.

The company has also been hit with manufacturing problems in the U.S. Last month, FDA sent a warning letter to Sandoz citing "significant deviations" from good manufacturing practices at its plant in Wilson, N.C. (⁴ Also see "GMP Warning To Sandoz Questions Continued Lot Release; Will FDA Block It?" - Pink Sheet, 1 September, 2008., p. 23). The violations included failure to validate the manufacturing process for metropolol. Hempl said the company would submit a response to FDA on Sept. 4 and hoped to be back in compliance in a few months.

An analyst asked why the company did not suspend metropolol production until FDA concerns were resolved, as the agency had requested. Hempl said he would rather not comment on that other than to say that the issues raised by FDA involved the validation of the product and not its safety and efficacy.

Focusing On Emerging Markets

While growth in the U.S. market has been slow, Sandoz execs said the company has expanded in emerging markets, which now account for 37 percent of its total annual sales. Sandoz now holds the No. 1 position in Central and Eastern Europe, is No. 2 in Russia and No. 4 in Brazil.

Richard Saynor, head of Sandoz commercial operations for Asia Pacific, Latin America, Canada and Turkey, said the company is also well positioned to become a leader in Japan, the second largest pharmaceutical market in the world. While the country currently has only 17 percent generic penetration, the government is seeking to double the utilization of generics by 2012.

Sandoz recently launched amlodipine, a generic version of Pfizer's antihypertensive Norvasc , in Japan. Prior to that, Saynor said the two largest products Sandoz had launched in Japan were famotidine (Johnson & Johnson and Merck's Pepcid ) and pravastatin (Bristol-Myers Squibb's Pravachol ).

"We've sold more in 13 days with amlodipine than we sold in three years with the other two products," he said.

But the company is not satisfied with its position worldwide. Asked what areas of the business still need improvement, Rummelt replied that the generics business "is still so fragmented it is really important to have the top one, two or three positions in the key markets. And we have only achieved this in 50 percent of the markets we are in."

On the development side, he said the company is looking for technology platforms "which would give us an additional competitive advantage in difficult-to-make products."

- Brenda Sandburg (b.sandburg@elsevier.com)

Sandoz Branding Itself As Generics Shop With Hard-To-Manufacture Products

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