For Novartis' respiratory ambitions, it's a tale of 'two worlds'

Novartis Pharma Chief David Epstein

Targeting different markets naturally requires using different marketing strategies. But for Novartis ($NVS), which is aiming to become a major respiratory player, its approaches within and outside the U.S. could end up being worlds apart.

As pharma chief David Epstein said on the company's Q3 analyst call Tuesday, the Swiss pharma is "a company of almost two geographic worlds." Outside the U.S., Novartis is poised for respiratory success, with a "dynamite portfolio" including Onbrez, Seebri and Ultibro Breezhaler, Xolair for allergic asthma, and a product in the pipeline, QAW, that it hopes will advance into Phase III next year.

"I think we really have a chance to become one of the market leaders in respiratory medicine, and I would see us in most markets doing that ourselves," he said about ex-U.S. sales.

And inside the U.S.? "The good news is, I have plenty of time to figure that out," Epstein joked on the call. "The U.S. is a bit of a different story--we're working on our strategy."

As Epstein told investors, that strategy could include teaming up with another company; on the other hand, "we may choose to do it all ourselves," he said. First, Novartis is waiting to see how the competition shakes out among other drugmakers vying for FDA respiratory approval; last year, Epstein said Novartis planned to file for U.S. Ultibro approval at the very end of this year "once we know all that."

While both the U.S. and European respiratory landscapes are in flux thanks to the decline of GlaxoSmithKline's ($GSK) behemoth Advair, the markets are shaping up differently. One need look no further than the British pharma giant's Q3 results, announced last week, to see some of those differences: Sales of GSK's aging megablockbuster sank 25% in the U.S compared with a 5% dip in Europe, despite some recent European generic competition from products like Novartis' own AirFluSal Forspiro.

Payer struggles are responsible for more than a little of that U.S. drop. After pharmacy benefits manager Express Scripts ($ESRX) nixed Advair from its national preferred formulary in 2014, Glaxo negotiated the drug back on for 2015 via serious price cuts. The result? A 15% toll on the drug's stateside top-line haul. "The impact of formulary and contract changes we have seen this year to Advair have been greater than we anticipated," CEO Andrew Witty wrote in a review.

And even now that Advair's back in Express Scripts' good graces, it still won't be listed as a preferred treatment for 2015, meaning patients will face a higher copay for Advair than for competitors Symbicort from AstraZeneca ($AZN) or Dulera from Merck ($MRK). And Symbicort, for one, already has experience capitalizing on Advair's formulary status, growing 30% in Q2.

It's not just older treatments that have run into PBM hurdles, either, and that's something up-and-coming respiratory drugmakers may want to take note of. Breo, one of the COPD newcomers Glaxo launched this year to help fill Advair's giant shoes, will face Express Scripts exclusion for the second straight year in 2015.

Exactly where and how Novartis fits into the U.S. respiratory picture remains to be seen. But it'll be sooner rather than later that the company devises a plan to tackle the market: The company will likely know what its U.S. strategy for the product line will look like "during the course of next year," Epstein said.

- read the call transcript from Seeking Alpha

Special Reports: The top 10 pharma companies by 2013 revenue - Novartis | The 10 best-selling drugs of 2013 - Advair/Seretide

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