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Generics Threats And  Opportunities: Mounting an Effective Defense Strategy
 

Generics Threats And Opportunities: Mounting an Effective Defense Strategy

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    Generics Threats And  Opportunities: Mounting an Effective Defense Strategy Generics Threats And Opportunities: Mounting an Effective Defense Strategy Presentation Transcript

    • 1 Generics Threats And Opportunities: Mounting an Effective Defense Strategy
    • © Copyright 2013 Eularis Pharma Marketing, ROI and the Bottom Line Eularis (www.eularis.com) have unparalleled years of experience in Pharmaceutical marketing analytics and predictive algorithm analyses of Pharmaceutical marketing activities. Their analyses quantify the financial impact of individual sales and marketing activities - as well as recommend the optimal synergistic combination of activities (and budgets) for an individual brand to have maximum market share growth. Eularis offers brands the bottom line facts: what messages and which specific sales and marketing activities are truly impacting a brand’s prescription sales - by how much - and what elements within each activity need to change (and how) for increased results. Eularis operates in all countries of the world, including Japan. Related publication from Eularis Pharma Marketing, ROI and the Bottom Line: a Guide for Pharmaceutical Marketers to Know what Works now Written by Dr Andrée K. Bates 2
    • © Copyright 2013 Eularis Pharma Marketing, ROI and the Bottom Line OVERVIEW The Pharmaceutical environment is turbulent and, as a result, what used to work to create industry wide growth of 20% no longer does. The resulting bottom line return for brands is in decline as market growth slows in the major Pharmaceutical markets, and this inevitably leads to marketing budget cuts. The only way for a brand to grow effectively - and cost-effectively - is to improve the bottom line effectiveness of each marketing spend. Pharmaceutical marketers are under even more pressure to get more bang for their buck from their marketing spend, and be able to justify it. This in-depth report answers the questions that Pharmaceutical Marketing Directors are asking, ‘How do we successfully measure our individual marketing activities’ bottom line return, and prove it to the CFO?’ and ‘How do we prove exactly which marketing components are really growing our bottom line?’ and ‘How do we know what aspects need to be changed, and how, to grow the bottom line by a specific amount?’ This report explains the different methods being used, such as ROI, promotional response models, econometrics and predictive algorithms, and the pros and cons of the different approaches. There are step-by-step guidelines on successfully implementing these approaches for real and measurable results, and numerous case studies of actual Pharma brands who have successfully navigated these waters, and what they did to measure and improve - and prove - bottom line return. This comprehensive report helps you navigate your way to competitive advantage prior to wasting significant time and money on an approach that is not providing the evidence you need. 3
    • © Copyright 2013 Eularis Pharma Marketing, ROI and the Bottom Line Topics Include: • Why CFO’s Despair of Marketing and Impose Budget Cuts • What Does Marketing Measurement Provide? Do Your Tools Measure Up? • ROI Basics: Understanding, Measuring and Avoiding Pitfalls • Challenges Specific to the Pharmaceutical Industry that Have Bearing On Measurement? • Metrics Progression: From Activity Tracking to Sophisticated Analytics • The New, New Thing: An Accurate Approach Using Present Predictive Analytics to Measurably Improve Bottom Line Performance • Where does Brand Equity Fit In With ROI? • Bridging the Gap Between Marketing And Sales • How much Market Share are your Product Messages giving you? Do you Need to Change them? • How Do You Know How Much Financial Return Your Sales Force is Providing You? • How Do You Know if Your Advertising is Working to increase Financial Return? • Measuring PR Return: Sophisticated Analytics Give High PR Return Accuracy • How do we Measure Patient Compliance/Adherence ROI • Can we Measure Speaker Program ROI? • What about ‘e’? Can we measure eDetailing ROI and eActivities In general? • How does Corporate Brand Marketing Play into our brand Financial results? • Can Generics/Stealth Pharma also Measure their activities? • Applying analytics to Pharma OTC brands • What about Pan-portfolio or Pan-country analytics? • Can the Market Share/Sales Potential Of Pre-Launch Brands be Measured And Optimized Using this Approach? • How do we Measure CRM ROI? • How does Marketing Measurement And Shareholder Value fit together? • The Future of Marketing Measurement: Interviews and Strategic Q&A 4
    • © Copyright 2013 Eularis About Eularis ABOUT THE AUTHOR Dr. Andrée Bates is the Managing Director of Eularis, a company that applies sophisticated analytical processes to quantify the sales impact of specific marketing programs for Pharmaceutical brands. These analyses determine the financial return for individual sales and marketing activities as well as the optimal synergistic combination of activities (and budgets) to have maximum market share growth. Eularis offers brands and their agencies the bottom line facts: what messages, what activities (and what budgets) - in what combination - will provide what market share for your brand. Dr. Bates’ career has encompassed academic, clinical and Pharmaceutical positions internationally. She has gained wide recognition within the Healthcare Industry internationally for ROI and marketing effectiveness measures in Pharmaceutical marketing. She is the author of many publications on this topic in peer-reviewed journals. In addition, Dr. Bates has lectured on eDetailing ROI in the Pharmaceutical MBA program at INSEAD Business School and on marketing ROI at the Center for Pharmaceutical Marketing Studies, Erivan K. Haub School of Business, St. Joseph’s University, Philadelphia. ABOUT EULARIS Eularis have unparalleled years of experience in Pharmaceutical marketing analytics and predictive algorithm analyses of Pharmaceutical marketing activities. Their analyses quantify the financial impact of individual sales and marketing activity - as well as recommending the optimal synergistic combination of activities (and budgets) for an individual brand to have maximum market share growth. Eularis offers brands the bottom line facts: what messages and which specific sales and marketing activities are truly impacting on a brand’s prescription sales - by how much - and what elements within each activity need to change (and how) for increased results. 5
    • © Copyright 2013 Eularis About Eularis EULARIS ANALYSES:  Identify all factors really influencing prescriber behavior the most  Evaluate which messages are having the most impact on actual prescribing  Quantify the financial impact from each marketing program  Identify which elements of each program are having most actual prescribing impact  Determine the most effective mix of sales, medical education, advertising, PR, eActivities, etc. for optimal market share growth  Forecast brand performance based on investment assumptions and market dynamics  Highlight rep quality differences across brands and companies  Provide Agency League Tables [according to which agencies activities are having most actual prescribing impact]  Optimize all relevant resources for a brand or portfolio across multiple activities and geographies 6
    • © Copyright 2013 Eularis Executive Summary After years of relatively easy blockbuster profits, worldwide respect and investment, and loyal customer bases, the Pharmaceutical realm has undergone a seismic shift. Today, the branded Pharmaceutical Companies are in trouble and are increasingly vulnerable to the threats posed by the competition. And who is the competition? It’s not other branded companies anymore. Generics have emerged as the primary challenger to Pharmaceutical Industry success, offering a public hungry for medication and reduced costs exactly what they want and need. Generics have exploded in the last decades, and are poised for even bigger growth. While the Pharmaceutical Industry gets squeezed by internal and external pressure, customers, physicians, governments and insurers push for more Generics. The reasons for the Pharmaceutical Industry’s vulnerability are many, but one culprit is the increasing requirements to create medication. Researching and developing a commercial prescription drug today requires an average total investment of $500 Million and 10 - 15 years of lab work, clinical trials and extensive regulatory review. When the drug is finally out in the marketplace, it enjoys only a brief period of monopoly and profit before patent expiration and plummeting market share in the face of a Generic takeover. The situation is grim. It can seem like Pharmaceutical Companies have no recourse in the face of the lower prices and operating costs of the Generics Industry and fortunes will only continue to fade. However, options do exist for Pharmaceutical Companies to mount an effective defense strategy against the threats posed by Generics. In this report, we examine some of these defensive strategies. We analyze the environment for Pharmaceuticals today, as well as the Generic Industry as a whole. We describe the pros and cons of legal defensive strategies as well as opportunities to expand the revenue-generating product lifecycle into reformulations and over-the- counter medications. We look at pricing strategies as well as company organizational changes as part of an integrated defense strategy and, to help companies make touch decisions about the best defense, we examine powerful analytics techniques and case studies. 7
    • © Copyright 2013 Eularis CHAPTER 1: BACKGROUND OF THE GENERICS THREAT In the past, Generics were seen as the bargain basement end of the greater Pharmaceutical market, with reduced quality and a lack of trustworthiness to match. However, in today’s environment, Generics are growing in quality and respect, in market penetration, total sales and company size. The Generics Industry captured 14% of the global Healthcare market in 2004, with overall revenues of $58 Billion. Since then, the numbers have only increased. And the rest of the Pharmaceutical Industry? The companies that once easily fulfilled the notion of Big Pharma in sales, profits and reputation? Between 2001 and 2005, $400 Billion of value vanished from the Pharma Industry. A look at financial statistics was once the easy indicator of the Pharmaceutical Industry’s phenomenal value but, today, price per earnings (P/E) ratios (a measurement of a company’s stock price relative to earnings) have fallen drastically, from a ratio of 30 in 1998 to as low as 12 in 2006. Across the board, Pharma companies are getting squeezed, with growing expenses and diminishing returns. Meanwhile, the demand for drugs is growing. The global population is aging and busting at the seams. However, Big Pharma is losing out on this hungry audience. How did we get here? Why is the Pharmaceutical Industry suffering, and the threat posed by the booming Generic market growing? The reasons behind the Pharma Industry’s current crisis are many. THE PHARMA BUSINESS MODEL: The Root Of The Problem? In Barrie G. James’ eviscerating report, “An Industry in Crisis: Desperately Seeking New Strategies”, he contends the Industry is at a desperate crossroads and vulnerable to the growing threat of Generics because of our own shortcomings and past failures. The current “blockbuster” business model evolved in the late 1960’s and was built on two key concepts. First, a significant proposition of superior value through product innovation was driven by a set of core capabilities that included a deep skill set, relationships with customers and competitors, and a fully integrated infrastructure. 8
