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This research paper is a comprehensive study with recommendations on launching Novartis' lung cancer product ASA404 in Austria.

Publié dans : Santé & Médecine
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  3. 3. EXECUTIVE SUMMARY Society has every reason to believe in the power of innovation within the pharmaceutical and biotech companies. Over the last 40 years, we have witnessed a significant reduction in death from serious diseases. 1 Deaths resulting from rheumatic fever and rheumatic heart disease have fallen by more than 60%, while deaths from hypertensive and ischemic heart disease have fallen by more than 40%. Furthermore, there has been impressive progress in reducing the number of patients who die from cancer, particularly in children. Over the last 25 years mortality has increased by 50 percent. Forty percent of the increased life expectancy and reduced chronic disability in seniors over the last 25 years is directly attributed to the power of medicine. Novartis is leading the way with oncology products that both extend and improve the quality of life for patients. A new innovative drug, ASA404 is currently in third stage clinical trials, for the treatment of lung cancer. Therefore, it is imperative that Novartis prepare a decisive and targeted drug launch to reach the millions of patients suffering from this deadly disease - and those expected to succumb to it in the future. Although Novartis is already well established in the Austrian market, each time a new product is approved by the European Union, a rigorous approval process must be adhered to in order to enter Austria. The intention of this research paper is to provide Novartis with a comprehensive analysis and marketing recommendations to pave the way for the launch of ASA404. It is our wish that people all over the world suffering from Lung Cancer will find some relief with ASA404. We are ever hopeful that this product will reach those in need. Sincerely, Gina Tilton 1 www.aihw.gov.au/WorkArea 3
  4. 4. OVERVIEW Purpose: The Purpose of this comprehensive marketing analysis is to provide a comprehensive analysis of the Austrian pharmaceutical market, and to recommend appropriate strategic action to be taken by Novartis to best introduce ASA404 into the Austrian market. Scope: The scope of this plan is to examine major marketing environmental factors and the impact they have on product, price, promotion and placement. This report covers all crucial marketing variables including the economy, culture, political and legal environment, along with other uncontrollable factors. Organization of Report The paper is divided into thirds. The first section introduces Novartis and its product and identifies patients whom would benefit from the drug. The second section focuses on the many variables for Pharmaceutical companies to consider when entering a market: the predictable and uncontrollable environmental factors that distinguish Austria from other countries. And finally, the last section covers the comprehensive marketing approach and recommendations to enter and succeed in the Austria market. And lastly the Teams’ conclusion and recommendations. NOVARTIS AG Novartis AG provides healthcare solutions that address the evolving needs of patients and societies. Focused solely on growth areas in healthcare, Novartis offers a diversified portfolio to best meet these needs: innovative medicines, cost-saving generic pharmaceuticals, preventive vaccines and diagnostic tools, and consumer health products. In 2007, the Group’s continuing operations (excluding divestments in 2007) achieved net sales of USD 38.1 billion and net income of USD 6.5 billion. Approximately USD 6.4 billion was invested in R&D activities throughout the Group. Headquartered in Basel, Switzerland, Novartis Group companies employ approximately 98,200 full-time associates and operate in over 140 countries around the world. In 2008, Novartis was the only pharmaceutical company with three medicines under priority review by the US Food and Drug Administration. In addition to Afinitor, these included Gleevec/Glivec as adjuvant therapy in gastrointestinal stromal tumors (GIST) and Coartem for malaria. Product – ASA404 ASA404 (DMXAA) is a small-molecule Tumors-Vascular Disrupting Agent (Tumors-VDA) which selectively targets the blood vessels that nourish tumors. The action of ASA404 is distinct from that of angiogenesis inhibitors, which inhibit the formation of new tumor blood vessels. ASA404 has a novel mechanism of action that may represent a new approach to treating Non Small Cell lung cancer. The drug was discovered by Professors Bruce Baguley and William Denny and their teams at the Auckland Cancer Society Research Center, University of Auckland, New Zealand. It was in-licensed by Antisoma from Cancer Research Ventures Limited (now Cancer Research Technology), the development and commercialization company of the Cancer Research Campaign (now Cancer Research UK), in August 2001 Worldwide rights to the drug were licensed to Novartis AG in April 2007; Novartis paid Antisoma $890 million for the drug. 4
  5. 5. 2 On September 2007 at the World Conference on Lung Cancer in Seoul, South Korea, key findings were presented on Clinical Trials, stage II, which show a median survival of 14 months in patients who received a 1200 mg/m2 dose of ASA404 combined with chemotherapy and of 8.8 months in patients who received chemotherapy alone. Additional findings are as follows: • Median survival was 14.9 months • Median time to tumor progression was 5.5 months • Tumor response rate was 37.9% • Addition of ASA-404 to chemotherapy was well tolerated • Safety findings were similar in patients with squamous and non-squamous lung cancer In the earlier trial, tumor response rates were 31.2% with 1200 mg/m2 ASA-404 plus chemotherapy and 22.2% with chemotherapy alone. Time to tumor progression was 5.4 months with ASA-404 and 4.4 months with chemotherapy alone. Dr Mark McKeage of the University of Auckland, New Zealand, an investigator in both ASA-404 lung cancer trials and the presenter of the new data in Korea, said: "This is a second set of positive data on ASA-404 in lung cancer. It's particularly encouraging to see more evidence that patients receiving ASA-404 on top of chemotherapy may live longer than we would expect with chemotherapy alone." Glyn Edwards, Antisoma's Chief Executive Officer, said: "These data add considerably to the strength of the evidence supporting ASA-404 in its lead indication and give us extra confidence as the drug proceeds into phase III testing." ² Currently there are two separate third stage clinical trials underway for Novartis product ASA404. ATTRACT-1, is evaluating ASA404 in patients receiving their first treatment for NON SMALL CELL LUNG CANCER while ATTRACT-2 is trial testing ASA404 as a second-line treatment for non-small cell lung cancer (NON SMALL CELL LUNG CANCER), for lung cancer patients who have received one previous round of treatment. Recommendation: It is the assumption of the authors of this paper that the human trials will be as successful as the previous trials. Therefore, Novartis must move quickly to capture the attention of medical professionals worldwide to educate them on the life saving abilities of ASA404. Lung Cancer Lung cancer is the number one cause of cancer death for both men and women worldwide, with 1.2 million new cases per year and around 920,000 deaths. Approximately 85-90% of all lung cancer cases are NON SMALL CELL LUNG CANCER. Treatment for lung cancer can involve surgical removal of the cancer, chemotherapy, or radiation therapy, as well as combinations of these treatments. The decision about which treatments will be appropriate for a given individual must take into account the localization and extent of the tumor as well as the overall health status of the patient. Chemotherapy is the treatment of choice for most SCLC, since these tumors are generally widespread in the body when they are diagnosed. Only half of people who have SCLC survive for four months without chemotherapy. With 2 Source: Antisoma plc. 2007-09-05. http://www.lifescienceonline.com/Positive_survival_data_from_ASA_404_trial_presente,5401.html? portalPage=Lifescience+Today.News 5
  6. 6. chemotherapy, their survival time is increased up to four to fivefold. Chemotherapy alone is not particularly effective in treating NON SMALL CELL LUNG CANCER, but when NON SMALL CELL LUNG CANCER have metastasized; it can prolong survival in many cases. ASA404 is currently in the phase III trial to evaluate the efficacy of ASA404 in combination with paclitaxel (Taxol) plus carboplatin as first-line treatment for locally advanced or metastatic (stage IIIB/IV) NON SMALL CELL LUNG CANCER of squamous or nonsquamous histology. Patients will be randomly assigned a ratio of 1:1 to receive either ASA404 1800 mg/m2 or placebo in combination with a chemotherapy regimen of carboplatin plus paclitaxel. Treatment will continue for up to six 21-day cycles (126 days total) over 4.2 months. Non-small cell lung cancer, the potential lead indication for ASA404, accounts for about 85% to 90% of all lung cancers. Worldwide, lung cancer is the number one cause of death from cancer each year in both men and women, with 1.2 million new cases per year and 921,000 deaths. 3 There are presently about 1.3 billion smokers worldwide. This number is a rough estimation because present data is not exact for all countries, most notably China. There are about 110 million smokers in India and 52 million in the USA. It is also very common in Europe. In Austria, about 2.3 million people smoke which makes up 29% of the population. Each year around 14,000 Austrians die of lung cancer, mainly caused by smoking. In Austria, more than 10,000 people die every year as a result of tobacco abuse among which lung cancer is the most important cause. In 2003, 2,339 men and 993 women died of lung cancer in Austria. Cancers that begin in the lungs are divided into two major types, non-small cell lung cancer and small cell lung cancer, depending on how the cells look under a microscope. Non-small cell lung cancer is more common than small cell lung cancer, and it generally grows and spreads more slowly. Small cell lung cancer, sometimes called oat cell cancer, is less common, grows more quickly and is more likely to spread to other organs in the body. Tobacco smoking is by far the leading cause of small cell lung cancer. A small portion of lung cancers occur in people with no apparent risk factors for the disease Following the clinical trials, it is assumed (by this team) that the results will confirm the unique mechanism of action of ASA404 in non-small cell lung cancer to potentially help the more than one million people who develop lung cancer each year. 3 http://www.cancer.org/docroot/PRO/vontent/docs/Nicotine2.pdf? PHPSESSID=DEE0354A013045B0709054104EA9A71z 6
