Battle for the Market: Branded Drug Companies' Secret Weapons

Battle for the market: Branded drug companies’ secret weapons generic drug makers must know

Received (in revised form): 28th March, 2005

Jon Hess is a senior analyst and consulting project leader with Cutting Edge Information. His expertise includes clinical trials operations, early-stage drug development and commercialisation, manufacturing quality control and the generic drugs market. His research has bolstered life cycle management and portfolio planning at several top pharmaceutical companies.

Shannon Litalien is a research analyst with Cutting Edge Information. Her experience covers the generics drug industry, pharmaceutical sales and pharmaceutical commercialisation.

Abstract Generic drugs now account for more than $40bn in prescription sales worldwide. More than $80bn worth of global blockbuster drugs face US patent expiration by 2008. The battle for market share between the booming generics drug industry and the at-risk branded drug industry is raging. As patent expiry looms, branded drugs can no longer only focus on extending product lives. They need defensive strategies to combat their generics competitors actively and retain market share. To maintain rapid growth, generic drugs makers not only need to understand the nature of these defensive strategies, but they must also be prepared to deal with them as they bring their products to market. The most important and commonly-implemented strategies are discussed in this paper and the authors suggest that branded and generic drugs companies can successfully apply or manoeuvre against these strategies to distinguish themselves within an industry where lines are blurring and competition is increasing.

Keywords: generic defence strategy, evergreening, line extensions, next-generation drugs, ﬂanking generics, RX to OTC switching, authorised generics

INTRODUCTION world’s largest drug market. Yet less than a Branded pharmaceutical companies stand quarter of all spending on drug discovery, ready to battle the booming generic drugs development and commercialisation is for industry. By 2008, branded drug patent generics. expirations accounting for sales of more As generics competition poses a greater than $80bn will expose a receptive public threat to the branded drug industry, market to new generic drugs — potentially innovator companies are more vigorously Jon Hess eradicating large percentages of branded defending their profits and market share. Cutting Edge Information 4711 Hope Valley Road, drug companies’ profits. The generic drugs By understanding the defensive motives M/S 205 industry has doubled since 1998 (Figure 1), and strategies of branded drug companies, Durham NC 27713 and is expected to grow to more than the generic drugs industry can survive USA $60bn by 2007. Currently, with more than battles over patents, adopt partnering and Tel:+1 919 433 0211 $40bn in annual drugs sales, the generics licensing strategies and successfully launch Fax:+1 919 433 0220 E-mail: jon_hess@ industry claims more than 50 per cent of new products that continue to spur generic cuttingedgeinfo.com all prescriptions filled in the USA, the drug sales.

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Figure 1: Global generics market growth, 1998–2003 Source: Combating Generics: Pharmaceutical Brand Defense1 © Cutting Edge Information

Since the combination of generics + Flanking or authorised generics — industry growth and patent expirations manufacturing and distribution hinders branded drug companies’ success, partnerships between branded and their brand teams must organise patent generic drugs makers defence strategies, even before launch. + Prescription drug (Rx) to over-the- Facing impending generics competition, counter (OTC) switching teams prepare early and quickly in the product life cycle to avoid losing profits. Understanding each defensive strategy (The industry concern for profit loss has and how it is exercised can help the risen with the ever-increasing pressure to generics industry to fight for product rebuild pipelines, as profits are needed to launches that branded firms vigorously fund the imperative research and oppose. development functions.) Generic drugs Branded drugs companies try to companies that discover brand team implement their anti-generics strategies as strategies and tactics can develop counter- early and quickly as possible to defend attacks against patent defences. against generics competition. The generics Branded drugs companies develop industry’s comprehension of strategies and defensive strategic plans to combat generics tactics is key to overcoming branded competition. While assessing the feasibility companies’ tactics and sustaining generics of each strategy, brand teams may decide industry growth. to use multiple strategies in concert to Many branded and generic drugs makers achieve the desired outcome. When have reached alternative agreements that developing strategic plans, brand teams enables them to avoid the high legal costs often choose from the following that come with patent battles. Many firms commonly used strategies: have begun to form alliances and establish partnerships that are blurring the lines + Evergreening — line extensions and between these two industries. Such next-generation franchise extensions co-licensing agreements, alliances and