    • © Copyright 2013 Eularis CHAPTER 1: BACKGROUND OF THE GENERICS THREAT This system internalized the value chain from drug discovery to marketing to customers. The second concept was a volume-based market opportunity, focusing on a steady stream of Primary Care products designed for highly prevalent, chronic diseases. Taken together, Barrie says, this model was a “magic bullet” guaranteeing superior results. However, by the 1990’s, the times were changing. New biotechnologies, the information age, globalization and rising consumerism all acted as destabilizing forces on this business model. Change was needed. But for decades, the Pharma Industry had relied upon a winning formula and had no need to develop new strategies. So, when the time came when new strategies were essential, Pharma was incapable of creating them. In addition, this Industry had consistently posted high financial returns and performance, creating excessively high market expectations. When the environment changed, but the business model remained static, companies began missing those benchmarks. The results are today’s status quo: • Internal R&D productivity is reduced • Pipelines are far from full • Sales and marketing are at all-time high costs to compensate for fewer products • It takes longer, and requires much more spending, to get a product to market • The epicenter of research is firmly located outside the traditional Pharma company • Products are delayed from market introduction • Companies are copying each other in attempts to capitalize on success, in any form possible 9
    • © Copyright 2013 Eularis CHAPTER 1: BACKGROUND OF THE GENERICS THREAT One telling statistic documenting this last fact: In early 2006, Pharma companies were marketing 15 beta blockers, 5 H2 antagonists, 11 angiotensin-converting enzyme (ACE) inhibitors, 5 proton pump inhibitors, 7 sartans and 5 statins. The differences between them, in terms of clinical performance and price? Negligible. Companies have tried many strategies to plug the holes, rebuild profits and stave off growing threats. We’ll talk about some of these in later chapters. However, tactics taken without a close look at the culprit business practices only result in bloating companies into massive behemoths that can’t function, with tight control compromising experimentation/innovation ability. Ideally, Generics defense strategies will be conducted in concert with major company rethinking. LOSS IN IMAGE Pharma’s decline hasn’t happened in a vacuum, and it’s been exacerbated by (and is a further cause of) a growing lack of reputation. The image of the Pharmaceutical Industry is deteriorating significantly. Due to highly public drug safety disasters, consumers are worried about the risks, quality and prices of the drugs they need. Investors are shying away, skeptical of pricing and business practices. The high level of promotion necessary to tout a lessening number of products has created a backlash from consumers and customers. Physicians are restricting access; patients are turning off the TV. The loss of reputation and tarnished image leaves Pharma open to severe competition, especially from an Industry that offers significantly reduced prices and is increasingly encouraged by the powers that be. 10
    • © Copyright 2013 Eularis CHAPTER 1: BACKGROUND OF THE GENERICS THREAT GOVERNMENT’S ROLE: Price Controls And Promotion Of Generics State, regional and national funding organizations are realizing the new reality of the Pharmaceutical environment: more people are requiring more drugs. A rapidly aging population adds urgency and relevance to this growing concern and, at branded drug prices, that means costly payouts by government entities. It’s no surprise then that governments, recognizing the significant cost saving capabilities from Generic medication, are pursuing policies that encourage use of Generics. Governments, ranging from state and national governments of the United States, national governments in Europe and other continents, and regional organizations for the EU, are increasingly encouraging the use of Generics through varied policies. Governments are funding awareness programs aimed at the general population, and even Physicians, touting the benefits and trustworthiness of Generic drugs. Generic substitution rules are being put in place, enticing Pharmacists to dispense Generic drugs whether or not a Doctor explicitly details the Generic substitute. The extents to which Generics are pushed by governments are directly related to pricing controls. Markets with free pricing and active competition, including the US and UK, experience significantly reduced Healthcare costs for payers after patents expire and Generics become available. Generics are, therefore, actively encouraged by government programs. Countries with price controls (including Italy and France), however, are much more stable over time, even with patent expiration. Generics are less utilized and promoted by governments. 11
    • © Copyright 2013 Eularis CHAPTER 1: BACKGROUND OF THE GENERICS THREAT PATENT EXPIRIES: Brands At Risk For an Industry weakened by inappropriate business models, reduced R&D and increasing Generics promotion by governments and patients, patent expiration is a knockout punch. Patent expiration can prove disastrous. Sales revenues and market share drop dramatically and quickly for brands in the face of the resulting cheaper Generic alternatives. It’s not unusual to see sales reductions of branded medicines over 70 percent after just a single year of Generic availability, and all this after millions sunk into drug development, marketing and sales efforts. Patent expiration has been an especially troubling and powerful problem in the last decade. Just in the last few years, some of the big players have gone off patent to directly face the crises ahead: 2005: Advair/Seretide, Cefzil, Duragesic, Lovenox, Plavix, Pravachol, Rocephin, Zithromax 2006: Ambien, Coreg, Lamisil, Proscar, Zocor, Zofran, Zoloft 2007: Camptosar, Imigran/Imitrex, Kytril, Nexium, Norvasc, Paxil/Seroxat, Pulmicort, Risperdal, Zyrtec Plus, in the next two years, more brands face this issue: 2008: Casodex, Delix/Tratace, Depakote/Valcote, Effexor, Fosamax/Bonalon, Lamictal, Mobic, Prograf and Protopic, Serevent 2009: Adenoscan/Adenocard, Cellcept, Flomax, Omnic, Harnal, Keppra, Lexapro/Cipralex, Protonix, TriCor/ Lipanthyl, Xenical Analysts suggest total sales of drugs coming off patent will exceed US $160 Billion by 2015. 12
    • © Copyright 2013 Eularis CHAPTER 1: BACKGROUND OF THE GENERICS THREAT HOW BIG PHARMA VIEWS GENERICS For the last 50 years, the Pharmaceutical Industry has engaged in a love/hate relationship with Generics. By and large, Big Pharma have been known to discount Generics as lacking quality and lacking a true comparison with themselves. Now, in the current crisis mode, Pharma companies are recognizing the competition as not just other branded companies, but Generics. SUMMARY Drug demand is at an all time high, but due to outdated business models for branded companies, loss in Industry image, patent expirations and government promotion, Generics are the companies’ prime to reap the rewards. In the next chapter we’ll take a closer look at the Industry that’s beating Big Pharma to the punch. 13
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT Since 1998, the Generic drug Industry has doubled. By 2007 it was expected to be worth $60 Billion. How did the Generics Industry come this far? How did Generic companies come to be, how do they function and what trends are influencing their growth? In this chapter, we’ll take a look. CREATION OF GENERICS In 1984, the U.S. Congress created the country’s Generics Industry to ensure brands were not given unfair or unnecessary patent protection. Legislation created a system of checks or balances through the limitation of patent monopolies and the approval of Generic products. In general, this and subsequent patent restrictions allowed new Generics companies to compete directly with Pharmaceutical companies, using information that was no longer protected by patents and offering customers choice and competitive prices. We’ll examine patents and patent law in more detail in the next chapter but, generally, provisions and updates in the last few decades have expanded both the length of patent protection and the ability for Generics to be formidable opponents. The Roche-Bolar provision, for example, allows Generics companies to begin development work for a Generic drug prior to patent expiry and enables Generics to be able to launch on day one following expiration. In Europe, the Generics Industry is structured in similar ways but has always been a bit more fragmented. Member states in the EU operate different periods of data protection, ranging from six to ten years. Recent reforms balances this to ten years for all member states, but only it only applies to products approved after new regulations were implemented in 2005. 14
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT Drug approval is dictated by country regulations and European Union rules. Within each individual country, Generics have a specific approval process, governments have cost containment policies and companies have varying patent rights. The Mutual Recognition Process (MRP) was introduced in 1995 and is used when a Generics company wants more approval in more than one country. However, the challenges in this situation for Generics are meeting the originator summary of product characteristics that differ across member states. In several EU countries, patent laws have only been a relatively recent addition to governing legislation. That results in lingering distrust of non-branded products and is another reason for varying levels of penetration, examined below. In Japan, the basic policy for new drug approval emerged in 1967 and clearly differentiated between new drugs and Generics. The Japanese Health Care system is one of universal Health Insurance. The National Health Insurance program began publishing drug prices and reimbursement schedules by brand name in 1978, which resulted in an environment that favored brand name drugs over Generics. This genesis accounts for lower market penetration and slower growth today. GENERICS THREAT: Leading Players The Generics Industry is booming and the players are increasing every day. Between 1998 and 2003, the Generics market increased from US $27 Billion to more than $43 Billion. However, throughout all this growth, no clear Industry leader emerged. The Industry today is divided between a small number of very large organizations and a large number of mid-tier companies. Overall, it’s a fragmented group, with only 11 companies globally exceeding $1 Billion in Generics sales in 2005. 15
