Oct. 24 (Bloomberg) -- Reckitt Benckiser Group Plc may be kicking its heroin problem.
After losing U.S. patent protection in 2009 for its Suboxone tablet, designed to help heroin users quit, Reckitt Benckiser has said that the entrance of a generic competitor could erode pharmaceutical sales and profit by 80 percent.
Reckitt Benckiser, which gets most of its revenue from selling home and personal-care products like Lysol cleaners and Durex condoms, has faced calls to sell the business before a generic comes to market. Instead, the London-based company aims to divert the showdown by switching users to a film form of the drug -- one whose last patent doesn’t run out until 2025.
To get people to make the switch, Reckitt Benckiser is thinking more like a consumer company than a pharmaceutical one. It’s drawing on a marketing technique first pioneered by Coca- Cola Co. more than 100 years ago: coupons. By offering up to $45 a month toward a user’s co-payment in the U.S., the company is making the film version, which looks like a Listerine Pocketpak, close to free. That offers patients who get part of the bill subsidized by health insurance little incentive to transfer to a generic pill once it appears on the market.
“They’ve done a good job of making a silk purse out of a not very compelling situation,” said Martin Deboo, an analyst at Investec Securities Ltd. in London.
Reckitt Benckiser’s shares have risen 55 percent in the last five years, outpacing Unilever and Procter & Gamble Co. Under Chief Executive Officer Bart Becht, who stepped down last month, the company more than doubled sales in a decade.
The stock rose 0.3 percent to 3,460 pence at 9:22 a.m. in London today. It has dropped 1.8 percent this year, compared with Unilever’s 5.6 percent gain and P&G’s 3 percent advance.
The company is due to report third-quarter results tomorrow and will probably say revenue adjusted for purchases and asset sales rose 7 percent at the drugs division, analysts led by Andy Smith at MF Global in London estimate, compared with a 3.9 percent increase for the rest of the business. Profit likely rose 0.9 percent to 430 million pounds, they said.
The film version of Suboxone, introduced in September 2010, accounted for 41 percent of the drug’s U.S. sales by the end of the first half. That surpassed the company’s own expectations, Becht said on an Aug. 30 conference call arranged by Sanford C. Bernstein. Becht was succeeded by Rakesh Kapoor, a company veteran.
The film “has been a phenomenal success,” Becht said, according to a transcript of his remarks. “To make the business completely sustainable, we would like to have a share which is clearly much higher than where we are.” He added that the company aims to grow that share every month.
Right now, time is on his side. Teva Pharmaceuticals Industries Ltd., the world’s biggest maker of generics, began the year saying it might launch a Suboxone copy in 2011. Now the company has backed off, saying it no longer expects the product to win regulatory approval this year.
Biodelivery Sciences International Inc., another drugmaker going after Suboxone, said a study comparing its own version of the drug to a placebo failed to show a statistical difference in the treatment of chronic pain. A test in patients addicted to opioids, which include heroin and codeine, is scheduled to begin later this year. Titan Pharmaceuticals Inc. on Aug. 31 said it’s preparing to seek approval of an upper-arm implant that would deliver buprenorphine, one of the active ingredients in Suboxone, directly into the bloodstream.
“This delay has been a massive benefit,” said Andrew Wood, an analyst at Sanford C. Bernstein. “With every day that goes by, RB has an extra day to convert users.” Suboxone is either harder-than-expected to copy or generic-drug makers are having second thoughts about targeting addicts, according to Bernstein.
About 1 million people in the U.S. are addicted to heroin, the National Institute on Drug Abuse estimates. As many as 325,000 people use Suboxone to quit the drug or painkillers, says Pablo Zuanic, an analyst at Liberum Capital in London.
The medicine combines buprenorphine, a painkiller derived from the opium poppy that shares some of its properties, with naloxone, a chemical that blunts withdrawal symptoms. The film sells for about $4.63 to $8.23 a dose at Walgreens stores, according to Liberum, depending on its strength and pack size. That means the strongest dose costs about $247 a month.
More than half of people on Suboxone use private insurance with co-pay, Zuanic says. Reckitt Benckiser offers $45 toward co-pay for the film, he said, meaning an insured patient who’d contribute $50 to the cost of the drug may end up spending $5.
“The actual cash cost for some patients buying the film with private insurance could be near zero,” Zuanic said in a note to clients this month.
Meantime, Suboxone is only becoming more important to Reckitt Benckiser. The drugs division, whose sales grew five times as quickly as the main business last year, accounted for almost 9 percent of sales and 24 percent of profit, up from 7.6 percent and 20 percent in 2009. Sales at the unit will probably rise 12 percent to 829 million pounds ($1.3 billion) this year, according Nomura International Plc estimates.
The maker of French’s mustard is even considering making an injectable Suboxone and developing new products for cocaine, alcohol and cannabis addicts. The plan has met skepticism.
“We’re quite a long way from having any visibility on these products,” said Julian Hardwick, an analyst at Royal Bank of Scotland Group Plc in London. “Are they products that will work? Which will get approval?”
Prescription drugs are perceived as a bit of a misfit in the home of Vanish stain removers and Finish dishwasher tablets.
“Reckitt Benckiser is basically a home and personal-care company with over-the-counter pharmaceuticals,” said Carl Short, an analyst at Standard & Poor’s in London. The drugs unit is “always going to be something that looks like it doesn’t fit with the rest.”
Reckitt Benckiser may look at selling the unit, which Becht himself has said is “not the No. 1 strategic part” of the company, once a generic form of Suboxone reaches pharmacy shelves, analysts said. But the company’s marketing savvy, coupled with delays in the launch of a generic, are giving Kapoor time to settle into his new job.
“This is a big job and he is coming in after someone’s done it for some considerable time and very well,” said Julian Chillingworth, who helps manage about 16 billion pounds in shares at Rathbone Brothers Plc, including Reckitt stock. “You wouldn’t want to come in as a CEO into a very successful business and start selling things off on the cheap.”
Analyst valuations range from 2 billion pounds to 6.3 billion pounds, according to four estimates compiled by Bloomberg News. Estimates diverge because it’s hard to value the business without knowing how Suboxone sales will resist the generic challenge and whether the shift to film can counter some of that impact.
“Until you get generic competition for the tablet, I think it’s unlikely that prospective buyers would give you the full value for the business,” said Hardwick of RBS. “Now is not the time to sell.”
--With assistance from Naomi Kresge in Berlin. Editors: Celeste Perri, Marthe Fourcade.
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