Innovative marketing strategies after                                patent expiry: The case of GSK’s                     ...
Chandon                     generics and redirecting the savings                   brand through higher promotion by the  ...
Innovative marketing strategies after patent expiry               copy will typically be priced higher than a             ...
Chandon                                                           40%                                                     ...
Innovative marketing strategies after patent expiry                                    80.0                               ...
Chandon                     at them. Clamoxyl sales saw a sharp                   Clamoxyl, but as an advanced cure for   ...
Innovative marketing strategies after patent expiry               awareness and best image of all                         ...
Chandon                     all French doctors in October 1996,                  SB had forecasted an 8 per cent market   ...
Innovative marketing strategies after patent expiry               Every pharmaceutical company facing                     ...
Case Commentary                Innovative marketing strategies after                patent expiry                Pierre Ch...
Case Commentary              a mutually beneficial relationship with a                          without cost, both real and...
Case Commentary                    with regard to parallel imports; which                  product could be licensed out t...
Case Commentary               of total prescriptions by value compared                         consideration was given to ...
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Article innovative marketing strategies after patent expiry the case of gsk-s antibiotic clamoxyl in france

  1. 1. Innovative marketing strategies after patent expiry: The case of GSK’s antibiotic Clamoxyl in France Received (in revised form) 7th August, 2003 Pierre Chandon is Assistant Professor of Marketing at INSEAD, where he teaches brand management to MBAs and executives. His area of expertise is in brand management and in consumer behaviour for low-involvement products, with applications in the areas of sales promotions and point-of-purchase marketing. He has published articles and books on these topics in leading academic journals, including the Journal of Marketing Research and the Journal of Marketing. INTRODUCTION building and price competition. Of course, Before assessing how best to respond to a a company can also resort to non- loss of patent protection, it is important to marketing oriented strategies such as legal consider whether radical change is really efforts to extend patent protection or necessary. It may be that the pharmaceutical tactical alliances with generic makers and product is operating in a niche category that can simultaneously implement different is too small to attract challenging generic strategies, thereby creating a hybrid competition, at least in the short term. It model. In a first stage, it is nevertheless could also be that the awareness and image useful to review each strategy of the brand is so strong in patients’ and independently, starting from the most doctors’ minds that it would retain most of common to the least common. its equity even after the loss of patent protection. In most cases however, the Divest entry of generic competitors radically alters This strategy involves cutting all the competitive landscape and calls for promotional and research expenses once appropriate radical responses. In the next the brand faces direct competition from section, the five major strategies available to pharmaceutical brands facing competition from generics are briefly reviewed. This is High Innovate (new forms, followed by a review of the innovative dosage, services, etc.) marketing strategy adopted by SmithKline Beecham in France in the late 1990s, when Provide more value for the money (new flavour, packaging, etc) its Clamoxyl antibiotic faced a sudden increase in competition from generic Brand building amoxicillin. Invest in generics FIVE STRATEGIES FORPierre Chandon COMPETING AGAINST GENERIC Reduce priceAssistant Professor ofMarketing, PHARMACEUTICAL PRODUCTS Low DivestINSEAD,Boulevard de Constance, Figure 1 shows that the five majorFontainbleu F-77300, FranceTel: +33 1607 24987 marketing strategies available for a Low High Price competitionFax: +33 1607 46184e-mail: prescription drug facing competition generics involve a trade-off between brand Figure 1: Marketing strategies after patent expiry # Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 65
