Case Clamoxyl w

7/24/2019 Case Clamoxyl w

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Marketing Strategies in the

Competition between

Branded and Generic

Antibiotics (A)

Clamoxyl in 1996

This case was prepared by Pierre Chandon, Assistant Professor of Marketing at INSEAD, Olivier Kovarski, Professor

of Marketing at ESC Normandie, Jacques Lendrevie, Professor of Marketing at HEC, Sarah Spargo, Research

Associate at INSEAD, and Marc Vanhuele, Associate Professor of Marketing at HEC, as the basis for class discussion

rather than to illustrate either effective or ineffective handling of an administrative situation. We thank Pierre

Chahwakilian from GSK for his help and support.

Copyright 2003 INSEAD

N.B.PLEASE NOTE THAT DETAILS OF ORDERING INSEADCASES ARE FOUND ON THE BACK COVER.COPIES MAY NOT BE MADE WITHOUT PERMISSION.

02/2007-5057


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Copyright 2003 INSEAD 1 02/2007-5057

Paris, October 10, 1996

Pierre Chahwakilian, Marketing Director of SmithKline Beecham laboratories (SB) for

France, was re-reading a letter sent in July 1996 to all French doctors by the CNAM, theFrench health management governing body (see Exhibit 1). The letter urged doctors to protect

the cherished French social security system by prescribing generic drugs instead of the more

expensivebut therapeutically equivalentbranded drugs. Clamoxyl, the original

amoxicillin antibiotic and one of SBs jewel drugs, was specifically targeted because its

substitution by generic amoxicillins could save up to 26.5 million for the French social

security system, more than any other drug.

Clamoxyl was no ordinary drug. It was the first amoxicillin (a type of antibiotic) introduced to

the market (in 1974) and, despite losing its patent in 1980, was still the highest selling

amoxicillin in France. Virtually every doctor in France knew and prescribed Clamoxyl, many

developing an emotional attachment to a brand that had helped them cure countlessrespiratory infections for adults and children over the years.

Yet sales of Clamoxyl had dropped by 30% in the three months since the CNAM letter had

been sent and Pierre Chahwakilian was considering four responses:1

1. Change nothing and hope Clamoxyls brand equity would be strong enough to protect it

from generic competitors. French doctors were fiercely protective of their independence

and generics had, so far, failed to take off in France. Indeed, the CNAM letter simply

appealed to the social responsibility of doctors and many felt that only financial penalties

could persuade doctors to switch to generics.

2. Milk Clamoxyl and invest all SBs support in Augmentin, a more specialized and still

patent-protected amoxicillin combined with an inhibitor prescribed for specific therapeutic

conditions and in cases of resistance to regular amoxicillin. This option, a typical strategy

of the pharmaceutical industry upon the loss of patent, had been followed in countries

where the patent for Clamoxyl had already expired.

3. Reduce the price of Clamoxyl. This strategy had never been selected by SB when facing

similar situations and conflicted with its corporate commitment to invest in the

development of innovative drugs commanding a high price. Even if this path was chosen,

how large should the price reduction be and how quickly should it be implemented?

4. Strengthen Clamoxyls brand equity among doctors. As direct-to-consumer advertising is

not legal in France, this could be done either by increasing promotional support for

Clamoxyl (through the sales force or ads in the specialized press) or by introducing new

forms of packaging. But with almost 100% awareness and a very strong brand image,

which message could be communicated to doctors that they did not already know?

1 A fifth strategy, to produce SBs own generic amoxicillin, was not under consideration for a variety of

reasons and is ignored in this case.


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The Marketing of Pharmaceutical Products

Industry Overview

The pharmaceutical industry is large and profitable. It is estimated that profits, as a percentage

of industry revenues, are more than four times the median rate of all Fortune 500 firms in the

late 1990s. Yet recent years have witnessed rapid consolidation, driven by anticipated

economies of scale in R&D and marketing to compensate for ever-increasing research and

development expenditures.

