UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SANOFI-AVENTIS, SANOFI-SYNTHELABO INC., AND BRISTOL-MYERS SQUIBB SANOFI PHARMACEUTICALS HOLDING PARTNERSHIP, Plaintiffs, Q2-CV-2255 (SHS) APOTEX INC. AND APOTEX CORP., Defendants. DECLARATION OF HUGH O'NEILL IN SUPPORT OF PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION Evan R. Chester (EC 1692) Richard J. Stark (RS 3416) David Greenwald (DG 7633) CRAVATH, SWAINE & MOORE LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Telephone: (212) 474-1000 Facsimile: (212) 474-3700 Robert L. Baechtold (RB 6866) John D. Murnane (JM 8200) William E. Solander (WS 2073) FITZPATRICK, CELLA, HARPER & SCINTO 30 RockefeUer Plaza New York, NY 10112-3801 Telephone: (212) 218-2100 Facsimile: (212) 218-2200 Attorneys for Plaintiffs August 13, 2006
I, HUGH O'NEILL, declare: 1. I am Vice President of Market Access and Business Development at Sanofi-Aventis (collectively with Sanofi-Synthelabo, Inc., "Sanofi"). 2. Prior to assuming my current position in January of 2006,1 was Vice President, Integrated Healthcare Markets. Since approximately October 1, 2004,1 have had responsibility for the U.S. sales of Plavix. 3. I obtained a Bachelor of Science in Finance from Montclair State University in 1992 and a Masters of Business Administration in Marketing from Seton Hall University in 1997. 4. I make this declaration in support of Plaintiffs' Motion for a Preliminary Injunction against Apotex, Inc. and Apotex Corp. ("Apotex"). 5. I have been involved with the sales and marketing of Plavix from 2004 through the present. Based upon my experience, I am familiar with the pricing of Plavix in the U.S. and, as part of my job responsibilities, have considered the potential impact on the price of Plavix if sales of Apotex's generic product are not preliminarily enjoined. During 2005, Plavix generated well over $3 billion in sales in the U.S. 6. Sanofi and Bristol-Myers Squibb Company ("Bristol") make pricing decisions for Plavix jointly through their partnership, the Bristol-Myers Squibb-Sanofi Pharmaceuticals Holding Partnership, which is responsible for selling Plavix in the United States directly and through its affiliates. Consequently, all of the information provided below applies equally to sales of Plavix made by Bristol. A. The Pricing and Reimbursement of Drugs in the United States 7. Eighty-five percent of all purchases of prescription drugs in the U.S. are paid for in part by third party payers ("TPPs"). TPPs include, for example, Pharmacy
Benefits Managers ("PBMs") and Health Maintenance Organizations ("HMOs"). In most cases, the patient pays only a small portion of the cost of the prescription, referred to as a "copay"; the rest is paid by the HMO, PBM, or other TPP. There are thousands of TPPs, and Sanofi regularly negotiates with about 430 of the larger ones. The TPPs reimburse pharmacies and other retail outlets for the cost of dispensed prescriptions. 8. TPPs establish formularies (i.e., a list of pharmaceutical products for which the TPP will pay) to manage the costs of prescription drug coverage that they provide. The formularies are typically set up with three different pricing "tiers" for the covered patient's copay amount. The differences in the amounts of the copay applicable to each tier are designed to influence patients in their selection of lower priced drugs when possible. 9. The first tier includes generic drugs, and the copay is typically $5 to $10 for a monthly supply. 10. The second tier includes preferred branded drugs, and the copay will generally range from $15 - $25 for a monthly supply. 11. The third tier includes non-preferred branded drugs, and the copay will generally range from $25 to 50% of the pharmacy's charge to the TPP for the monthly prescription. Third tier drugs, or non-preferred branded drugs, include those drugs that have less costly therapeutic alternatives, for example, newer cholesterol-lowering drugs, for which older substitutes are available. 12. The TPPs receive credit from the dispensing pharmacy in the amount of the patient's copay. Thus, when a consumer purchases a prescription for a tier 2 drug, the pharmacist is obligated to collect the $15 - $25 copay from the patient; this amount is
credited to the TPP against the amount owed by the TPP to the pharmacy for the cost of the drug. 13. The overwhelming majority of TPPs have, at least prior to Apotex's launch, placed Plavix in the second tier because of its high clinical value. 14. When a generic manufacturer that has rights as the "first-filer" of an ANDA launches its generic product, it often sets the price only 10%-20% lower than that of the branded product so as to maximize profits during its 180-day period of semiexclusivity. That leads some TPPs to place the generic product in tier 2. If the generic manufacturer lowers its price more significantly, then its product will be placed in tier 1. 15. Apotex publicly announced the launch of its generic clopidogrel product on August 8,2006. Although the exact price of Apotex's generic product cannot be ascertained with certainty so soon after launch, I believe that Apotex has priced its product consistent with the 10%-20% discount typically offered by a first filer that I describe in paragraph 14, above. B. Current Plavix Pricing Options 16. If Apotex's generic product remains on the market, Sanofi has two options in pricing Plavix: (1) lower the net effective price of Plavix and lose revenue in an attempt to maintain market share against Apotex's generic product; or (2) maintain Plavix's net effective price at pre-generic launch levels, and undoubtedly lose market share to the lower priced generic. 17. By "net effective" price, I mean the list price charged by a manufacturer to a wholesaler, less any discounts or rebates given to TPPs. Prior to Apotex's launch of its generic product, mere were no discounts or rebates for Plavix, aside from discounts