  2. 2. Chandon generics and redirecting the savings brand through higher promotion by the towards brands that are still enjoying medical representatives. Compared with patent protection. Sometimes, this the ‘milk and divest’ strategy, this option ‘milking’ strategy actually involves price also entails low price competition, but can increases to take advantage of the higher improve the equity of the off-patent brand brand equity of the brand among the by offering additional patent protection. smaller segment of hard-core loyal On the other hand, innovations require customers. This strategy leads to the years of research before being authorised lowest levels of brand building (because and, in some countries, do not necessarily the brand is not supported) and price extend the duration of the patent. competition (because the price advantage of generics is not challenged). Provide more value for the money The success of this strategy hinges on the Introducing new and improved flavours, inertia of doctors, patients and the other packaging, or delivery systems (eg easy to stakeholders (pharmacists, HMOs, swallow pills, or patches) can lead to governments). When their motivation to additional emotional or functional switch to the newly-available generic is consumer benefits (eg higher compliance). low, either because of low financial The resulting differentiation enhances the incentives or strong attachment to the awareness and image of the brand and brand or to the value of brand equity for hence increases its equity. Because these funding research and development, such a innovations typically do not extend patent strategy can deliver high profitability, at life however, it is more difficult to pass the least over the short term. Over the longer costs on to the consumer when facing term, however, the profitability of this generic competition and hence, this strategy depends on the elasticity of the strategy’s lead is one step ahead towards other still-patent protected drugs to the price competition. In addition, these additional promotional investments. As improvements can be easily copied by many examples have shown, it is not generics and thus often have only a weak always easy to convince doctors and impact on sales, while reducing margins. patients to upgrade to the new patent- These changes can also be perceived as protected drug in the category and marketing gimmicks and hurt the patenting these next-generation products is perceived scientific integrity of the brand. becoming increasingly hard. One of the major drawbacks of this strategy is that it Invest in generics encourages generic makers to challenge Pharmaceutical companies can try to fight drug patents more aggressively, knowing at both ends of the market by introducing that the market will be all theirs as soon as their own generic. This will reduce the they have received the green light. profitability of generic makers and may deter them from entering the category. Innovate On the other hand, pharmaceutical Short of introducing a completely new companies have realised that producing molecule, pharmaceutical companies can and marketing generics requires different innovate by launching new forms and skills to their traditional business and that dosages or by demonstrating effectiveness it is difficult to be a strong player in both for new indications. They can also business models. To overcome this innovate by offering better services for difficulty, pharmaceutical companies can doctors (eg hotline), and better license the drug before the expiry of the communication on the illness and on the patent in exchange for royalties. The new66 International Journal of Medical Marketing Vol. 4, 1 65–73 # Henry Stewart Publications 1469–7025 (2004)
  3. 3. Innovative marketing strategies after patent expiry copy will typically be priced higher than a The antibiotics market true generic, but will benefit from first- Doctors are facing many uncertainties mover advantage, preferential access to when deciding which antibiotic to raw material and manufacturing know- prescribe. It is difficult to identify the how, while still deterring entry from other specific bacteria that are responsible for the generic makers. symptoms, let alone to know with confidence that these symptoms are not Reduce price caused by a virus. Some families of On one hand, this strategy has the lowest antibiotics like amoxicillins have a large potential for brand building. On the spectrum of indications and therefore other hand, narrowing the price gap with compete with other families such as generics addresses the main problem macrolides and first generation created by the expiry of the patent; that cephalosporins for the most common the equity of the brand can no longer causes (respiratory infections). At the time sustain a large price differential with what of the crisis, these more recent families of is, essentially, the same product. At the drugs were lucrative because they were extreme, aligning the price with the more expensive than amoxicillin, were still generic will make doctors, pharmacists patent protected, and were heavily and regulators indifferent between the promoted. As a result, the antibiotics two and may force the weakest generic market exhibits a very strong level of makers out of the business, given their competition. lower economies of scale. On the other From the very beginning, Beecham hand, price competition invites retaliation laboratories positioned Clamoxyl with and can quickly degenerate into a price strong scientific support, notably a war that would kill all the profits in the photograph of dead