Global Insight Perspective | |
Significance | The announcement appears to put an end to the long-running saga over the Japanese rights to Norvasc, which Dainippon Sumitomo sells as Amlodin, and removes a significant overhang on the newly merged Japanese company. All lawsuits and countersuits related to the issue will be shelved. |
Implications | The settlement decrees that the old licensing agreement with pre-merger Sumitomo Pharmaceuticals will be terminated, and a new one drafted with Dainippon Sumitomo; it will include the same rights, and involve no payments. |
Outlook | The announcement provides significant upside for Dainippon Sumitomo, which is looking an increasingly attractive proposition in the Japanese pharmaceutical industry, having built robust critical mass in the domestic market and kick-started the process of reshaping its pipeline and portfolio. |
Partners Again
Together with its parent company Sumitomo Chemical, Japanese drug firm Dainippon Sumitomo Pharma (DSP) announced today that it has resolved its dispute over the licensing rights in Japan for Pfizer's (U.S.) hypertension drug Norvasc (amlodipine). The out-of-court settlement means that all existing lawsuits relating to the issue will be shelved, and that a new licensing agreement between DSP and Pfizer will be drawn up to reflect post-merger realities. DSP will maintain the same licensing rights as Sumitomo Pharmaceuticals originally held in its partnership with Pfizer, and DSP pointedly noted that "The present settlement shall involve no payments or the like among Pfizer, DSP, or Sumitomo Chemical".
Pfizer filed the original lawsuit against DSP and its parent company in November 2005, providing an unexpected twist in the tale of Dainippon and Sumitomo's merger. Pfizer maintained that the lawsuit effectively terminated the licensing agreement that it held with Sumitomo over Amlodin, which was Sumitomo's--and DSP's--best-selling product, raking in sales of ¥56.8 billion (US$491 million) in fiscal year (FY) 2005/06, on the back of 7.6% growth. Pfizer sought the immediate cessation of Amlodin sales, and claimed that DSP was infringing its basic patents. DSP subsequently filed a countersuit in the same Tokyo District Court a month later, to clarify its legal stance on Amlodin, and these lawsuits have proceeded on the sidelines of out-of-court negotiations. Pfizer had also filed a lawsuit in the United Kingdom, but this was thrown out in June 2006, due to jurisdiction issues.
Outlook and Implications
The settlement removes the most significant overhang on DSP's immediate post-merger prospects. The potential loss of Amlodin was a major threat to the company's commercial profile, with the drug representing 23% of the company's total sales last year, and being one of its few growth drivers. There were certainly no short-term prospects that would have been able to pick up the loss of Amlodin sales; while DSP's second-best-selling product, gastroprokinetic Gasmotin (mosapride), is performing well, it is still worth less than 30% of Amlodin's sales. In addition, Global Insight believes that DSP may have reduced its sales push for Amlodin due to the risks emanating from the lawsuit, and that the forecast for ¥57 billion in sales for FY2006/07 is conservative; a marketing push can be expected during the second half, and the drug may beat DSP's forecasts (first-quarter sales came in at ¥14 billion).
Global Insight had maintained from the outset that a settlement in favour of DSP was the more likely outcome, as, from a legal standpoint, the entities that comprise DSP did not change during the merger, and the licensing agreement did not appear to stipulate any conditions for merger-related changes. However, we had expected some renegotiation of the original licensing agreement. As a result, the fact that DSP has apparently been granted the same rights as pre-merger Sumitomo Pharmaceutical, at no extra cost, provides significant upside. Also, any settlement--either inside or outside the courts--had not been expected until September, and we find content in DSP to be largely attractive as things stand. Interestingly, a wide-ranging assessment of formularies in 146 Japanese hospitals, which was undertaken by the National Hospital Organisation (NHO) and saw a reduction in listed drugs from 10,401 to 7,582, concluded that it would retain Amlodin but eliminate Pfizer's Norvasc, in order to cut costs.
DSP is in a better position than most to absorb the April price cuts, and can now concentrate on cost-cutting (though it is also building its domestic marketing infrastructure for several new drug launches) and rebuilding its pipeline, which will now focus on the development of Amlodin follow-up Avapro (irbesartan), recently in-licensed from Bristol-Myers Squibb (BMS, U.S.).
Related Articles:
- Japan: 31 July 2006: Sales March on for Dainippon Sumitomo During Q1
- Japan: 20 June 2006: U.K.Courts Dismiss Pfizer s Norvasc Case
- Japan: 10 February 2006: Dainippon Sumitomo Presents First Post-Merger Results, Looks to 2006 Growth
- Japan: 26 January 2006: Pfizer Expands Norvasc Litigation against Dainippon-Sumitomo to U.K.
- Japan: 16 December 2005: Dainippon Sumitomo Launches Counter-Attack against Pfizer Over Norvasc Litigation
- Japan: 2 November 2005: Sumitomo Launches Counter-Attack against Pfizer in Amlodin Dispute
- Japan: 17 October 2005: Licensing Dispute with Pfizer over Amlodipine Darkens Outlook for Dainippon-Sumitomo Merger