Pharmaceutical companies spend 15 to 20% of their saleson R&D and finance 99% of their

research themselves. At least five to eight years of research are required before identifying

and patenting a new molecule - often more (20 in the case of amoxicillin). Seven to twelve

more years then typically elapse before it appears on the market. In addition, the vast majority

of patented molecules do not pass the stringent tests required to obtain a marketing license. Ofthose that do, the majority bring only minor health benefits compared to existing drugs and

only a handful of drugs become blockbusters - combining significant new therapeutic benefits

with large market potential.2

To compensate for the increasing expense and uncertainty involved in developing new drugs,

the duration of drug patents has been increased from 15 to 20 years in France. Licenses thus

offer a maximum of about 15 years of market protection. In these circumstances, the speed of

adoption of the new medicine is critical to its profitability. Pharmaceutical companies spend

from 10 to 30% of sales revenue promoting their drugs, mostly through a sales force of

medical representatives. Recently however, they have also begun to develop marketing

strategies for sustaining sales of products at the end of their life-cycle when faced withcompetition from generic drugs.

Regulations

The basic concepts of marketing apply to pharmaceutical products. Pharmaceutical companies

do market research to identify a target customer segment, select a value proposition for their

product, choose a brand name, a price level, and a promotion and distribution strategy.

However, in contrast to most consumer goods, strict regulations impose constraints on

virtually every aspect of the marketing process from new product introduction to pricing,

promotion and distribution - creating considerable delay. For example, it requires five years

of testing simply to obtain the authorization to market a new form (e.g., tablets instead ofsyrup) or a new dosage (e.g., twice a day instead of three times a day) for a tried and tested

drug.

Several governmental organizations play a role in the regulation of the pharmaceutical

industry in France. For the purposes of simplification in this case study, these are grouped

2 For example, of the 1,035 prescription drugs approved by the FDA in the US between 1989 and 2000, only

24% were designated priority drugs (i.e., drugs that held promise for significant therapeutic improvements).Source: National Institute for Health Care Management Research and Educational Foundation

http://www.nihcm.org.


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under the CNAM umbrella (see section on Price). There remains little collaboration between

regulating bodies, each focusing on license, price, reimbursement, etc., with little regard for

the big picture. This is in stark contrast to their American counterparts, the HMOs, which

maintain a broader and more business-oriented approach in their dealing with thepharmaceutical companies and with the Food and Drug Administration, the main

governmental agency regulating the marketing of pharmaceutical products in the US.

Product

Because their usage increases bacterial resistance, antibiotics are not available without a

prescription (i.e., over the counter) and a marketing license is necessary to obtain the right to

market them. The Commission for Disclosure, comprising doctors, pharmacists and medical

experts, evaluates the benefits offered by the new drug and decides to grant a marketing

license for a specific list of medical conditions. For a generic product (a copy of an existing

licensed drug), the process takes between four and five months. For a new medicine, the timevaries between six and 18 months.

Price

The CNAM sets the price of drugs and the level of reimbursement for prescription drugs after

strenuous negotiations with the pharmaceutical companies, which results in prices on average

20% cheaper than in countries where pricing is unrestricted (such as the UK, the Netherlands,

Germany or the US). The CNAM takes into account the therapeutic benefits of the drug

relative to existing products. When the proposed drug offers little gain in respect of existing

products, its before-tax sale price is fixed at a level lower than those already on the market.

The CNAM also selects one of the reimbursement rates (100%, 65%, or 35%) on the basis ofthe therapeutic benefits of the drug. Comfort drugs and those with no scientifically proven

benefit (such as homeopathy) are not reimbursed. Antibiotics are all reimbursed at the 65%

rate. The remaining 35% is reimbursed by the optional complementary private health

insurance policies held by 85 % of people living in France. Antibiotics are therefore free for

most patients.

Promotion

Direct-to-consumer promotion is illegal, and advertising is only authorized in the specialized

press and through direct mail to doctors (for samples of print ads see Exhibit 2). Drugs are

mainly promoted by the network of medical representatives who visit doctors. Medical repsare commercially and medically trained people who visit doctors to explain the advantages of

the products sold by the pharmaceutical company. Officially their role is to provide

information about existing and new drugs in a few categories. They are required by law to

mention the side effects and real therapeutic gains of the drugs.

As one of them put it, however, rather than simply being impartial sources of information,

medical reps are walking ads for their products. Their objective is to increase the awareness

and image of their products and to forge strong relationships with doctors through their

recurring visits and amiable manners. Gifts of meaningful value are prohibited by law3but

3 Medical reps can only offer prescription pads (which include advertising material), pens, and similar gifts of

low value.