  7. 7. POLITICAL - LEGAL ENVIRONMENT The Austrian Government is a federal republic. It gained independence from Bavaria in 1156, which is celebrated on National Day, October 26. Its constitution was created in 1920 and revised in 1929. It was later reinstated in May 1945. The Administrative Divisions consist of 9 states: (Bundeslaender, singulär - Bundesland); Burgenland, Kärnten, Niederösterreich, Oberoesterreich, Salzburg, Steiermark, Tirol, Vorarlberg, and Wien. Chief of state: President Heinz FISCHER (since 8 July 2004) Head of government: Chancellor Wolfgang SCHUESSEL (OeVP) (since 4 February 2000); Vice Chancellor Hubert GORBACH (since 21 October 2003) Cabinet: Council of Ministers chosen by the president on the advice of the chancellor Elections Legislative Branch: Bicameral Federal Assembly or Bundesversammlung consists of Federal Council or Bundesrat (62 members; members represent each of the states on the basis of population, but with each state having at least 3 representatives; members serve a five- or six-year term) and the National Council or National rat (183 seats; members elected by direct popular vote to serve four-year terms) Judicial Branch: Supreme Judicial Court or Oberster Gerichtshof; Administrative Court or Verwaltungsgerichtshof; Constitutional Court or Verfassungsgerichtshof Political Pressure Groups and Leaders: Austrian Trade Union Federation (nominally independent but primarily Socialist) or OeGB; Federal Economic Chamber; OeVP-oriented League of Austrian Industrialists or VOeI; Roman Catholic Church, including its chief lay organization, Catholic Action; three composite leagues of the Austrian People's Party or OeVP representing business, labor, and farmers and other non-government organizations in the areas of environment and human rights. National legislature: Bicameral; National Council (Nationalrat) of 183 members elected for a four-year term, with seats distributed first among 43 constituencies, then among the nine states and the remaining seats at federal level; this guarantees both fair regional and fully proportional representation. Federal Council (Bundesrat) of 62 members elected by provincial parliaments Head of state: President, directly elected for a maximum of two six-year terms, with no executive powers in peacetime. Heinz Fischer was sworn in as president on July 8th 2004. He succeeded Thomas Klestil, who had served as president since 1992 State legislatures: Nine provincial parliaments, each of which appoints its own provincial governor. National government: Council of Ministers headed by a federal chancellor appointed by the president. Main Political Parties • Social Democratic Party (SPO; 57 seats) • Austrian People's Party (OVP; 51 seats) • Freedom Party (FPO; 34 seats) • Alliance for the Future of Austria (BZO; 21 seats) • Greens (20 seats). Not represented in federal parliament, but at the local level: Liberal Forum (LIF) and Communists (KPO) 7
  8. 8. The Social Democratic Party (Sozialdemokratische Partei Österreichs, SPÖ) was founded in 1889 and was the driving force behind the establishment of the First Republic. The party went into opposition in 1920, until it was banned in 1934 for its Marxist views. It was re-established in 1945. The Austrian People's Party (Österreichische Volkspartei, ÖVP) was founded in 1945 by representatives of the former Christian Social Party, which had governed Austria in the inter-war period. All chancellors between 1945 and 1970 came from the ÖVP. After 16 years in opposition, the party re-entered government in 1986 as junior coalition partner to the SPÖ. The Freedom Party was formed in the post-war period (in 1956), replacing the Association of Independents, which played a leading role in grouping together former National Socialists who were prevented from voting in the first national elections after the war. The Alliance for the Future of Austria was formed in April 2005. The new party, initially under the leadership of the former FPÖ leader, Mr. Haider, and since May 2006 headed by Peter Westernthaler, comprises the Carinthian FPÖ, all the former FPÖ cabinet members and the majority of former FPÖ deputies in parliament. The Liberal Forum (LIF) was founded by Heide Schmidt and other defectors from the FPÖ in 1993 and entered parliament after the 1994 general election. The LIF supports EU integration, rejects the FPÖ's anti-immigration stance and is supportive of market liberalization. Political Stability: Since 1955, Austria has enjoyed political stability. A Socialist elder statesman, Dr. Karl Renner, organized an Austrian administration in the aftermath of the war, and the country held general elections in November 1945. All three major parties--the conservative People's Party (OVP), the Socialists (later Social Democratic Party or SPO), and Communists--governed until 1947, when the Communists left the government. The OVP then led a governing coalition with the SPO that governed until 1966. Between 1970 and 1999, the SPO governed the country either alone or with junior coalition partners. In 1999, the OVP formed a coalition with the right wing, populist Freedom Party (FPO). The SPO, which was the strongest party in the 1999 elections, and the Greens formed the opposition. The FPO had gained support because of populist tactics, and many feared it would represent right wing extremism. As a result, the European Union (EU) imposed a series of sanctions on Austria. The U.S. and Israel, as well as various other countries, also reduced contacts with the Austrian Government. After a period of close observation, the EU lifted sanctions, and the U.S. revised its contacts policy. In the 2002 elections, the OVP became the largest party, and the FPO's strength declined by more than half. Nevertheless, the OVP renewed its coalition with the FPO in February 2003. In national elections in October 2006, the SPO became the largest party, edging the OVP. On January 11, 2007, an SPO-led Grand Coalition took office, with the OVP as junior partner. In July 2008, following months of dispute between the ruling parties, the coalition collapsed when Vice Chancellor Wilhelm Molterer (OVP) called for early elections. New elections were held on September 28, 2008, and resulted in the formation of another grand coalition between the SPO and OVP. The Social Democratic Party traditionally draws its constituency from blue- and white-collar workers. Accordingly, much of its strength lies in urban and industrialized areas. In the 2008 national elections, it garnered 29.7% of the vote. In the past, the SPO advocated state involvement in Austria's key industries, the extension of social security benefits, and a full-employment policy. Beginning in the mid-1980s, it shifted its focus to free market-oriented economic policies, balancing the federal budget, and European Union membership. The People's Party advocates conservative financial policies and privatization of much of Austria's nationalized industry. It finds support from farmers, large and small business owners, and some lay Catholic groups, mostly in the rural regions of Austria. In 2008, it received 25.6% of the vote. The Greens won 9.8% of the vote in 2008, losing ground to become the smallest party in parliament. 8
  9. 9. Both of Austria’s far-right parties have seen their popularity increase in recent years. The rightist Freedom Party (FPO) traditionally had a base in classic European liberalism. However, after losing much of its support in the 2002 elections and suffering a split, the FPO adopted a populist, anti-immigration platform, and has recovered much of its pre-2002 support. Joerg Haider, the charismatic former leader of the FPO, split from the party in 2005 to form the Alliance-Future-Austria (BZO). All of the FPO's Federal Ministers and most of its parliamentarians joined the BZO, and that party formally became the junior partner in the governing coalition. The BZO was unable to draw significant popular support away from the FPO, but managed to enter parliament in 2006 with 4.1% of the vote. In the 2008 elections, both far-right parties made significant gains, with the FPO earning 18.0% of the vote, up from 11% in 2006, and the BZO taking 11.0%, up from 4.1%. Though the OVP entertained the idea of forming a coalition with the two far-right parties in the initial aftermath of the 2008 election, this possibility did not come to fruition. Joerg Haider, whose personal popularity and charisma were seen as crucial to the BZO’s success, died in a traffic accident in October 2008 during the early phases of coalition negotiations. [1] Absent Haider’s leadership, the party’s future remains largely uncertain, and thus the OVP abandoned the idea of a coalition with the BZO and FPO, choosing instead to join a new grand coalition as the junior partners of the SPO. Foreign Relations: The 1955 Austrian State Treaty ended the four-power occupation and recognized Austria as an independent and sovereign state. In October 1955, the Federal Assembly passed a constitutional law in which "Austria declares of her own free will her perpetual neutrality." The second section of this law stated that "in all future times Austria will not join any military alliances and will not permit the establishment of any foreign military bases on her territory." The date on which this provision passed--October 26--became Austria's National Day. From then, Austria shaped its foreign policy on the basis of neutrality. In recent years, however, Austria began to reassess its definition of neutrality, granting over flight rights for the UN- sanctioned action against Iraq in 1991, and, since 1995, contemplating participation in the EU's evolving security structure. Also in 1995, it joined the Partnership for Peace with NATO, and subsequently participated in peacekeeping missions in Bosnia. Austrian leaders emphasize the unique role the country plays both as an East-West hub and as a moderator between industrialized and developing countries. Austria is active in the United Nations and experienced in UN peacekeeping efforts. It attaches great importance to participation in the Organization for Economic Cooperation and Development and other international economic organizations, and it has played an active role in the Organization for Security and Cooperation in Europe (OSCE). Austria has participated in the UN-mandated International Security Assistance Force (ISAF) in Afghanistan since 2002. In August 2005, Austria deployed 93 soldiers to the northern Afghan city of Kunduz to help support the parliamentary and provincial elections. Austria has a contingent of 160 peacekeepers in Chad as part of the EU mission there, aiding victims of civil unrest in Darfur. Austria has also participated in international reconstruction assistance efforts and has provided about 8.5 million Euros since 2002 to combat drugs, to strengthen women's rights, and for mine removal. Austria traditionally has been active in "bridge-building to the east," increasing contacts at all levels with Eastern Europe and the states of the former Soviet Union. Austrians maintain a constant exchange of business representatives, political leaders, students, cultural groups, and tourists with the countries of central and Eastern Europe. Austrian companies are active in investing and trading with those countries as well. In addition, the Austrian Government and various Austrian organizations provide assistance and training to support the changes underway in the region. 9