Figure 2: Menu of generics defence strategic options Source: Combating Generics: Pharmaceutical Brand Defense1 © Cutting Edge Information

manufacturing and distribution agreements 15 years. By considering a variety of provide opportunities for generics strategies, brand teams form a sound companies to improve their own R&D course of action in a strategic plan to competencies, avoid costly legal battles and minimise the extent to which generics save on manufacturing costs. Branded competitors can erode their sales. The drugs companies get to keep their strategic plan dictates a course of action manufacturing facilities running at full and outlines how to work proactively to capacity, retain market share and even benefit the brand. Effective plans also capture a small share of the generics include contingency options to enable market for their own drugs via royalty brand teams to respond quickly to payments on the generics companies’ sales. unexpected changes in their markets. Proactive strategies to retain market share and maximise returns include developing a STRATEGIC PLANNING franchise or line extension (evergreening), Brand teams, product life cycle managers flanking or authorised generics and and portfolio planners pursue both legal switching an Rx to OTC availability and product-based defence strategies (Figure 2). against generics competitors. It is the responsibility of these teams to produce returns on the extensive research, EVERGREENING: development and commercialisation TRANSITIONING PATIENTS investments that their firms poured into TO NEXT-GENERATION their drugs over the years. DRUGS Branded drugs companies have focused The practice of evergreening — on new, innovative and non-patent developing line extensions or next- strategies as regulatory changes and market generation franchise extensions — has forces have increasingly changed in favour proved to be one of the most successful of generics companies over the past ten to strategies used by branded drugs companies

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Figure 3: Claritin/Clarinex sales, 1999–2004 (Q3) Source: Combating Generics: Pharmaceutical Brand Defense1 © Cutting Edge Information

to maintain market share. Line and before a sufficient number of Claritin franchise extensions present patients with patients could be switched to Clarinex to an improved drug, usually based on the maintain adequate market share. Schering- original compound. Brand teams attempt Plough faced double disappointment: to switch patients to the newly patented Clarinex failed to reach blockbuster status drug before the patent on the original and sales of Claritin dropped dramatically drug expires. Switching patients to the line from $3bn to only $300m within a short extension staves off and minimises market time (Figure 3). share loss and makes it less attractive for Evergreening failures, such as Clarinex, generics competitors to enter the market cause branded drugs companies to be because they must target a depleted patient cautious in planning and launching next- population. generation extensions. To reduce the risk Yet evergreening carries with it a high of problems for new drugs entering the risk to companies utilising the strategy. market, brand teams turn to consumers Research and development for next- and doctors for advice. Considering generation drugs costs companies tens or different opinions when developing a new even hundreds of millions of dollars, drug allows the brand team to create a which they risk losing if the next- better drug by addressing issues with the generation drugs lack efficacy, are proven original product. By correcting the original unsafe or otherwise fail to gain regulatory drug’s problems with an improved next- approval. generation drug, brand teams hope to Schering-Plough found itself in an entice patients to switch to the new drug. unenviable situation in 2002 with the Making this switch before the patent introduction of Clarinex as a next- expiration of the original drug creates a generation replacement for Claritin. Delays disincentive for a market influx of generic in US Food and Drug Administration drugs. When a branded drugs company (FDA) approval for Clarinex opened the puts together an effective strategy to door for generics to enter the market combat generics, such as in AstraZeneca’s

Figure 4: Transitioning Prilosec to Nexium Source: Combating Generics: Pharmaceutical Brand Defense1 © Cutting Edge Information

