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Losing patent protection on a drug is the only certainty in the constantly changing world of pharmaceuticals. After a manufacturer patents its product during its initial days of the drug development process, the patent expires approximately 20 years down the line, eventually leaving the doors open for generic products to dominate the market. The number of generic entrants is greatly driven by pre-patent expiry advertising, market size, and the ease of manufacturing. As a result, the company that formerly held the patent can lose profitability and market share in a very short time. The immediate fall in revenue after the patent expires is commonly known as “patent cliff,” and is one of the main issues faced by pharmaceutical companies currently.
Fortunately, branded pharmaceutical companies have devised powerful strategies to forestall their loss of profits post expiration. This paper discusses three strategies that can provide branded pharmaceuticals a competitive advantage.
Branded drug manufacturers facing patent expiration have stealth marketing tools in place to retain sales and alleviate the impact resulting from generic entry. A company can also choose to alter their marketing strategies and budget around patent expiry. Furthermore, they can launch and OTC version of the medication or a branded generic.
Below is a list of the marketing strategies used by top pharmaceutical companies:
After a drug patent expires, lower-priced generics often immediately enter the market. To combat this, a branded pharmaceutical company can slash their price to compete with the generics. Richard G Frank and David S Salkever explain the price response of branded drugs whenever a generic product enters the market in the paper titled Generic Entry and the Pricing of Pharmaceuticals. They divide the drug market into two segments: price-sensitive and price-insensitive.
In 2008, the duo used data from the UK to examine the patent expiry of Prozac and confirmed the presence of two divisions of doctors—a marketing sensitive segment and a smaller price sensitive segment. The former prescribes less of the drug, which is on the verge of losing its patent and instead emphasizes on the more aggressively marketed alternatives while the latter prescribes cheaper generics.
A common reaction of branded drugs in the US to generic entry is to increase the price as this captures the attention of the price sensitive buyers. Consequently, buyers who are insensitive to price tend to buy branded drugs.
Marka A Hurwitz and Richard E Caves, economists at Harvard University, discovered that advertising before and after a patent expires, preserves the market share of the branded drug since it builds brand loyalty. The impact of generic drugs entering the market is greatly lessened because of higher brand equity. Even though a majority of branded drugs lose market share post patent expiry, some brands keep on marketing their products since it yields productive results. This holds particularly true if the sales are comparatively low and the technology is complicated-a technique that was used by Intal and Coumadin in 2004.
Advertising basically serves a single purpose. It improves consumer knowledge about the brand, which increases the demand for a group of pharmaceuticals or for a specific product. However, this can sometimes lead to a spillover effect, especially if it’s over done, as the company advertising the brand might draw the attention of the generic entrants, who would derive a lot of advantage without incurring any expenses. The branded manufacturer cannot increase the demand particularly for its own product since generic drugs are the best substitutes with bioequivalence approvals.
Eelco Kappe, Assistant Professor of Marketing Department at Penn State Smeal College of Business, says that companies can retain their sales even after generics enter the market by differentiating their products from generics, which justifies their increased price. They can do so by providing some extra value of their product over generics without having to extend their patent.
If a manufacture anticipates a dark future post patent expiration, it can milk or divest the drug. This is a feasible alternative if a manufacturer plans to free resources for other medications in its portfolio. It basically involves reducing the R&D and marketing expenses of the drug, and licensing the selling the drug to another company.
This is a common strategy adopted by companies to either get a share of the generic profits or prevent generic entry. The first generic drug gets a marketing period of 180 days through an Abbreviated New Drug Application or ANDA, which allows the company to amass huge profits. Branded companies ask generic manufacturers to submit an ANDA in tinier markets, which deters the entry of generics and is essentially a profit-maximizing strategy. Companies should introduce branded generics in bigger markets to earn a large percentage of the profits from the generics market.
The FDA sometimes allows safe medications to be available over the counter (OTC). There are two types of OTC products-those that are easily available in stores and those that are dispensed after an employee of the company analyzes the requirements of the patients. If the OTC medication has a new dosage, form, or indication, it gets 3 years of market exclusivity. One main benefit of OTC drugs is that they have higher levels of sales for a longer duration of time. Listerine, for instance, has been available for more than 100 years and is still going strong.
Finding new uses for identified compounds is a powerful strategy for enhancing the commercial life of a drug. Since existing medications have side effects and pharmacokinetics, the expenses rendered on finding new indications are relatively cheap. This is often referred to as drug repositioning and needs some more clinical testing. Finding new indications of a drug improves its market potential and also prolongs its market exclusivity period by 3 years. Approximately 50% of the world’s top 50 drugs in 2004 got additional indications following approval.
Merck, developed Finasteride for treating prostate enlargement. Later, when a new use-for treating baldness among men-was found, the company obtained additional patent protection and is now sold under the brand name Propecia.
Reformulations use the same active ingredient, but the formulation is altered to improve efficacy, side effects or compliance. This strategy requires new dosages and forms and involves new clinical tests. An example to cite would be Effexor XR, which is a reformulation of Effexor.
Companies often maximize their patent term by using the following strategies:
For example, Sildenafil was Responding properly to patent expiries and extending the period of market exclusivity are pivotal to the success of drug manufacturers. The sky rocketing costs of commercialization, declining R&D productivity and near-term patent expirations are forcing many top companies to devise new strategies that increase their returns from their product portfolio.tested on a rare childhood lung disorder and obtained pediatric exclusivity for 6 months.
Sweetheart deals, also referred to as pay-to-delay tactics, involve major pharmaceutical companies paying generic manufacturers huge sums of money to postpone the launch of the generic version. It works well for the first generic manufacturer, who has an exclusive marketing period of 180 days.
Responding properly to patent expiries and extending the period of market exclusivity are pivotal to the success of drug manufacturers. The sky rocketing costs of commercialization, declining R&D productivity and near-term patent expirations are forcing many top companies to devise new strategies that increase their returns from their product portfolio.