  10. 10. ECONOMIC ENVIRONMENT 4 AUSTRIA (Republic of Austria) • Population: 8 million; slightly smaller than Maine • Capital: Vienna • Ethnic Groups: Germans (98%); Croats, Slovenes, Hungarians, Czechs, Slovaks • Language: German (92%) • Religion: Roman Catholic (73.6%); Lutheran (4.7%); Muslim 4.2% • Education: 9 years compulsory; Literacy: 98% • Health: Infant Mortality Rate 4.2/1000; Life Expectancy: 75.9 yrs (men); 81.7 yrs (women) • Per Capita Income: $30,000 • Common Jobs: services (67%); industry (29%); agriculture (4%) • Currency: Euro • Government: Parliamentary Democracy • Suffrage: Universal at age18; compulsory for Presidential elections • Women in Office: 31.3% of national government5 • Typical Foods: schnitzel, sausage; sachet torte, strudel • Sports: skiing, skating, hiking, climbing, and swimming Austria has a well-developed social market economy with a high standard of living. Until the late 1980s, the government and its state-owned industries conglomerate played a very important role in the Austrian economy. However, starting in the early 1990s, the group broke apart, state-owned firms started to operate largely as private businesses, and the government wholly or partially privatized many of these firms. Although the government's privatization work in past years has been very successful, it still operates some firms, state monopolies, utilities, and services. Austria enjoys well-developed industry, banking, transportation, services, and commercial facilities. Most industrial and commercial enterprises in Austria are relatively small on an international scale. Austria has a strong labor movement. The Austrian Trade Union Federation (OGB) comprises constituent unions with a total membership of about 1.3 million--about 39% of the country's wage and salary earners. The OGB has always pursued a moderate, consensus-oriented wage policy, cooperating with industry, agriculture, and the government on a broad range of social and economic issues in what is known as Austria's "social partnership." Because of a scandal involving a bank the OGB owned, the OGB lost much of its political influence and is still trying to recover. Austrian farms, like those of other west European mountainous countries, are small and fragmented, and production is relatively expensive. Since Austria became a member of the EU in 1995, the Austrian agricultural sector has been undergoing substantial reform under the EU's common agricultural policy (CAP). Although Austrian farmers provide about 80% of domestic food requirements, the agricultural contribution to gross domestic product (GDP) has declined since 1950 to less than 2%. Austria has achieved sustained economic growth and belongs to the richest countries in the EU (4th after Luxembourg, Ireland, and the Netherlands). After a period of low growth of only around 1.0% annually during 2001-2003, Austria's economy recovered again in 2004 and 2005 and grew 2.5% and 2.9%, respectively, driven by booming exports in response to strong world economic growth. This was primarily due to higher growth in Europe, 4 http://www.economist.com/COUNTRIES/Austria/profile.cfm?folder=Profile-Political%20Forces 5 5 Source: International Museum of Women 2004. http://www.imow.org/dynamic/pdfs/curricula_lessons_pdf_5_20.pdf 10
  11. 11. particularly Central and Eastern Europe, and continued export growth. Austria’s real G.D.P. grew 3.3% in 2006 and 3.4% in 2007. The strong economic growth helped reduce Austria's unemployment rate to 4.4% in 2007. Predictions are for the economy to grow 2.2%-2.3% in 2008 and 1.4%-1.9% in 2009; however, these projections include a high risk of downward revision.[5) Austria became a member of the EU on January 1, 1995. Membership brought economic benefits and challenges and has drawn an influx of foreign investors. Austria also has made progress in generally increasing its international competitiveness. As a member of the Economic and Monetary Union (EMU), Austria has integrated its economy with those of other EU member countries, especially with Germany's. On January 1, 1999, Austria introduced the new Euro currency for accounting purposes. In January 2002, Austria introduced Euro notes and coins in place of the Austrian schilling. Economists agree that the economic effects in Austria of using a common currency with the rest of the members of the Euro-zone have been positive. Trade with other EU-27 countries accounts for about 73% of Austrian imports and exports. Expanding trade and investment in the new EU members of central and eastern Europe that joined the EU in May 2004 and January 2007 represent a major element of Austrian economic activity. Austrian firms have sizable investments in and continue to move labor-intensive, low-tech production to these countries. About one-half of Austria's foreign direct investment is concentrated in the countries of central, eastern, and southeastern Europe. Austria still has the potential to attract EU firms seeking convenient access to developing markets in central and eastern Europe and the Balkan countries. Total trade with the United States in 2007 reached $13.0 billion. Imports from the United States amounted to $5.1 billion, constituting a U.S. market share in Austria of 3.3%. Austrian exports to the United States in 2007 were $7.9 billion, or 5.1% of total Austrian exports. Approximately 350 U.S. firms have made investments in Austria. Investment flows indicate that U.S. foreign direct investment in Austria reached a new record total of about $12.1 billion, which represents about 10% of the total in Austria and moves the U.S. to the number two position among foreign investors in Austria. Austria, with a population of 8.3 million, is a dynamic EU member country offering export opportunities for U.S. companies of all sizes. For U.S. firms looking to expand in Southeast Europe, Austria offers some attractive features as an investment location, and recent Austrian governments have sought to increase that attractiveness through economic reforms and by highlighting Austria’s historical and economic ties to the surrounding region. At present, approximately 350 U.S. firms have subsidiaries, affiliates, franchisees, and licensees in Austria, of which about 150 have regional responsibilities for Central European, Eastern European, or Balkan countries. The EU also welcomed two new members in January 2007: Romania and Bulgaria, bringing the total EU Member Country count to 27. According to the Austrian Central Statistical Office, overall Austrian imports grew by 9.6% in 2007. U.S. exports to Austria amounted to $5.1 billion, representing an 8.2% increase over 2006. U.S. exports to Austria were 3.3% of total imports to Austria, ranking number five among Austrian suppliers after Germany, Italy, China, and Switzerland. By comparison, U.S. imports from Austria in 2007 were reported to be $7.9 billion, down 5.6% from 2006, equal to 5.0% of total Austrian exports. The Austrian Government’s statistics should be compared to official U.S. Department of Commerce statistics for Merchandise trade between the United States and Austria. According to these figures, U.S. exports to Austria for 2007 were $3.2 billion, representing a 6.2% increase over 2006. According to the U.S. Government’s statistics, imports from Austria for 2007 were $10.7 billion, representing a 22.4% increase. For 2007 the U.S. ran a $7.5 billion trade deficit with Austria. The trend for 2008 using available figures through September showed a decrease in trade volume. The reasons for disparity between the U.S. and Austrian governments’ statistics are varied but are largely due to the methods of valuation used by customs authorities, the categories of products reflected, and considerations given to products that are transiting through Austria versus being consumed in Austria. In general the trend has been toward an increasing trade deficit with Austria. 11
  12. 12. Among Austrian export markets, the U.S. is number three, behind Germany and Italy. Principal U.S. exports to Austria are motor vehicle parts and accessories, aircraft, machinery, medical devices, pharmaceuticals, and computer equipment and parts. Principal Austrian exports to the U.S. include specialized industrial machinery, automobiles, pharmaceuticals, glassware, electric power machinery and some food products. Given the worldwide economic crisis, the year 2009 will be the first recession year in Austria since 1981. Austria’s economy began to weaken in the second quarter of calendar year 2008 in reaction to the world downturn and is now in recession. The two leading Austrian economic research institutes downgraded their GDP growth estimates for 2008 to 1.8%. The economy is projected to contract by around 0.5% in 2009 due to shrinking exports and investments, despite modest growth in private consumption. For 2010, the institutes project a recovery with growth of 0.9% to 1.3% but warned of continued downside risks. Unemployment will rise to 3.9% to 4.1% in 2009. The budget deficit will spike from only 0.6% of the GDP in 2008 to about 2.8% in 2009 and most likely above 3% in 2010. Despite these negative factors, it can be assumed that U.S. manufacturers will still keep up a good market position within the great majority of the Austrian industry sectors. Nevertheless, the U.S. automotive sector will have a significant decline on the Austrian market in 2009. Imports of automotive parts will experience a major reduction as Austria’s automotive assembly lines will run well below capacity in 2009. Austria represents a desirable, affluent pilot market for U.S.-made products in Europe. Because of Austria’s geographic location and history, many Austrian agents and distributors, in addition to the Austrian market, sell regionally, covering several markets in Central and Eastern Europe and in the Balkan countries. ENTRY INTO MARKET Generally, when establishing a business in Austria, U.S. companies may still encounter troublesome bureaucratic barriers. Some Austrian provinces have established one-stop-shops for investors, and they are competing with each other to eliminate red tape. Most business activities in Austria are regulated and require that a separate application be made for a business license and for registration in the commercial register. Evidence of proficiency in running a business is required for most businesses. Usually a passing score on an examination or evidence of prior experience in the field is sufficient. For business activities that do not require proof of proficiency, the business license is granted automatically upon registration of the business. There are some specific barriers of entry for pharmaceutical drugs in Austria. In this paper those specific challenges are further elaborated upon in the Marketing section with specific recommendations on entering this marketing. (see pricing strategy, page 26). CULTURE German-speaking people are by far the country's largest group, form roughly 90% of Austria's population. The Austrian federal states of Carinthia and Styria are home to a significant indigenous Slovene speaking minority with around 14,000 members (Austrian census; unofficial numbers of Slovene groups speak of up to 50,000). In the east- most state, Burgenland (formerly part of the Hungarian half of Austria-Hungary), about 20,000 Austrian citizens speak Hungarian and 30,000 speak Croatian. Of the remaining number of Austria's people that are of non-Austrian descent, many come from surrounding countries, especially from the former East Bloc nations. So-called guest workers (Gastarbeiter) and their descendants, as well as refugees from Yugoslav wars and other conflicts, also form an important minority group in Austria. Since 1994 the Roma-Sinti (gypsies) are an officially recognized ethnic minority in Austria. 12
