Porter’s Generic Strategies Framework

Pierre Chahwakilian, Marketing Director of SmithKline Beecham laboratories (SB) for France, was re-reading a letter sent in July 1996 to all French doctors by the CNAM, the French health management governing body (see Exhibit 1). The letter urged doctors to protect the cherished French social security system by prescribing generic drugs instead of the more expensive—but therapeutically equivalent—branded drugs. Clamoxyl, the original amoxicillin antibiotic and one of SB’s ‘jewel’ drugs, was specifically targeted because its substitution by generic amoxicillins could save up to €26.

5 million for the French social security system, more than any other drug. Clamoxyl was no ordinary drug. It was the first amoxicillin (a type of antibiotic) introduced to the market (in 1974) and, despite losing its patent in 1980, was still the highest selling amoxicillin in France. Virtually every doctor in France knew and prescribed Clamoxyl, many developing an emotional attachment to a brand that had helped them cure countless respiratory infections for adults and children over the years.

Yet sales of Clamoxyl had dropped by 30% in the three months since the CNAM letter had been sent and Pierre Chahwakilian was considering four responses:1 1. Change nothing and hope Clamoxyl’s brand equity would be strong enough to protect it from generic competitors. French doctors were fiercely protective of their independence and generics had, so far, failed to take off in France. Indeed, the CNAM letter simply appealed to the social responsibility of doctors and many felt that only financial penalties could persuade doctors to switch to generics.

2. Milk Clamoxyl and invest all SB’s support in Augmentin, a more specialized and still patent-protected amoxicillin combined with an inhibitor prescribed for specific therapeutic conditions and in cases of resistance to regular amoxicillin. This option, a typical strategy of the pharmaceutical industry upon the loss of patent, had been followed in countries where the patent for Clamoxyl had already expired. 3. Reduce the price of Clamoxyl.

This strategy had never been selected by SB when facing similar situations and conflicted with its corporate commitment to invest in the development of innovative drugs commanding a high price. Even if this path was chosen, how large should the price reduction be and how quickly should it be implemented? 4. Strengthen Clamoxyl’s brand equity among doctors. As direct-to-consumer advertising is not legal in France, this could be done either by increasing promotional support for Clamoxyl (through the sales force or ads in the specialized press) or by introducing new forms of packaging.

But with almost 100% awareness and a very strong brand image, which message could be communicated to doctors that they did not already know? 1 A fifth strategy, to produce SB’s own generic amoxicillin, was not under consideration for a variety of reasons and is ignored in this case. Copyright © 2003 INSEAD 1 02/2007-5057 The Marketing of Pharmaceutical Products Industry Overview The pharmaceutical industry is large and profitable. It is estimated that profits, as a percentage of industry revenues, are more than four times the median rate of all Fortune 500 firms in the late 1990s.

Yet recent years have witnessed rapid consolidation, driven by anticipated economies of scale in R&D and marketing to compensate for ever-increasing research and development expenditures. Pharmaceutical companies spend 15 to 20% of their sales on R&D and finance 99% of their research themselves. At least five to eight years of research are required before identifying and patenting a new molecule – often more (20 in the case of amoxicillin). Seven to twelve more years then typically elapse before it appears on the market.

In addition, the vast majority of patented molecules do not pass the stringent tests required to obtain a marketing license. Of those that do, the majority bring only minor health benefits compared to existing drugs and only a handful of drugs become blockbusters – combining significant new therapeutic benefits with large market potential. 2 To compensate for the increasing expense and uncertainty involved in developing new drugs, the duration of drug patents has been increased from 15 to 20 years in France.

Licenses thus offer a maximum of about 15 years of market protection. In these circumstances, the speed of adoption of the new medicine is critical to its profitability. Pharmaceutical companies spend from 10 to 30% of sales revenue promoting their drugs, mostly through a sales force of medical representatives. Recently however, they have also begun to develop marketing strategies for sustaining sales of products at the end of their life-cycle when faced with competition from generic drugs. Regulations The basic concepts of marketing apply to pharmaceutical products.

Pharmaceutical companies do market research to identify a target customer segment, select a value proposition for their product, choose a brand name, a price level, and a promotion and distribution strategy. However, in contrast to most consumer goods, strict regulations impose constraints on virtually every aspect of the marketing process – from new product introduction to pricing, promotion and distribution – creating considerable delay.

