Defusing the Time Bomb

March 3, 2008

Successful Product Manager's Handbook

Volume 0, Issue 0

Just because you're losing ground to generics doesn't mean you should put your head in the sand. Act before it's too late.

It is a universally acknowledged truth that every pharmaceutical product needs a solid plan early in its lifecycle for fighting off generics.

Here's another truth, though one much less acknowledged: For the most part, pharma companies don't plan early. Many barely plan at all.

In a recent survey of companies with brands facing generic competition, 66 percent revealed that they do not begin counter-generics planning until at least two years after product launch. Of that number, 34 percent wait at least six years.

Indeed, the majority of responding companies reported first considering generics within four years of patent expiration (see Figure 2). This means most are left scrambling at virtually the last minute to come up with a strategy. By that time, it is too late to explore all the available counter-generics options.

Eric Bolesh

Admittedly, in the long run, the branded product generally will lose out to the generic. Industry veterans know the scenario all too well: Patent protection disappears, and the following months brutalize brand revenues. The most obvious loss occurs when consumers switch to a lower-priced generic substitute. A second and less-evident threat involves multiple generic launches.

While the first generic entrant tends to price its product slightly lower than competing branded drugs, it is the entry of a second challenger that truly widens the chasm between generic and brand-name prices; at that point, prices fall to approximately 50 percent of pre–patent- expiration levels.

Worse, this struggle between two or more generics can occur within weeks of patent expiry. Nine months after patent expiration, it is common for an average branded pharmaceutical to face at least eight generic competitors. It is particularly intense for a blockbuster drug whose market share declines significantly as multiple generics enter the market. One year after patent expiry, the average blockbuster loses as much as 75 percent of its piece of the market (see Figure 1).

Fighting generics may be a losing battle, but it's one worth fighting. Mere days of extra patent protection can mean millions of dollars in revenue. Plenty of financial incentive is there to slow the uptake of generics and maintain precious market share.

Figure 1

Making the Most of It

But what's a brand team to do? The plain-English answer is easy: Think ahead, and do it earlier.

Because some of the strongest options for fighting generics rely on clinical development that can take years to execute, companies that launch their plans at least four to six years before patent expiration afford themselves the most possibilities in retaining revenue. Even whiz-bang new science, they point out, requires time and effective marketing to be commercially successful. It can take years to switch existing patients to new, patent-protected line extensions.

Part of the preparation challenge lies in the nature of brand marketing teams. High turnover rates mean that newly appointed brand managers find themselves in charge of drugs with little patent protection and no significant counter-generics plans in place. Whereas later brand teams must manage generic competition with little preparation, early teams have little incentive to think about their brands' long-term fortunes.

As a result, many companies systematically miss opportunities for complex, multi-tiered plans whose most appealing options require years of lead time and clinical development.

As seen in the above pie graph (Figure 2), 34 percent of survey respondents escape the timing trap and consider generic competitors at or prior to launch. At one such company, product managers include counter-generics strategies as part of the launch plan.

Figure 2

Another company uses preclinical findings to build an understanding of which strategies may be more or less appropriate later in its drugs' lives. Teams revisit these data during Phase II trials to more formally discuss and plan for long-term threats from both other brands and from generics. A formal lifecycle plan comes out of this process, and brand and lifecycle managers consult and alter this plan as a drug launches, matures, and, ultimately faces the loss of patent protection.

Plan for the Eventuality

Sound counter-generics plans, plotted early in brand life, include a primary course of action supported by contingency options.

In formulating strategies, the most-prepared companies consider not only the usual array of frontline tactics—litigation, pricing changes, and counter-promotion—but also clinical development plans that take years to execute, such as approvals for new formulations, new indications, and next-generation drugs.

The longer these teams have to prepare, the more comprehensive—and effective—their strategies will be. Solid, multi-tiered plans require years to work out and execute. And with generics manufacturers exhibiting legal aggression and a willingness to file ANDAs years before scheduled patent expiration, it is imperative that teams plan early for the loss of market exclusivity.