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medical reps can nevertheless offer doctors opportunities for further training in the form of

heavily subsidized participation in local seminars or international scientific conferences.

Local seminars often take the form of dinners during which specialized doctors or researchers

present and promote the labs new drugs. Scientific conferences vary from rigorous scientificconventions to lighter seminars focusing on the companys products, often in desirable

locations. Additionally, medical reps can compensate doctors for participating in clinical

studies carried out once the product is on the market (called Phase IV clinical trials). This has

the double effect of furthering research (including the possibility of further product licenses)

and increasing the doctors contact with the product and the rep who will visit him or her

regularly to facilitate the study.

Although medical reps are not supposed to sell, a large part of their compensation is directly

related to the sales of the products they represent in their geographical sector.

Pharmaceutical companies have access to a vast amount of sales data purchased from third

parties or obtained via the sales rep network (reps can, for example, visit pharmacies and askabout doctors prescription behavior). They thus have a reliable idea of the prescription habits

of the doctors they visit and keep a record of which are the biggest prescribers, their past

relationship with the lab, even the type of arguments that are most persuasive with each

doctor. This system of incentive coupled with the limited power of the regulating body can

create the suspicion that medical reps offer gifts and favors in exchange for prescriptions. In

practice, such a direct quid pro quo is rare, although it can exist at a more subtle and perhaps

unconscious level.

In recent years, all pharmaceutical companies have invested heavily in increasing the size of

their sales forces. The majority of Frances 70,000 doctors see at least one medical rep every

day. Each rep sees seven or eight doctors per day. Each visit lasts between 2 and 10 minutesand costs the pharmaceutical lab on average 100. As Exhibit 3 shows, medical reps account

for the bulk of promotional expenditure, e.g., 80% of promotional expenditure in Clamoxyls

target market (i.e., prescriptions for the medical indications for which Clamoxyl can be

prescribed). Investment in medical reps is particularly important for antibiotics because of the

large number of substitute products and the uncertainty about which is most effective for each

particular case. As a result, many studies show that there is a strong correlation between the

promotional effort of the rep and the sales of antibiotics in that area.

Distribution

About half the drugs in France are sold through pharmacists, the other half being dividedbetween public hospitals, private clinics, and socio-medical organizations. There are around

22,600 pharmacies in France. Competition is regulated by a quota system which takes account

of population density and limits competition between pharmacists.

In 1996, pharmacists were not permitted to substitute an equivalent drug for a prescribed one,

except in case of emergency. However, this practice existed in Great Britain and there was

talk of introducing it in France. From 1990, profit margins of pharmacists followed a

progressive scale giving a higher percentage margin to cheaper products. The progressive

scale was designed to stop pharmacists from earning higher margins on branded drugs than on

cheaper generic drugs. However, pharmacists did not favor generic medicines because the

progressive scale did not always compensate for their lower price and they increased thenumber of references to be stocked.


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89% of sales to pharmacists are distributed through wholesalers who buy, store and distribute

pharmaceutical products, but who do not undertake any marketing activity. The government

fixes the revenue and the profit margin of wholesalers for reimbursable products. For

specialized pharmaceutical products on the list of refundable drugs, the maximum grossmargin before tax is fixed at 10.74% of the manufacturer's price before tax. As a result,

wholesalers have little incentive to promote generic medicines.

Medical Indications for Antibiotics

The vast majority of infections can be classed as bacterial or viral. Antibiotics are drugs that

fight bacteria. Examples of viral infections include the common cold, herpes and AIDS,

against which antibiotics have no effect. Bacterial infections include ear infection, urinary

infection, and bronchitis, which require antibiotics for effective treatment. About 50% of

antibiotic prescriptions are for ear, nose and throat infections, over 25% are for lowerrespiratory tract infections, 5% for skin infections, 6% for genital infections and 9% for other

infections.

How Do Doctors Decide which Antibiotics to Prescribe?

Doctors have, on average, less than 10 minutes to question, examine, reflect and decide on a

prescription that they then explain to the patient. During this short period, they must assess

several factors to determine how to treat the infection. Apart from the presenting symptoms

(e.g., patient complains of sore throat) and signs (e.g., throat is red and swollen), the patient's

context and history are important (e.g., allergies, antibiotic tolerance, sources of resistant

bacterial infections such as recent hospitalization), as are epidemiological concerns (i.e. whichgerms are currently circulating).

