Numerous articles have trumpeted the upcoming five-year patent cliff for innovative pharmaceutical companies, during which 18 of the top 20 prescription best sellers—representing over $142 billion in global sales—will face generic competition in the leading developed markets. Unfortunately, these articles fail to tell the more important story: Over the past decade, the frequency and intensity of brand versus generic competition has grown dramatically and will surge globally as the industry continues its transition into the competitive stage of its lifecycle.

There are several reasons for increasing brand versus generic competition. Generics companies have intensified their patent challenges, entered markets earlier, and targeted more off-patent blockbusters, including biosimilars, as well as smaller brands. In addition, generics companies have taken advantage of more supportive laws, regulations, and policies in many markets. At the same time, innovator companies, with weaker pipelines and fewer new products, are trying to extract maximum sales from their existing brands by continuing post-patent promotions. Moreover, innovator companies have focused on emerging markets, where brand versus generic competition is more common.

Increasing generic competition cuts across most products, lifecycle stages, and markets. Generics companies are targeting not only megasellers such as Lipitor and Plavix, but also smaller-selling agents, including some with less than $10 million in sales and 1 percent market share. According to a 2009 Thomson Reuters report, generics companies targeted as many US products with sales less than $50 million dollars as they did blockbuster agents with sales over $1 billion. Over the past five years, generics companies have initiated 65 percent more US patent lawsuits against branded pharmaceuticals and won 70 percent of cases, often resulting in generic copies coming to market years before scheduled patent expirations. In addition, innovator companies are realizing that generic competition in emerging markets can be even more formidable, often with dozens of generic copies for a single brand.

Braneric Competition

For years, brand and generics companies have competed in virtually distinct worlds, separated by patent protection of branded products, a discrete corporate focus on a single product type, and a wide disparity in prices. However, over the past decade, these two worlds have collided to create a new space, which I term "Braneric Competition." Three competitive factors have catalyzed this fusion.

1) Competitive Duration: Historically, innovators promoted their products against other brands only until the patent expired, at which time multiple generic copies entered the market and often rapidly devoured the brand's market share. Over the past decade, the patent demarcation line has blurred as innovator and generics companies have entered earlier and more aggressively into each other's turf.

Generics companies are no longer waiting for patent expiration to attack originators' products. Teva Pharmaceuticals, the world's largest generics company, has executed over a dozen "at-risk launches" of generic products while patent litigation is pending in the US. In international markets such as Russia, India, and China, some generics companies market brand copies before the originator's brand is launched. For example, there were generic versions of the rheumatoid arthritis biologic agent Enbrel in China prior to the launch of the original brand.

For their part, innovator companies are either launching—or authorizing generics partners to launch—generic versions of their brands prior to patent expiry and before competitive generic entry. In addition, originators are now continuing brand promotion long after patent expiration in mature markets or giving them new life by launching into developing markets. Many multinational innovator companies have established mature products divisions specifically designed to market their off-patent brands. According to IMS, innovators may be able to retain over 50 percent share in some markets and generate over 25 percent of a brand's total value after patent expiration. For example, Pfizer, which created an Established Products Division in 2008, has preserved a 60 percent market share in Spain following patent expiration of its cholesterol-lowering agent Lipitor. This combination of earlier generic entry and longer brand promotion has expanded and extended brand versus generic competition.