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
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
Branded generics (1)
Offering generic through subsidiary
“First mover advantage”; serving different markets
James AD (2002) The strategic management of mergers and acquisitions in the pharmaceutical industry: developing a resource-based perspective. Technol Anal Strateg 14:299–313 View ArticleGoogle Scholar
Jimenez J (2012) The CEO of Novartis on growing after a patent cliff. Harv Bus Rev 90:39–42 Google Scholar
Kakkar AK, Dahiya N (2014) The evolving drug development landscape: from blockbuster to niche busters in the orphan drug space. Drug Dev Res 75:231–234 View ArticleGoogle Scholar
Kvesic DZ (2008) Product lifecycle management: marketing strategies for the pharmaceutical industry. J Med Mark 8:293–301 View ArticleGoogle Scholar
Magazzini L, Pammolli F, Riccaboni M (2004) Dynamic competition in pharmaceuticals—patent expiry, generic penetration and industry structure. Eur J Health Econ 5:175–182 View ArticleGoogle Scholar
Mittra J (2007) Life science innovation and the restructuring of the pharmaceutical industry: merger, acquisition and strategic alliance behaviour of large firms. Technol Anal Strateg 19:279–301 View ArticleGoogle Scholar
Mittra J, Tait J (2012) Analysing stratified medicine business models and value systems: innovation–regulation interactions. New Biotechnol 29:709–719 View ArticleGoogle Scholar
Pammolli F, Magazzini L, Riccaboni M (2011) The productivity crisis in pharmaceutical R&D. Nat Rev Drug Discov 10:428–438 View ArticleGoogle Scholar
Paul SM, Mytelka DS, Dunwiddie CT, Persinger CC, Munos BH, Lindborg SR, Schacht AL (2010) How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nat Rev Drug Discov 9:203–214 Google Scholar