For example, it requires five years of testing simply to obtain the authorization to market a new form (e. g. , tablets instead of syrup) or a new dosage (e.g. , twice a day instead of three times a day) for a tried and tested drug. Several governmental organizations play a role in the regulation of the pharmaceutical industry in France. For the purposes of simplification in this case study, these are grouped 2 For example, of the 1,035 prescription drugs approved by the FDA in the US between 1989 and 2000, only 24% were designated priority drugs (i. e. , drugs that held promise for significant therapeutic improvements).

Source: National Institute for Health Care Management Research and Educational Foundation http://www.nihcm. org. Copyright © 2003 INSEAD 2 02/2007-5057 under the CNAM umbrella (see section on Price). There remains little collaboration between regulating bodies, each focusing on license, price, reimbursement, etc. , with little regard for the big picture.

This is in stark contrast to their American counterparts, the HMOs, which maintain a broader and more business-oriented approach in their dealing with the pharmaceutical companies and with the Food and Drug Administration, the main governmental agency regulating the marketing of pharmaceutical products in the US. Product.

Because their usage increases bacterial resistance, antibiotics are not available without a prescription (i. e. , over the counter) and a marketing license is necessary to obtain the right to market them. The Commission for Disclosure, comprising doctors, pharmacists and medical experts, evaluates the benefits offered by the new drug and decides to grant a marketing license for a specific list of medical conditions. For a generic product (a copy of an existing licensed drug), the process takes between four and five months. For a new medicine, the time varies between six and 18 months.

Price The CNAM sets the price of drugs and the level of reimbursement for prescription drugs after strenuous negotiations with the pharmaceutical companies, which results in prices on average 20% cheaper than in countries where pricing is unrestricted (such as the UK, the Netherlands, Germany or the US). The CNAM takes into account the therapeutic benefits of the drug relative to existing products. When the proposed drug offers little gain in respect of existing products, its before-tax sale price is fixed at a level lower than those already on the market.

The CNAM also selects one of the reimbursement rates (100%, 65%, or 35%) on the basis of the therapeutic benefits of the drug. ‘Comfort’ drugs and those with no scientifically proven benefit (such as homeopathy) are not reimbursed. Antibiotics are all reimbursed at the 65% rate. The remaining 35% is reimbursed by the optional complementary private health insurance policies held by 85 % of people living in France. Antibiotics are therefore free for most patients. Promotion

Direct-to-consumer promotion is illegal, and advertising is only authorized in the specialized press and through direct mail to doctors (for samples of print ads see Exhibit 2). Drugs are mainly promoted by the network of medical representatives who visit doctors. Medical reps are commercially and medically trained people who visit doctors to explain the advantages of the products sold by the pharmaceutical company. Officially their role is to provide information about existing and new drugs in a few categories. They are required by law to mention the side effects and real therapeutic gains of the drugs.

As one of them put it, however, rather than simply being impartial sources of information, medical reps are ‘walking ads’ for their products. Their objective is to increase the awareness and image of their products and to forge strong relationships with doctors through their recurring visits and amiable manners. Gifts of meaningful value are prohibited by law3 but 3 Medical reps can only offer prescription pads (which include advertising material), pens, and similar gifts of low value.

Copyright © 2003 INSEAD 3 02/2007-5057medical reps can nevertheless offer doctors opportunities for further training in the form of heavily subsidized participation in local seminars or international scientific conferences. Local seminars often take the form of dinners during which specialized doctors or researchers present and promote the lab’s new drugs.

Scientific conferences vary from rigorous scientific conventions to lighter seminars focusing on the company’s products, often in desirable locations. Additionally, medical reps can compensate doctors for participating in clinical studies carried out once the product is on the market (called Phase IV clinical trials).

This has the double effect of furthering research (including the possibility of further product licenses) and increasing the doctor’s contact with the product and the rep who will visit him or her regularly to facilitate the study. Although medical reps are not supposed to sell, a large part of their compensation is directly related to the sales of the products they “represent” in their geographical sector. Pharmaceutical companies have access to a vast amount of sales data purchased from third parties or obtained via the sales rep network (reps can, for example, visit pharmacies and ask about doctors’ prescription behavior).

They thus have a reliable idea of the prescription habits of the doctors they visit – and keep a record of which are the biggest prescribers, their past relationship with the lab, even the type of arguments that are most persuasive with each doctor. This system of incentive coupled with the limited power of the regulating body can create the suspicion that medical reps offer gifts and favors in exchange for prescriptions. In practice, such a direct quid pro quo is rare, although it can exist at a more subtle and perhaps unconscious level.