Given enough time, sound counter-generics planning contains different tiers of options that range from long-term lifecycle-management tools to short-term responses. Although ANDA filings and court proceedings often dictate the appropriate course of action, proactive teams counter attack on as many fronts as possible by:

  • Executing long-term franchise strategies

  • Developing line extensions

  • Ramping up patient-retention activities.

Ultimately, a third tier of market-crossover options also exists. Under these alternatives, companies limit their focus on prescription brand sales and instead look to authorized generics, generics subsidiaries, and OTC possibilities. Such tactics provide continued revenue streams, though they are not preferred choices for brand-conscious marketing teams.

Being Deeply Strategic

A multitiered counter-generics plan positions companies to attempt high-risk, high-reward opportunities while building contingency options.

One profiled brand invested a total of $32.4 million in its lifecycle-management and counter-generics plan. Of this amount, most went to franchise expansion. The company dedicated $31.1 million to the development of a next-generation drug breakthrough, along with necessary work for new formulations and new indications.

The company hoped to expand patent protection and to preserve sales through patent evergreening and, eventually, a new launch. When the ideal objective—a next-generation or combination drug—did not materialize, however, it was ready for the inevitable generics incursion. The company eventually altered its pricing and invested $500,000 in generics counter–promotion, and nearly a million dollars in litigation.

The task of defending an existing brand—particularly one that faces imminent patent expiration—is a difficult proposition. Companies can defend patents in court and dedicate dollars to R&D, but they risk unnecessary loss of revenue if they do not pursue a range of primary, secondary, and tertiary options.

Figure 3 shows that the third set of options is gaining favor. It compares the prevalence of strategies implemented in the recent past (2005 to 2007) with those planned for the near future (2008 to 2010).

Figure 3

The surveyed companies plan to dramatically expand their involvement in the generics market through generics subsidiaries and authorized generics.

In the past, generics subsidiaries typically have been limited to only the biggest industry players, but other companies are now venturing into the arena. Furthermore, despite criticisms, the surveyed companies plan to increase their use of authorized generics by 33 percent.

Thanks to the promise of ROI and extended patent protection, companies will continue their interest in the R&D-based tactics discussed earlier. Survey respondents anticipate expanded use of new-indication approvals (increased usage of 8 percent), combination products (increased usage of 10 percent), and next-generation launches (increased usage of 20 percent).

The popularity of other counter-generics approaches should hold fairly constant over the next two to three years, while survey respondents expect that a couple of tools—namely, pricing strategies and citizen petitions—will decline noticeably in prevalence.

Getting Stakeholders Involved

To ensure that counter-generics strategies develop early in a product's life, forward-looking companies involve many stakeholders in long-term brand planning. More groups involved in a brand's fortunes means that more parties are interested in the brand's total lifecycle.

Figure 4 shows groups commonly included in counter-generics planning. Structurally, the function or committee responsible for franchise management holds ultimate responsibility for such strategy development. In an ideal setup, that group oversees multiple functions that approach the brand in unique ways: the brand-marketing team; clinical development; and strategic support groups, such as market research, competitive intelligence, medical affairs, and pharmacoeconomics. In some cases, a dedicated lifecycle-management or generics-response team exists to provide specialized input and guidance.

Figure 4

A diverse group of stakeholders helps to ensure that counter-generics planning occurs at an early point in brand life. Clinical development groups will consider next-generation options, for example, while market research models the impact of patent expirations for the brand and its competitors. Even if the brand team is heavily focused on promotion and near-term results, as it must be, other groups will help drive counter-generics thinking.

Eric Bolesh is research team leader at Cutting Edge Information, and primary author of Combating Generics: Counter-Generics Strategy, Tactics and Execution. He can be reached at Eric_Bolesh@cuttingedgeinfo.com