streptococci. Thanks category. Another issue to be kept in to the strong research and development mind here is that most doctors who efforts of SmithKline Beecham (SB), prescribe the drug are not aware of Clamoxyl quickly became available in oral prices. Communicating the price change and injectable forms adaptable to all is therefore an integral part of this situations for adults and children. In line strategy. with the functional positioning of Clamoxyl, SB always communicated on CONTEXT OF THE CLAMOXYL the therapeutic benefit of these CASE improvements. SB also provided excellent When it was launched in 1974 by service for doctors, ranging from a 24- Beecham laboratories, Clamoxyl was the hour hotline, to jars of sweets to offer to first amoxicillin available in France (it was children during medical visits. Finally, SB launched under the Amoxil brand in the promoted Clamoxyl heavily, relying on a USA and other countries). Clamoxyl was dedicated salesforce and on distinctive a rare breakthrough product and enjoyed advertisements emphasising the uniqueness immense success. Despite losing its patent of Clamoxyl and its red colour. protection in 1980, Clamoxyl was still the highest selling antibiotic in 1996. To The arrival of generic competition understand this peculiar situation, it is After the expiry of Clamoxyl’s patent in important to highlight some points 1980, generics and branded copies entered regarding the antibiotics market and the the market, selling for at least 30 per cent regulatory and political environment less than Clamoxyl. These generics were regarding generics in France. not available in as many forms as# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 67
  4. 4. Chandon 40% All Amoxicillins 35% 30% Share of adult antibiotics market 25% Clamoxyl Pharmacists allowed to substitute 20% 15% New marketing CNAM Letter strategy New price cut 10% 5% 0% May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- 94 94 95 95 95 96 96 96 97 97 97 98 98 98 99 99 99 00 00 00 01 01 01 Figure 2: Market share of Clamoxyl and of all Amoxicillins in the French adult antibiotics market (1994–2001) Clamoxyl. Generics quickly gained about increased competition from other families half of the amoxicillin market (see Figure of antibiotics, helped by their substantially 2). Yet, most producers of generic drugs higher promotional investments. Still, in were not breaking even because they the year ending in August 1996, Clamoxyl lacked the wide portfolio of products remained the most prescribed antibiotic in necessary to achieve economies of scale. France, captured 34 per cent of the To counter the loss of the patent, SB amoxicillin market and 8.8 per cent of the developed and tested different improved total antibiotic market. Its turnover versions of the molecule, which could (C =75.4m) accounted for 33 per cent of have been marketed as a replacement for SB’s antibiotic sales and 18.2 per cent of its Clamoxyl, but to no avail. In the absence total sales. of a foreseeable breakthrough, SB invested in the brand by developing new forms and Regulatory and political environment dosages (eg 1 g dose necessitating only one Multiple public authorities regulate the take per day; sugarless Clamoxyl for pharmaceutical industry in France. Each is children) and continued to promote quite autonomous and looks after different Clamoxyl through medical representatives aspects like licensing, pricing, and advertising. In addition, the arrival of reimbursements, etc. The price and many undifferentiated generics and copies reimbursement levels are decided after ironically helped reinforce the positioning negotiation with the pharmaceutical labs of Clamoxyl as the only true amoxicillin. and depend on the incremental therapeutic The progression of generics halted after benefits that the new drug would offer. 1985 and the market share of Clamoxyl Social security reimburses 65 per cent of remained stable for about 10 years, when it the price of antibiotics, but 85 per cent of started to erode again (losing about two French people have private insurance, market share points in 1996). Whereas which reimburses the rest. In practice, some of its decline was due to competition patients do not pay for their from generics, part of it was also due to pharmaceutical products and can visit as68 International Journal of Medical Marketing Vol. 4, 1 65–73 # Henry Stewart Publications 1469–7025 (2004)