In recent years, all pharmaceutical companies have invested heavily in increasing the size of their sales forces. The majority of France’s 70,000 doctors see at least one medical rep every day. Each rep sees seven or eight doctors per day. Each visit lasts between 2 and 10 minutes and costs the pharmaceutical lab on average €100. As Exhibit 3 shows, medical reps account for the bulk of promotional expenditure, e. g. , 80% of promotional expenditure in Clamoxyl’s target market (i. e. , prescriptions for the medical indications for which Clamoxyl can be prescribed).

Investment in medical reps is particularly important for antibiotics because of the large number of substitute products and the uncertainty about which is most effective for each particular case. As a result, many studies show that there is a strong correlation between the promotional effort of the rep and the sales of antibiotics in that area. Distribution About half the drugs in France are sold through pharmacists, the other half being divided between public hospitals, private clinics, and socio-medical organizations. There are around 22,600 pharmacies in France.

Competition is regulated by a quota system which takes account of population density and limits competition between pharmacists. In 1996, pharmacists were not permitted to substitute an equivalent drug for a prescribed one, except in case of emergency. However, this practice existed in Great Britain and there was talk of introducing it in France. From 1990, profit margins of pharmacists followed a progressive scale giving a higher percentage margin to cheaper products. The progressive scale was designed to stop pharmacists from earning higher margins on branded drugs than on cheaper generic drugs.

However, pharmacists did not favor generic medicines because the progressive scale did not always compensate for their lower price and they increased the number of references to be stocked. Copyright © 2003 INSEAD 4 02/2007-5057 89% of sales to pharmacists are distributed through wholesalers who buy, store and distribute pharmaceutical products, but who do not undertake any marketing activity. The government fixes the revenue and the profit margin of wholesalers for reimbursable products. For specialized pharmaceutical products on the list of refundable drugs, the maximum gross margin before tax is fixed at 10.

74% of the manufacturer’s price before tax. As a result, wholesalers have little incentive to promote generic medicines. Medical Indications for Antibiotics The vast majority of infections can be classed as bacterial or viral. Antibiotics are drugs that fight bacteria. Examples of viral infections include the common cold, herpes and AIDS, against which antibiotics have no effect. Bacterial infections include ear infection, urinary infection, and bronchitis, which require antibiotics for effective treatment.

About 50% of antibiotic prescriptions are for ear, nose and throat infections, over 25% are for lower respiratory tract infections, 5% for skin infections, 6% for genital infections and 9% for other infections. How Do Doctors Decide which Antibiotics to Prescribe? Doctors have, on average, less than 10 minutes to question, examine, reflect and decide on a prescription that they then explain to the patient. During this short period, they must assess several factors to determine how to treat the infection.

Apart from the presenting symptoms (e. g. , patient complains of sore throat) and signs (e. g., throat is red and swollen), the patient’s context and history are important (e. g. , allergies, antibiotic tolerance, sources of resistant bacterial infections such as recent hospitalization), as are epidemiological concerns (i. e. which germs are currently circulating). It is often difficult for doctors to know which antibiotic to prescribe.

First, a common illness may be caused by bacteria or a virus and there is often no way a doctor can differentiate between them. The CNAM estimates that, out of the nine million prescriptions of antibiotics for throat infections, only two million are justified.

Second, common infections can be caused by different bacteria. For example, acute sinusitis may be caused by at least four different germs (hemophilus influenzae, streptococcus pneumoniae and other streptococci, mycobacterium catarrhalis and staphylococci), which each respond to a different antibiotic. Finally, when a patient does not respond to a given antibiotic, it may be that the strain is resistant and requires a newer drug, or that the original diagnosis was erroneous which simply means changing drug category. In the case of throat infections, for example, this distinction is often impossible to make.

Non-Therapeutic Factors Influencing Prescription Decisions To add to an already complex situation, other factors not directly related to pathology also play an important role in the prescriptive process. The opposable medical references (known by their French acronym, RMOs) introduced in 1993 require doctors to limit the prescription of more powerful drugs to particularly risky cases.

This strategy is intended to better manage social security resources and to reserve newer and stronger drugs for situations of necessity,Copyright © 2003 INSEAD 5 02/2007-5057 thus reducing costs as well as the development of bacterial resistance. 4 Doctors have not yet had to justify their compliance with such measures, and thus maintain a theoretical margin of maneuver.