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT No company possesses more than a seven percent share of the world market. That stands to change in coming years as Generics companies increasingly conduct mergers and acquisitions, combine with Big Pharma companies and experience the continuing dramatic growth worldwide they’ve enjoyed for some time. The big players today, in order of size, are: • TEVA/IVAX • Sandoz (including Eon Labs and Hexal) • Mylan • Ratiopharm • Watson Pharmaceuticals • Par Pharmaceuticals • Merck KgaA • Baxter International • STADA • Apotex This was a list, as of 2006, of the world’s top Generics companies. More recent lists of top 50 Pharma companies overall reflect these companies as well, although Ranbaxy is now very high on those lists, which this list excluded for some reason. Increasingly, Generics companies are growing through mergers and acquisitions. Between 2003 and 2006, approximately 45 M&A activities took place in the Generics realm. Increasing consolidation means strengthening Generics companies. They obtain scale economies in R&D, manufacturers and distribution; a tech base supporting the ability to develop a range of complex formulations; deeper pipelines and financial strength for litigation costs and launch risks. 16
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT With this growth, Generics companies are looking at new opportunities, including BioGenerics, niche formulations, branded specialty drugs and many more opportunities. The phenomenal growth of Generics companies, and the increasing options available to them to drive this growth, is a direct result of the environment today. The increasing age of the global population and their insatiable need for drugs, the pressure by governments as well as the marketplace to reduce costs and the wave of patent expirations all contribute to the growth of Generics companies, and also provide the reasoning for the extensive penetration in global markets. PENETRATION RATES Generics have penetrated markets worldwide, but in varying degrees and with widely different receptions. UNITED STATES Generics penetration in the States is one of the highest in the world. More than 56 percent of all prescriptions filled in USA were Generics by 2005. Of the top five Pharma companies in the U.S., the top four are Generic developers and manufacturers. In the U.S., Generics growth is driven primarily by patent expiration and government actions encouraging the use of Generic drugs. Even though Generics have infiltrated the majority of American society, Big Pharma is not about to let market dominance go without a fight. They’re throwing massive amounts of money at the problem; less than a quarter of spend on drug discovery, development and commercialization is made by Generics companies. In addition, branded Pharma companies still have the monopoly on high-priced medication: only $0.13 of every Dollar spent on prescription drugs is for Generics. However, as we’ll see in later sections and chapters, the Generics growth in the American marketplace shows no signs of abating. 17
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT EUROPE Generics penetration in Europe varies widely by country due to highly divergent government policies and intellectual property rights. Three clusters exist: • Less than 10 percent market share by value: Austria, Belgium, Finland, France, Ireland, Italy, Portugal, Spain. • Between 10 and 40 percent market share by value: Denmark, Estonia, Netherlands, Slovak Republic, Slovenia, Sweden, Turkey, UK. • Greater than 40 percent market share by value: Croatia, Czech Republic, Germany, Latvia, Lithuania, Hungary, Poland. Growth of the Generics market in Europe is anticipated to be much more organic than in the States, with the key driver being regulatory reform. JAPAN In Japan, Generics penetration is notoriously low. In terms of sales value, Generics market share was estimated at 4.8 percent ($3 Billion) in 2002. In terms of volume of sales, Generics market share was 12.2 percent. The Japan Generics market struggles due to limited distribution channels and multiple obstacles in the application and approval process. The National Health Institute in Japan provides reimbursement to patients only for those prescription drugs listed in the official NHI drug price list. Generics are usually not represented. As such, cases of patent expiration leading to eroded market shares are relatively rare. However, this low penetration of Generics in Japan is changing. The government has taken note from countries like the U.S., and instructed all national hospitals to actively use Generics beginning in 2002. The extensive Japanese population is aging, just as it is the world over. Government forces and the Japanese population are becoming much more aware of cost needs and pressures. Now, Doctors and Pharmacists can collect additional fees for prescribing and dispensing Generics. Combine these trends with a growing number of Japanese blockbuster drugs facing patent expiration and the Generics penetration rate is poised to expand in coming years. 18
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT GENERICS MARKET TRENDS Trends within the Generics Industry and in the greater marketplace are also pointing the way towards increased growth for Generics and decreased returns for big Pharma. GOVERNMENT PRESSURE As a global trend, governments are increasingly pushing Generics as a way to cut costs to consumers and keep government expenditure low. This is especially apparent in the U.S., and increasingly so in the greater Triad. Government leaders are increasingly paying attention to studies that indicate ‘increased substitution of Generics for originator medicines could yield considerable savings’. One study by Simoens and De Coster showed increased substitution could amount to a savings total of approximately $3 Billion for the 11 European countries studied, with individual countries ranging from $11 Million in Poland to $1 Billion in Germany. The U.S. government faces enormous pressure to keep Healthcare costs down and, particularly, the cost of Pharmaceuticals. An ailing system of private and semi-public insurance, along with a consumer culture of voracious Pharmaceutical consumption, means administrations at the federal and state levels are pushing Generics as a way to make ends meet. Employers are feeling the hit of ever-rising Healthcare costs as they attempt to insure their employees; insurers are feeling the pressure from consumer groups and lobbyists to be more comprehensive and tuned in to consumer needs; consumers are desperate to treat their ailments for less cost. All this together means a government anxious to encourage the population to cut costs with Generic meds and a patient population eager to do so. Of course, this accepting and encouraging environment for Generics translates to an ever-growing mass of Generic drug applications. While the U.S. government encourages the use of Generics, the means for approval is backlogged and outdated. The Federal Drug Administration Office of Generic Drugs has limited funding, a staggering workload and more than 800 Generic applications languishing without approval. 19
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT In Europe, governments are also pushing Generics. Overall, 82 percent of countries surveyed in Europe have implemented price-regulated systems. These reference pricing systems were introduced in 71 percent of countries as tools to reduce Pharma spending. In 36 percent of these countries, price levels are at a predetermined percentage below originator price. In 21, percent price levels are based on average price of Pharmaceuticals in a country. Along with pricing methods, European governments are also adopting other tactics: • In the Netherlands, Norway and Italy, governments have adopted official Generic substitution plans. • In Portugal, it is now required for Doctors to use the Generic name of drugs when making prescriptions. • In Finland and France, Generics-based internal price referencing has been adopted. If patients want more of the expensive branded drug, they must pay the difference from the reimbursement cap. • In Belgium, the government has formally linked Generic drug prices to a specified level of discount below branded versions. • In Austria, regulations state that the price of a first Generic must be 30 percent below brand. For second and additional entries into the market, additional price controls apply. • In Spain in 2002, the Ministry of Health launched a 450,000-Euro program to assure the populace that Generics are as effective as brands, but cheaper. In Japan, the environment for Generics has begun to change quickly, from a relatively hostile breeding ground for Generic growth to a field ripe for Generic penetration. That has been due, in large part, to government effort. In 2002, the Japanese Ministry of Health, Labor and Welfare put in place an approximate 5 percent decrease to National Health Insurance prices of out-of-patent branded medicines. The intended effect is to, in the least, cost the government less for Pharmaceuticals for the population. It will most likely also encourage greater penetration for Generics throughout the Japanese market, with encouragement for the Japanese people to seek Generics. 20
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT WITHIN GENERICS INDUSTRY With the growing use of Generics throughout the world, the Generics Industry is experiencing unprecedented competition and increasing price pressure. In some ways, Generics companies are facing those issues intimate to Big Pharma – decisions on consolidation and expansion, pressures on pricing and other business rallying measures. New entrants to the Generics Industry pose severe challenges to Industry players (and to Big Pharma as well). Recent years have witnessed a dramatic expansion of the global manufacturing capacity in active Pharmaceutical ingredients (APIs). Generics companies from India and China are now reaching into the pot. Just as with any other Healthcare product or service for sale, the new entrants from India and China are more competitive, with low labor and production costs, weaker environmental and patent protection laws, and a growing high-tech scientific base. The U.S. Generics Industry, in particular, faces dire challenges due to the second wave of Indian Generics companies, after the establishment of Ranbaxy and Dr. Reddy’s Labs. Over 100 Indian Pharma manufacturing facilities have been approved by the FDA, more than any country besides U.S. The future product pipelines for these companies are rivaling those of U.S. Generics companies, including several first to file (FTF) entities. Global giants are finally emerging in the Generics Industry, with a (prior to now) unheard of scale. As such, Generics companies are facing stiff competition and anxiety is running high that supply will begin to outstrip demand. 21