  5. 5. Innovative marketing strategies after patent expiry 80.0 70.0 60.0 50.0 CNAM Letter (July 1996) New Marketing Strategy (October 1996) 40.0 30.0 20.0 10.0 0.0 Figure 3: Relative market share of Clamoxyl 500 =5.64 per box), Agram 500 =5.34), and Bristamox 500 =3.51) (C (C (C in 1995 and 1996 many doctors (general practitioners and encourage the systematic choice of specialists) as they want. Up until 1999, alternative, less costly drugs. In practice pharmacists were not allowed to substitute however, the French authorities used a the prescribed drug with its generic mixture of persuasion and threats of future counterpart. As a result, French annual per financial sanctions to encourage doctors to capita expenditures on pharmaceutical opt for generic drugs. products were (and still are) the highest in Europe. Clamoxyl is targeted Little had been done to really curb In July 1996, the social security agency medical expenses up until 1996, when the responsible for the reimbursement of drugs Juppe reform (named after the French ´ (the CNAM) sent a letter to all doctors Prime Minister who led it) granted new urging them to prescribe generic power to the regulatory bodies. The new amoxicillin instead of Clamoxyl. Although law established limits on the number of doctors regarded this as an interference and authorised prescriptions and on the choice an attack on their freedom of prescription, of drugs and proposed to set up a it affected them because of the threats of computer network that would monitor future financial sanctions and because a doctors’ prescriptions more easily and strong media campaign pointing the finger# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 69
  6. 6. Chandon at them. Clamoxyl sales saw a sharp Clamoxyl, but as an advanced cure for decline of 29 per cent in the three months specialised problems (eg sinusitis, patients following the CNAM letter (see Figure 2). at risk such as children) and in cases of The market share of all amoxicillin bacterial resistance to Clamoxyl. The products increased, but not as much as the specialised positioning of Augmentin market share of Clamoxyl decreased, limited its prescriptive potential, but suggesting that some of the sales lost by enabled SB to keep Clamoxyl’s Clamoxyl were diverted towards other positioning as the antibiotic for the families of antibiotics. Within amoxicillin, majority of common infections. It also most of the substitution went towards the allowed Augmentin to be priced at 2.3 cheapest generics such as Bristamox rather times the price of Clamoxyl. than towards branded copies such as SB decided against following this Agram (see Figure 3). strategy for the following reasons. First, despite perception of the contrary by some MARKETING OPTIONS FOR doctors, Augmentin and Clamoxyl were CLAMOXYL not direct substitutes. Clamoxyl had fewer The rapid decline in market share caused side-effects and was more effective than by the CNAM letter, combined with the Augmentin for some key indications. The slow but continuous erosion of Clamoxyl level of resistance to Clamoxyl was still sales over the last year and the continued low in 1996 and, last but not least, promotional support for other families of Clamoxyl tasted better than Augmentin. antibiotics was a source of deep concern Secondly, repositioning Clamoxyl as a for SB. The management forecast that new all-purpose antibiotic would seriously Clamoxyl’s market share of the antibiotics damage the credibility of SB (which had market would drop to 8 per cent at the been arguing to the contrary for 12 years) end of 1996 (compared with 10.6 per cent and would require new price negotiations in 1995 and 8.8 per cent in the year ending with the CNAM. Finally, promoting both in August 1996) if they changed nothing Clamoxyl and Augmentin increased to their strategy. Changing nothing was doctor’s awareness of amoxicillin, the key therefore not an option: Even Clamoxyl, component in both drugs, at the expense one of SB’s ‘jewel drugs’ had to confront of other families of antibiotics. competition from generics one way or the other. SB therefore considered each of the Innovate or provide more value for strategies outlined in Figure 1.1 money This strategy was difficult to follow, Milk Clamoxyl and invest in simply because it was becoming very Augmentin difficult to improve upon Clamoxyl. One obvious idea would be to stop Clamoxyl was already available in more investing in Clamoxyl and to redirect all forms than any other brand. In addition, the freed resources towards Augmentin, obtaining the license and launching a new which was still patent-protected. dosage or form would take years and Introduced in 1984, Augmentin is a could be easily copied by generics, once combination of amoxicillin and clavulanic authorised. It was also difficult to think acid, an inhibitor that neutralises the most about how Clamoxyl could be promoted prevalent mechanism of bacterial resistance differently to doctors (direct-to-consumer to amoxicillin. When it was launched, advertising is forbidden in France). What Augmentin was not positioned to doctors could SB say that doctors did not already and sold to the CNAM as an improved know? Clamoxyl had the highest brand70 International Journal of Medical Marketing Vol. 4, 1 65–73 # Henry Stewart Publications 1469–7025 (2004)
