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Launch @ Risk: the Case of Glenmark Generics Inc.
Glenmark faces four risk-management options: to proceed with the launch @ risk, to negotiate with Sanofi-Aventis for a settlement, to take out an insurance policy for launch @ risk, and to forego the launch @ risk altogether. The subsequent sections discuss the risks associated with each of these options to identify the most plausible option for the company.
To Proceed with the Launch @ Risk
In determining whether to proceed with the Launch @ Risk, Glenmark would need to consider the risks involved in navigating the legal maze and the possible effects of litigation on pricing and gross margins. The company had committed an initial capital outlay of $0.5 million in developing Tarka. Sales revenues are projected at $18.9 million during the six-month exclusivity period, assuming the worst case scenario that it sells 10 percent less units than the projected 10 million capsules at a unit price of $2.10 (9 million units @ $2.10). This would translate to a gross profit margin of 97 percent of sales (gross profit of $18.4 million/$18.9million). Thus, the company stands to make a huge financial reward from this option. However, the risk of financial loss arising from litigation costs is high since the company would have to settle Sanofi-Aventis in the event that they lose the case.
Looking at the industry-wide litigation trends in exhibit 4, launches @ risk are less popular than settlements and generics authorized by manufacturers. This suggests that they are more risky relative to the other two options. Furthermore, the industry-wide legal track record shows that Glenmark has an almost 50 percent chance...…for a settlement
Exhibit 4 shows that innovators in the drug industry will mostly offer settlements to generic makers. Thus, there is a high possibility that Sanofi-Aventis would approach Glenmark for a pay-for-delay settlement. In this case, Sanofi-Aventis would offer a cash compensation to Glenmark in a bid to have them delay the launch to a later date, one closer to the expiry of the patent. This would be the least risky option for the company since it would not incur any litigation fee or insurance premiums and would only have to forfeit its revenues for the period of the delay. The option is less risky because although it is anti-competitive, the Federal Trade Commission would hold Sanofi-Aventis accountable, and not Glenmark.
In conclusion, it would be appropriate for Glenmark to negotiate a settlement with Sanofi-Aventis as…
References
Chandasekhar, R. (2021). Glenmark Generics Inc.: Launch @ risk. Ivey Publishing.
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