  13. 13. According to census information published by Statistik Austria for the year 6 2001there were a total of 710,926 foreign nationals living in Austria. Of these, 124,392 speak German as their mother tongue (mainly immigrants from Germany, some from Switzerland and Bolzano-Bozen, Italy) The next largest populations of linguistic and ethnic groups are 240,863 foreign nationals from the former Yugoslavia (Serbian being the largest number of these at 135,376, followed by Croatian at 105,487); 123,417 Turkish nationals; 25,155 whose native tongue is English; 24,446 Albanian; 17,899 Polish; 14,699 Hungarian; 12,216 Romanian; 7,982 Arabs; 6,902 Slovenes (not including the autochthonous minority); 6,891 Slovaks; 6,707 Czech; 5,916 Persian; 5,677 Italian; 5,466 Russian; 5,213 French; 4,938 Chinese; 4,264 Spanish; 3,503 Bulgarian. The populations of the rest fall off sharply below 3,000. The mother tongue of the population by prevalence, is German (88.6%) followed by Turkish (2.3%), Serbian (2.2%), Croatian (1.6%), Hungarian (0.5%) and Bosnian (0.4%). 7 At the end of the twentieth century, about 74% of Austria's population was registered as Roman Catholic, while about 5% considered themselves Protestants. Austrian Christians are obliged to pay a mandatory tax (calculated by income —about 1%), this payment is called "Kirchensteuer" "Eclesial/Church tax" it was installed instead the "Religionsfond" (founded by Emperor Joseph II to pay Clerics and finance Churches) that was plundered in 1938 by the Nazis and never be reinstalled. 8 About 12% of the population declares that they have no religion. Of the remaining people, around 340,000 are registered as members of various Muslim communities, mainly due to the influx from Turkey, furthermore Bosnia- Herzegovina and Albania. About 180,000 are members of Eastern Orthodox Churches, more than 20,000 are active Jehovah's Witnesses and about 8,100 are Jewish. The Austrian Jewish Community of 1938 – Vienna alone counted more than 200,000 - was reduced to solely 4,000 to 5,000 after the Second World War, with approximately 65,000 Austrian Jews killed in the Holocaust and 130,000 emigrating. A significant proportions of the current Jewish population are post-war immigrants, particularly from eastern Europe and central Asia (including Bukharian Jews). Buddhism, which was legally recognized as a religion in Austria in 1983 has a following of 20,000 (10,402 at the 2001 census). GEOGRAPHY Austria lies in the heart of Europe, right between Western Europe and the Central-Eastern Europe region. It has a population of just over 8 million people, and the capital city is Vienna. The population of the capital, Vienna, exceeds 1.6 million (2.2 million with suburbs), representing about a quarter of the country's population and is known for its vast cultural offerings and high standard of living. In contrast to the capital, other cities do not exceed 1 million inhabitants: the second largest city Graz is home to 250,099 inhabitants, followed by Linz (188,968), Salzburg (150,000). COMPETITION There are around 160 pharmaceutical companies active in Austria. This also includes companies, which only trade in pharmaceuticals. According to statistics Austria, there are 24 manufacturing companies working in Austria. Pharmaceutical companies are predominantly small and medium-sized companies. The larger pharmaceutical companies are mostly subsidiaries of international groups of companies. Austrian pharmaceuticals companies produced products worth around €1344 million in 2002. This is equivalent to around 1.5% of the value of production in the Member States belonging to the EU before May 2004, which was generated by around 9200 employees. Imports by pharmaceuticals producers in Austria amount to around €3091 million and exports are worth €3041 million. 6 Souce: Wikipedia. 2009. http://en.wikipedia.org/wiki/Austria 7 Source: Wikipedia. 2009. http://en.wikipedia.org/wiki/Austria 8 Source: Wikipedia. 2009. http://en.wikipedia.org/wiki/Austria 13
  14. 14. The Austrian pharmaceutical industry consists of subsidiaries of multinational companies and small and medium- sized Austrian firms. Both groups have enjoyed above average growth in sales in recent years. Market leaders are Novartis, Glaxo Smith Kline, Baxter, Sanofi-Aventis, Roche, Janssen & Cilag Pharma, and Merck, Sharp & Dohme. Suppliers of drugs to the Austrian population include 1,184 public pharmacies, 49 hospital pharmacies, and 992 self- dispensing doctors who receive their pharmaceutical products from public pharmacies who dispense medicine directly to patients. Products from the U.S. carry an excellent reputation with respect to quality and safety. The Austrian market is very receptive to U.S. imports in this field; however, U.S. exporters may find significant bureaucratic hurdles. U.S. imports of drugs and pharmaceuticals rank second only to Germany in volume, and they are ahead of France, the United Kingdom, and Switzerland. In 2003, there were 2221 pharmacies in Austria, of which more than half (52%) were public pharmacies, 45% were physicians’ surgery pharmacies, 2% were hospital pharmacies and 1% was branch pharmacies. Compared to 1999, the number of public pharmacies has increased (+7%), as has that of branch pharmacies (+5%), whereas a decrease could be observed in the number of surgery and hospital pharmacies (-2%). There were a total of 12,831 people employed in public pharmacies in Austria in 2003. Of these, 4623 (26%) were pharmacists. The percentage of women among pharmacists is 76%. Two thirds of all pharmacists work on a part- time basis. Pharmacists have the tasks of supplying medicines and of advising patients on taking them. Pharmacists are not permitted to substitute medicines prescribed by physicians with similar products. The Austrian pharmaceuticals sector has been characterized by substantial increases in expenditure since the beginning of the 1990s (Table 4.17). The reasons for this are demographic developments and the related factor of medical progress. Structural problems, including strong market regulation, probably also play an important role. In an international comparison, the proportion of generic drugs on the Austrian pharmaceuticals market is very low (below 10%). Furthermore, more than 60% of cost increases are accounted for by medicines, which require the authorization of “head physicians”. STRUCTURE OF DISTRUBUTION Austria’s Health Care System Austria is well known for a generous social system. Although spending has been reduced in recent years, there is still very good healthcare and a strong social security system. There is an extensive network of hospitals and doctors covering even the remotest areas of Austria. Austrian regulations are stricter than those of the FDA, and therefore products must be inspected and tested in the same way that new Austrian products are. Clinical tests are conducted before a pharmaceutical product is authorized. These tests involve the systematic examination of a drug on humans in order to discover or verify the effect and effectiveness identify undesirable (side) effects, and examine absorption, dispersion, effect on metabolism and elimination of the drug in order to ensure the effectiveness and harmlessness of the drug. Healthcare in Austria is provided as a public service. The system encompasses all institutions and has a remit to maintain and protect the health of the population as well as diagnoses and treat individuals and care for the sick. The healthcare system is a fragmented one, with twenty-one different social insurance providers (Sickfunds) offering health insurance. Social insurance is therefore mandatory with every employee earning above a specified income threshold obliged to make insurance contributions. However, when employees become ill, treatment is available virtually free-of-charge, provided the person has valid health insurance. Sickfunds are allocated to individuals rather than being chosen by individuals, depending on profession (e.g. Government worker, legal profession) or which region an individual resides in. 14
  15. 15. These Sickfunds have considerable power and provide guidance on which medicines can be used in the healthcare system, through specialist Revision Doctors, who are the key decision makers as to whether a medicine can be prescribed freely and is reimbursable, or is subject to prescribing restrictions. ECONOMIC OVERVIEW: DRUG AND PHARMACEUTICAL AREAS Austria is the 12th largest pharmaceutical market in Europe. It is a rich country. Vienna is an excellent base for a business in central and Eastern Europe. The infrastructure appears to be efficient, and Vienna is a reasonable distance from central European capitals. Given the present economic crisis, 2009 Austrian production of pharmaceuticals is expected to grow by only 3% while imports and exports will rise by approximately 5%. An estimated annual real growth rate of 3% of total market size over the next 3 years seems realistic. More than half of all pharmaceuticals approved for sale in Austria are imported. The Austrian health-care system directly employs approximately 170,000 people. Another 180,000 are indirectly engaged in the industry. (See Exhibit 1, page 41) Pharmaceutical expenditures in Austria account for about 13% of total health care spending. Around 70% of health- care spending is publicly financed. International comparison shows that drug consumption in Austria is significantly below the European average with regard both to expenditures in Euros and to the number of packages sold. Annual per capita consumption amounts to 22 packages valued at approximately $250. Self-medication accounts for about 10% of the market, placing Austria in the lower third among other European countries. Increased life expectancy and the growth in private health care insurance are expected to have a positive impact on the market. European drug prices are 25 to 35% lower than U.S. prices. Europe spends 60% less per capita on pharmaceuticals than does the United States – a gap that has roughly doubled since 1992, when European governments spent about 30% less per capita than the United States. Austrian pharmacy sales prices for pharmaceuticals are about the European average, whereas factory prices are below the European average. As of January 1, 2009, the Government of Austria reduced the Value Added Tax (VAT) on drugs and pharmaceuticals from 20% to 10% which has been a long-term claim by the U.S. Commercial Service in Vienna, and the Association of Research-Based Pharmaceutical Companies (VFA). Reimbursement: Following the introduction of the new price-contracting scheme, reimbursement status for new drugs will be recommended or rejected by an advisory board to the Federation of Austrian Social Insurance Institutions (FASI). Its three basic criteria will be efficacy, medical necessity, and financial considerations. The advisory board must recommend inclusion in the positive list under specific circumstances, as follows: • New active ingredients for currently untreatable diseases, which are an improvement over existing products and are reasonably priced, or are cheaper than existing treatments; • An identical active ingredient to one already reimbursed but with a different strength if there are medical reasons for its use and treatment is cheaper; • Combination products with lower treatment costs than existing products; • An identical product with an ex-factory price "considerably lower" than that of the cheapest available off- patent product. The agreement also suggests that the FASI intends to review the status of all reimbursed Drugs, given the need to address the "tension" between the needs of pharmaceutical Companies and the sick funds. The advisory committee will principally evaluate all medicinal preparations, which are registered in Austria, critically examining their therapeutic effectiveness, medical necessity and economic expediency. The appropriate and economic use of pharmaceuticals is safeguarded through the publication of guidelines by FASI. 15