It is often difficult for doctors to know which antibiotic to prescribe. First, a common illness

may be caused by bacteria or a virus and there is often no way a doctor can differentiate

between them. The CNAM estimates that, out of the nine million prescriptions of antibiotics

for throat infections, only two million are justified. Second, common infections can be caused

by different bacteria. For example, acute sinusitis may be caused by at least four different

germs (hemophilus influenzae, streptococcus pneumoniae and other streptococci,

mycobacterium catarrhalis and staphylococci), which each respond to a different antibiotic.

Finally, when a patient does not respond to a given antibiotic, it may be that the strain is

resistant and requires a newer drug, or that the original diagnosis was erroneous which simplymeans changing drug category. In the case of throat infections, for example, this distinction is

often impossible to make.

Non-Therapeutic Factors Influencing Prescription Decisions

To add to an already complex situation, other factors not directly related to pathology also

play an important role in the prescriptive process. The opposable medical references (known

by their French acronym, RMOs) introduced in 1993 require doctors to limit the prescription

of more powerful drugs to particularly risky cases. This strategy is intended to better manage

social security resources and to reserve newer and stronger drugs for situations of necessity,


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thus reducing costs as well as the development of bacterial resistance.4Doctors have not yet

had to justify their compliance with such measures, and thus maintain a theoretical margin of

maneuver. In addition, the RMOs clash directly with the Hippocratic oath, which requires

doctors to place the patients well-being above all other concerns, including the obligationtoward public health.5 Furthermore, doctors practice and prescribe independently and pride

themselves on their freedom of prescription. In general, however, by making the social impact

of their decisions more salient, the RMOs have had a real influence on prescription behavior.

Other factors are more practical. The French drug reference Bible, the Vidal, is a massive

3kg volume of thousands of pages, updated each year (see Exhibit 4). Despite seven years of

study and continuous education, doctors cannot possibly know all the drugs available. This is

especially true of older doctors who have had limited training in pharmacology (50% of

French doctors are over 50 years old). Hence doctors tend to prescribe familiar drugs, i.e.,

those they have used frequently and over a long time and that work well. Doctors can also be

influenced by the recommendations of colleagues and of opinion leaders such as universityprofessors or renowned specialists. As indicated earlier, the quality of the doctors

relationship with the pharmaceutical lab and the medical rep can also play a role. The price of

the drug itself is rarely taken into account as few doctors are actually aware of it.

The Antibiotics Market in France

The highest-selling drugs in France are cardiovascular medicines, followed by dermatology

drugs and hormones, and anti-infective medicines which include antibiotics, serums, and

vaccines.

Clamoxyl: The Original Amoxicillin

The first antibiotic, Penicillin, was discovered by Fleming in 1929. In the 40s, researchers

revealed that penicillin was actually a family of products. In the 50s, Beecham Laboratories

isolated the core product and developed several pure forms of different penicillins, including

amoxicillin in 1974. This antibiotic was a rare breakthrough product. It was proven to kill

bacteria causing common and dangerous infections and the laboratory was able to photograph

this bactericidal effect. This same year it was marketed under the brand name Clamoxyl in

4 Newer drugs are more expensive because the CNAM takes into account that they have required higher

research and development costs which have not been yet amortized. In the case of antibiotics, newer drugs

treat germs that have become resistant to older drugs. Their main disadvantage from a public health

perspective is that their repeated use will cause resistant strains to develop. The increase of bacterial

resistance as a result of the prescription of antibiotics is particularly acute in France, which has the highest

per capita consumption of antibiotics in Europe.

5 This is not the case in every country. In the US, the most common modern version of the Hippocratic oath

unambiguously states the doctors duties towards society. For example, the first Code of Ethics of the

American Medical Association (1847) stated: The primary goal of the medical profession is to render

service to humanity, while fully respecting individual dignity and patients rights. European legislation isleaning towards the French deontological philosophy, where priority is clearly given to the individual,

except when they are an evident threat to society.


