Everyone from equity analysts to the popular press smells blood in the water, thanks to the looming "shark fin" curve of generic
competition facing many blockbuster drugs. The impending patent revenue cliff of the next five years puts more than $267 billion
of branded drug sales at risk.
As the C-suite attempts to fill the revenue gap, it's timely to revisit the armamentarium of loss of exclusivity (LOE) tactics—particularly
for "sub-blockbusters" that often fly under the radar of senior leadership's attention. Companies have historically withdrawn
support from products as LOE approaches, backing into strategies dictated by their overall portfolio strategy. However, our
analysis of US drugs that have recently lost patent protection suggests that many brands facing generic competition may be
leaving money on the table by failing to consider a range of cost-effective options.
Traditional strategies may be too costly or risky for some sub-blockbuster agents. Still, depending on initial market size,
brand loyalty, and perceived switching costs, brands can successfully employ a portfolio of tactics to bolster unit sales
or, alternatively, increase profitability in the face of declining unit sales. Importantly, brand teams should explore their
strategic options three to five years before LOE, as some tactics need to be implemented "ahead of the curve."
The first generic typically enters with a 20 percent to 30 percent discount below branded counterparts, and savings may reach
80 percent by 24 months. Surprisingly, there is a wide range of sales retention post-LOE, from zero to 30 percent, and, by
extension, a wide range of revenues are "in play" post-LOE. Our analysis suggests brand teams can diagnose whether a brand
is likely to retain sales toward the higher or lower end of this range, based on attributes of the product and market. Armed
with this information, brand teams can—and should—decide which strategic levers merit deployment to maximize post-LOE sales.
Diagnosing the Market
We identified two main attributes leading to higher post-LOE sales retention. First, smaller markets today typically mean
larger post-LOE opportunities tomorrow. Unsurprisingly, drugs with over $500 million in US sales tend to face twice as many
competitors as drugs with smaller market sizes. Additionally, high-utilization, high-cost drugs sit top of mind for payers,
attracting active formulary management and restrictions, while lower-utilization drugs often fly below the radar. Accordingly,
sub-blockbuster drugs are particularly well-poised to deploy strategies aimed at retaining post-LOE sales.
Second, among all brands, those with higher perceived clinical switching costs stand well-positioned to carve out brand-loyal
niches among prescribers, especially specialists, and patients. This played out most recently and dramatically with the anti-epileptic
drug class. Patient advocacy groups and specialists battled to pass "substitution carveouts" blocking pharmacy-level generic
substitution for epilepsy drugs such as Keppra but leaving drugs used primarily for migraine, such as Imitrex and Topamax,
floundering. Whereas Keppra maintained 21 percent of unit sales after 12 months, Topamax and Imitrex shrank to 11 percent
and 14 percent of their unit sales after only six months. Ultimately, research capturing physician, patient, and payer perspectives
on switching costs can help prospectively identify which core or adjacent indications offer the greatest opportunity. Hindsight
is often too costly.