In addition, the RMOs clash directly with the Hippocratic oath, which requires doctors to place the patient’s well-being above all other concerns, including the obligation toward public health. 5 Furthermore, doctors practice and prescribe independently and pride themselves on their freedom of prescription.

In general, however, by making the social impact of their decisions more salient, the RMOs have had a real influence on prescription behavior. Other factors are more practical. The French drug reference “Bible”, the Vidal, is a massive 3kg volume of thousands of pages, updated each year (see Exhibit 4). Despite seven years of study and continuous education, doctors cannot possibly know all the drugs available. This is especially true of older doctors who have had limited training in pharmacology (50% of French doctors are over 50 years old).

Hence doctors tend to prescribe familiar drugs, i. e. , those they have used frequently and over a long time and that work well. Doctors can also be influenced by the recommendations of colleagues and of opinion leaders such as university professors or renowned specialists. As indicated earlier, the quality of the doctor’s relationship with the pharmaceutical lab and the medical rep can also play a role. The price of the drug itself is rarely taken into account as few doctors are actually aware of it. The Antibiotics Market in France.

The highest-selling drugs in France are cardiovascular medicines, followed by dermatology drugs and hormones, and anti-infective medicines which include antibiotics, serums, and vaccines. Clamoxyl: The Original Amoxicillin The first antibiotic, Penicillin, was discovered by Fleming in 1929. In the 40s, researchers revealed that ‘penicillin’ was actually a family of products. In the 50s, Beecham Laboratories isolated the core product and developed several pure forms of different penicillins, including amoxicillin in 1974. This antibiotic was a rare ‘breakthrough’ product.

It was proven to kill bacteria causing common and dangerous infections and the laboratory was able to photograph this bactericidal effect. This same year it was marketed under the brand name Clamoxyl in 4 5 Newer drugs are more expensive because the CNAM takes into account that they have required higher research and development costs which have not been yet amortized.

In the case of antibiotics, newer drugs treat germs that have become resistant to older drugs. Their main disadvantage from a public health perspective is that their repeated use will cause resistant strains to develop.

The increase of bacterial resistance as a result of the prescription of antibiotics is particularly acute in France, which has the highest per capita consumption of antibiotics in Europe. This is not the case in every country. In the US, the most common modern version of the Hippocratic oath unambiguously states the doctor’s duties towards society. For example, the first Code of Ethics of the American Medical Association (1847) stated: “The primary goal of the medical profession is to render service to humanity, while fully respecting individual dignity and patient’s rights”.

European legislation is leaning towards the French deontological philosophy, where priority is clearly given to the individual, except when they are an evident threat to society. Copyright © 2003 INSEAD 6 02/2007-5057 Europe (and under the Amoxil brand in the US and other countries). Two years later, Beecham made €4. 5 million from Clamoxyl sales in France.

From 1980 to 1995, the antibiotic market grew by 11% per year in value, compared with a 10% annual growth for the pharmaceutical market in general. In 1995, Clamoxyl was the most prescribed antibiotic in France, selling 27,000 units. Its turnover (€75.4 million) accounted for 33% of SB’s antibiotic sales and 18. 2% of its total sales.

Amoxicillin is the standard antibiotic for simple respiratory infections in the general population when no special risks are involved. It is available in forms adaptable to all situations (in oral and injectable forms) and for adults and children (see Exhibits 5 and 6). Amoxicillin is a large spectrum penicillin, active against the major strains of bacteria responsible for urban infections, notably pneumococci (which cause pneumonia, otitis, secondary bronchial infections) and streptococcus A (the most common bacterial cause of tonsillitis).

Amoxicillin has several advantages over other families of antibiotics: it kills streptococci (whereas macrolides, a newer family of antibiotics, only stop their proliferation); it is the most powerful oral antibiotic against pneumococci; it acts more rapidly against bacteria than cephalosporins (another newer family of antibiotics); it has a high and steady rate of absorption by the body and ensures safe medical treatment for patients; it is very well tolerated, allowing an increase in dosage for more severe cases and is the only effective drug for streptococcus B (infections in pregnant women), streptococcal infections of the mouth (dental infections, prophylaxis of endocarditis), listeria (meningitis, infections in pregnancy), H. Pylori (ulcers), and B. Burgdoferi (Lyme disease).

