Your Patent is About to Expire: What Now?

New research reveals that product attributes are key to designing a post-generic strategy.
Nov 01, 2004

Soon to Expire: During the next two years, US market will experience the patent expiration of a group of products with more than $ 15 billion in revenues.
When generic versions of Lilly's antidepressant Prozac (fluoxetine) were introduced in 2001, Prozac's volume fell precipitously—losing 73 percent of its share of new prescriptions within two weeks. Although that may be the most well -known example of the impact of generics, the Federal Trade Commission reports that between 1984 (when Congress passed the Hatch-Waxman Act) and 2002, generics' prescription share has risen from 19 to 47 percent. Today, the figure is widely reported to be more than 50 percent. Based on review of recent patent expiration data, such rapid losses of revenue for brand owners appear to be more common. Generic companies are stronger and more sophisticated, and payers are more effective in their efforts to influence the way prescriptions are written and filled. Review of data from recent expirations suggests that pharmaceutical brands are losing more share, on average, in the first 12 months after generic entry today than they did several years ago. Next year, products with combined US sales totaling more than $15 billion will face generic competition for the first time. (See "Soon to Expire,".) For brand companies, the difference between a more rapid and less rapid drop in product share could translate into a revenue difference of several hundred million dollars.

Predict the Blow Not surprisingly, brand companies have aggressively pursued a variety of lifecycle-management tactics. Transferring brand equity (and prescriptions) to a follow-on product, reformulation, or new delivery system, can sustain the franchise. Switching the Rx brand to an over-the-counter product, when possible, is another way to retain revenue.

Despite these tactics—and the great effort devoted to them—the bulk of the expiring brand revenues will at some point give way to generics. The question for a pharma company is: How quickly? And a key corollary question is: If a company can predict how quickly brand revenues will erode, are there different tactics it should use depending on the rate of decline?

Case Study Comparison: Prozac and Intal demonstrate how brands can experience different market share patterns after patent expiration
Pharma brands are not all equal. The rapid erosion of Prozac's share can be contrasted with that of Intal (cromolyn), an asthma treatment, which fared much better. (See "Case Study Comparison.") Some products have obvious attributes that make rapid switching less likely. In this case, Intal has a complex metered-dose inhalant system that makes it more difficult for generics to copy and manufacture.

The challenge, though, is not just to recognize a brand's potential loss to generics but also to forecast it effectively. Companies must account for the timing of generic launches as well as other circumstances that may affect postexpiration performance. Investment decisions—continued brand promotion or a clinical trial for a new formulation—depend on a reliable forecast. As generics enter, brand teams must grapple with planning and forecasting decisions that differ from those encountered during the patent's life and may include strategic options such as the possibility of an authorized generic.