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Strategies for Branded Drug Lifecycle Management: Part 5 – Adaptation

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This is part five of a six-part series on drug lifecycle management: Four Strategic ChoicesPrevention Innovation Extraction Adaptation Summary and Conclusion

This article is adapted from Song CH, Han J-W. Patent cliff and strategic switch: exploring strategic design possibilities in the pharmaceutical industry. SpringerPlus. 2016;5(1):692. doi:110.1186/s40064-016-2323-1 under a Creative Commons Attribution 4.0 International License. It has been edited for length and style.

Adaptation strategy

The last strategic pathway is to introduce branded generics.

Two conceptually similar strategic alternatives fall into this category: (1) developing a low-cost alternative in the form of wholly owned subsidiary focusing on generic drugs, which operates separately outside the main organization (Gilbert and Strebel 1987); (2) offering of a generic through the innovator-company itself (Agrawal and Thakkar 1997).

The basic principle of ‘adaptation strategy’ is therefore to retain existing customers through an active entry into the business of generic drugs, and to capture a share of the generic profits. In small markets, branded generics may deter generic entry, as the innovator will have a manufacturing advantage. The underlying rationale behind the launch of generic by a subsidiary is to leverage synergies and to diversify the product portfolio by having a strong presence in different key markets. In the past, the attempt to gather the innovator-company and generic suppliers under the same roof ended up with failure. This is due to operational agility required for generic businesses as well as a focus on market research and approval processes rather than in R&D. But today, many established brands have their own generic subsidiary (e.g. Sandoz from Novartis Group) and intentionally separate branded and generic divisions.

The launch of a “second brand” (a so-called fighter brand) with an additional branded product sold at a discounted price under its own corporate brand is frequently discussed as a potentially promising new strategic option, but has been rarely implemented because of its credibility. Raasch (2008) confirmed that the rationale behind the launch of a fighter brand is “a segmentation of demand according to price sensitivity, maintaining a higher profit margin on the units sold […] but not entirely losing more price-sensitive prescribers”. Similarly, a company considering the launch of a fighter brand can receive following competitive advantages: (1) brand popularity and reputation as the producer of the proven drug will likely benefit the new brand; (2) the brand owner can take advantages of already existing manufacturing infrastructure to profit from learning curve-based cost advantages (Raasch 2008).

A downside is that commercialization of low-priced products is often incompatible with the corporate image as well as culture and the business model of the research-driven company. Also it cannibalizes the original drug. The critical issue for implementing this strategy is whether the discounted drug should substitute the high-priced branded drug or if both are expected to complement one another. In both cases, it opens up the possibility of securing a part of the generic market, thereby exploiting the experience-related advantages in the synthesis and packaging of the drug and contributes to the coordinated utilization of existing production capacities.

However, the first approach can gain a substantial market share only if the subsidiary brings its generic to the market in the course of early entry before other generic competitors, thereby realizing the first-mover advantage. Therefore, it is imperative to consider the likely development of the price corridor after the generic entry. A proactive pricing behavior and an aggressive marketing communication towards the prescribers would positively contribute to the success of launching secondary brand product.

Table 4: Overview of adaptation strategies

Strategic optionsDescriptionEffect
Branded generics (1)Offering generic through subsidiary“First mover advantage”; serving different markets
Branded generics (2)Offering generic through brand ownerServing different customer segments

Next: Part 6 – Summary and Conclusion

This is part five of a six-part series on drug lifecycle management: Four Strategic ChoicesPrevention Innovation Extraction Adaptation Summary and Conclusion

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