  7. 7. Innovative marketing strategies after patent expiry awareness and best image of all patients and the media. This is important, amoxicillins. The very strong promotional since people are often not aware of drug and advertising pressure from macrolides prices and not accustomed to the idea of and cephalosporins also implied that it price haggling over medical products. A would be very difficult for SB to large price cut would also be hard to significantly reverse the balance of power match by generics drug makers, who in favour of the overall amoxicillin would need the approval of their category. corporate management to retaliate at this On the other hand, by pointing the level. It would also probably wipe out finger at Clamoxyl, the CNAM letter has copies (such as A-Gram) that were priced made it a symbol of the new hardball at a 10 per cent discount by encouraging attitude of the government, putting their manufacturers to stop their pressure on branded drugs and on doctors. promotion. Finally, it would deter the By continuing to fight for Clamoxyl, SB entry of new generics. would be seen as fighting for doctor’s freedom of prescription and for continuing WHAT HAPPENED research and development. To be effective, The strategy ultimately followed by SB this message would have to be coupled with for Clamoxyl was innovative on many a price reduction to nullify the financial points. First, because they implemented arguments put forward by the CNAM. many of the options reviewed here simultaneously. Secondly, because they Reduce price explored new routes by moving the debate A price reduction would help tackle the from price haggling towards a more source of the problem. Clamoxyl was still comprehensive solution. The solution was a strong brand but was it strong enough to a direct result of the dynamics of warrant a 30 per cent price premium over competition between antibiotics and of a generic amoxicillin, especially in the face deep understanding of the long-term goal of intense pressure by the CNAM and the of the CNAM, which is to lower their media in favour of substitution? The main reimbursements, not to reduce the price of issue with this strategy is that it was a particular drug. Yet, its letter encouraged inconsistent with SB’s corporate some doctors to substitute Clamoxyl not philosophy and business model, which with only generic amoxicillin, but with were oriented towards the discovery of the still-patent protected and more innovative drugs, not price competition. It expensive, macrolides and cephalosporins, is also risky because generics would resulting in a net increase in expenses for eventually lower their price, as this was the CNAM. their only competitive advantage. SB therefore negotiated a gentleman’s Even if SB decided to reduce the price agreement with the CNAM, whereby of Clamoxyl, the size of the cut is a hotly Clamoxyl would be taken off the table of debated issue. On the one hand, a small drugs to be substituted in subsequent price cut might be sufficient to reduce the CNAM letters. In exchange, SB lowered price gap to the level of the brand equity Clamoxyl’s price to the level of the gap. This price cut could also be selectively cheapest generic amoxicillin (–30 per cent implemented only on the forms facing on average) and promised to continue to competition from generics. On the other promote Clamoxyl, and thus Amoxicillin, hand, a drastic price cut aligning so as to reduce the switch towards more Clamoxyl with the cheapest generic would expensive macrolides and cephalosporins. be easy to communicate to doctors, Simultaneously, SB sent an open letter to# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 71
  8. 8. Chandon all French doctors in October 1996, SB had forecasted an 8 per cent market announcing the price reduction and the share for Clamoxyl if they changed decision to continue to develop and nothing. Compared with the ‘no move’ promote Clamoxyl. Consistent with the scenario, SB’s strategy generated a positive scientific positioning of Clamoxyl, the =17m profit for SB. C letter emphasised that this decision ensured continued medical research and freedom of Longer-term effects prescription for the doctor. The letter was As expected, generics continued their slow accompanied by an advertising campaign growth, helped by a widening price gap in the specialised press emphasising that with Clamoxyl, continued pressure from Clamoxyl offered doctors ‘the power of the government and media in favour of choice’. generics and continued promotional effort by still patent-protected drugs (see Figure Immediate effects 2). SB lowered the price of Clamoxyl The announcement that SB would align again in September 1999 by 17 per cent on the price of Clamoxyl with the price of average, while maintaining research and generics generated a lot of positive media promotional efforts. As a result, SB was exposure for Clamoxyl and SB. Probably able to stabilise Clamoxyl’s market share due to the size of the price cut, for a while. The positive effects of the competitors did not immediately match price cut however, were more than offset Clamoxyl’s new price. As a result, by a new law introduced in the spring of Clamoxyl regained all the market share 1999, which allowed pharmacists to lost to generic amoxicillin within a couple substitute branded drugs with generics and of weeks (see Figure 3). granting them higher margins on generics. By the end of 1997, Clamoxyl’s market The continued fall in sales was also due to share was actually higher than its pre-July the decision by generic amoxicillin’s to 1996 level, gaining 3 