Overall, amoxicillin remained a useful and viable product in 1996 because it was well adapted to a large range of common illnesses and was less expensive than many other antibiotics available for the same medical indications. From the very beginning, the company exploited the proven value of Clamoxyl and positioned it with strong scientific support, notably a photograph of dead streptococci.

As mentioned earlier, new products that bring a major gain in therapeutic approach are uncommon, and it was logical to market the product on this basis. SB also provided an allround service with Clamoxyl at the center, such as a 24-hour hotline and small yet appreciable attentions such as jars of sweets for offering to children during medical visits.

A truly excellent product, a strong and consistent positioning on the therapeutic benefits of Clamoxyl, a heavy promotion by a sales force dedicated to the product, eye-catching advertisements communicating the performance and distinctiveness of Clamoxyl emphasizing its red color, and an innovative customer orientation – all contributed to the early success of Clamoxyl.

Moreover, SB continuously invested in the brand with sustained research and development (1g dose necessitating only one take per day; sugarless Clamoxyl for children; new forms, etc). In line with the functional positioning of Clamoxyl, SB always communicated the therapeutic benefit of these improvements (e. g. , swallowing a dispersible pill diluted in water could bring relief to sore throats) as opposed to a new marketing gimmick. Generic Amoxicillin The CNAM distinguishes between generics and copies. Generics are identical copies of the amoxicillin molecule.

These entered the market upon expiration of amoxicillin’s patent in 1980 and sold for at least 30% less than Clamoxyl (referred to as the princeps) but were not available in as many forms (tablets, capsules, syrup) as Clamoxyl (see Exhibit 5). Generics are usually not promoted by medical reps and therefore save on promotion, but small volumes, distribution costs, and low prices mean that margins are minimal. In fact, in 1996, Copyright © 2003 INSEAD 7 02/2007-5057 most producers of generic drugs were not breaking even, and most analysts believed that only a few producers could acquire the wide portfolio of products necessary to achieve economies of scale and become profitable. Copies may add a modification to the original drug to mark the difference.

They can change the form or the non-active ingredient, which may, for instance, alter the flavor of the end product. Although the possibilities are theoretically numerous (slow-release tablets, sublingual forms, gastro-resistant coating, suppositories, new flavor, sugar-free, etc. ), practical applications are more difficult. For example, Flemoxine is the only pediatric amoxicillin tablet, but children usually prefer syrups. Like generics, copies may be marketed upon patent expiration but they are promoted like a brand and officially sell for 15% less than Clamoxyl. In terms of treatment, generics and copies have exactly the same indications and effects.

For the purposes of simplification, generics and copies are often grouped together in this case, unless the differentiation is relevant. As shown in Exhibit 7, the first generic products were introduced in France in 1980 and quickly gained about half of the amoxicillin market. To counter the loss of the patent, SB developed and tested different improved versions of the molecule which could have been marketed as a replacement for Clamoxyl, but to no avail. Amoxicillin proved a difficult product to improve upon. In the absence of a foreseeable breakthrough, SB invested in the brand by developing new forms and dosages and continued to promote Clamoxyl through medical reps and advertising.

In addition, the arrival of many undifferentiated generics and copies ironically helped reinforce the positioning of Clamoxyl as the only true amoxicillin. The progression of generics halted after 1985 and the market share of Clamoxyl remained stable for about 10 years, when it started to erode again (losing about two market share points in 1996). In the year ending in August 1996, however, Clamoxyl was still the highest selling amoxicillin by far, capturing 34% of the amoxicillin market and 8. 8% of the total antibiotic market despite its 30% price premium over equivalent generics (see Exhibit 8). Augmentin Augmentin, is a combination of amoxicillin with an inhibitor (clavulanic acid) which neutralizes the most prevalent mechanism of bacterial resistance to amoxicillin.

SB launched Augmentin in 1984 as an amoxicillin for special infections (such as ear infections in children or recurring and acute respiratory infections among adults) and as a second recourse (when treatment by amoxicillin had been unsuccessful). Augmentin was not positioned as a replacement for Clamoxyl because it causes more frequent side effects (diarrhea) and because Clamoxyl is well adapted to fight indications such as tonsillitis or pneumonia. The specialized positioning of Augmentin was reinforced by the RMOs restrictions which, from 1993, incited doctors to reserve Augmentin for specific infections or for resistant cases, resulting in a sharp decline in its sales. This, however, did not stop some doctors from considering Augmentin simply as an improved version of Clamoxyl with a higher success rate for resistant bacteria.