mandated by federal and state laws, including the Medicaid provisions of the Social Security Act and the Veterans Health Care Act, and modest rebates for Medicare Part D. 18. As I explain below, whichever of the two pricing options Sanofi selects, irreversible "price erosion" of Plavix will occur if Apotex's generic product remains on the market. By price erosion, I mean a reduction in the net effective price of Plavix that, for the reasons I explain below, will be difficult, if not impossible, to restore to its pregeneric launch level if a permanent injunction is entered after trial in this action. (1) Option One: Lowering the Net Effective Price of Plavix 19. Sanofi's first option is to lower the net effective price of Plavix so that it is closer to the price of Apotex's product. One goal of this strategy would be to maintain Plavix's placement on a lower tier than Apotex's product, and thereby to try to maintain market share. Sanofi would accomplish this price reduction not by lowering the list price of Plavix, per se, but rather by offering incentives to TPPs, such as rebates. If sufficient, these rebates would allow TPPs to offer Plavix to patients at prices more competitive with that of Apotex's generic product. Toward that end, Sanofi, together with BMS, just recently began offering TPPs the opportunity to receive rebates on purchases of Plavix contingent on placement of Plavix in a favorable tier. 20. Although Sanofi would be maintaining the list price of Plavix under this scenario, the rebates would have the economic effect of price reductions. The subsequent exit of Apotex's generic product after a trial would not permit Sanofi to reinstate the pre-launch net effective price of Plavix by withdrawing the prior rebates in full. Sanofi would have to negotiate price increases (i.e., the elimination of rebates) separately with each TPP, and I would anticipate resistance to those measures. I would
not expect Sanofi to be able to fully withdraw all incentives and rebates it had previously offered to TPPs. 21. The effects become markedly worse the longer Apotex's generic product remains on the market. I have read newspaper reports that indicate that Apotex has released approximately six months of supply into distribution channels. Attached as Exhibit A to this declaration is a copy of a press release issued by Apotex, stating that the launch of its generic product is "the largest and most successful launch of the generic industry." If this is true, and Apotex's generic product is available for the next six months, I expect that the price of Plavix will continue to erode, and the effects of that price erosion will become even harder to remedy. That is because the TPPs would become even more accustomed to receiving rebates, and therefore more reluctant to forgo them once Apotex's generic product was removed from the market, hi addition, the more generic product that gets into the commercial pipeline, the harder it will be to reverse the decline in Plavix's net effective price, because there will be, even after a permanent injunction of Apotex's sales, substantial inventories of generic product still available for resale. (2) Option Two: Maintaining the Net Effective Price of Plavix 22. If the pre-launch net effective price of Plavix were to be maintained, TPPs will move Plavix from the second to the third tier. Consequently, patients would be charged a higher copay $25 to 50% of negotiated price for Plavix prescriptions, thereby both discouraging patients from using Plavix and lowering the net effective cost to the TPPs when Plavix is dispensed.
23. In approximately 41 states with mandatory generic substitutions laws, the discrepancy between the tiers occupied by Plavix and its generic equivalent would impose upon pharmacists the legal requirement to fill prescriptions for Plavix under Medicaid and other state-funded plans with Apotex's generic product, unless the physician or patient objects. In addition, approximately 13 states have mandatory substitution laws applicable to all other prescriptions. In the remaining states, which have permissive generic substitution laws, the pharmacist would still likely fill the prescription with Apotex's generic product because it would be significantly less expensive for the consumer and because the pharmacy profit on generic products is typically much greater than on brands. 24. Even in the remaining states, and for prescriptions written under private plans, pharmacists will still likely fill the prescription with Apotex's generic product, because it would be significantly less expensive for the consumer, and more lucrative for the pharmacy. 25. If Sanofi maintains its net effective price during the period Apotex's generic product is on the market, Sanofi will lose a significant percentage of its sales, upwards of 70% to 80% in the first 60 days that Apotex's generic product remains on the market. Indeed, it is to avoid the full measure of that outcome that Sanofi has just adopted a program of offering substantial rebates to certain TPPs. However, for the reasons set forth above, that program, while it may enable Sanofi to avoid certain losses of market share, will not eliminate the likelihood of price erosion in the event that Apotex is not preliminarily enjoined. 26. Following the exit of Apotex's product after it has been on the market for a substantial period of time, the TPPs would not automatically restore Plavix to tier 2.
Because the copays credited to TPPs for tier 3 drugs are much higher (thereby lowering the net effective cost of the drug to the TPPs), the TPPs will resist moving Plavix back to tier 2. In order to have any success in restoring Plavix to tier 2, Sanofi would likely have to grant the TPPs rebates or other price concessions. I declare under the penalty of perjury that the foregoing is true and correct. August 13,2006 U Hugh CTNeill