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Europe (and under the Amoxil brand in the US and other countries). Two years later,

Beecham made 4.5 million from Clamoxyl sales in France. From 1980 to 1995, the

antibiotic market grew by 11% per year in value, compared with a 10% annual growth for the

pharmaceutical market in general. In 1995, Clamoxyl was the most prescribed antibiotic inFrance, selling 27,000 units. Its turnover (75.4 million) accounted for 33% of SBs antibiotic

sales and 18.2% of its total sales.

Amoxicillin is the standard antibiotic for simple respiratory infections in the general

population when no special risks are involved. It is available in forms adaptable to all

situations (in oral and injectable forms) and for adults and children (see Exhibits 5 and 6).

Amoxicillin is a large spectrum penicillin, active against the major strains of bacteria

responsible for urban infections, notably pneumococci (which cause pneumonia, otitis,

secondary bronchial infections) and streptococcus A (the most common bacterial cause of

tonsillitis). Amoxicillin has several advantages over other families of antibiotics: it kills

streptococci (whereas macrolides, a newer family of antibiotics, only stop their proliferation);it is the most powerful oral antibiotic against pneumococci; it acts more rapidly against

bacteria than cephalosporins (another newer family of antibiotics); it has a high and steady

rate of absorption by the body and ensures safe medical treatment for patients; it is very well

tolerated, allowing an increase in dosage for more severe cases and is the only effective drug

for streptococcus B (infections in pregnant women), streptococcal infections of the mouth

(dental infections, prophylaxis of endocarditis), listeria (meningitis, infections in pregnancy),

H. Pylori (ulcers), and B. Burgdoferi (Lyme disease). Overall, amoxicillin remained a useful

and viable product in 1996 because it was well adapted to a large range of common illnesses

and was less expensive than many other antibiotics available for the same medical indications.

From the very beginning, the company exploited the proven value of Clamoxyl andpositioned it with strong scientific support, notably a photograph of dead streptococci. As

mentioned earlier, new products that bring a major gain in therapeutic approach are

uncommon, and it was logical to market the product on this basis. SB also provided an all-

round service with Clamoxyl at the center, such as a 24-hour hotline and small yet appreciable

attentions such as jars of sweets for offering to children during medical visits. A truly

excellent product, a strong and consistent positioning on the therapeutic benefits of Clamoxyl,

a heavy promotion by a sales force dedicated to the product, eye-catching advertisements

communicating the performance and distinctiveness of Clamoxyl emphasizing its red color,

and an innovative customer orientation - all contributed to the early success of Clamoxyl.

Moreover, SB continuously invested in the brand with sustained research and development

(1g dose necessitating only one take per day; sugarless Clamoxyl for children; new forms,

etc). In line with the functional positioning of Clamoxyl, SB always communicated the

therapeutic benefit of these improvements (e.g., swallowing a dispersible pill diluted in water

could bring relief to sore throats) as opposed to a new marketing gimmick.

Generic Amoxicillin

The CNAM distinguishes between generics and copies. Generics are identical copies of the

amoxicillin molecule. These entered the market upon expiration of amoxicillins patent in

1980 and sold for at least 30% less than Clamoxyl (referred to as the princeps) but were not

available in as many forms (tablets, capsules, syrup) as Clamoxyl (see Exhibit 5). Generics

are usually not promoted by medical reps and therefore save on promotion, but small

volumes, distribution costs, and low prices mean that margins are minimal. In fact, in 1996,


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most producers of generic drugs were not breaking even, and most analysts believed that only

a few producers could acquire the wide portfolio of products necessary to achieve economies

of scale and become profitable.

Copies may add a modification to the original drug to mark the difference. They can change

the form or the non-active ingredient, which may, for instance, alter the flavor of the end

product. Although the possibilities are theoretically numerous (slow-release tablets,

sublingual forms, gastro-resistant coating, suppositories, new flavor, sugar-free, etc.),

practical applications are more difficult. For example, Flemoxine is the only pediatric

amoxicillin tablet, but children usually prefer syrups. Like generics, copies may be marketed

upon patent expiration but they are promoted like a brand and officially sell for 15% less than

Clamoxyl. In terms of treatment, generics and copies have exactly the same indications and

effects. For the purposes of simplification, generics and copies are often grouped together in

this case, unless the differentiation is relevant.