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT BIOGENERICS BioPharmaceuticals have taken off in global markets. Biologics have annual revenues exceeding $90 Billion. More than 150 are currently on market, and 30 new Biologics were approved last year alone. Biologics have become the new frontier of medicine and Pharmaceutical treatment, and have price tags to match, which means this is an area ripe for Generics to swoop in, just as they have done with traditional Pharmaceutical medications. However, Generic BioPharmaceuticals (BioGenerics) are slowed to market for several reasons. An adequate regulatory framework governing BioGenerics is still absent in the U.S. and Japanese markets. Up-front investments and the uncertainties of the legal and pricing environments are not encouraging to Generics companies. In addition, the pace of innovation in BioPharm is unlikely to favor BioGenerics. All this adds up to uncertain profitability for Generics companies, and a reluctance to push BioGenerics. Where BioGenerics might have a future is in the EU, which has established guidelines for Generic BioPharm approval, and outside the triad. In those markets of Latin America, Middle East, Africa, China and SE Asia, an area that holds 80 percent of the total world population, BioGenerics are a reality. However, in the Triad, from where over 70 percent of total Pharma demand originates, BioGenerics are a ‘maybe’. 22
    • © Copyright 2013 Eularis CHAPTER 2: GENERICS: AN INDUSTRY SNAPSHOT PENETRATION OUTSIDE TRIAD Generics are penetrating into the global arena outside the triad markets as well. South Korea, for example, granted price cuts for Generics in 2003, with reimbursement at 80 percent of the price of equivalent brands. This is as long as drug manufacturers provide good bioequivalence data. In 2004, this became a mandatory part of the Generic drug application. SUMMARY The Generics Industry still has some hurdles but has managed to post amazing marketing penetration. Combined with a receptive environment, Generics are increasingly poised to build on their phenomenal success. Can Big Pharma compete? We turn next to strategies for defense against the threat of Generics. 23
    • © Copyright 2013 Eularis CHAPTER 3: LEGAL AND PATENT DEFENSE STRATEGIES The first line of defense against the Generics threat, for most branded Pharmaceutical companies, is legal and patent strategies. To understand how effective patent defense can theoretically work, companies must first have a thorough knowledge of patents themselves. DEFINITION AND CRITERIA A patent is defined as a monopoly which provides the owner with the exclusive right to prevent any unlicensed manufacture, use, sale, and offer for sale, storage or importation for the above purposes of the patented object. To qualify for patent protection, a product must meet basic criteria. Of course, these principles are vague and to be decided on a case-by-case basis by experts in the field. However, the basic principles for what are and not patentable in all countries and for all technologies are: • Novel: The product has never been available to the public before • Inventive: The product is not an obvious creation • Useful: The product is capable of industrial exploitation and use. In other words, the product can be made and sold. PATENT PROCESS In general, the filing of a first patent application sets the priority date, from which all key expiration dates are based. If a patent application meets the criterion for patentability, the application is granted. This usually happens 1 to 5 years after the application is filed. Depending on the country, the process of granting a patent can involve publishing the patent documents, formal examination and more. The U.S., for example, does not publish patent applications. 24
    • © Copyright 2013 Eularis CHAPTER 3: LEGAL AND PATENT DEFENSE STRATEGIES Patents can be challenged at any part of the process. The grounds for challenging are based on the criteria of patentability, meaning patents can be challenged for lack of novelty, obviousness or lack of utility. Generally, patents last for 20 years from the date of the patent application filing. After this time, the patented product or procedure enters the public domain and can be freely used by anyone. For many years, this was adequate protection. But in the last few decades, the costs of putting a new medication on the market have increased dramatically. In addition, the official requirements set by reviewing institutions became more severe. As result, the time required for a company to enter a new medicine on the market has lengthened significantly. Although the patent monopoly is theoretically for 20 years, in practice, it was usually only 10 years. Recent legislative maneuvers, as described in later sections, have addressed this problem. TYPES Pharmaceutical patents can be obtained for a wide variety of items in and around the product and its production process. Types of Pharmaceutical patent claims include: • Basic product – Covers the new chemical compounds, Pharma compositions comprising these compounds and processes for the preparation of these • Product by process – Claims the chemical and biotechnological process to synthesize the drug AND the drug when made by this process • Process – The novel chemical or biotechnological process to synthesize the drug • Composition – The novel formulations of a drug or several drugs • Method of Use – The novel use of the drug to treat disease 25
    • © Copyright 2013 Eularis CHAPTER 3: LEGAL AND PATENT DEFENSE STRATEGIES In terms of drug discovery and marketing, patents can be created at any time throughout the research process and after production. In each of the phases below, the listed components can be patentable: Pre-Development Process: • The isolated protein and methods of using the protein identified as playing a part in the biological development of a disease or condition • Crystals of the protein • Assays to test compounds interacting with the protein Drug Development: • Chemical compounds, including Generic groups, individual compounds, tightly defined subgroups, and more • Metabolites • Active isomers • Crystalline forms (polymorphs) • Manufacturing processes Clinical Trials: • Novel therapeutic indications • Novel dosage regimens • Combination therapies with other drugs • Combinations of the drug compound with other active agents After Launch: • New dosage forms • Line extensions 26
    • © Copyright 2013 Eularis CHAPTER 3: LEGAL AND PATENT DEFENSE STRATEGIES DEFENDING AGAINST GENERICS WITH PATENTS With this background, we can examine the use of defensive strategies against Generics that focus on patents. As patent legislations differ by country and region, different methods and considerations are undertaken by location. U.S. Patent Regulations Specific legal regulations for patented drugs in the U.S. influence defensive strategies. A crucial legislative piece is the Hatch-Waxman Drug Price Competition and Patent Term Restoration Act of 1984, which allows for up to five years of extra patent life. Since today’s drugs take longer to develop and get to market, this helps provide longer patent protection. In exchange, the other component of Hatch-Waxman provides for faster Generic drug approval when the patent does eventually expire. Other key legislative pieces related to patents are the Roche-Bolar and 180-day exclusivity provisions. The Roche- Bolar provision allows Generics companies to begin development work for a Generic drug prior to the actual patent expiration of the branded product. This enables Generics to be able to launch on day one following brand expiration. In addition, a Generic company that successfully challenges a Pharma brand patent in court is exclusively permitted to compete with the brand company for a 180-day period. Recent legislative changes also affect patent protection and are responsible for increasing Generic utilization. The FDA Final Rule of 2003 and the Gregg Schumer Amendments to the Hatch-Waxman Act effectively sped up the approval of Generics. Under these legislative pieces, Generics companies now have one 30-month stay, declaratory judgment (when a Generics application is filed, the originator company has 45 days to challenge; without the challenge, the Generic is automatically approved) and bioequivalence details. The FDA normally determines if a Generic is equivalent to a brand drug by measuring the rate and absorption of the drug into the bloodstream. If it was not absorbed into the bloodstream, the FDA used different tests. This amendment noted these different tests are valid. 27
    • © Copyright 2013 Eularis CHAPTER 3: LEGAL AND PATENT DEFENSE STRATEGIES In 2006, modifications to Medicare Part D were enacted that directly affected the Medicare prescription drug benefit. Whereas before, many seniors did not have prescription drug coverage, now private companies provide coverage and beneficiaries choose the drug plan and pay a monthly premium. This change encourages Generics. Seniors pay a co-payment of $2 for Generics versus $5 for branded drugs, plus caps exist on coverage for total drug expenditures, meaning seniors have a big incentive to keep costs low. U.S. PATENT DEFENSE STRATEGIES So what options do U.S. branded Pharmaceutical Companies have for defending against Generics in this legal environment? Following the letter of the law, companies do have recourse to defend their patents against challenges. They have the option to attempt to thwart Generic competition by insisting that patents still apply for various reasons. However, in reality, court battles usually do not bring much success. Generics companies are likely to win in about 70 percent of fully litigated patent challenges. Generics companies are getting better at picking cases they can win. In fact, many Generics companies have substantially more employees in their legal departments than in sales, the exact opposite of Big Pharma’s organizations. Most patent challenge cases result in settlement. This usually takes the form of a Generics company selling an authorized version of the branded drug, supplied by brand name manufacturers, at a big discount to the market price. We’ll discuss the intricacies of authorized Generics in a later chapter. In sum, however, resorting to authorized Generics is one more indication that defending against Generics through legal means is an increasingly losing endeavor. One method of effective defense using patents does exist. As described earlier, a profusion of patents can surround the creation and components of a Pharmaceutical product. Plus, these patents can be applied for at any stage in the development and/or production time line. 28
