Pharma companies keep biotechs close and generic drugmakers closer

Pharmaceutical makers have created a huge trend by buddying up with biotechnology companies in recent years to boost their development pipelines, but they have also made a point of fraternizing with the “enemy” (i.e. generic pharmaceutical manufacturers) to get ahead.

Pharmaceutical companies across the board are struggling to cut costs and boost profits in the face of rising generic competition. Yet at the same time, some of them are forming partnerships with the same generic producers that they regularly face off with in court over drug patents.

Merck & Co. announced Monday that it had signed a 5-year agreement with Ranbaxy, a leading generic drug company, to co-develop anti-infective drugs including antibacterial and antifungal products. The two companies, ironically, have recently been involved in patent litigation over Merck’s Zocor and AstraZeneca’s Nexium (from which Merck receives royalties). This is not the first of such bizarre marriages between rivals — Ranbaxy is already working with pharma giant GlaxoSmithKline on several drug candidates.

So why would pharma companies trying to defend their patents against generics want to work with their opponents on new formulations? That’s where the process comes full circle — generic companies located in booming contract manufacturing regions (like Ranbaxy in India) employ talented chemists and can provide cheaper research and manufacturing services, thus saving pharma companies’ precious research funds. The process is also a win for generic drug firms who make an easy profit off the contracted work.

Pharmaceutical firms will also sometimes settle litigation by forming partnerships to manufacture generic versions of their own blockbusters, thus at least getting a piece of the pie after generics come into play. Merck itself has an agreement allowing Watson Pharmaceuticals to market an authorized Fosamax generic, and Ranbaxy recently reached authorized generic agreements with AstraZeneca after the two companies battled over Nexium’s patent.

All of these wacky moves aim to win the ultimate battle of profit vs. loss, and as the pharmaceutical and generic kings line up their game pieces, it will be interesting to see which players win the fight.