As shown in Exhibit 7, the first generic products were introduced in France in 1980 and

quickly gained about half of the amoxicillin market. To counter the loss of the patent, SB

developed and tested different improved versions of the molecule which could have been

marketed as a replacement for Clamoxyl, but to no avail. Amoxicillin proved a difficult

product to improve upon. In the absence of a foreseeable breakthrough, SB invested in the

brand by developing new forms and dosages and continued to promote Clamoxyl through

medical reps and advertising. In addition, the arrival of many undifferentiated generics and

copies ironically helped reinforce the positioning of Clamoxyl as the only true amoxicillin.

The progression of generics halted after 1985 and the market share of Clamoxyl remained

stable for about 10 years, when it started to erode again (losing about two market share points

in 1996). In the year ending in August 1996, however, Clamoxyl was still the highest sellingamoxicillin by far, capturing 34% of the amoxicillin market and 8.8% of the total antibiotic

market despite its 30% price premium over equivalent generics (see Exhibit 8).

Augmentin

Augmentin, is a combination of amoxicillin with an inhibitor (clavulanic acid) which

neutralizes the most prevalent mechanism of bacterial resistance to amoxicillin. SB launched

Augmentin in 1984 as an amoxicillin for special infections (such as ear infections in children

or recurring and acute respiratory infections among adults) and as a second recourse (when

treatment by amoxicillin had been unsuccessful). Augmentin was not positioned as a

replacement for Clamoxyl because it causes more frequent side effects (diarrhea) and becauseClamoxyl is well adapted to fight indications such as tonsillitis or pneumonia. The specialized

positioning of Augmentin was reinforced by the RMOs restrictions which, from 1993, incited

doctors to reserve Augmentin for specific infections or for resistant cases, resulting in a sharp

decline in its sales. This, however, did not stop some doctors from considering Augmentin

simply as an improved version of Clamoxyl with a higher success rate for resistant bacteria.

The specialized positioning of Augmentin limited its prescriptive potential but enabled SB to

keep Clamoxyls positioning as the antibiotic for the majority of common infections. It also

meant that Augmentin would be priced at 2.3 times that of Clamoxyl. Finally, promoting both

Clamoxyl and Augmentin increased doctors awareness of amoxicillin, the key component in

both drugs, at the expense of other families of antibiotics. In 1995, Augmentin, still underpatent protection, achieved sales of 122.7 million.


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Other families of Antibiotics

The two principal families of drugs that compete with amoxicillin are the macrolides and

cephalosporins. On the whole there is no radical difference between these products.Compared with amoxicillin, macrolides are seen as innovative (although they may be slower

acting). Cephalosporins, which exist in several sub-classes or generations (first-generation

cephalosporins are the principal competitors with amoxicillin) are not as well-known to

doctors and are also slower-acting than amoxicillin. Both macrolides and cephalosporins may

be substituted for amoxicillin when the patient is allergic to penicillin (around 10% of the

population). As shown in Exhibit 3, these alternatives to amoxicillin are heavily promoted by

pharmaceutical labs (they have a 70% share of voice compared to 30% for amoxicillin). They

are also more expensive (see Exhibit 9).

Clamoxyl in 1996

The Jupp Reform

Created after WWII, the French social security system has historically operated with few

constraints on the patient (who can, for example, visit as many general practitioners and

specialists as they want at no cost) or the doctor (who is free to prescribe whatever drugs are

deemed necessary). The downside of this freedom is that, at 367, French annual per capita

expenditure on pharmaceutical products is the highest in Europe. Not surprisingly, the French

social security system is running a large deficit, which can only grow as the population ages

and the cost of medical treatment continues to increase.

The Jupp reform introduced in November 1995 (after the French Prime Minister who led it)

granted new power to the CNAM to curb the growth of health expenditure. It established

limits on the number of authorized prescriptions and the choice of drugs and proposed to set

up a computer network that would monitor doctors prescriptions more easily and encourage

the systematic choice of alternative, less costly drugs. In practice however, the CNAM used a

mixture of persuasion and threats of future financial sanctions to encourage doctors to opt for

generic drugs. It produced monthly reports on the alarming growth in medical expenditure

and sent letters to doctors - such as that of 10 July 1996 - encouraging them to prescribe

cheaper amoxicillin drugs instead of Clamoxyl.

Clamoxyls Weakening Position

In general, doctors regard this as interference and an attack on their freedom of prescription.