    • © Copyright 2013 Eularis CHAPTER 3: LEGAL AND PATENT DEFENSE STRATEGIES By working closely with patent experts, scientists, marketing teams and technicians, companies can create a network of secondary patents around the branded product. Companies may not be able to retain a basic patent for a brand drug but perhaps the manufacture, storage and form can be patented. Without these methods of creation and distribution, a Generic alternative would be much lower quality and less attractive to consumers. Generics can theoretically be produced but the branded drug, with a significantly higher quality product, will be the better choice. Defense, then, comes from planning and identifying any and all opportunities for patents and substantive competitive advantages. CASE STUDIES EUROPEAN PATENT REGULATIONS Specific legal regulations for Europe influence the defensive strategies focused on patents. In 1993, the Supplementary Protection Certificate (SPC) legislation created an entirely new intellectual property right. Similar to the Hatch-Waxman regulations in the U.S., the SPC ensures the extension of a Pharmaceutical patent of not more than 10 years if the issuance of marketing authorization took a long period of time (more than 10 years) from filing date. In 2004, EU reforms created a uniform 10-year data protection period throughout the EU. Additionally, Generics can do development work prior to patent expiration, similar to the U.S. Roche-Bolar provision. Finally, the reforms provided for simplified approval of drugs across the EU. Taken together, these measures provided a strong foothold for Generics growth. 29
    • © Copyright 2013 Eularis CHAPTER 3: LEGAL AND PATENT DEFENSE STRATEGIES EUROPEAN PATENT DEFENSE STRATEGIES With EU legislation along the lines of the 2004 reforms, the international trend is to harmonize patent laws to allow for simpler application and patent granting procedures. Theoretically, these would also provide for more effective legal defense means. However, in reality, there are still subtle differences as to how the laws are interpreted in different countries. What does this mean for European Pharmaceutical Companies attempting to defend their patents against Generics? This means that the U.S. trend holds firm. Pharmaceutical Companies rarely find success in fully litigated patent challenges, and Generics companies are filling their ranks with legal experts to help them ensure victory. Options left to European branded Pharma companies are those utilized by their U.S. counterparts: beefing up the legal ranks and focusing on an effective network of secondary patents. Defending against Generics through legal and patent means is a tricky endeavor. While legal recourse is available, the facts are that legal results are increasingly weighted towards Generics. With a thorough knowledge of patent opportunities, companies can develop a network of secondary patents as an effective defense. Other proactive methods are also available and are often met with greater success. We turn to those next. 30
    • © Copyright 2013 Eularis CHAPTER 4: REFORMULATION STRATEGIES While patent defense can work, and efforts to engage in effective patent defense strategies are useful, the hard truth is that defending patents is growing more difficult. Pharmaceutical Companies are experiencing less wins in cases brought to judgment. Generics are assaulting the fortresses of patents with increasing speed and force, and the public and governments worldwide are siding with the challengers. Patent expiration and the subsequent market share may be inevitable, according to some analysts. But, with the inevitability comes a bit of power. If companies know that patent expiration will come, they can effectively plan for a better future. Savvy companies should do all they can to take the most advantage of the years of patent protection. However, they should also view those years in a different way in this new era: as the first part of a much longer revenue- generating product lifecycle. Reformulation is another theoretical way that companies can move from the glow of patent protection into the new world. TYPES OF REFORMULATION STRATEGIES Reformulation offers many options to Pharmaceutical companies. For some time, companies felt that reformulation was a “can’t miss” opportunity. A Cutting Edge study found more than 40 percent of companies were willing to invest $100-150 Million in R&D to produce line extensions for a blockbuster drug of $1 Billion annual sales and more. Other companies were willing to back R&D of up to $250 Million for line extensions of those blockbuster drugs. Business leaders were willing to invest time and money into developing reformulation strategies because they worked. However, in recent changes, the climate has shifted. Several landmark lawsuits have broken line extension patents, signaling a sea change for this approach. 31
    • © Copyright 2013 Eularis CHAPTER 4: REFORMULATION STRATEGIES Reformulation is still worth discussion as it represents more forward thinking, the kind of organizational change discussed in later chapters and the willingness to look beyond the finite product for profit. LINE EXTENSIONS Line extensions are transformations of the branded product into a new, protected, attractive alternative for consumers. Line extensions offer many choices for directions. Pharmaceutical developers can change the medication dose, alter the delivery method, add safety profiles, produce extended-release drugs, create new drug indications, and more. To leverage the existing brand’s equity, many companies opt to give their line extensions similar or the same names. Line extension planning can begin at the same time as the initial product planning and launch. With market research on the direction of the disease treated, as well as important legal or clinical issues, companies can anticipate potential line extensions early, well before patent expiration looms. NEXT GENERATION PRODUCTS While line extensions stretch the original brand in new directions of dosage or audience, next-generation products create a new brand. Usually, companies who engage in next-generation product development present patients with a new and improved drug based on the original compound. The trick for next-generation products is to glean patients off the existing drug and switch them to the newly patented drug, all before the original patent expires. Doing this staves off and minimizes market share loss and makes it less attractive for Generic competition to enter the market, where they would face a depleted patient population. 32
    • © Copyright 2013 Eularis CHAPTER 4: REFORMULATION STRATEGIES Developing next-generation products is a risky endeavor. Research and development for new drugs costs millions, and companies risk losing that investment if the new product is not effective, safe, or otherwise, does not gain approval. Companies can be in a worse situation then. Rather than simply losing market share to a Generic drug honing in on the original brand, companies can also be out massive money on a failed next-generation product. To minimize risk when planning for next-generation products, smart companies turn to the recipients for advice. What do consumers and doctors wish was better with the original product? What issues would they like to see addressed and solved? What kind of improved product would they stay loyal to? By turning to consumers and doctors for help, companies can create a better drug. This works wonders to entice patients to switch. KEY FEATURES OF SUCCESSFUL REFORMULATIONS In developing line extensions and next-generation products, the challenges are many. As the legal environment surrounding reformulation becomes harsher, the trials grow. Companies must balance the allocation of resources between creating new drugs and creating line extensions or ‘switches off’ of drugs losing patents. To successfully reformulate a brand drug, creating something valuable enough to ward off Generic competition, comprehensive research and development is needed. However, true success often only comes with careful business planning. TIMING One of the biggest challenges, most fraught with risk, is the timing of line extensions and next-generation products. Timing going wrong can be disastrous. Consider the case of Clarinex. In 2002, Schering Plough introduced Clarinex as the next-generation replacement for Claritin, their blockbuster going off patent. The plan was to switch the consumer base for Claritin to Clarinex in a seamless maneuver. But, in reality, their marketing efforts fell short: not enough patients were switched to Clarinex before FDA approval of the Generic competition. As a result, Clarinex not only failed to reach blockbuster status, but sales of Claritin dropped from 3 Billion to 300 Million. 33
    • © Copyright 2013 Eularis CHAPTER 4: REFORMULATION STRATEGIES Timing gone right? That can result in astounding success. The case of AstraZeneca’s Nexium is an Industry paradigm for this reason. As their blockbuster gastrointestinal drug, Prilosec, neared patent expiration, AstraZeneca submitted their next-generation Nexium product to the FDA, early enough to ensure approval before Prilosec’s expiration. After FDA approval, the company embarked on one of the biggest marketing campaigns in United States history. They spent $500 Million on DTC advertising, hospital discounts for the drug, free samples for Doctors’ offices and other media advertising. The company transferred 40 percent of Prilosec patients to the next-generation Nexium, managing 9 percent growth in 2001 alone. As a result, Generic competition wasn’t able to capture large portions of AstraZeneca’s share of the GI market. And AstraZeneca didn’t stop there. When Prilosec prescriptions began to slow down, the company switched the drug to an over-the-counter option. Sales stayed strong, as did brand equity. We’ll discuss switching to OTC formulations in the next chapter. BRANDING CONSIDERATIONS Another momentous decision around reformulated products is naming and branding. With line extensions, the sage advice is to retain the original brand name or christen the new product with a similar name. This helps leverage the old brand’s equity and keep loyal customers in the transition. With next-generation products, the logical move is to create an entirely different name, allowing the drug to gain an individual identity on the market. MARKETING SPEND AND SUPPORT When prepping a line extension or next-generation product, companies must plan for the spend that will be required for an effective rollout. Total DTC advertising spend for next-generation and line extension products tally to more than $4 Billion. The necessary spend is significant due to the need for brand teams to maintain consumer awareness and intent to purchase, all towards the ultimate goal of beating out the Generics competition. 34
    • © Copyright 2013 Eularis CHAPTER 4: REFORMULATION STRATEGIES When it comes to the content of the advertising, two common methods have been implemented to success45. In the first, companies release “critical mass” or a moderate amount of information in conjunction with product launch. After the launch, the company periodically releases small amounts of additional information to keep the market informed and up to date about the drug. This approach helps maintain market share when Generic competition arrives. The second option is to release the bulk of the drug information at one time to build interest and news around the product. The immense amount of press around the launch increases attention and buys time for the brand by increasing market interest. The result – the public ignores the Generic competition for a brief period of time. SUMMARY When viewing the branded drug as the first part of a revenue-generating product lifecycle, reformulation presents itself as a strategy to boost business and face the Generic threat head-on. The tough reality, however, is that simple product reformulation won’t be enough anymore, as the tide is turning against these initiatives in the courts. In the next chapter, we discuss how companies can take reformulation even further. 35