Prilosec to Nexium switch, good results ability of the generic to capture a large amaze the branded drug industry. portion of AstraZeneca’s share of the gastrointestinal market. To further trump Case study: AstraZeneca’s next- its would-be generics competitors, generation Prilosec to Nexium AstraZeneca switched Prilosec to an OTC switch drug as its prescriptions dwindled. Branded AstraZeneca’s switch from Prilosec to drug companies follow AstraZeneca’s next-generation Nexium is an industry example when developing defensive paradigm (Figure 4). The company strategies, and generics companies should transferred 40 per cent of Prilosec patients study this case to determine how to to next-generation Nexium as well as remain viable in the face of such successful managing a 9 per cent growth in its strategies. gastrointestinal franchise in 2001 alone. Next-generation Nexium, developed from LINE EXTENSIONS: Prilosec, proved more effective in treating BUYING TIME patients. AstraZeneca submitted the drug The evergreening strategy also includes to the FDA early enough to assure its line extensions. Planning for and approval before the patent expiration of developing line extensions for a patented Prilosec. When the FDA approval came drug requires a sound life cycle through, one of the most massive management plan to outline the future for marketing campaigns in US history began. the drug. Brand teams can anticipate The company spent $500m on direct-to- potential product line extensions when consumer marketing, hospital discounts on long-term planning begins about one year the drug, free samples for doctors’ offices after product launch. Market research and media advertising. Its marketing efforts provides the necessary information, such as resulted in an abundance of patients disease direction and important legal or transferring to the next-generation product clinical issues, to plan the future for a with the new patent, thus thwarting the branded drug.

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The greatest benefit of line extensions is requires the release of a bulk of their ability to buy additional time. information about the drug at one time to Choices available to branded drugs build interest and news around the companies when issuing a line extension product. The immense amount of press include changing the dose of a drug, increases attention and buys time for the altering its form of delivery or modifying brand by increasing market interest. These its formulations by adding safety profiles or factors cause the public to ignore the producing extended-release drugs. generics competition for a brief period of Line extensions produce hit or miss time. situations. The Claritin/Clarinex case failed Timing the line extension correctly to maintain market share for Schering- becomes crucial. Brand teams take Plough; however, cases such as advantage of the time and attention GlaxoSmithKline’s (GSK’s) Zyban worked gained through either approach by well as a line extension of Wellbutrin. switching as many patients as possible to GSK found the antidepressant Wellbutrin the line extension during the overlap to be effective as a smoking-cessation of the patents for the new and original product, renamed the product Zyban and drugs. marketed the drug to consumers who Giving a line extension the same smoke. name — or one that is similar to the Branded drugs companies often run into original drug’s brand name — helps problems, such as lacking ways to make a marketing efforts by leveraging the old drug more convenient than its current brand’s equity. Next-generation drugs, delivery method. Moreover, R&D may be which are truly different compounds, often unable to find a clinically viable new require entirely different names to gain product when a line extension proves individual identity in the market. ineffective with altered indications. If Brand teams spend a great deal of branded drugs companies can avoid such money on advertising campaigns for next- problems and create a line extension, generation and line extension products — brand teams will be able to utilise the total direct-to-consumer spending tallies added clinical or economic benefits of the more than US$4bn. Television and print extension to convince patients to avoid advertising absorb the bulk of advertising generic alternatives. dollars. Television advertisements account for more than 57 per cent of total advertising spending, while print Marketing line extensions advertisements follow closely, with more When marketing line extensions to than 31 per cent of spending. Spending on patients and doctors, brand teams take two advertising is tremendous because brand approaches. First, they can release a teams must maintain consumer awareness ‘critical mass’, or moderate amount, of and intent to purchase to beat out generics information in conjunction with product competition. launch. After launch, the team periodically Regardless of the advertising approach releases additional small amounts of that a brand team takes to create a ‘buzz’ information to keep the market informed around a new line extension, the and up to date about the drug. investment in commercialisation is Continually reminding the market about enormous. Not only do marketers have to the drug in this way helps to maintain spread the word about the new drug, but market share when generics competition they also face the challenge of arrives. The second option for brand teams differentiating it from its predecessor. In a