Such measures affect them nevertheless, partly due to the threats of future financial sanctions

if expenses were to continue to grow at the same pace and also because the strong media

campaign organized by the CNAM highlighted their responsibility for the growing deficit of

the social security system.

As the monthly market shares in Exhibit 10 show, Clamoxyl sales saw a sharp decline of 29%

in the three months following the CNAM letter. As Exhibit 11 indicates, the market share of

all amoxicillin products increased, but not as much as the market share of Clamoxyl

decreased, suggesting that some of the sales lost by Clamoxyl were diverted towards otherfamilies of antibiotics. Within amoxicillin, most of the substitution went towards the cheapest


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generics rather than towards branded copies. For example, Exhibit 12 shows that Bristamox (a

generic) gained market share mostly at the expense of Clamoxyl but also slightly at the

expense of Agram (a relatively more expensive copy which was also mentioned in the CNAM

letter).

While Clamoxyl continued to be profitable (see Exhibit 13), this bad news, combined with the

slow but steady erosion of Clamoxyl sales over the past year and the continued promotional

support for other families of antibiotics, meant that Pierre Chahwakilian had to act fast.


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Exhibit 1

The CNAM Letter of July 1996

Paris, July 10 1996

Dear Doctor,

Prescription drugs account for the bulk of the expenses of general practices. The national cost of drugreimbursement by the Social Security has increased by 7.7% over the past 12 months (May 95-May

96), without any obvious medical reason.

Studies carried out by our health service show that because of their heavy promotion by laboratories,

the highest prescribed drugs are often the most expensive drugs. Generic or essentially similar drugs,

and even some jointly marketed drugs, which ensure an equivalent improvement in the patients

condition at a substantially reduced cost, are neglected.

If eight of the most prescribed drugs (notably antibiotics and cardiovascular medication) were replaced

by their cheaper equivalents, this would save up to 500 million francs per year. The appended

examples illustrate this fully.

I would request, that each time you prescribe a drug, you consider its cost. Without contravening your

freedom to prescribe, which is essential in patients interests, I ask that you substitute the cheapest

therapeutic equivalent whenever you can.

With this simple spontaneous action, it is possible to make instant and substantial savings. In this way,

whilst continuing to respect your professional code of ethics, you will be able to contribute to the

preservation of a system that guarantees universal freedom of access to high-quality care.

I am certain that I may count on your participation in this proposition, which maintains the interests of

every individual as a priority.

Yours sincerely,

Grard RAMEIX.

66 avenue du Maine

75694 Paris Cedex 14

Fax : 42.79.32.99

Teletex : 933-42793186

Telex : 205 942


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Exhibit 1 (Contd)

THERAPEUTIC

CLASSPRODUCT SUBSTITUTION

POTENTIAL

ECONOMIES

(million francs)

Antibiotics Clamoxyl

Amophar*

Bristamox*

Zamocilline*

173.9

Diuretics Aldactazine Spiroctazine* 113.9

Anti-arrhythmics Cordarone Corbionax* 70.2

Analgesics Doliprane 500Dafalgan 500*

Dolko 500*54.6

Vasodilators TanakanGinkogink*

Tramisal*39.7

Anti-Ulcer Drugs Mopral Zoltum** 28.0

Antibiotics A-Gram

Amophar*

Bristamox*

Zamocilline*

16.5

Total 512.6

Notes:When several products are mentioned, their cost is similar.* Generic or essentially similar medicines.


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Copyright 2003 INSEAD 13

Exhibit 2

Examples of Print Ads for Amoxicillin Brands6

6 Its amazing what Beecham can pack into a tiny Clamoxyl pill: 40 years of research, 10 years of experience and a few m

The Antibiotic know how (1989).


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Exhibit 2 (Contd)


7 Clamoxyl, at theof antibiotherapy. An antibiotic for the future, and it doesnt date back to yesterday (1993). Clamoxyl 1g

(1994).


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Exhibit 2 (Contd)


8 It is not enough to be red and well-bred to act as fast as Clamoxyl (1990). It is not enough to be red and economical to be as po


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Exhibit 2 (Contd)


9 Throat infections, I gobble them up. To hell with bronchitis. Whos the boss? Amoxicillin by excellence (1996).


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Exhibit 2 (Contd)


10 Amodex, the antibiotic key (1994). A-Gram: Attacks from the right angle (1994).


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Exhibit 2 (Contd)


11 Harrumph! An attack of pathogen agents well, I still have my amoxicillin Gramidil, its green and it changes everything.


