The pharmaceutical industry is facing a significant shift as patents for numerous blockbuster drugs are set to expire, opening the door for generic manufacturers to enter the market with lower-cost alternatives. This trend has been ongoing for several years, with generic drugs now accounting for over 60% of all prescriptions dispensed in the United States. The loss of exclusivity (LOE) for branded drugs presents both challenges and opportunities for various stakeholders, including health plans, pharmacy benefit plan managers, pharmaceutical manufacturers, and consumers.
History of Generic Drugs
The Hatch-Waxman Act of 1984 established an abbreviated FDA approval process for generic drugs, allowing generic manufacturers to apply for FDA approval and conduct bioequivalence testing. This legislation significantly increased the availability of generic drugs, which has led to a dramatic shift in the pharmaceutical market.
Strategies for Branded Manufacturers
To mitigate the impact of LOE, branded manufacturers have employed several strategies. One approach is to create different formulations of an existing product, often with a different delivery system, to extend patent life. This strategy involves lower developmental costs compared to creating a completely new molecular entity. Another tactic is for branded manufacturers to launch their own authorized generic versions of a product at the same time the first generic version hits the market. This move decreases the financial benefit of the period of exclusivity for the generic manufacturer and may discourage patent challenges.
Impact of Patent Expiration
The expiration of patents brings about a significant influx of generic products that retail at fair prices, affecting the sales of branded products. This shift in the market forces branded manufacturers to adjust their strategies to maintain market share and revenue. Companies often restructure their market access strategies, focusing on pricing, contracting, and rebate strategies to mitigate the decline in revenue.
Case Studies
Several examples illustrate the impact of patent expiration on branded manufacturers. For instance, AstraZeneca reduced its field force by 50% and redeployed those representatives to other mature brands before the LOE of its blockbuster drug Nexium. Similarly, AbbVie shifted some of its field force resources from Humira to new-generation immunology products Rinvoq and Skyrizi two years prior to the LOE of Humira.
Theoretical Implications
The entry of generic products into the market after the loss of patent or innovations of emerging products is implied in Porter’s five forces. The market forces that include customers, suppliers, potential entrants, and substitute products are considered as managerial imperatives for strategic decisions. The strategic imperative for a perfectly competitive industry is challenged when entry is made easy due to loss of exclusivity.
Conclusion
The patent cliff presents significant opportunities for generic drug manufacturers to enter the market with lower-cost alternatives. Branded manufacturers must adapt their strategies to maintain market share and revenue in the face of LOE. The shift towards generic drugs has already led to a significant increase in their use, with over 60% of prescriptions dispensed in the United States being generic. As the pharmaceutical industry continues to evolve, it is crucial for stakeholders to understand the implications of patent expiration and the strategies employed by both branded and generic manufacturers.
Mwangi, J. M., et al. (2022). Effect of patent expiry on the performance of innovator multinational pharmaceutical corporations in Kenya. Journal of Pharmaceutical Policy and Practice, 15(1), 1–12.
![Fig 2. Sales for 8 medication-device combination products in 100-top sellers in the US from 2011–2013 [22]](https://www.drugpatentwatch.com/blog/wp-content/uploads/2019/03/Fig-2.-Sales-for-8-medication-device-combination-products-in-100-top-sellers-in-the-US-from-2011–2013-22.png "Is Patent “Evergreening” Restricting Access to Medicine/Device Combination Products?")