  16. 16. Physicians must ensure that the economically most favorable medicine is prescribed. These guidelines are monitored by FASI and it is in principle possible that physicians whose average prescribing is higher than that of their colleagues may have to reimburse the additional amount. Submission requirements vary by the type of product seeking reimbursement. For new active substances or new formulations these include: the authorized SPC, the pack leaflet (and the European Public Assessment Report for centralized procedure products), technical data (very Detailed pharmacokinetic information), a summary of the clinical data or the expert clinical report, and details of the clinical studies, including an analysis of the clinical and statistical significance of the results. For dosage variations of existing products, in addition to comparative cost strength for each indication, as well as technical data on whether the dose variation is a simple scale-up or not, and information on bioequivalence or dose linearity. The reimbursement list (Heilmittelverzeichnis) is not a formal positive list. Drugs not on it may still be reimbursed but not automatically. A patient prescribed a medicine not on the Heilmittelverzeichnis must then visit a Chefarzt, or controlling doctor, who has the right to decide whether the drug prescribed is needed and if so whether it should be reimbursed, irrespective of whether or not it is on the standard list. It is rare when a patient has followed this procedure that his prescription is not reimbursed. There are nevertheless medicinal products that are not reimbursed. According to FASI, medicinal wines, mineral waters, bath oils without therapeutic effects, cosmetics, and pharmaceuticals for the cessation of nicotine dependence and pharmaceuticals for the stimulation of libido are explicitly exempted from the general reimbursement scheme. GLOBAL MARKETING MIX Adaptation v. Standardization: One of the benefits of the subject drug is that the product is standardized. The target client is clearly defined - does neither need nor desire alterations to the product. Any adaption to the marketing mix, although relatively minor, would be in pricing and promotion. In order to penetrate the Austrian market, Novartis will need to negotiate a standard price in order to be reimbursed. It is in Novartis best interest to keep the pricing is this market similar to larger priority markets in Europe so that this products value is not diluted, and full cost recovery can be reached efficiently and quickly. Similar to other markets, promotion in phase III testing is defined and limited for educational purposes. The promotion focus needs to be on physicians and those that influence physicians. Educational instruction, seminar and publications to these parties should acknowledge the importance that Austrian pricing reimbursement will play in getting the Austrian people access to this drug and will be introduced into the Austrian market. This minor adaption in promotion will allow Austrian to promote the importance of this drug and will reinforce our negotiations with the Austrian government on fair market pricing. Product Strategy ASA404 is a new and unique drug that provides a social and economic public benefit. Since the drug is intended for a niche market and can only be accessed through highly specialized doctors, the product does not need to be adapted. Austrian regulation imposes the following product format: Authorized labeling for pharmaceutical product is clearly legible, with a font size of at least 1.8 mm. The labeling must contain the following: • Name 16
  17. 17. • Holder Of The Authorization • Authorization Number • Composition (Active Ingredients) • Volume • Pharmaceutical Form Or Category • Method Of Application • Batch Number • Expiration Date • Warning About Children Additionally the following (according to the type of pharmaceutical product) may be required: • Indication of availability in pharmacies only • Indication of availability with prescription only • Description of the effect on reaction time (e.g. on ability to drive after taking the product) • Method of administration or application (e.g. serums, vaccines) • Homeopathic effects • Indication of use by veterinarians • Wait time before using an animal for food production after administering the drug • Batch clearance information • Radioactivity information • Information on proper storage • Name of the parallel importer All of the regulations mentioned above are contained in the AMG14 (Arzneimittelgesetz – Law on Pharmaceutical Products) and the Labeling Regulation (Kennzeichnungsverordnung). The name of the pharmaceutical product as well as the dosage must be indicated on the packaging in Braille. The “Marburg Medium” is suggested as a standard for the distance between and height of dots. Literature Braille (not computer or abbreviated Braille) should be used. Authorized pharmaceutical products may only be distributed if the packaging contains directions for use. These directions are meant for the user, and the information they contain is based on the SPC (summary of product characteristics). The information must be detailed enough to ensure safe, effective, appropriate and harmless use. Everything must be clear and legible (using a font size of at least 1.8 mm. The directions for use must contain at a minimum the following: • Name, pharmaceutical form or category • Authorization number • Manufacturer • Composition, i.e. ingredients • Characteristics and effectiveness • Areas of application • Method of application • Strength, concentration and directions on dosage • Contra-indications (circumstances when the drug should not be used) • Side effects • Interaction with other products • Warning on risk of addiction 17
  18. 18. • Other relevant warnings • Warning to “keep out of reach of children” ("Für Kinder unerreichbar aufbewahren") • Available packaging sizes • Date when directions for use were issued or altered Pharmaceutical products that are definitely not going to be given to patients (e.g. radioactive pharmaceuticals, narcotics) do not need to contain directions for use. The SPC (Fachinformation) must be available for experts and specialists in the field, i.e. doctors, veterinarians, dentists, pharmacists, business owners (manufacturers, and also those allowed to distribute pharmaceuticals, e.g. drug stores, opticians). The Austrian Chamber of Pharmacists works with the Chamber of Physicians to publish the SPC in the so-called “Austria Codex Fachinformation”. The SPC is also made available in other publications, such as “Vidal”. Health- care specialists must have access to up-to-date SPC information at all times. The SPC must contain at least the following information: • Name of pharmaceutical product and its strength • Composition, i.e. ingredients • Pharmaceutical form or category • Clinical information (area of application, strength, concentration and instructions on dosage, method of application, o specific warnings and precautionary notices, contra-indications, instructions for use during pregnancy and while nursing an infant, side effects, effects of and remedy in case of overdose, pharmacological characteristics, pharmaceutical characteristics • Name and address of the holder of the authorization • Authorization number • Date of the first authorization • Date of SPC • Specific warnings and precautionary notices for radioactive products 1 Product Recommendations: will comply with the above requirements, due to the fact that this is a highly specialized medicine. The end user will not use this directly. Approval of Pharmaceutical Products Access to the Austrian pharmaceutical market is subject to strict national and EU legislation. The approving authority is the newly established “Austrian Federal Agency for Safety and Health Care” with its operational sub- unit “AGES Pharma Med.” The authorization process consists of three different procedures: • Centralized Procedure (EU): Authorization through this procedure is immediately valid in all EU member countries and is compulsory for certain medicines, including genetically engineered medicines. • Mutual Recognition Procedure (EU): The requirement for authorization through this procedure is existing approval in another EU member country. If the approval is already in place in one EU country, other EU countries can approve the drug using a simplified procedure. • National Procedure: A drug approved through this procedure may be sold only in the approving country. 18
  19. 19. PRICING STRATEGY In Austria, a pricing and reimbursement system was introduced in October 1998, replacing price controls with a price-contracting scheme involving price/volume agreements and rebates on excess sales. Companies propose a price to the Krankenkassen, a state-run, tax-funded health care, or sickness funds, which are essentially insurance companies. There are two types: both private and public. The vast majority of Austrians are in the public system. The remaining ten percent, generally those with higher incomes, utilize the private system. Like American insurance companies, the Krankenkassen handle payment of medical bills and charge a premium. Most people in the public system are members through their employer. The insured pay half the premium, with their employer covering the remainder. Premiums are tied to income and those who cannot afford coverage are subsidized by the government. On top of premiums, public Krankenkassen can, as of 2004, charge small co pays. Doctors negotiate prices with the Krankenkassen yearly and they are standardized within each state. Krankenkassen also negotiate prices with pharmaceutical companies. Its three basic criteria will be efficacy, medical necessity, and financial considerations. ASA404 meets these criteria and should be recommended for inclusion because it is a new active ingredient for a currently untreatable disease. This price negotiation is based on a cost plus calculation and on a local price comparison. The marketing price is necessary in order to even start negotiations with the reimbursement authorities. They take these prices as a basis and apply a discount factor due to the fact that they represent roughly 90% of the market purchases. Their clout is enormous since the reimbursement is either 0% or 100%. They set the strategy for each product whether it is a prescription or OTC and determine whether is should be reimbursed or not. The two parties then come to an agreement on price as well as on rebates if agreed sales volumes are exceeded. The product then is placed on the Social Security reimbursement list. Pharmaceutical companies are already accustomed to having to negotiate with powerful payers. Many foreign nations have nationalized health care systems and agencies of their government who fill the same roles that private payers do in the U.S. Because these agencies effectively control access to millions of citizens in these countries, they enjoy great bargaining power – used to reduce amounts that pharmaceutical companies are paid for their products. Until the summer of 1998, Austria had in place a system of price controls, through which companies had to apply to the Federal Ministry of Labor, Health and Social Affairs (BMAGS) for a maximum price, which was then usually reduced in negotiations with the Krankenkassen when seeking reimbursement. According to the Prices Act of 1992, the BMAGS was entitled and obliged to set a maximum price justified within the limits of the National economy. Pricing had to take into account the situation of the national economy and the suppliers' as well as the consumers' interests. Maximum prices were determined on the basis of proved costs submitted by companies filing a price application. Price comparisons were also conducted on the basis of: a) The average price in other EU Member States where the respective medicine was already on the market; b) The price of comparable products in Austria; c) The pertinent price in the manufacturing country For most pharmaceutical products, the paybacks will take the form of either a price cut or a cash rebate depending on the number of packs sold. For existing products, the maximum price and reimbursement status will remain valid until their prices are increased, when they will enter the new contract system. Products reimbursed by the sick funds will no longer be subject to maximum prices set by the state. 19