recent study,1 industry business intelligence generics drugs companies. Frequently, firm Cutting Edge Information (http:// these partnerships function as out of www.CuttingEdgeInfo.com) found that court resolutions to patent infringement more than 40 per cent of companies were suits. willing to invest between $100m and The strategy, referred to as ‘flanking’ or $150m in R&D to produce a line ‘authorised’ generics, allows branded drugs extension for a blockbuster drug — one companies to manufacture at capacity by whose peak annual sales exceed $1bn. producing a portion of their own drugs Many others have backed line extension under a generic label to be distributed by a R&D with as much as $250m. Despite generics company in exchange for royalties these staggering numbers, companies still on sales. This method encourages the invested in new product commercialisation existence of only one generic form of the at an astounding two to one ratio by drug, preventing lost market share from comparison with the R&D budgets of multiple generic drug introductions (when such drugs. one generic establishes itself in the market At the end of the day, however, one prior to patent expiry, it is much less question lingers: when a line extension is appealing to other generics manufacturers not feasible, at what point does marketing to try to compete, given the industry’s a drug that is competing with generics comparably small profit margins). cease to yield positive returns on Retaining revenue from a branded drug investment and actually begin to have the after patent expiration motivates companies opposite effect of boosting sales for a drug’s to prevent multiple generic drugs from generics competitors? The jury is still out entering the market. on this; however, industry experts point to Partnerships with generics companies the drastic fall-off in a branded drug’s sales create win-win situations for both parties. when generics come to market. Often, a Generics companies do not have to invest brand name drug can lose 80 per cent or in expensive manufacturing facilities more of its market share in the first year in because that need is fulfilled by the which it faces generics competition. Such branded firm, which can easily produce a decrease in sales forces brand name drugs the generic version within its existing makers to slash advertising spending. manufacturing operation. This allows the Within the first year of a generic branded company to recover more R&D formulation’s launch, branded investment in the drug, as well as capital manufacturers often re-focus their investment in manufacturing. attention and marketing dollars on more promising drugs that yield higher returns on investment. Case study: GSK’s Paxil deal Generic drugs maker Apotex launched a substitute for GSK’s immediate-release FLANKING GENERICS antidepressant blockbuster, Paxil. To stave A second defensive strategy available to off this generics competition, GSK branded drugs companies involves entry developed a new controlled-release into the generics market via their own formulation, Paxil CR. The company subsidiary generics units or by distributing transitioned patients to Paxil CR and generic versions of their own brands. The arranged a licensing agreement with involvement of branded drug companies in generic drugs maker Par Pharmaceutical. the generics market often is a result of GSK supplies Par Pharmaceutical with strategic partnerships between branded and generic Paxil immediate-release tablets and

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Par Pharmaceutical distributes the market niches left by branded drugs. immediate-release drug in the USA. Par Generics companies that develop larger, Pharmaceutical pays a royalty to GSK for more innovative R&D functions see the generic pills, which helps GSK to greater growth in business through these capture a small segment of the generic niches. Open sectors, including urology, Paxil market, reducing its losses after contraception and treatments for systemic Paxil’s patent expiration. Their partnership lupus erythematosus, offer generics higher reduces the competition introduced by returns and exclusivity than generic copies Apotex because the controlled-release of branded drugs. tablets distributed by Par Pharmaceutical Another opportunity for generics cannot be replaced with the immediate- companies is the option to form release medication that Apotex offers. GSK partnerships with branded drug companies. retains a larger percentage of the overall In 2003, GSK teamed with generic drugs Paxil revenue stream by both transitioning maker Ranbaxy to develop collaborative patients to its new, proprietary controlled- research in a variety of therapeutic areas. release formulation and by partnering with The agreement delegated responsibility for Par Pharmaceutical to produce and early clinical work to Ranbaxy, while distribute a generic version of the GSK would improve the compound after immediate-release form to compete with its approval for development. An executive Apotex’s drug. steering committee was appointed to oversee all R&D. Branded drugs companies create generics The introduction of a branded drugs Marketing and sales company’s own generic replacements When the hurdle of marketing a generic provides it with competitive advantage seems too high, generics companies can only if it arrives in the market early. Being partner with branded pharmaceutical first to market helps companies to retain a companies to accomplish marketing and devalued market share of their off-patent sales functions. Building a new marketing drug. department or sales force from the ground Branded drugs companies can arrive up may take more time and money than a earliest by taking advantage of the generics company can afford. One multitude of resources readily available to innovative workaround that has become help them reach the generics market. Most more common in the USA is the ‘flanking branded drugs companies possess thorough generics’, or ‘authorised generics’, strategy, legal departments to handle patent cases, discussed above. In exchange for sales developed and skilled marketing/sales royalties, generics companies team up with forces and extensive existing manufacturing branded drugs companies to market their capabilities. A company needs a healthy products. Generic drugs makers also revenue stream in order to compete with acquire companies with existing sales and the branded companies. marketing functions or outsource marketing and sales. Outsourcing proves New positions for generics effective in reaching physicians more Generics companies find new ways to quickly than other methods because succeed in the industry as the role of contracted sales forces already have an branded drugs companies changes. One established rapport with physicians. opportunity for generics includes filling Choosing any of these options, however,

