What happens when a product loses its patent?

Smart sales strategies help companies sidestep the pitfalls of expiring patents
May 01, 1998
By Pharmaceutical Executive Editors

Losing patent protection on a prescription drug is one certainty in the constantly changing world of pharmaceuticals. Just as surely as a company patents its breakthrough product at the beginning of its development process, that patent will expire approximately 20 years down the road, leaving the door open for generic products to enter the market. And the end of a product's life cycle will affect all areas of a pharmaceutical company, including its sales force.

Although patents last for 20 years in most cases, the actual time a drug is available to consumers is normally much shorter. "In practical terms, you quite often end up with four to seven or five to eight years of patent protection time actually on the market because drug approval takes so long or your application was pending at the patent application office for so long," said Jeff Trewhitt, spokesperson for the Pharmaceutical Research and Manufacturers of America.

Depending on the nature of the drug product, pharmaceutical companies plan for losing patent protection in a variety of ways. "There are a number of different [considerations] from a sales and marketing point of view that you are going to look at when a product gets close to patent expiration," said John Phillips, a senior associate at Coopers & Lybrand Consulting in Parsippany, NJ.

According to Phillips, who spent 13 years in industry research and development, and sales and marketing before becoming a consultant about four years ago, the most straightforward options include: continuing to promote the product as usual; slowly reducing the amount of product promotion; dropping the product; licensing it to competing generic houses; considering prescription to over-the-counter strategies; and patenting the manufacturing process.

In with the new

At Glaxo Wellcome, the corporate strategy involves creating new, innovative products to replace those losing patent protection, said Timothy Tyson, vice president and general manager of business operations at Glaxo Wellcome. And, as products approach patent expiration, the company determines if continued promotion makes economic sense.

When Zantac and Zovirax went off patent in 1997, for example, Glaxo Wellcome decided to quit promoting both products. "It didn't make sense for us to promote them because we could get better returns and better communications in the marketplace by promoting the new drugs," said Tyson, noting that such strategies are determined on a case-by-case basis.

For Glaxo Wellcome's sales representatives, a new drug named Valtrex supplanted Zovirax in their portfolios. "We gave [sales reps] something new that was a better product to treat the disease that they were already talking about," Tyson said. Discovered prior to Zovirax's patent expiration, the new product was promoted as having a better molecule with better dosing and bioavailability.

"In Zantac's case, we had a large number of new drugs that came out in different therapeutic areas," Tyson continues. New products in the respiratory, migraine, depression and epilepsy areas replaced Zantac's position in the company's portfolio.

Glaxo Wellcome is not the only company to face the loss of significant drug patents. Between 1998 and 2003, brand-name prescription drugs that account for close to $12 billion in sales (in 1995 sales dollars) will lose their patent protection, according to figures compiled by Coopers & Lybrand Consulting. Other products that will lose patent protection in 1998 include Janssen Pharmaceutica's Sporanox, Bristol-Myers Squibb's Paraplatin, Key Pharmaceuticals' Normodyne and Normodyne IV, Allen & Hanbury's Trandate and Trandate IV, Sanofi Pharmaceuticals' Inocor, Astra Merck's Tonocard and Hoescht-Marion-Roussel's Lorelco, according to IMS America, a Plymouth Meeting, PA-based health information company.

The companies that manufacture these products are already thinking about how they will replace them. "If things are not coming out of their pipelines or are expected to come out of the pipeline [later], companies might seek acquisitions or joint ventures," said Pat Pesanello, managing associate at Coopers & Lybrand Consulting. She noted that sometimes a company experiences a time gap when one patent runs out before their next blockbuster is ready. "They may stop the gap with either joint ventures or comarketing agreements," she said.

Generics

On the other side of the industry, anywhere from zero to 15 or more generics may enter the market when a brand-name drug patent ends.

"It really depends on market value of the brand-name drug going off patent," said Gordon Johnston deputy director of the FDA Office of Generic Drugs. "Generally, the larger the market the more generic applications we'll see."

As an example, he explained, the FDA might receive 10 to 12 applications for a product with sales in the ballpark of $500 million to $1 billion. At the other end of the scale, the FDA may receive only two to three applications for a product with sales in the range of $20 million. For example, the FDA approved 13 to 14 generics on the day the patent for Bristol-Myers Squibb's Capoten expired, according to Johnston.

The generic drug application process changed in 1984 when Congress passed the Waxman-Hatch Amendment. Under the amendment's provisions, a new generic drug no longer needs to complete the same efficacy and safety testing procedures as a pioneer drug. Instead, generics must be proven to be bioequivalent to the brand-name, pioneer drugs.

"It streamlines the abbreviated new drug application process," Trewhitt said. "It does make it easier and faster for a generic drug to get onto the market." He estimates that generics constitute half of the prescription drug market in the United States today, as compared with 10% to 15% in early the 1980s.

The FDA generally begins receiving generic applications approximately two to three years before a patent expires unless the generic company challenges a brand-name patent's validity. Just shy of two years - 23 months - is the average length of a generic approval process.

For generic companies, time is of the essence. "Studies have shown that the first generic that enters a market when a product goes off-patent will capture 80% of the [generic] market share and will not relinquish it," Phillips said. But, he noted, in some cases manufacturing costs prohibit generic companies from entering the market.

For example, Fungizone, another product from Bristol-Myers Squibb, didn't face generic competition for a number of years after the patent expired. "To manufacture that product was so difficult and expensive that it was prohibitive for any generic company to actually manufacture the product," Phillips said.

When a company does continue to market an off-patent product, it often changes its marketing strategies. "[It is estimated] that a brand-name drug will lose more than half of its sales within two years of losing patent protection," Trewhitt said.

However, a company may have its sales force continue to promote a product for a few years after the product's patent expires. "Initially, before patent expiration, it might be on the first or second priority in the sales call. Now it's more of a reminder call," Phillips explained.

The close-up view

So what does patent expiration mean to a pharmaceutical sales representative?

"Representatives may become nervous and anxious when one of the major products that they are communicating is at risk," Tyson said. "The impact to a sales representative is to understand what they will be talking about after patent expiration. And if [a company is] successful at achieving [its] objective - to continue to innovate and renew its product portfolio - the sales representative has something new to talk about, and is extremely excited about having something new to talk about."

With an increase in the number of products being approved by the FDA and shorter approval times, Tyson underscores that the discovery and launch of new drugs is accelerating.

"The message to representatives is that there are plenty of exciting times ahead. Sales representatives still make a difference. They are still the most effective promotional tool used in the pharmaceutical business," he stressed, pointing to his company's recent patent expirations as examples. "Two major products - the number one and number six largest pharmaceuticals ever - went off-patent and Glaxo Wellcome's sales representatives have more to talk about than ever." PR

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