Patent Attack - Pharmaceutical Executive


Patent Attack
When a patent is under challenge, you can cut and run or stay the course. The only trick, then, is to make the right decision.

Pharmaceutical Executive

Compared with the brand company's investment, the equivalent generic investment for generics is only $8-$10 million, so the financial proposition of certifying against a product—and winning one case and being first to file—can be substantially rewarding.

Size Doesn't Matter Contrary to myth often harbored by brand teams, Paragraph IV certifications have shown little propensity to be reserved only for large blockbusters or high-volume primary care products. On the contrary, as competition grows in the generics sector, generics companies look to any product to enhance their portfolios, and some companies are focusing portfolio selection on specific dosage forms and routes of administration.

For example, three products under recent Paragraph IV challenges had annual sales of less than $50 million. These include Retrovir (zidovudine), FemHRT (norethindrone/ estradiol), and Periostat (doxycycline). In addition, several of the products under active certification include specialty formulations such as ophthalmic solutions, patches, nasal sprays, inhalants, powders, gels, and injections. (See "Products Under Attack,")

Hold Or Fold
As these examples indicate, brand teams and portfolio managers cannot focus only on their blockbuster brands in terms of lifecycle defense or post-certification management. The current environment requires them to take a comprehensive approach to their products and to create and execute models that effectively manage their products while they are under Paragraph IV challenge.

Product Managers' Dilemma To illustrate the marketing and sales support options available to product managers, let's examine the hypothetical Brand A. It is a primary care product with sales of more than $1 billion in a competitive yet growing class. Its primary patent expires at the end of 2012, and the product grows about 1.5 percent per quarter when it has the full sales support of roughly $1 million primary detail equivalents. Like other typical products, it has the full range of expense items, and its fully loaded contribution (deducting overhead and sales force) is roughly 40 percent of net sales.

In the middle of 2004, Brand A receives a Paragraph IV patent challenge from one company, followed by another challenge by year's end, and a third challenger in 2005. The brand company files lawsuits against all three generics makers to defend its primary patent.

The implications of the patent challenges are far from simply being a legal problem. Consider the business ramifications: With eight years left in the growing market, the Brand A team has its full panoply of marketing efforts behind the product. These would include a sales force numbering close to a thousand, marketing and promotional head count, DTC advertising, managed care contracts, clinical support, and manufacturing.

The key dilemma is this: Now that the product is under patent attack, the date when it exits the market has become uncertain. Although the brand team had previously been managing the product through patent expiration (2012), it now may face generic competition much sooner if any one of the three generics companies wins its patent challenge.

Who Wins Anyway?
To better understand the dilemma and its implications, consider the financial impact in the Brand A example. Before the certifications, the team was planning on maintaining its product support at current levels and reducing them by 50 percent in 2011 (two years before patent expiry) and then by 90 percent in 2012. During this harvest phase, the net present value (NPV) is expected to be around $966 million, representing about 29 percent of its overall NPV of $3.311 billion. (NPVs were calculated using a 12-percent discount rate, starting in the first quarter of 2005 and ending the fourth quarter of 2012 from the annual contribution that included overhead and sales force expense, but not taxes.)


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