    • © Copyright 2013 Eularis CHAPTER 5: DTC & OTC STRATEGIES Since patent expirations are, in many ways, an inevitable business reality for Pharmaceutical companies and for Generic competition an increasing fact, companies that move to expand their revenue-generating cycle will be the companies that persevere and grow. One method of looking beyond the period of patent protection is reformulation, discussed in the last chapter. However, as discussed, reformulation to new prescription products is increasingly losing out in the legal environment. Another more attractive strategy companies can turn to is incorporating revenue streams from over- the-counter medications. OTC STRATEGIES The decision to expand into over-the-counter products must be based on a number of different factors that influence long-term profitability: • Existing market position • Anticipated existing and new competition in the OTC sector • The expertise the organization has in a particular therapeutic area • The fit with the rest of the product portfolio and branding • Opportunities for innovation, which might lead to new product development • External pressures to make certain drugs available at reduced cost • The need to obtain good return on investment The OTC field is an inherently more crowded arena of products, and competitive wins come less through exclusivity and ownership and more through innovation. Plus, when branded Pharmaceuticals switch to OTC, they automatically give up some sales revenue. 36
    • © Copyright 2013 Eularis CHAPTER 5: DTC & OTC STRATEGIES So, why take the leap? Expanding into OTC medication will make the market unattractive to Generics, meaning more opportunity for market share and the ability for companies to keep more of revenue streams. Experts agree: most defense strategies against Generics have risk, including the switch to OTC products, and are not guaranteed to work. However, the alternative of doing nothing is much more dangerous. BENEFITS One of the greatest advantages of switching to OTC medication is the public relations boost48. Purposely offering lower-priced drugs to a public growing increasingly upset by rising drug and healthcare costs shows a company responsive to customers, willing to innovate and create new opportunities and deserving of trust and loyalty. Done well, a company’s switch to OTC medication harnesses this positive publicity. Successful examples include Imodium and Nizoral, which took franchises far beyond initial patent expiration dates and became global brands. However, to perform a switch well, companies must consider a blinding array of factors. Company Organization A switch to an OTC drug is much more than a label change and shift in marketing. Many tried and true business methods must change in order for success. Company organization is one of those. Pharma is usually structured with tech and marketing personnel in separate silos. But when implementing an OTC switch, collaboration between the two is crucial. Marketers have the customer understanding to ensure that the product has, and continues to generate, appeal. Tech experts know what will be required to support that appeal. A well-structured, cooperative team can determine the time to market, development costs, cost of goods and the appropriate definitions of ROI. 37
    • © Copyright 2013 Eularis CHAPTER 5: DTC & OTC STRATEGIES Financial Management The methods that companies use to measure financial success are different for branded prescription drugs and OTC drugs. Companies making the switch must realize that volume of sales is still important, but the truly critical measure of success for failure is profit. Financial measurements should be kept differentiated within the company between prescription meds and OTC drugs as a result. Additionally, financial outlay may differ with an emphasis on OTC meds. Marketing spend may be required in higher levels in some areas of the marketing mix, and less on others. Strategic Buy-In Switching to OTC is a significant shift that affects the company’s organization, financial measurement and objectives. To avoid conflicting objectives that could delay rollout and hurt overall profitability, the switch must be a clear, strategic decision from the senior management team. It should be seen as a boost to the company’s future and not a threat to the old (read: adequately successful) way of doing things. The switch also doesn’t have to be seen as a threat to the development of new prescription products. Overall, the switch must be something the entire team and C-suite can get behind. When company leadership and administration realize that the switch can actually be a freeing endeavor, a move into a realm with more lenient ad regulations and an initiative that can indirectly support the company’s prescription-only medications, buy-in can be achieved and the switch prepared for success. Project Management Effective project management for the OTC switch is critical. Until the product is actually on sale, ROI is nil; therefore, effective planning, timing and speed are crucial. Team leaders must ensure an effective project plan, one that ensures all resources are ready and available, and that the team is moving forward in tandem as much as possible. The best project management team is one that’s operating simply. The team should be small enough to drive the project through the time line without administrative hiccups and breakdowns, and relevant enough that no unnecessary resources are wasted or slow it down. 38
    • © Copyright 2013 Eularis CHAPTER 5: DTC & OTC STRATEGIES Pricing What’s the most appropriate price for the new product, one that provides enough profit for the company but doesn’t cause consumers and physicians to balk? To determine this ideal pricing, companies must do their research, gaining a good knowledge of the structure of OTC market. Companies must plan effectively and know what customer segments the product is targeted at. Companies must know their markets, with all involved intimately familiar with the target and their brand or price sensitivities, their loyalty, their needs and more. With this thorough background, decisions on pricing can be made with increased confidence. Timing As with other reformulation strategies, the switch to OTC must be planned early, preferably soon after initial product launch. The exact timing, and the rollout prior to patent expiration, is perhaps the most important and difficult decision to make. Ideally, companies should introduce the OTC product before patent expiration of the original drug. Logically then, the new product may end up cannibalizing the expiring brand’s profits, but this is a risk many companies are willing to take. OTC medication can offer very high ROI potential in the long run and protect against a greater loss of market share and profits than would occur otherwise. An additional note about timing:- Standard OTC regulations provide a 90-day exclusivity period for new products. This time period might seem short but the realities of meeting regulatory requirements for a new OTC product actually provides for a longer period of exclusivity, perhaps as long as 10 months49. Companies implementing the OTC switch should take advantage of the fact that, in reality, they usually have longer exclusivity to build market position. Marketing When it comes to branding the new product, companies have the option to use the existing prescription brand or develop a new one. Maintaining the existing brand leverages the equity built up over years. Creating a new brand can effectively differentiate the drug from its predecessor, focusing on what customers want: increased strength, increased speed, easier delivery and more. 39
    • © Copyright 2013 Eularis CHAPTER 5: DTC & OTC STRATEGIES When marketing OTC medication, the Unique Selling Proposition is essential to effectively communicate. What makes this drug better than the previous one? To do this, companies must have significant customer insight to best show how the new product is superior to the prescription medication. OTC INTERNATIONAL Governments the world over have given outright support to OTC medication, for the same reasons that they support Generics. They recognize OTC options as providing greater choice for consumers and helping to shift the cost burden of healthcare from governments and payers to the patient. One sign of this support of OTC is a revamp of UK regulations. The UK Medicines and Healthcare products Regulatory Agency (MHRA) re-launched its reclassification rules, providing for shorter assessment periods and less restrictive application requirements. Additionally, it makes personnel available to speed up the OTC assessment process through pre-submission meetings, at which regulators discuss and advise companies on their priorities and goals for the OTC medication. SUMMARY Done well, the switch to OTC medication can provide a means of expanding the revenue-generating lifecycle and nullifying the threat posed by Generics. Beyond producing transformations such as the OTC switch, pricing can also be an area for branded drugs to stave off Generic competition and continue to attain business goals. 40
    • © Copyright 2013 Eularis CHAPTER 6: DEFENSIVE PRICING STRATEGIES Ideally, companies will employ a number of different tactics in their arsenal to defend against Generics. Defending patents through legal challenges to Generic competition, tweaking products to line extensions, next- generation products or over-the-counter options, or a combination of both, should be methods companies regularly employ to maintain market share and sales. However, to truly reduce damage from patent expiration and the rise of Generics, companies must employ pricing changes as well. Several defensive pricing options are open to manufacturers. The best method to choose will depend on a number of factors, including the way in which the brand relates to the company’s portfolio, the over-arching commercial objectives of the company, the degree of price sensitivity in the market, the potential to maintain different prices for different customers, and the level of competition expected. PRICE INCREASE Can companies actually increase prices in the face of Generic competition and survive? Theoretically, yes. The idea in increasing prices is that Generic drug prices will then be established at higher levels after patent expiration. Higher prices will be a quick and dirty way to protect revenues for companies despite reduction in market share. In practice, however, raising prices doesn’t usually work. In private markets with few drug and price controls, brands that have good loyalty may find success with this tactic. However, in markets where government price controls dictate limits, this is not a feasible option. In both types of markets, competition from other brands is usually stiff enough to disallow a price increase. 41