means that companies forgo a portion of generation antihistamines to be switched to sales revenues. OTC status. Wellpoint Health Networks argued that these branded drugs, including Claritin, Zyrtec and Allegra, are less RX TO OTC SWITCHING dangerous than similar OTC products. Switching branded prescription drugs to The petition highlighted the rising prices OTC status is the third defensive strategy of drugs and the need to lower overall option for branded drugs companies. Rx costs for patients. to OTC switching occurs when a branded The list of candidates for Rx to drug, whose patent is about to expire, OTC switches has grown dramatically gains approval by the FDA for OTC sale. since 1997, and includes blockbuster When branded pharmaceutical companies drugs like Celebrex, Flonase and switch drugs, they give up some sales Prevacid. revenue. The switch will make the market In response to Wellpoint’s FDA unattractive for generics, however, petition, Schering-Plough preemptively allowing branded drugs companies to keep switched Claritin to OTC in an attempt to more of their revenue streams than if they maximise revenue and maintain market had done nothing in the face of generics exclusivity. Switching offers branded drugs competition. companies a public relations advantage by Although this defensive strategy is the offering lower-priced drugs to a public least common, employing Rx to OTC upset by rising drug costs. Recently, the switching in conjunction with line/ FDA increased its budget for OTC franchise extensions sometimes proves switching evaluations and now periodically ff e ective for branded drugs companies. approves classes of drugs for OTC status. The combination of strategies can help to OTC approvals for entire drug classes maintain some sales revenue for the forces switching by branded drugs branded drug. Giving patients the option companies, and these switches, while rare, to switch to either the extension or the are more common than voluntary OTC drug makes the market less attractive switching by the branded drugs companies. to generics. Keeping generics from the market rarely AstraZeneca’s Prilosec to Nexium justifies branded drug-makers cutting switch provides an excellent example of revenue drastically by voluntarily switching the combination strategy. The company products from Rx to OTC status. succeeded in keeping 40 per cent of Prilosec patients by introducing them to the next-generation drug Nexium. Shortly CONCLUSION afterwards, Prilosec gained OTC status, The lines that traditionally divided branded keeping generics competition from pharmaceutical companies from generic flooding the market to take AstraZeneca’s drugs makers are blurring. Generics revenue and market share. companies are building their R&D competencies to reap higher-margin Other factors benefits from proprietary drug sales and, at As the battle between generics and the same time, branded drugs companies branded drug companies continues, are attempting to establish names for managed care groups have stepped in as a themselves in the generics market through new player in the conflict. In 1998, deal-making strategies. Branded drug Wellpoint Health Networks petitioned the company Novartis is pursuing both FDA for an entire class of second- branded and generic drugs markets.

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Re-branded in 2003, Sandoz encompasses partnerships, alliances and manufacturing the loose conglomerate of businesses and distribution agreements between formerly under Novartis Generics in a branded and generic drugs makers will single business unit. Sandoz markets more provide the greatest beneﬁt to the branded than 200 generic drugs in a wide array of drugs companies as their role in the therapeutic areas. Novartis’ goal for the industry changes and as generic drugs subsidiary is to expand the company manufacturers become larger players in globally and capitalise on the reputable overall industry competition. Sandoz name. Industry experts predict that the two industries will continue to mesh together Reference as competition for patients increases, the drive for higher proﬁts continues and 1. Cutting Edge Information (2004) Combating more branded drugs patents expire. Generics: Pharmaceutical Brand Defense, available at http://www.PharmaGenerics.com. Defensive strategies that include