There are other financial reasons to drop products. The raw materials take up valuable warehouse space, as do the unsold finished
goods. There may not be time for scheduling production, even though it may require a factory run of only one or two days a
year. Still, that process involves changing and cleaning equipment, a potential for contamination, and preventing tableting
of much more profitable lines. Moreover, industry experts estimate that the seller can expect to earn a fee from the new buyer
that is three to four times that of the drug's current annual sales.
A special situation may prevail in the case of a merger between two or more branded pharmas. The Federal Trade Commission
could force the newly formed company to sell some of its existing products to avoid market dominance in a certain therapeutic
area. This presents the big pharma with an opportunity to re-evaluate its top-selling drugs and pipeline, build a desired
image as an innovator, and free itself of any undesirable not-so-profitable products.
But if the economics driving the large-cap pharmas to divest of old drugs are plain enough, why are specialty firms so eager
to acquire them?
According to a recent study conducted by Rebecca Hellerstein, physician prescription behavior tends toward consistency, and
some are likely to prescribe trade-name drugs for long periods of time. Such hard-won brand loyalty means that those end-of-lifecycle
products can still generate at least modest sales, even when the specialty pharmas do not invest heavily in sales and marketing.
Besides, such an end-of-lifecycle product can propel a specialty pharma to build a sales force in a certain therapeutic area.
This, in turn, can help lead to establishing a reputation in the field, especially if the firm has aspirations of eventually
becoming an innovator.
And when a specialty drugmaker reformulates an end-of-lifecycle product—either by means of a new dosage, a new indication,
or some kind of line extension—the product can return to the market to capture more sales. King Pharmaceuticals, for example,
has mastered this art. This Tennessee-based company, founded in 1993, has steadily acquired more and more branded products.
Currently it has a portfolio of 40—and although none were developed in-house, the company's 2005 sales totaled $1.77 billion.
The end-of-lifecycle firms may see their products maintain market viability as innovator pipelines go through a dry spell
(see "New Drug Approvals") and as new products hit snags (see "Safety Drug Withdrawals").
At the end of the day, the end-of-lifecycle is a viable market segment—and specialty pharmas that corner it show every sign
of growing stronger in the future.
Albert I. Wertheimer, founding director of the Center for Pharmaceutical Health Services Research at Temple University School
of Pharmacy, can be reached at email@example.com
; Ellen F. Loh, a research fellow at the Center for Pharmaceutical Health Services Research, at firstname.lastname@example.org
; and Laurence G. Poli, a managing partner at the Center for Performance Excellence, LLC, at email@example.com