percentage points to match the two price reductions initiated stabilise at around 20 per cent of the adult by Clamoxyl. Yet, the market share of antibiotics market (see Figure 2). As amoxicillin continued to decline and the predicted by SB, their strategy also total cost of reimbursing antibiotics for the improved the market share of amoxicillin social security system therefore increased in the antibiotics market (about 33 per cent over the period. in 1997 compared with 29 per cent in 1996). The total savings for the CNAM in CONCLUSION September 1997 were estimated by SB at It is inevitable that the competition from C =36.7m, of which =28m came from C generics will erode the profitability of the Clamoxyl’s price cut, =4.5m from C original brand. As this paper argues subsequent price reduction by other however, and as the Clamoxyl case amoxicillins and =4.2m from the C demonstrates, this does not imply that substitution of more expensive antibiotics pharmaceutical companies should not put by amoxicillin. up a fight. Clamoxyl is obviously worse Financially, the new strategy did not off now than it was in the summer of break even: The higher market share did 1996. The continuous investments in brand not compensate for the 30 per cent price building, coupled with well-publicised reduction. However, the pre-July 96 price cuts, and win-win agreements with situation cannot be used as a realistic the French social security system however, benchmark given the rapid erosion of helped extend the life of the brand for half Clamoxyl’s market share. As noted earlier, a decade, generating substantial profits.72 International Journal of Medical Marketing Vol. 4, 1 65–73 # Henry Stewart Publications 1469–7025 (2004)
  9. 9. Innovative marketing strategies after patent expiry Every pharmaceutical company facing Professor of Marketing at INSEAD; competition from generics should Olivier Kovarski, Professor of Marketing therefore carefully review the different at ESC Normandie; Jacques Lendrevie, marketing strategies briefly outlined here Professor of Marketing at HEC; Sarah before deciding to pull the plug on their Spargo, Research Associate at INSEAD brands. It may be more profitable, and and Marc Vanhuele, Associate Professor of considerably less risky, to add a few years Marketing at HEC. The case studies and to an old brand’s life by continuing to teaching notes are available from the invest in it, even for a reduced margin, European Case Clearing House at: than to let generics take over the market in and an the hope that the newly freed investments inspection copy of the case can be will substantially boost the sales of other downloaded at: still patent-protected brands. chandon/mm1/resume/resume.htm. The ´ ´ authors thank Pierre Chahwakilian (GSK, France) for his invaluable assistance writing ACKNOWLEDGMENTS the case studies and Neeraj Mehrotra This article is based on two INSEAD case (INSEAD MBA 03) for his research studies (‘Marketing Strategies in the assistance. Competition Between Branded and Generic Antibiotics: Clamoxyl in 1996 (A- Note case) and Augmentin in 2002 (B-case)’), 1 Marketing their own generics was not considered both written by Pierre Chandon, Assistant at that time for a variety of reasons.# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 73
  10. 10. Case Commentary Innovative marketing strategies after patent expiry Pierre Chandon writes: story is the importance of replacing a In 2003, what can we learn from what narrow problem definition (price happened to Clamoxyl in France in 1996? competition from generics) in favour of a The Clamoxyl story shows that real understanding of the goals and pharmaceutical brands can have constraints of the key stakeholder (in this considerable equity and can thus put up a case, the French social security system’s successful defence against generics. This is goal of reducing the growth in antibiotic a lesson that many pharmaceutical reimbursements). This lesson still holds companies should ponder, given how today, although the specific strategy little respect they generally have for their implemented in 1996 is no longer valid. brands. For example, we too often see Consider Augmentin, whose patent newly merged corporations happily expired in France in 2002. The new law forfeiting esteemed old brands in favour introduced in 1999 shifted a significant of new acronyms with zero awareness and amount of power from the doctor to the weak image. A market-savvy company pharmacists, who are now allowed to would not give up that easily on these change a prescription to any cheaper fantastic brands and on the value that they generic. Most generics offer higher unit have, inside and outside the company. margins and therefore Augmentin would Similarly, too few pharmaceutical not gain if they were to reduce the price. companies know how to leverage the Doctors would be more likely to power of their brands through careful prescribe it but pharmacists would brand extensions or coherent brand continue to sell generics instead (and architecture (the relationship between the would be irritated at the lower margins corporate