  20. 20. Setting a price for ASA404 Pricing Oncology drugs is a complicated process particularly due to the high costs demanded by the pharmaceutical industry. Out of 10,000 chemicals – only one may end up as a single drug. A recent study by Bain and Company found that the average cost of developing and launching a new drug today is about 1.7 billion in total direct and indirect costs to produce a new treatment. Add to that cost the price that Novartis paid for ASA404 to Antisoma: US 890 million dollars. Since ASA404 is an innovative product, there are no established competitive prices. Therefore, several similar products (second line treatments) are listed below to attempt to establish a price for ASA404. Erlotinib hydrochloride (originally coded as OSI-774) is a drug used to treat non-small cell lung cancer, pancreatic cancer and several other types of cancer. It is marketed in the United States by Genentech and OSI Pharmaceuticals and elsewhere by Roche under the trade name Tarceva. Acting in a similar manner to erlotinib (marketed as Tarceva), gefitinib selectively targets the mutant proteins in malignant cells. It is marketed by AstraZeneca and Teva under the trade name Iressa; recent studies show it may not improve long-term survival for many people. It is a second line for Non-small cell lung cancer. Similar to gefitinib, erlotinib specifically targets the epidermal growth factor receptor (EGFR) tyrosine kinase, which is highly expressed and occasionally mutated in various forms of cancer. It binds in a reversible fashion to the adenosine triphosphate (ATP) binding site of the receptor. For the signal to be transmitted, two members of the EGFR family need to come together to form a homodimer. These then use the molecule of ATP to autophosphorylate each other, which causes a conformational change in their intracellular structure, exposing a further binding site for binding proteins that cause a signal cascade to the nucleus. By inhibiting the ATP, autophosphorylation is not possible and the signal is stopped. Drug Background: Gefitinib is currently only indicated for the treatment of locally advanced or metastatic non-small cell lung cancer (NON SMALL CELL LUNG CANCER) in patients who have previously received chemotherapy (in the U.S.) While gefitinib has yet to be proven to be effective in other cancers, there is certainly potential for its use in the treatment of other cancers where EGFR over expression is involved. Gefitinib compared to standard second-line chemotherapy (docetaxel) in NON SMALL CELL LUNG CANCER, with better quality of life in gefitinib-treated patients. Methods: A cost-consequence analysis of direct medical costs was undertaken, given non-inferiority of the two study arms, from the perspective of the Canadian public health system. Mean overall cost per patient on each treatment arm was calculated from the start of treatment until first progression. Incremental costs over best supportive care (BSC), based on an analysis of the TAX317 trial, are also calculated. Results: The mean total cost per patient treated with gefitinib was $10,840 and $8,613 for docetaxel, resulting in an incremental cost of gefitinib treatment over docetaxel of $2,227. Drug costs are the major driver, $10,515 for gefitinib (6.5 cycles) versus $6,942 for docetaxel (4.4 cycles). Limited data on toxicity management, (e.g. febrile neutropenia, anemia, rash), are available, and cost estimates are $325 for gefitinib and $1,671 for docetaxel-treated patients. Additional hospitalization data were not available and therefore not included in these estimates. Based on published cost data for BSC, the incremental cost of gefitinib over BSC is estimated at $12,916 with available data, with an incremental cost effectiveness ratio of $37,988/life-year gained. Conclusion: Gefitinib second-line has similar efficacy compared to docetaxel with better quality of life. While drug costs for gefitinib are greater, costs for toxicity management are substantially less, and underestimated in this analysis. Gefitinib second-line is an attractive and affordable alternative for patients with advanced NON SMALL CELL LUNG CANCER. 20
  21. 21. Pricing Recommendations: Novartis should price ASA404 competitively - slightly higher than second stage treatment drugs; however, it should be flexible during its negations. Our recommendation is a starting price of $2,500.00 for each treatment, with $1900.00 as the minimum acceptable price. For less wealthy countries, the price should be comparable. PROMOTION STRATEGIES The target market consists of Doctors, Head Doctors, Nurses, all other Medical Personnel in doctor offices and hospitals, Patients, Pharmacists, Pharmacy Staff, Medical Students, and the general public. Promotion Recommendations: Since ASA404 is in clinical stage three trials, commercialized usage of media is not recommended at this time. Although educating medical professionals while creating a “buzz” surrounding this new innovative treatment is recommended. At this time, it is recommended to involve Key Opinion Leaders (KOLs). Pharmaceutical companies generally engage key opinion leaders early in the drug development process to provide advocacy activity and key marketing feedback. Experts from Austria, particularly Vienna, should be called upon to participate in the gathering of data during the trials. Although Novartis’ trials are typically performed in the U.S. the Team recommends that simultaneous trials be performed in Vienna at the largest Cancer Center in Austria. Symposiums, (academic conferences) will be sponsored by Novartis through out the country to educate the target market. Rather than lectures, open discussions will be encouraged. Scientific events will also be a method of reaching the target audience. Trade Journals will be utilized to report the findings of all the trials. A Web Site will be established with updates on all the participants/patients who participated in the clinical trials. Following the trials, the participants may partake in an interactive Web Site. Also, the ongoing clinical trial data will be available for those in the medical arena, only with a password access as this information is often confidential. Press Releases on the status of the trials will be released to the commercial media as appropriate. Pharmaceutical representatives in Austria are free to visit their target group when they wish and as often as they wish and are still able to visit physicians and hospitals. Some hospitals are trying to restrict their visits. Due to the fact that Austrian geography covers 550 km with large mountain areas, makes it difficult to traverse the country. A minimum of 3 Representatives should be hired to cover the market from East to West. A specialized sales team in Austria must be developed to channel all the creative energy into covering the target group of prescribers (primarily Oncologists) in hospitals and private practice - in the most efficient way. Fortunately, the sales force has unlimited and open access to the prescribers and can also offer medical education and e-detailing in groups or privately. This specialized marketing team will be fully educated on the key science, and able to talk to doctors on a peer-to-peer basis. Public Advocacy Groups and key opinion leaders (KOLs) will be educated and retained to promote and bolster doctor confidence in the drug. Novartis must create sales incentives for the sales representatives: bonuses and team spirit around the launch within the company, but particularly targeted to the sales force – a vital part of the success of this product Advertising The tax structure in Austria Federal states, (with the exception of Burgenland and Tyrol) for advertisement insertions is 10 percent; states and municipalities tax posters at 10 to 30 percent. Radio advertisings carry a 10 percent tax, except in Tyrol, where it is 20 percent. Salzburg, Steiermark, Karnten and Vorarlberg impose no tax. 21
  22. 22. There is a uniform tax of 10 percent throughout the country on televisions ads. Cinema advertisings have a 20 percent tax in Vienna, 20 percent in Burgenland, and 30 percent in Steiermark. There is no cinema tax in the other federal states. There are no recommendations to use this media, due to the specific use and target audience of this product. It is prohibited to portray or imply the endorsement of healthcare professionals, healthcare authorities, or celebrities in advertising in order to encourage the use of a pharmaceutical product. Similarly, it is prohibited to show a bodily injury in advertising for the purpose of dramatizing the positive effect of a product. Specialized advertising may only be used in literature distributed to healthcare professionals (i.e. doctors, hospitals) and may not be aired on TV or the radio. On-line messaging: The benefits of online advertising in open access journals (as opposed to traditional or print subscription titles) are that pharma marketers can target an almost unlimited and extensive global audience. Whereas print journals offer a limited range of advertising options for pharma and med professionals and normally charge by the page, communications, online advertising in scientific, technical and medical (STM) journals offers the marketer the option to target a niche audience using a plethora of techniques (banners, skyscrapers, search-targeted text ads, sponsored emails, journal article alerts and video banners). The ROI and effectiveness of the campaign can also be monitored directly by the number of impressions or CPC (cost per click), although marketers should beware as colorful and larger creative’s do not necessarily lead to high open or click-through rates. Traditional journals now available online naturally offer similar marketing options, but the effectiveness of their campaigns and reach is often automatically restricted by the fact that their content is not necessarily freely available online. DISTRIBUTION The product follows a particular distribution-chain in order to get from the manufacturer to the patient: manufacturer – wholesale – public pharmacy or hospital pharmacy – patient. Some physicians maintain a small pharmacy. (They are called self-dispensing doctors.) These doctors can only purchase the drugs from public pharmacies. Physicians do not have individual or collective budgets. They have contractual relationships with the Krankenkassen. The Krankenkassen only accord reimbursement status to a drug which is deemed economic, in the sense of guaranteeing sufficient and adequate treatment while keeping the cost of the treatment as low as possible. It is therefore only to be expected that each doctor’s prescribing habits are monitored and compared to that of his peers. If he cannot justify deviations from average behavior, which leads to higher drug expenditures, he can expect to be reprimanded. If subsequent advice is ignored the doctor risks losing his contract with the Krankenkassen. Market Opportunities Doing business in and from Austria definitely has its advantages. The introduction below summarizes four advantages that will be particularly relevant in the future. First, Austria is an international crossroads, bordering on eight European countries: Germany, Italy, Switzerland, Slovenia, Hungary, Slovakia, Czech Republic, and Liechtenstein. Four of Austria’s neighbors joined the EU in May 2004 (Czech Republic, Slovakia, Slovenia, and Hungary), transforming Austria geographically from a country on the eastern frontier of the EU to one occupying a more central position in the enlarged EU. The addition of two other Eastern European countries, Romania and Bulgaria, as new EU members at the beginning of 2007 strengthened Austria’s central position. 22