    • © Copyright 2013 Eularis CHAPTER 6: DEFENSIVE PRICING STRATEGIES PRICE MAINTENANCE Market penetration varies for Generic drugs, as we’ve demonstrated. In those markets where widespread use of Generics is rare due to manufacturing difficulty, low product volume, special storage needs, low margins or already existing low prices, maintaining price can actually be a viable option. In these markets, existing prescription brands will still be prescribed in the face of cheaper Generic options. Keeping the price at the same level can encourage customers to stick with the drug, and even enhance the reputation of the drug for better brand equity. PRICE DECREASE When staring down the stiff competition of Generics with lower prices, companies often choose the price decrease as a sound pricing strategy. It’s a rational and effective method: by making a move to be closer to the competition’s selling price, the product can remain relevant and desired by cost-conscious prescribers, Pharmacists, payers and customers. Numerous different options exist for the price decrease strategy: LIST PRICE DECREASE This, the least desired alternative in price reductions, decreases the published price for the drug. The price is then reduced for all purchasers, even those who may still have bought the drug at the higher price. The ramifications of this type of price decrease can be painful. In markets where the patent still applies through external reference pricing (governments controlling domestic prices by referencing brand prices in other markets), drug revenues can drop. The same applies to parallel trade markets, where lower-priced brands are sold to countries where list price is higher. 42
    • © Copyright 2013 Eularis CHAPTER 6: DEFENSIVE PRICING STRATEGIES The prime example of the danger of list price reduction comes from GlaxoWellcome. In 1996, the company reduced the list price of their drug going off patent in Germany by 10 percent. But, rather than stay competitive with the Generic competition, the Generic product’s drug prices came in lower than initially planned. As a result, the company lost a significant portion of market share. TERMS AND REBATES This flexible price decrease is a favored option of most companies. Specific customers receive special terms or rebates for the product, allowing the purchase price to be set depending on the situation. It also enables a targeted response to specific competitive threats. Another similar option is brand equalization. Useful in markets including the UK, USA, Netherlands and others where large Pharmacy chains dominate, this method provides service agreements in return for brand purchases. Pharmacists that fill prescriptions with the branded product receive a benefit and companies can maintain or regain usage. SUMMARY Defensive pricing is a necessary consideration to make when thwarting a Generics threat, and is best employed in concert with other defensive and proactive measures. We discuss more of these successful tactics in the next chapter. 43
    • © Copyright 2013 Eularis CHAPTER 7: ORGANIZATIONAL AND INTEGRATED DEFENSE STRATEGIES As we’ve seen in previous chapters, effective defense strategies against Generics competition run a wide gamut, from fighting at the source (patent/legal) to tinkering with the product (reformulation and OTC) to re-configuring price. As we’ve also seen, these strategies have mixed results when it comes to the regulatory environment and thwarting the Generics threat. What’s essential to remember, however, is that without a close look at the way a company conducts business, how it works from day to day and how it struggles and thrives, these strategies will be even more challenged right from the start. However, without a closer look at the way a company conducts business, how it works from day to day and how it struggles and thrives, these strategies may not be completely effective. They may simply bandage wounds and dress up a mess. As mentioned previously, the very root of the problem the Industry faces today may be in the insistence on sticking with an outdated business model. By focusing on a blockbuster mentality, companies have neglected opportunities to fill the pipelines and, in effect, created this environment that’s conducive to Generic growth. Part of defending against the Generic threat, then, may be bigger organizational and integrated defense strategies. 44
    • © Copyright 2013 Eularis CHAPTER 7: ORGANIZATIONAL AND INTEGRATED DEFENSE STRATEGIES ALLIANCES/M&A In the late 1980’s, size and scale became the Industry standard for sustaining and building businesses. Major mergers and acquisitions commenced - with the prime example of Bristol-Myers and Squibb - and continued unabated until today. By early 2006, only 2 out of the top 10 companies in sales volume (Johnson & Johnson and Merck) remained independent. In the top 20 companies, 13 had merged and the rest were actively discussed as part of consolidation. Mergers and alliances were promoted as strategies to unlock shareholder value, increase market power, expand geographic range and boost R&D strength. However, some Industry analysts contend the trend failed to deliver: market share increases were ephemeral, and actually lost, few new products resulted, and even fewer geographic gains. Instead, the merger activity degenerated into a cost-cutting exercise to cover cost of consolidation. As a result, it has created companies too large to function. These bloated units are so big that leaders feel a loss of control and institute tight bureaucratic controls to compensate. What’s lost is the motivation and ability to experiment and innovate. Caution and more of the “same old, same old” persist. DIVERSIFICATION INTO GENERICS Another organizational change considered as part of an effective defense against Generics is a variant of the old adage: “if you can’t beat ‘em, join ‘em”. Companies are diversifying into Generics, either with separate company units devoted to creating and selling Generics or through the technique of ‘authorized’ Generics. 45
    • © Copyright 2013 Eularis CHAPTER 7: ORGANIZATIONAL AND INTEGRATED DEFENSE STRATEGIES Authorized Generics are defined as a Pharmaceutical branded product relabeled and marketed under a Generic name. Usually, this works by distributing through third party licensing arrangements, agreements with Generics manufacturers or through a company’s own Generics subsidiary, such as Pfizer’s Greenstone and Schering-Plough’s Warrick. In 2004, three out of the top ten best-selling Generics in US were authorized. It’s an attractive option for many companies for clear reasons. The brand name manufacturer can create exclusive partnerships with chosen Generic manufacturers before patent expiration, creating brand name loyalty for a Generic version while earning royalties on the product. The use of authorized Generics gives branded companies additional revenues and erodes the potential economic value of Generics. The FTF exclusivity holder has to share the market with the authorized competitor, and price erosion during the 180-day period increases from 20-30 percent to 40-50 percent in this authorized scenario. The turning point for authorized Generics, when the Industry sat up and took notice of a powerful new trend and technique, was the maneuvers around Paroxetine. GlaxoSmithKline authorized Par Pharmaceuticals to sell Paroxetine, the Generic form of GSK’s branded Paxil. The authorization took place during the 180-day exclusivity period for Apotex, the FTF challenger of Paxil. GSK was able to leverage equity, maintain some market share and bring in profit. Estimates put their earnings at $200-300 Million. The FDA’s view on authorized Generics is, so far, positive for branded companies. Procter and Gamble authorized a Generic version of Macrobid (nitrofurantoin) with Watson Pharmaceuticals on the same day that a 180-day exclusivity period in the U.S. began for Mylan’s Generic product. When Mylan appealed, the FDA stated they saw “no reason to interfere with marketing of authorized Generics”. 46
    • © Copyright 2013 Eularis CHAPTER 7: ORGANIZATIONAL AND INTEGRATED DEFENSE STRATEGIES Some companies are going an additional step and experimenting with Generics, producing their own Generics’ unit and products. The thinking behind this is that operating a Generics business will leverage assets and gain back sales, as well as gain favor with cost-conscious buyers. Some analysts contend the reality of the marketplace is far more complex. In addition, the infrastructure of Pharma companies is designed to support brands with gross margins between 1,500 and 7,000 percent more than those in the Generic marketplace. Operating a Generics business then offers little added value from either customer or company perspective. INTEGRATED PRODUCT DEFENSE PLANNING Perhaps the best means of mounting an effective defense against Generics is through a combination of reactive and proactive measures. These include the methods we’ve discussed thus far, and a few more, focused on facilitating overall company growth. COMPANY CHANGE Some companies need radical change as the only truly effective means to stave off the Generic threat. James offers several prescriptions for change, the details of which are beyond the purview of this paper. Overall, he contends companies must change their mind-sets on spending strategies and focus on how other successful companies think, not what they do. Companies must really consider the perspectives of patient and payer in all decisions. In addition, companies must kill the blockbuster structure, reprogramming their organizational DNA to mesh strategic needs with operating environments. This will necessitate restructuring the value-chain, potentially outsourcing discovery research and deliberately downsizing. 47
    • © Copyright 2013 Eularis CHAPTER 7: ORGANIZATIONAL AND INTEGRATED DEFENSE STRATEGIES GROWTH INTO BIOTECH/BIOLOGICAL Another avenue for growth and bypassing vulnerability that Generics companies can exploit is expansion into an area Generics have not totally infiltrated. BioPharmaceuticals are increasingly indicated for a staggering variety of conditions and offer companies significant revenue streams unimpeded by Generic competition. Additionally, the very specificity of BioPharmaceuticals offers opportunities for an impressive and off-putting array of secondary patents. As part of this realm, antibody technology allows for targeted gene therapy and its products are increasingly under study. They represent major boons to their manufacturers as they are extremely effective compounds difficult to copy. Also, the compounds are protected by Intellectual Property regulations rather than patents, meaning no patent expiration issues. MARKETING ENHANCEMENT Since the time period for branded products to reap all the rewards they can is relatively fleeting, companies are also getting back to basics. Marketers are looking at their methods, amping up launch periods and refocusing on branding. The launch period is becoming more and more critical in the brand lifecycle. The goal is increasingly to enter the market with a phenomenal bang, garnering major attention, significant sales and a big enough noise to ward off threats for the time being. Companies are utilizing a variety of pre-launch approaches found to have major impact on launch success, including NPP programs and pre-launch analytics. Taken together, they can maximize financial impact and market share, making a splash and growing peak sales much faster than previously possible. To make a new product more powerful at launch and after, marketers are also going back to the beginning, rethinking the components of brands and re-evaluating the process to develop new product brands. The key to new sales and continuing prescriptions is through a brand relationship, forged with the end consumer over time and based on trust and emotional connection. 48
