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Patent expiries are inevitable, but brand teams should look to graduate the sales curve
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 Companies have historically withdrawn support from products as LOE approaches, backing into strategies dictated by their overall portfolio strategy.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.
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.
Your team believes your brand could retain a higher percentage of sales post-LOE—now what? Importantly, ex-US markets may offer greater post-LOE opportunities due to still maturing generic competition, pharmacists' larger roles in drug selection, or less established markets. Not surprisingly, pharma continues to look abroad. Pfizer's newly launched and newly chewable Viagra Jet demonstrates how reformulations tested in key ex-US markets—in this case Mexico—often have global overtones.
Even on the home front, however, brands have two complementary sets of options: bolster unit sales or increase profitability. In the former category, we recommend three approaches:
» Build and leverage brand loyalty;
» Support messaging with investigator-initiated research and niche data; and
» Leverage aggressive contracting to preserve or build access for higher utilization products.
As an example, in the anti-epileptic drug market, UCB undertook product enhancements for Keppra, but complemented them with strong physician branding and patient advocacy outreach, keeping its sales ahead of the curve. Building such loyalty doesn't need to be expensive. Physician and patient groups often bemoan the loss of product education and support materials as manufacturers harvest their brands, but manufacturers can leverage these resources.
Brands can also maintain marketing efforts. Even if label expansion is out of reach, brands should go into LOE full steam ahead. Supporting physician-led research or targeting co-morbid populations with higher unmet needs can cement peri-LOE positioning. Repackaging old data or broadcasting new trial results helps create buzz from the podium for an otherwise tired brand. Unfortunately, such tactics require a deft touch. Overly aggressive promotion lands hefty fines, as Novartis unfortunately discovered with its $185 million settlement for off-label promotion of Trileptal, as its patent expiry approached.
Even if brands cannot rely on consumer loyalty, aggressive contracting can grow sales. Different brands have gone to different discounting lengths, depending on managed care's appetite. Merck successfully got UnitedHealth Group to move Zocor into the cheapest tier on its three-tier formulary, saddling Teva's generic simvastatin on tier three with a $15-higher co-pay. Such approaches firmly cement long-term relationships with payers and providers while pumping up post-LOE sales, at least for another six months. For sub-blockbusters—such as the Cosopt or Razadynes of a particular class—group-purchasing organization private labels, integrated deliver network's formularies, and Medicaid preferred drug lists all offer additional potential opportunities to bolster unit sales. The trick, of course, is to make sure a brand does not buy market share at the expense of profit.
What if unit sales can't be maintained? In this case, it is worth focusing on leveraging existing market share through harvesting brand equity through price increases, or growing a brand's margin by streamlining COGS, sales, or marketing expenses.
Particularly for sub-blockbusters, more aggressive price increases can often capture higher margins with limited volume loss. Payers report price increases of up to 25 percent in the last 24 months before LOE, and typically view this as the "cost of doing business." Alternatively, or in parallel, brands can employ various cost-cutting tactics. Streamlining manufacturing and distribution by reducing SKU variety or the number of batch runs can generate easy savings while maintaining brand loyalty. In addition, brand teams should carefully evaluate the optimal peri-LOE advertising mix across major spend categories, as well as the use of emerging technologies such as sales force automation, e-detailing, and customer relationship management. Brands may take a page from AstraZeneca's Nexium playbook and wind down their sales forces while capturing economies of scale through new call centers, online information, and online sampling. When deployed effectively, such strategies can help identify brand-loyal customers and maintain profitability.
Andrew Matthews is Associate at Leerink Swann Consulting. He can be reached at Andrew.Matthews@leerink.com
Frank David is Director at Leerink Swann Consulting. He can be reached at Frank.David@leerink.com
Jeffrey Aroy is Senior Managing Director and Head of Leerink Swann Consulting. He can be reached at email@example.com