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Exhibit 3

Promotional Expenditures in Clamoxyls Target Market in 1995

Media : Medical reps Press Conferences Phase IV

Investments

(million euros)

70.3 14.0 2.4 1.7

Amoxicillins 27 % 14 % 8 % 1 %

- Clamoxyl5 % 8 % 4 % < 1 %

- Copies and generics22 % 6 % 4 % < 1 %

Cephalosporins (1stgeneration)

20 % 15 % 22 % 27 %

Macrolides 53 % 71 % 70 % 72 %

Source: CAM ACCESS.

Exhibit 4

Vidal (Prescription Drugs Reference Book) and Package

of Some of the Antibiotics Available in France


21/27


Exhibit 5

Forms, Brands, and Prices of Amoxicillins Available in France in August 1996

Tablets Capsules Syrup

Powder for Oral

Suspension Injection

Form 1g

x6

1g

x3

125

mg

250

mg

500

mg

250

mg

500

mg

250

mg

125

mg

1g

x6

250

mg

x12

125

mg

x12

1g

x1

500

mg

x1Target* A A Ch Ch A A Ch Ch Ch A Ch Ch - -

Market share (%) 20 1


22/27


Exhibit 6

Range of Clamoxyl Products

Exhibit 7

Market Share of Clamoxyl and of all Amoxicillins in the French Antibiotics Market

(1980 to 1995)

0%

5%

10%

15%

20%

25%

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

%o

fantibioticsprescritio

ns

Clamoxyl All Amoxicillins


23/27


Exhibit 8

Market Share of Clamoxyl, Generics, and Copies in the Adult Amoxicillin Market

(% of prescriptions, year ending August 1996)

A-Gram

16%Amodex

10%

Flexomine

5%

Gramidil

4%

Hiconcil

8%

Amophar

7%

Bristamox

15%

Zamocilline

1%

Copies (43%)

Generics (23%)

Clamoxyl (34%)

Exhibit 9

Average Cost of Treatment with the Principal Families

of Antibiotics in Clamoxyls Target Market in 1996

Average cost of treatment

()

Market share*

(%)

Average cost of antibiotic treatment 19.51

Total amoxicillin 10.06 25.9

- Clamoxyl 11.43 8.8

- Copies and generics 9.30 17.1

Cephalosporins (1stgeneration). 19.97 12.6

Macrolides 21.04 20.2

Note: * Percentage of prescriptions on Clamoxyls target market (for pathologies for which Clamoxyl can beused). Source: SmithKline Beecham.


24/27


Exhibit 10

Monthly Market Share of Clamoxyl in the Adult Antibiotics Market

June 94 to Sept 95

June 95 to Sept 96

June 94 to Sept 95

June 95 to Sept 96

Exhibit 11Monthly Market Share of all Amoxicillins in the Adult Antibiotics Market

June 94 to Sept 95

June 95 to Sept 96

June 94 to Sept 95

June 95 to Sept 96


25/27


Exhibit 12

Relative Market Share (total = 100%) of Clamoxyl, Agram, and Bristamox

(500 mg adult caps)


26/27


Exhibit 13

Cost Structure for Clamoxyl in 1995 (in Euros)

% of retail price % of wholesale price

Average retail price 4.85 100

Pharmacists margin 1.42 29.3

Wholesalers margin 0.52 10.74

Taxes 0.10 2.1

Average wholesale price 2.80 57.9 100

Cost of goods sold(includes raw material, 0.69,and packaging, 0.10)

0.98 35

Promotional costs

(includes salesforce, 0.28)

0.42 15

Net margin 1.40 50

Notes: Sales in 1995: 27,000 units. Turnover in 1995: 74,45 million. The cost structure is relatively insensitiveto volume changes.


27/27

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ecchUK Registered Office: ecchUSA Registered Office:

www.ecch.com www.ecch.com www.ccip.fr/ccmp/

Tel: +44 (0)1234 750903 Tel: +1 781 239 5884 Tel: 33 (0) 1.49.23.57.25

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Documents

Case Clamoxyl w