Romancing the Enemy Pays Off for Drug Companies

A supply agreement between Bayer Healthcare Pharmaceuticals of Wayne and Barr Pharmaceuticals, Inc. of Montvale was hammered out after the two companies had battled over patent rights. Ranbaxy Laboratories Ltd. of Plainsboro and AstraZeneca Pharmaceuticals of Wilmington, Del., struck a deal about manufacture of a generic after facing off in court on the matter.

“This is a power game in pharmaceuticals, where you are using lawsuits as a method of negotiation,” says Robert Rothberg, marketing professor emeritus at Rutgers University in New Brunswick and Newark. “It fits the best definition of power I have heard: control over the expectations of others.”

Sengun Yeniyurt, marketing professor at Rutgers Business School in Newark and New Brunswick, describes the agreements as examples of “coopetition,” a business coinage of cooperation and competition. “Most business relationships are conflict-management situations,” he says. Doing business together is all about “how to manage that conflict,” he adds.

Last month, Bayer Healthcare Pharmaceuticals began supplying Barr Pharmaceuticals generic versions of its oral contraceptive pill Yasmin for the latter to distribute in the U.S.

At first glance, it doesn’t make sense for Bayer to share its profits from Yasmin with another company like Barr, especially when the two have fought over the drug’s patent rights. What’s more, Yasmin is a cash cow, and its sales were $575 million in the 12 months ended April, according to pharmaceutical research firm IMS Health of Norwalk, Conn. Also, Bayer’s patent on Yasmin doesn’t expire until 2020.

However, forcing Bayer’s hand is the alternative prospect of being shut out of the generic market for Yasmin. In March, a federal court in New Jersey had ruled Bayer’s Yasmin patent invalid in its case against Barr, effectively empowering the latter to make generic versions.

In light of that court ruling, Bayer’s distribution deal with Barr may have been a fait accompli. “This agreement allows Bayer to participate in the generic oral contraceptives market in partnership with an established player in this market,” the company said in a written response to NJBIZ.

Bayer, however, stated it will continue to pursue its appeal against the court ruling in the Yasmin case. Bayer plans to expand its agreement with Barr to include the distribution of Yaz, another oral contraceptive in the Yasmin family.

Four months ago, a similar deal was born out of legal squabbles between Ranbaxy and AstraZeneca.

Ranbaxy had sought to make a generic version of AstraZeneca’s heartburn medicine Nexium, triggering a patent dispute between the two companies. AstraZeneca has a series of patents over Nexium, which had $5.2 billion in 2007 sales, that expire between 2014 and 2018, says Blair Hains, the company’s associate director of brand corporate affairs.

Ranbaxy’s patent challenge threatened AstraZeneca’s continued hold over Nexium. AstraZeneca and Ranbaxy were battle-ready, but formed their April partnership just a few days before the court trial date, recalls Hains. The pair promptly settled their dispute out of court. According to the agreement, Ranbaxy will make the generic version of the drug under license from AstraZeneca after May 2014.

“It removes the uncertainties surrounding Nexium in the area of litigation,” says Hains.

Ranbaxy will also manufacture Nexium’s active ingredient esomeprazole magnesium for AstraZeneca from May 2009. Beginning May 2010, Ranbaxy will also manufacture “a significant portion” of AstraZeneca’s U.S. supply of Nexium from May 2010.

Marketing experts read hard-nosed business sense driving the two partnerships.

Maximizing shareholder wealth is the motivation, says Maureen Morrin, marketing professor at Rutgers-Camden, who specializes in branding and trademarks. “If after losing a trademark battle, it is in the best interests business-wise to bury the hatchet and cooperate with the victor, they will do so,” she says.

E-mail to shankar_p@njbiz.com