  23. 23. Austria is a member of the Schengen agreement and offers U.S. companies access to growing markets in the new EU frontier of Eastern and Southeastern Europe. Some ask whether Austria will continue to play a role as gateway to the East in attracting U.S. exports and investment, or whether U.S. firms will bypass Austria and go directly to the more growth-oriented and often more pro-business new EU members. The answer depends on many factors, and American firms are wise to assess all options. U.S. business continues to view Austria as a prime location and distribution hub. The country has financial and transportation links to the Eastern European and Balkan region, and its banks and service providers understand regional business practices. Partnerships with Austrian firms having a presence in regional markets may be an attractive option for some U.S. companies. A second advantage for Austria is its well-diversified and relatively resilient economy. The Austrian government has sought to remain competitive by pursuing investment in high-potential industries such as telecommunications, non-agricultural biotechnology, medical and pharmaceutical research, and electronics. For U.S. companies in these industry sectors, Austria represents a good opportunity for export, joint ventures, and investment. Under pressure from the newest EU members, which offer lower corporate tax rates, Austria lowered its corporate tax rate in 2005 from 34% to 25%. This step reflected a commitment by the government to compete with its new EU neighbors. A third plus for Austria is its membership in the EU and the Euro currency zone. The Euro has been the common currency for Austria since 2002. It has already facilitated trade and promoted economic stability for U.S. companies, helping them to manage pricing, balance accounts, and move products within Austria and throughout EU member countries. It should be noted that some U.S. firms have found Austria’s implementation of EU rules unnecessarily burdensome, bureaucratic and non-transparent, and have threatened to cut back on their investment in Austria as a result. Nevertheless, for U.S. exporters, the unified EU market and the still favorable exchange rate between the Euro and the dollar mean that U.S. goods should be able to compete on advantageous terms in the coming year. A fourth advantage Austria offers is that the United States is its third largest trading partner and its largest trading partner outside of Europe. U.S. companies entering the market for the first time will benefit from the strong trading relationship already established between the two countries. Austria is a very attractive market demanding high product quality, excellent after sales service, and competitive prices. Although Austrian buyers may give preference to the supplier who is closest geographically and who speaks German, many U.S. products and services can compete well with those from Germany and other EU member countries. Market Entry Strategy The best strategy for an American exporter to Austria is usually to select one distributor or agent for the entire Austrian market. Some companies appoint distributors in Germany who cover all of German-speaking Europe, including Germany, Austria, and most of Switzerland. But this works best for U.S. exporters with a limited number of customers and end-users in Austria. In such cases, a distributor might be located in Munich instead of Vienna. The U.S. Commercial Service in Vienna and its industry specialists are pleased to offer the well-established Gold Key Service, one of the most cost-effective methods of entering the Austrian market, as well as an array of other services tailored to the needs of U.S. companies exporting to Austria. For more details please see Chapter 10 of our "Country Commercial Guide for U.S. Companies: Doing Business in Austria"1 . Payment For suppliers entering the Austrian market for the first time or selling to new customers, the usual practice is to require confirmed and irrevocable letters of credit. Most trade relationships between the United States and Austria, however, are well-established, and less stringent requirements, including both open account and extended terms, are often agreed upon once confidence is established. As Austria is a fully developed industrial nation, no special funding of U.S. export sales is available from U.S. governmental or multinational institutions. Austria’s international credit rating gives it preferred status for trade, finance, and investment guarantees. A bilateral arbitration agreement exists and can be included in contracts. In Austria, the period allowed for payment is between 30 and 60 days. Early payments are credited with a three percent discount. Supplier credits are common. 23
  24. 24. The restrictive price policy of the social security in Austria has little impact on the market growth. This growth, while average among smaller European countries can still be seen as a good indicator of sales of pharmaceutical products. With 31% of the market, hospital sales are the highest in Europe. Austria is a branded pharmaceutical’s dream country due to the fact that the social security system in Austria has a very ambivalent view on generic drugs. In high price countries – generics make up about 40% of market share. They are estimated to be only 20% of the business in Austria. Therefore, this drug does not need to be priced lower than any competitors – there are none, and secondly, there are no generics available for at least 10 years due to its patent. Public Relations Strategy: A public relations firm with international pharmaceutical marketing experience (and a presence in Austria) will be retained to demonstrate the results of the clinical trials, and to immediately disprove any negative or inaccurate information cited in the media. In Austria, children and adolescents (especially females) start smoking very early. Activities to prevent children and adolescents from smoking will be the only way to control lung cancer epidemic in the 21st century. This is an opportunity for the Public Relations Company and Novartis to work with the Ministry of Health to discourage smoking in all age groups. Public service announcement will be created and aired appropriately. The Future of Pharmaceuticals in Austria As the global recession deepens, Austria's healthcare and pharmaceutical markets will not be immune from the country's economic woes. (See exhibit 2, page 41). The Austrian financial sector has been enveloped in the global financial crisis, compelling the government into a €100bn bailout in September to guarantee deposits and re-capitalize the banks. This will help swing a relatively healthy budget deficit of just 0.5% of GDP in 2007 to a forecast deficit of 2.9% this year. The Economist Intelligence Unit expects this to narrow moderately in 2010 to 2.2% of GDP. What this means for the healthcare sector is a diminished public sector capability for heavy investment either in capacity building in the private sector or in a generous expansion of pharmaceutical benefits. Sluggish economic performance for much of the forecast period will limit government revenue and constrain healthcare spending growth. 9 The economy in real terms is expected to contract by 1.1% this year, before growing marginally by 0.3% in 2010. Only by 2012 will real GDP be expanding quite robustly, year-on-year. This reality will hasten efforts to cut costs, placing pressure on health insurers and hospitals to reduce their expenses through more efficient cost management. This will have a dampening impact on the purchase of new medical equipment in major Austrian hospitals. Inpatient care represents the largest share of public health spending at an estimated 34% and is vulnerable to cost-saving measures. The outlook for real disposable income growth leaves little room for consumers to compensate for the lack of government investment growth in healthcare. Disposable incomes are expected to continue declining in both 2009 and the following year, before slowly picking up thereafter. This will drive faster growth in the pick-up of generic medicines. The rate is already rising rapidly, from a low level. The Austrian Pharmacists' Chamber estimates that generic drugs accounted for 20% of prescriptions in 2007 (in volume terms), compared with only 6% in 2000. This is still low by regional standards and leaves plenty of room for growth. With consumers likely to seek ways of reducing their out-of-pocket expenses, generic drugs will prove increasingly popular. Patient co-payments could rise during the forecast period, or be applied to a wider range of drugs, increasing the incentive for patients to seek cheaper medicines. 9 Source: THE ECONOMIST INTELLIGENCE UNIT. 2008. http://www.eiu.com 24