brand and all the product for Augmentin). GSK therefore decided brands). Finally, pharmaceutical to license Augmentin to three generic companies are still learning how to brand makers six months before the end of the the total customer experience, that is, not patent protection period. In exchange for just the product, but the name, the royalties, these generics producers packaging, the delivery system, and the obtained manufacturing know-how and, pre- and post-consumption information most importantly, a head start deterring search. entry of other generic makers and hence Another lesson from the Clamoxyl reducing price competition. Anthony J. Knight writes: strong global branding and positioning, This case hinges on three main points: prescribing inertia and the establishment of74 International Journal of Medical Marketing Vol. 4, 1 74–77 # Henry Stewart Publications 1469–7025 (2004)
  11. 11. Case Commentary a mutually beneficial relationship with a without cost, both real and opportunity. government reimbursement authority. The latter should be valued in terms of The branding used for Clamoxyl/ peak sales value time gained for a patent Amoxil set new standards in clarity and protected molecule that could have consistency of promotional material, brand benefited from that resource. It is doubtful image and positioning. This placed the that there was any financial advantage in product in a class of its own with this strategy over taking a royalty from performance and reliability to match; it out licensing and cash cowing the residual was an icon of its age. There was a strong high price sales while withdrawing emphasis on palatability for children promotion. reinforced by the give-away sweets of the There is little doubt that strong same flavour. The message was clear — branding, line extensions, process patents, prescribe this product and the patient innovative delivery technologies and would take it and get better; the security licensing deals all serve to slow down the of knowing that the patient was unlikely rate of decline of patent profits, but the to get worse or to have significant side- reality today is that payers take active effects and lead to out of hours calls. steps, through policies and penalties, to Thousands of doctors did just that and the drive down prescribing costs for post- product lived up to its promise, which, patent molecules that have constituted a coupled with a general ignorance of cost drain on health budgets. Post-patent profit and an unchallenged view of the freedom protection strategies need to be in place to prescribe, created a strong post-patent long before patent expiration, the inhaler loss position. Thus two of the main planks market provides a good model for for post patent loss survival were in place. observing this. Active promotion should Only one, strong branding, survives as an be reserved for cases where the product option in today’s markets. The offer is not reproducible, or tactically in opportunity to negotiate a win-win response to a local opportunity. position with a reimbursement authority Return on marketing investment must remains an opportunistic strategy that is drive resource allocation decisions in dependent on local circumstances and today’s pharmaceutical environment. unlikely to be a universal option. Generics, whatever the strategy, do not The gain for GSK was estimated at provide the yields required when =17m, however this was based upon their C competing for investment revenue or view of the decline in market share capital in a mainstream pharmaceutical resulting from doing nothing. Without company. They do, however, make sense that estimated further decline, the project to highly focussed, low overhead, branded did not break even. The commitment to generic specialist company from whom continue promotion would not be royalties can flow for many years. Anthony J. Knight was formerly Customer Marketing Director at Parke-Davis and is the founding partner of the Portland Partnership, a pharmaceutical strategy consultancy. He can be contacted at; URL: Tony Booley writes: Pharmaceutical companies often do not The likely degree of competition from consider the range of strategies open to generics will be influenced by external them when faced with a patent expiry. factors such as the competitive situation# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 74–77 International Journal of Medical Marketing 75