    • © Copyright 2013 Eularis CHAPTER 7: ORGANIZATIONAL AND INTEGRATED DEFENSE STRATEGIES Brands, marketers know, take the physical, functional idea of a product and express their uses on both a rational and emotional level. Health consumers are looking for effective products, but also those that engender reassurance, trust and belief. Physicians that see these consumers want their patients to be safe and happy. To develop this ideal, successful brand, effective positioning must be developed, a proposition that communicates a clear and desirable point differentiating it from all competition. It’s a promise that must be kept with its consumers. Making up the brand identity is not only an enunciation of its power and emotional draw, but its personality (including design, packaging and marketing) and core brand values. As consumers’ beliefs in a therapy are supported by a brand identity, there’s a much better chance of consumer commitment, repeat purchases, and long-term gain. Marketers that keep this ideology and practical truth in mind can more effectively create new brands, support existing brands, and maintain business success. SUMMARY Ideally, the best defense is a good offence, and that involves reactive and proactive measures discussed by previous chapters and in this section. Realistically, companies may have to make tough choices about which strategies to employ within their resources and capabilities. The means to do this is the topic of the next chapter. 49
    • © Copyright 2013 Eularis CHAPTER 8: NEW TACTICS EMPLOYED BY GENERICS NEWER UNANTICIPATED APPROACHES TO GENERIC MARKETING BEING SEEN Generics companies are facing enormous competition from other Generics companies which is leading them into new forms of marketing rather than simply competing on price as they used to. Branded Pharma need to understand the new approaches Generics are now using as price is not the only battlefield anymore. GENERIC DIFFERENTIATION OTHER THAN PRICE Prasco’s authorized Generic version of Organon’s oral contraceptive, Desogen, called Solia, is a good example of a Generic manufacturer adding value to a product. Prasco conducted research and found that women did not like the cardboard card that most birth control pills came in. So, when Solia was launched, it made the box smaller (to take up less space on the Pharmacist’s shelf) and used a plastic card to hold the pills. Prasco are looking at what the marketplace wants and are starting to cater for it, which Generics companies tended not to do until recently. The Branded competition is not the only competition; the increased competition between Generics makes it a necessity to look at other ways to compete that are not solely on price alone. BRANDED GENERICS There is now the emergence of Generics companies who brand their product and conduct advertising as well as many of the traditional marketing activities that the big Pharma do. Branded Generics are the key Generics that really need to conduct analytics against Big Pharma Branded competitors, and also against other competitor Branded Generics. A recent report by Medco found that: “One quarter of the physicians surveyed stated that they do not believe Generic medication to be chemically identical to their Branded counterparts; more than eight percent said they were unsure. This despite FDA rules that require Generic versions of the drug to be bioequivalent to the brand medication.” 50
    • © Copyright 2013 Eularis CHAPTER 8: NEW TACTICS EMPLOYED BY GENERICS Nearly one in five physicians believe Generic drugs are less safe than Brand-name medications, and more than one in four doctors (27 percent) believe Generic medications will cause more side effects than brands. Figure 8.1 highlights these results of the survey which surprisingly show that physicians are even less informed about Generics than their patients! Figure 8.1 - Percentage of respondents by target audience who had misconceptions about Generic drugs The Pharmacists are the ones who display the best knowledge about the similarity between major patented brands and their Generic competitors. Fortunately, this bodes well for the influence of Pharma marketing with physicians, however, the increases in patient and Pharmacist influence on drug choice may erode that confidence. This study emphasizes the need for Branded Pharma to really analyze what more they can do to counteract influence of Pharmacists and patients turning to Generics. 51
    • © Copyright 2013 Eularis CHAPTER 9: USING STRATEGIC ANALYSIS TO ASSESS GENERIC DEFENSE Analytics can be used to determine what can be done to defend a brand being eroded by Generics. This chapter will show one case study of a brand that was a large brand being eroded gradually by Generics and how analytics helped them. CASE STUDY: GENERICS DEFENSE ANALYTICS BACKGROUND A well respected, large brand which accounted for significant revenue for the company found that, despite its high market share and popular status, it was being gradually, little by little, month by month, eroded by Generic competition. NEW APPROACH The marketing head employed the Eularis’ 94.8 Analytics Approach, designed especially for this industry, which involved a five-step process: 1. Evaluate marketing elements & market environment 2. Validate actual influencers for a therapy category 3. Use Predictive Algorithm Analytics and Dynamic Modeling 4. Analysis of findings implications 5. Implement the recommendations throughout the sales and marketing processes These processes highlighted where the problem lay. The brand was well liked by physicians (hence, the high market share), the messages were strong, the sales force were skilled, the promotional activities were also strong and yet, Generics were stealing market share nibble by nibble. It would be easy to say “That’s just how it is – we will have to live with it” but the analytics uncovered three interesting areas. 52
    • © Copyright 2013 Eularis CHAPTER 9: USING STRATEGIC ANALYSIS TO ASSESS GENERIC DEFENSE Firstly, they showed that the reps were de-motivated because they had nothing new to say. The doctors loved the brand already and the reps had nothing new to say. The second finding was that cost was an issue, which was really the brand’s only weakness. To deal with this, the company was asked if they had Pharmaco-economic data, which they did. It was recommended that they take the Pharmaco-economic data and add it to their rep calls to give the reps something new to discuss hand-in-hand with the original product benefits. They could incentivize reps to compete region by region, as the analytics also showed performance by region, and use the Pharmaco-economic data to show the cost was actually a saving in the long term. The third aspect the analytics showed was that the market had three market share points in play, and it was clear that one of the stronger brands could take some of these vulnerable market share points if they were positioned correctly. The graphic results of this time period can be seen in the graph in Figure 9.1 on the following page. 53
    • © Copyright 2013 Eularis CHAPTER 9: USING STRATEGIC ANALYSIS TO ASSESS GENERIC DEFENSE Figure 9.1 - Results of the Brand Analytics in January 2006 54
    • © Copyright 2013 Eularis CHAPTER 9: USING STRATEGIC ANALYSIS TO ASSESS GENERIC DEFENSE Figure 9.2 shows the Generic competitor brand picture in the same time period. Figure 9.2 - Results of the Generic Competitor Analytics in January 2006 55
    • © Copyright 2013 Eularis CHAPTER 9: USING STRATEGIC ANALYSIS TO ASSESS GENERIC DEFENSE Results Six months later, the analytics were re-employed. The recommendations had been followed and the brand had gained market share for the first time in a while. They did not take the full three market share points, but they did move the market share up from 68% to 69.1% in six months. The results six months later can be seen in Figure 9.3. Figure 9.3 - Results of the Brand Analytics in July 2006 56
    • © Copyright 2013 Eularis CHAPTER 9: USING STRATEGIC ANALYSIS TO ASSESS GENERIC DEFENSE The key differences that can be seen are that cost is less of an issue than before, that the reps are much stronger than before, and that the brand has grown in market share and is stronger for the even larger size. SUMMARY The Generics market is growing at a significant rate and Branded Pharma must be aware of all that they can be to combat the Generic threat. Generics companies are also changing. As they face intensified competition from other Generics companies, they are finding they need to do more than merely compete on price but must incorporate other marketing activities also. In doing so, they not only create a competitive edge against other Generic rivals but also create opportunities for Branded Pharma to use analytics to analyze what areas, other than price, are influencing prescribing decisions, and how to maximize impact of these areas also. 57
    • © Copyright 2013 Eularis CHAPTER 10: CONCLUSIONS The environment for Big Pharma today is tough. The threat from Generics grows as Pharma companies feel the pressure from an increasingly hostile public and government. Leaders within Pharma companies have every right to feel grim. However, that’s not the end of the story. Pharma companies are also increasingly realizing the need for exhaustive, creative and integrative defense strategies.... and are volleying. Through tenacity and commitment, the battle goes on. What works in defending against Generics? Realizing that what worked in the past may not succeed today; knowing that straight patent defense, reformulation and pricing changes don’t face a favorable environment today. Instead, companies are tweaking the old and diving into the new. Developing a secondary patent network, as well as OTC reformulations, may find greater success; expanding into authorized Generics and new biologic/antibody options. Focusing on honing the launch period, reworking branding and pro-actively reworking key organizational tenets are critical. In summary, companies that are willing to move outside of the comfort zone are those primed to find success. What the future holds for Pharma companies is uncertain. However, company leaders who are ready to act, rather than simply react, will find opportunities to boost sales and profits, and protect against any external threats. 58
    • © Copyright 2013 Eularis Contacts For more information, please contact: Removing Uncertainty from Pharma Corporate and Marketing Decisions www.eularis.com Contact: Dr. Andrée Bates (abates@eularis.com) 59 Eularis North America 415 Madison Avenue 14th Floor NY10017 New York, Japan Eularis Japan Kamiyacho MT 14th Floor 4-3-20 Toranomon
Minato-ku 105-0001, Tokyo, Japan Eularis Hong Kong Unit 10-18, 32/F, Tower 1 Millennium City 1 388 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong Eularis China Shuion Plaza, Room 1206 Middle Huaihai Road 333 Shanghai, 200021 China Eularis Europe The World Trade Center, Leutschenbachstrasse 95, 8050 Zurich, Switzerland