  25. 25. Pharmaceuticals represent a relatively large share of health insurance expenditure, at marginally over 20% and are therefore a vulnerable segment of the health spend to cost-containment measures. Pricing and reimbursement remain one of the few federally managed aspects of the Austrian health system, and a tightening of controls during the forecast period is possible. Authorization and reimbursement of medicines Alongside the annual adjustments of the prescription fee, there has been increased regulation of prices and amounts in the pharmaceuticals market since the mid-1990s and to some extent before then. In 2003, negotiations were initiated by the BMGF with various interest groups (pharmaceuticals industry, wholesalers, pharmacists and physicians) with the aim of agreeing on a new package of reforms in the medicines sector. The focus was on a structural reform of the pharmaceutical sector and cost-containment measures. The main result was the presentation towards the end of 2003 of a new reimbursement codex for the social insurance system to overcome structural defects in the distribution and market access of innovations and generic drugs. The new reimbursement codex is characterized by a box system. Prescribing medicines Physicians who prescribe medicines at the expense of health insurance funds have to adhere to the guidelines on the economic prescription of medicines and therapeutic aids. The issuing of these guidelines is set out in the ASVG. Physicians have to ensure that from among several medicines which are suitable for therapeutic purposes the most reasonably priced one are selected. Adherence to these guidelines has to be monitored by the health insurance funds. If a medical doctor consistently exceeds the average sums of colleagues in the same specialty, he or she can be ordered to reimburse the difference in costs. First results show that the target corridor of an annual cost increase of between 3% and 4% has been achieved. In 2004, the cost increase amounted to around 3%, while the forecast for 2005 is 2.8%. The number of prescriptions at the expense of the social health insurance funds has increased by an annual 1.2% since 1993 to around 102 million prescriptions. In 1993, around 11 prescriptions were recorded per inhabitant and in 2003 the figure was around 13. The expenditure per prescription almost doubled in the period of observation and reached a level of €19.10 in 2003. The Austrian market for medical products is characterized by a very high dependence on imports. A large majority of the medical products required for the health care sector are obtained from abroad, predominantly from within Europe. AUSTROMED is the association of medical product companies in Austria. Its member companies employ 5000 people. Around 75% of the medical products market is supplied by companies whose annual turnovers amount to less than €5 million. Approximately 53% of these companies are Austrian-owned, while the remainder work as subsidiaries or at least have foreign divisions. Healthcare in Austria is provided as a public service. The system encompasses all institutions and has a remit to maintain and protect the health of the population as well as diagnose and treat individuals and care for the sick. The healthcare system is a fragmented one, with twenty-one different social insurance providers (Sickfunds) offering health insurance. Social insurance is therefore mandatory with every employee earning above a specified income threshold obliged to make insurance contributions. However, when employees become ill, treatment is available virtually free-of-charge, provided the person has valid health insurance. Sickfunds are allocated to individuals rather than being chosen by individuals, depending on profession (e.g. Government worker, legal profession) or which region an individual resides in. These Sickfunds have considerable power and provide guidance on which medicines can be used in the healthcare system, through specialist Revision Doctors, who are the key decision makers as to whether a medicine can be prescribed freely and is reimbursable, or is subject to prescribing restrictions (see below). 25
  26. 26. Reimbursement of prescribed medicines One of the main challenges facing the Austrian pharmaceutical system is, as in many other countries, rising pharmaceutical expenditure. The major reasons for this growth in costs are an ageing population and the uptake of new, more expensive drugs. To counter this, in 2004, the Austrian government announced that the annual growth rate of pharmaceutical reimbursement expenditure was to be limited to approximately 3-4% (whereas growth was predicted to be about 9% by 2006), and this was to be achieved by a reform of the reimbursement system, characterized by a box system. Once the 24-month period is up, a panel of experts who are linked to the Sickfunds – the Revision Doctors - then re- categorize the drugs into either the yellow box or green box via a review system. Problems arise for Pharma companies if their product is then subject to the restrictions imposed on yellow box category medicines as this has an obvious impact on their ability to be prescribed freely and thus limits sales and return to the company. There are also a wide range of products, including medicines used for treatment in hospitals, as a prophylactic or contraceptive, which are not assigned to any of the boxes (“no box”); for these pharmaceuticals reimbursement is only offered in exceptional cases. The aim of the box system is to lead to a reduction in the price levels to the EU average for medicines which require the authorization of a “head physician” (red box). It also provides for a time-limited and transparent admission procedure of all new drugs to the yellow and green boxes, plus it ensures that patients are guaranteed a regular supply of important therapeutic innovations (yellow box) whether they are high cost or not – a problem that we encounter in the UK more and more regularly where patients are unable to receive treatment with high-cost, high- profile drugs (such as Herceptin) due to funding issues. In addition, the reduction of prices after the expiry of patents also has the effect of opening up the market for generics in Austria, which is designed to increase prescribing of these generic products from currently fewer than 10% to the Government target of over 20%. Growth of Influencers In addition to the influential Sickfunds, there is also a number of Health Technology Institutes (HTIs) developing in the country. These academic institutes are jockeying for power and it is thought that over time, one or two of them will become more important and influential. The HTIs currently provide recommendations to the Sickfunds on cost effectiveness of drugs, running in parallel to the Revision Doctors. Best Products/Services Best prospects among American-made pharmaceuticals are: cancer medications; cardiovascular medications; pharmaceuticals for psychotherapy; AIDS medications; bio-technologically produced medications; and vitamin and mineral combinations such as Melatonin, DHEA, and St. John’s Wort. These are classified as pharmaceuticals in Austria, not as dietary supplements as they are in the U.S. Import Tariffs EU import tariffs vary depending on the product; however for most U.S. exports the tariffs are relatively low. In fact, over half of all products from non-EU countries enter without any tariff. The average EU tariff level for manufactured goods is relatively low at 3.5 percent, but some goods are taxed at a higher rate. For example, passenger cars and office machines have duties of about 10 percent. For certain kinds of shoes and special motor vehicles, the rate may be up to 18 percent. Trade Barriers 26
  27. 27. In general, officially there are no non-tariff barriers for European and U.S. companies entering the Austrian market. However, certain practices in certain sectors should be a concern to certain industries. Some products are subject to tariff-rate quotas, whereby after a certain quantity of the product has entered the EU at a low or zero duty rate, the rate is increased. These are primarily goods determined to be useful to the European economy only in certain quantities, generally raw materials or parts. The most important tariff quotas for manufactured goods are on chemicals and electronics. Import Requirements and Documentation When a delivery is made to Austria, the products become subject to the import value-added tax (Einfuhrumsatzsteuer) upon entry into the Austrian customs area. The import value-added tax is assessed according to the customs value of imported goods. The importer is entitled to claim a refund of the import value-added tax from the tax office once the product is sold again in the distribution chain. Finally, the end-user is subject to the Value Added Tax (VAT), which generally amounts to 20 percent in Austria. For food products the VAT is 10 percent only. Alcoholic beverages fall into the 20 percent VAT category. The rates for the import value-added tax and the VAT are identical. The VAT is a pure tax on transactions that is ultimately absorbed by the end-user or consumer. CONCLUSION/ RECOMMENDATIONS: Although the assignment was to enter Austria, after considerable research, and a country analysis, it is my recommendation that Novartis not enter Austria as its first market in Europe. Austria should be considered a complementary European market, whereas Novartis should focus on entering larger markets in an effort to recoup research and development costs, which are estimated to be 1.8 billion dollars, including clinical trials. My team recommends entering Germany as its first European market. This is based on a less intensive country analysis – but more relevant: the already established profitable pharmaceutical market in Germany. Estimation of population totals, the amount of smokers per country is further indicated in the attached table (Exhibit 3). There is no other competitive drug on the market that specifically targets tumors like ASA404; it is a first line treatment for non-small cell lung cancer. ASA404 is also in stage III clinical trials for treatment of second stage drug combination if first stage is not successful. Once a patient is treated with ASA404 it will be up to the doctor’s discretion as to which second line of treatment to recommend. At this time, there is not conclusive evidence that this drug will be more beneficial to other second line treatment. There are several other drugs that may be recommended for second line treatment but the evidence at this tine is inconclusive. Therefore, Novartis must be very aggressive in its marketing and promotion activities to use influential and educated medical personnel to convey the data of the clinical trials and to offer the product at a cost that is affordable to all countries based on the wealth of that particular nation, It is the pharmaceutical and biotech industries credo to put patients first – and it is a moral obligation to offer those life enhancing and life extending products to all mankind. MEETS REQUIRMENTS FOR ENTRY Given the fact that Novartis product ASA404 is a first line of treatment for non small cell lung cancer, there is ample evidence to support its acceptance for reimbursement since it meets two very important criteria outlined b the FASI. • It contains new active ingredients for currently untreatable diseases • It is a stage one treatment which is an improvement over existing stage two products 27
  28. 28. • It is comparably priced In order to comply with the FASI standards, our recommendation is to send a specialized team of Austrian multilingual Sales Representatives to present the data in a face to face drug submission and to answer any questions. The extensive submission report will contain: • All the clinical data information • The European Public Assessment Report • Technical data • Dosage variations • Cost comparative information comparing the second line of treatment Exhibit 1 Drugs and Pharmaceuticals (DRG) Data Table (in $ million) 2007 2008 (estimated) 2009 (estimated) Total Market Size 3,664.9 3,915.2 4,114.6 Total Local Production 2,702.6 2,872.8 3,003.4 Total Exports 4,460.2 4,833.1 5,150.9 Total Imports 5,422.5 5,875.8 6,262.1 Imports from the U.S. 322.0 348.9 378.1 • 2007 exchange rate: $1 = EUR 0.73 • Source: Pharmig (Vienna, Austria), Statistik Austria • Note: The above statistics are unofficial estimates. (Exhibit 2) 28
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  30. 30. Other CITATION AND REFERENCES: Porter, M. E. On Competition, Updated and Expanded Edition. Boston: Harvard Business School Press, 2008. 1. http://www.medicalnewstoday.com 2. http://www.novartis.com/ 3. http://www.antisoma.com/asm/products/asa404/ 4. Antisoma Financial Report 2007 5. Novartis Financial report 2008 6. https://www.espicom.com 7. http://ec.europa.eu/enterprise/phabiocom/docs/tse/austria.pdf 8. www.odci.gov 9. www.ita.doc.gov 10. http://www.ustr.gov/reports/ 11. http://www.buyusainfo.net 12. http://www1.usatrade.gov 13. http://www.export.gov 14. http://www.webstersonline.com 15. http://www.corporateinformation.com 16. http://www.frost.com 17. http://www.intelliquest.com 30