  12. 12. Case Commentary with regard to parallel imports; which product could be licensed out to a generics influences the relative attractiveness of a company in exchange for royalties. market for a generic competitor. The Perhaps pharmaceutical companies should competitive landscape at patent expiry is recognise that managing a brand post- very country specific due to the differing expiry is a specialist area? There are also regulatory and market landscapes. For speciality pharmaceutical companies that example, the retention of brand equity will manage brands post patent expiry. may be influenced by factors such as Another strategy is to license the brand computerised substitution, which is to another company to manage post- sometimes mandatory. patent situation. This requires skilful Companies also need to be proactive valuation of future cash flows. It may be with older brands that may have been hit better to have the future value of the by generics, as brand revitalisation may be brand revenue stream now to invest in possible later in the life cycle. Getting price brand building in other more profitable increases when employing a milking areas. The marketing risk can also be strategy depends very much on the pricing passed onto another company. Companies framework in individual countries. One with a branded pharmaceutical portfolio method that has been employed is to need to constantly evaluate marketing risk ‘foster’ products to another company that across the portfolio and actively manage may be in a better position to gain price this risk. increases. In countries such as the UK, it is When considering a price reduction now very difficult to get price increases strategy, we need to look at an approach due to the constraints of the UK that reduces the price selectively through Pharmaceutical Price Regulation Scheme different deal structures. Examples would (PPRS) system. It is not always easy to be hospital contracts or brand persuade doctors and patients to upgrade ‘equalisation’ deals with larger retail to the new patent-protected drug. We pharmacy chains, where a company’s therefore need to consider replacement branded prescription line is sold at brand strategies such as those employed by Astra price and also dispensed for generic Zeneca with Losec or Schering Plough prescriptions, but reimbursed at an agreed with Neo-Clarityn. In addition to generic price. The pharmacy benefits fragmenting the business by dosage form, through lower administration costs and consideration needs to be given to not having to stock both the branded and outflanking the generics by taking the generic product. The pharmaceutical brand over the counter (OTC). Some company benefits by effectively and innovations such as extended use or selectively shutting out the generic changed formulations can be brought to equivalent of its product. market relatively quickly if developed by It is not surprising that Clamoxyl was an organisation committed to giving the still the best selling antibiotic in 1996. project sufficient priority. A case can be France has until recently at least, had made for a partnership or out-licensing to greater difficulty in containing healthcare a speciality pharmaceutical company. costs due to the local market structure. Concerning an ‘invest in generics The existence of primary care gatekeepers strategy’, branded pharmaceutical in the UK renders the NHS more suitable companies have recognised that producing to cost containment. Compared with other and marketing generics requires different countries, France had remained a more skills and a different businesses model. largely branded market. Overall in 1996, Therefore the possibility exists that the generics only accounted for 2–3 per cent76 International Journal of Medical Marketing Vol. 4, 1 74–77 # Henry Stewart Publications 1469–7025 (2004)
  13. 13. Case Commentary of total prescriptions by value compared consideration was given to shifting with approximately 40 per cent by value manufacturing to India or China in order in Germany and 25 per cent in UK. to preserve margins? Also were there any Did SB consider investing in brands formulation changes possible that would other than Augmentin? Augmentin was reduce the cost of goods? The campaign considered principally to retain business in appealing to French doctors’ ‘freedom of the same market. Extra investment in prescription’ obviously had the right other SB brands may have given a greater emotional impact at the time. The SB return? Given that SB’s business model marketing strategy demonstrates how was oriented towards the discovery of rational and emotional marketing practices innovative drugs and not price can work well together. competition, why did SB in 1996 or earlier Pharmaceutical companies generally do not consider divesting the brand to not put up much of a fight post patent another company? The net present value expiry. This is because their business (NPV) of this strategy may have been models are focused elsewhere. However, superior given the strong brand equity and the emergence of speciality pharmaceutical historical sales situation, which would have companies, whose business model allows driven the forecasts. them to focus on and manage brands post No mention is made of manufacturing patent expiry opens up a host of new considerations. As Clamoxyl needed to strategic options for managing this phase increasingly compete on price, what of the product life cycle. Tony Booley is a board director of Alliance Pharmaceuticals and has 23 years’ experience in the pharmaceutical and healthcare industry including posts at the multinationals Leo Pharma, Glaxo Wellcome and Getinge Industrier. He can be contacted at; URL: Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 74–77 International Journal of Medical Marketing 77