The specialized positioning of Augmentin limited its prescriptive potential but enabled SB to keep Clamoxyl’s positioning as the antibiotic for the majority of common infections. It also meant that Augmentin would be priced at 2. 3 times that of Clamoxyl. Finally, promoting both Clamoxyl and Augmentin increased doctor’s awareness of amoxicillin, the key component in both drugs, at the expense of other families of antibiotics. In 1995, Augmentin, still under patent protection, achieved sales of €122. 7 million. Copyright © 2003 INSEAD 8 02/2007-5057 Other families of Antibiotics The two principal families of drugs that compete with amoxicillin are the macrolides and cephalosporins. On the whole there is no radical difference between these products.

Compared with amoxicillin, macrolides are seen as innovative (although they may be slower acting). Cephalosporins, which exist in several sub-classes or ‘generations’ (first-generation cephalosporins are the principal competitors with amoxicillin) are not as well-known to doctors and are also slower-acting than amoxicillin. Both macrolides and cephalosporins may be substituted for amoxicillin when the patient is allergic to penicillin (around 10% of the population). As shown in Exhibit 3, these alternatives to amoxicillin are heavily promoted by pharmaceutical labs (they have a 70% share of voice compared to 30% for amoxicillin).

They are also more expensive (see Exhibit 9). Clamoxyl in 1996 The Juppe Reform Created after WWII, the French social security system has historically operated with few constraints on the patient (who can, for example, visit as many general practitioners and specialists as they want at no cost) or the doctor (who is free to prescribe whatever drugs are deemed necessary).

The downside of this freedom is that, at €367, French annual per capita expenditure on pharmaceutical products is the highest in Europe. Not surprisingly, the French social security system is running a large deficit, which can only grow as the population ages and the cost of medical treatment continues to increase. The Juppe reform introduced in November 1995 (after the French Prime Minister who led it) granted new power to the CNAM to curb the growth of health expenditure.

It established limits on the number of authorized prescriptions and the choice of drugs and proposed to set up a computer network that would monitor doctors’ prescriptions more easily and encourage the systematic choice of alternative, less costly drugs. In practice however, the CNAM used a mixture of persuasion and threats of future financial sanctions to encourage doctors to opt for generic drugs.

It produced monthly reports on the alarming growth in medical expenditure and sent letters to doctors – such as that of 10 July 1996 – encouraging them to prescribe cheaper amoxicillin drugs instead of Clamoxyl. Clamoxyl’s Weakening Position In general, doctors regard this as interference and an attack on their freedom of prescription.

Such measures affect them nevertheless, partly due to the threats of future financial sanctions if expenses were to continue to grow at the same pace and also because the strong media campaign organized by the CNAM highlighted their responsibility for the growing deficit of the social security system. As the monthly market shares in Exhibit 10 show, Clamoxyl sales saw a sharp decline of 29% in the three months following the CNAM letter.

As Exhibit 11 indicates, the market share of all amoxicillin products increased, but not as much as the market share of Clamoxyl decreased, suggesting that some of the sales lost by Clamoxyl were diverted towards other families of antibiotics. Within amoxicillin, most of the substitution went towards the cheapest Copyright © 2003 INSEAD 9 02/2007-5057 generics rather than towards branded copies.

For example, Exhibit 12 shows that Bristamox (a generic) gained market share mostly at the expense of Clamoxyl but also slightly at the expense of Agram (a relatively more expensive copy which was also mentioned in the CNAM letter).

While Clamoxyl continued to be profitable (see Exhibit 13), this bad news, combined with the slow but steady erosion of Clamoxyl sales over the past year and the continued promotional support for other families of antibiotics, meant that Pierre Chahwakilian had to act fast. Copyright © 2003 INSEAD 10 02/2007-5057 Exhibit 1 The CNAM Letter of July 1996 Paris, July 10 1996 Dear Doctor, Prescription drugs account for the bulk of the expenses of general practices.

The national cost of drug reimbursement by the Social Security has increased by 7. 7% over the past 12 months (May 95-May 96), without any obvious medical reason. Studies carried out by our health service show that because of their heavy promotion by laboratories, the highest prescribed drugs are often the most expensive drugs. Generic or essentially similar drugs, and even some jointly marketed drugs, which ensure an equivalent improvement in the patient’s condition at a substantially reduced cost, are neglected. If eight of the most prescribed drugs (notably antibiotics and cardiovascular medication) were replaced by their cheaper equivalents, this would save up to 5.

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