After losing U.S. patent protection in 2009 for its Suboxone tablet, designed to help heroin users quit, Reckitt Benckiser Group (RBGPY) warned that the entrance of a generic competitor could erode its pharmaceutical sales and profit by 80 percent. That drew calls from worried analysts for Reckitt Benckiser, which gets the bulk of its revenue from selling home and personal-care products such as Lysol cleaners and Durex condoms, to sell the business before it hit that so-called patent cliff. Instead, the British company aims to forestall a generic showdown by switching users to a form of the drug delivered by a dissolvable strip that’s placed under the tongue. The patent on that version of the drug doesn’t run out until 2025.
To get people to switch, Reckitt Benckiser is thinking more like a consumer company than a drugmaker. It’s drawing on a marketing technique first pioneered by Coca-Cola (KO) more than 100 years ago: coupons. By offering up to $45 a month toward a user’s co-payment in the U.S., RB is making the film version—think Listerine Pocketpaks—close to free. That means patients who get the bill subsidized by health insurance have little incentive to transfer to a generic pill if one appears. Says Martin Deboo, an analyst at Investec Securities in London: “They’ve done a good job of making a silk purse out of a not very compelling situation.”
The film version, introduced in September 2010, already accounts for 44 percent of Suboxone’s U.S. sales by volume. “This is an enormous achievement,” says Rakesh Kapoor, who became Reckitt Benckiser’s chief executive officer in September. Setbacks at potential rivals have also bought the company time. Teva Pharmaceutical Industries (TEVA), the world’s biggest maker of generics, began the year saying it might launch a Suboxone copy in 2011. So far, the Israeli company has not. A test of a generic by BioDelivery Sciences International (BDSI) in patients addicted to opioids, which include heroin and codeine, won’t begin until later this year. And Titan Pharmaceuticals (TTNP) has yet to seek approval of its upper-arm implant that would deliver buprenorphine, the active ingredient in Suboxone, directly into the bloodstream. “This delay has been a massive benefit,” says Sanford C. Bernstein (AB) analyst Andrew Wood. “With every day that goes by, RB has an extra day to convert users.”
About 1 million people in the U.S. are addicted to heroin, estimates the National Institute on Drug Abuse. As many as 325,000 people use Suboxone to quit the drug or painkillers, says Pablo Zuanic, an analyst at Liberum Capital. (The opioid detox medicine Methadone is more commonly administered in clinics.) Suboxone combines buprenorphine, a painkiller derived from the opium poppy that shares some of the properties of its other derivatives, with naloxone, a chemical that curbs buprenorphine’s effectiveness if injected (to counter abuse). The film sells for about $4.63 to $8.23 a dose at Walgreen (WAG) pharmacies, depending on its strength and pack size. The strongest dose costs $247 a month—a fraction of the $2,000 to $3,000 Zuanic says a person addicted to painkillers could spend in a month.
More than half of people on Suboxone use private insurance with a co-pay, Zuanic estimates. Since RB’s coupons offer up to $45 a month toward the co-pay for the film, an insured patient who would typically contribute $50 to the cost of the drug may end up spending just $5. “The actual cash cost for some patients buying the film with private insurance could be near zero,” Zuanic says.
Sales at RB’s drug division grew five times as quickly as the company’s main business last year, accounting for almost 9 percent of sales and 24 percent of profit in 2010, up from 7.6 percent and 20 percent a year earlier. Sales at the unit will probably rise 12 percent to £829 million ($1.3 billion) this year, according to Nomura International. Almost all that revenue comes from Suboxone and a related heroin treatment.
That success is one reason the maker of French’s mustard and Vanish stain remover said in July it’s considering a long-lasting version of Suboxone that would be injected monthly, and it’s developing new products for users trying to kick cocaine, alcohol, and cannabis. Still, the drug unit has faced skepticism from investors. “Reckitt Benckiser is basically a home and personal-care company,” says Standard & Poor’s (MHP) analyst Carl Short. The drug unit is “always going to be something that looks like it doesn’t fit.”
Analysts say Reckitt Benckiser may consider selling the unit once a generic form of Suboxone reaches pharmacy shelves. The company declined to comment on the prospect of a sale. Although valuations for the drug unit range from £2 billion to £6.3 billion, according to analyst estimates compiled by Bloomberg, a divestiture isn’t expected anytime soon. As long as there’s uncertainty about potential generic rivals to the tablet version of Suboxone, “I think it’s unlikely that prospective buyers would give you the full value for the business,” says Royal Bank of Scotland analyst Julian Hardwick. “Now is not the time to sell.”