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Taking a market-by-market approach to maximizing value after loss of exclusivity
Typically when companies approach life cycle planning, they tend to focus on the US market and consider only a handful of end-of-life strategies, including raising the price or discounting, striking an authorized generic deal, or divesting the brand. However, other options exist, guided by the local market dynamics in the various geographic markets in which the product competes.
Depending on the geographic market, the loss of patent exclusivity for a pharmaceutical brand does not necessarily mean the end of profitability. By taking a market-by-market approach to life-cycle planning, companies have an opportunity to maximize the value of their end-of-life brands.
Every market is different. In examining the environment of each market, companies need to consider three key questions.
• What level of business will the brand likely retain post-loss of exclusivity?
• What is the organization/brand’s ability to impact stakeholder choice?
• What is the expected level of generic competition, and what is the profile of the generic competitors?
This article will examine the potential answers that life cycle planners will find to these questions as they relate to various geographic markets. Based on these answers, the article will highlight some of the potential alternatives companies may employ.
Brand value retention
The level of business that a brand will retain post-loss of exclusivity (LOE) depends on a number of different factors. Foremost is the public policy of the country in question as it relates to generics. Some government regulators are generic-friendly whereas others are indifferent to generic use. This analysis has to be done on a country-by-country basis rather than at a global or regional level because each country is going to have its own policies, standards, and recommendations.
Next, companies must consider the nature of the brand itself. Biotechnology products, for example, are less prone to generic competition in countries that have not yet established a biosimilar approval pathway. Even in a country with an established approval pathway for large molecule drugs, the complexity of these products makes the development of a biogeneric a more difficult prospect.
Meanwhile, certain therapeutic categories tend to be more highly “genericized” than others. The cholesterol category, for example, is more crowded with generics than some other categories. Before losing US patent protection in 2006, Zocor (simvastatin) was Merck & Co.’s largest-selling drug and second largest-selling cholesterol-lowering drug in the world. The product’s sales peaked in 2004 at $5.2 billion, but due to generic competition, revenue declined steadily in the years since, with Zocor earning just $468 million in 2010. As Pfizer’s Lipitor (atorvastatin) nears the end of its patent exclusivity, the cholesterol category will become a more genericized market than it is today in many markets.
Generic competition is not the only consideration, however. Products at the latter end of their life cycles are also more likely to face competition from potentially more effective follow-on products. The presence of follow-on drugs approved in the market in question must be taken into consideration.
Impacting stakeholder choice
In assessing the ability to impact stakeholder choice, companies must first analyze the full range of key stakeholders in the post-LOE environment. The role of the pharmacist increases considerably post-LOE. Companies with other generic products in their portfolios or a pharmacy sales force already in place will be in a better position to impact decisionmaking.
Another point to examine is whether the payer landscape for the market is regional or nationalized. In Italy and Spain, for example, reimbursement is handled at a regional level, impacting the way companies may choose to negotiate in these countries.
Brand equity will also be a factor. Established companies that possess solid relationships with physicians and are thought of as scientific leaders may wield more influence than their competitors.
Individual countries can be categorized as high generic erosion, medium generic
erosion, or low generic erosion markets. Each market category requires a particular kind of end-of-life planning.
High erosion markets include the US, Germany, and the United Kingdom. Within 12 months of LOE in these markets, brands can expect to lose up to 80% or more of sales. Public policy in the US is extremely favorable toward generics as a means to reduce healthcare costs. In Germany, meanwhile, the government goes so far as to mandate that patients switch to a generic within six months of a branded drug losing exclusivity.
In medium erosion markets such as Brazil or Italy, brands lose between 50% and 60% of sales in the first five years post-LOE. These countries possess fragmented healthcare markets. Brazil, for example, has national, provincial, and municipal reimbursement for different disease states based on the severity of disease. Italy is divided into 20 regions, each with its own statute to determine the form of government and the functioning of the region.
Countries such as China, Japan, Russia, and India are low erosion markets, where a brand may be expected to lose only about 25% of revenue over five years post-LOE. Physicians and patients in Japan tend to be very brand-loyal. They associate a certain level of efficacy with brand-name products. Conversely, India can be considered a low erosion market because the country offers minimum patent protection. From day one, brands compete in a highly aggressive generic market such that market share is not going to change appreciably from launch to loss of exclusivity.
The answers a company will find to the above questions will dictate the strategic options open to them for their end-of-life brands.
For example, in a high erosion market like the US, companies can focus on price management where appropriate or plan in advance to focus on maximizing margins through low-cost manufacturing. Companies can also consider transitioning to multi-channel marketing or partnering to launch authorized generics.
Meanwhile, in a low erosion market where baseline market-share retention is predicted to be high and the sales force’s ability to influence prescribing is also high, generic competition is not as much of a factor. In this scenario, a company can focus on continuing to promote the brand while adding products and services to drive physician and patient loyalty.
In a low erosion market where baseline market-share retention is predicted to be high but the ability to influence prescribing is low, a company can try to form partnerships designed to reinforce its messaging. The company may also consider using alternative marketing channels and focusing on key account management or big pharmacies.
If the baseline market-share retention is predicted to be low, but the company’s ability to influence is high in the market, life-cycle planners may want to consider launching a follow-on product or extending the brand with a new formulation or a new delivery mechanism. A company can also segment the market to target physician groups not being serviced by the generic competitors.
To put this into context, consider the situation Sanofi faced in promoting its Allegra (fexofenadine) allergy brand in Brazil. As noted above, Brazil may be considered a medium erosion market where innovators often compete with generics or biosimilars even before loss of exclusivity. Despite the fact that Allegra generics were introduced in 2003, the brand continued to maintain a healthy portion of its market share (see chart). A pediatric solution line extension introduced in 2008 enabled the brand to get back on a growth trajectory, increasing its year-over-year share by 4% in 2009.
Why did Sanofi continue to promote and develop Allegra in Brazil, and why did the brand remain competitive even after loss of exclusivity? The answers rest in the three strategic questions asked above.
• What level of business will the brand likely retain post-loss of exclusivity? In the Brazilian market, brands often compete with generics and biosimilars and retain a healthy market share. As such, Allegra could expect to retain a significant share.
• What is the organization/brand’s ability to impact stakeholder choice? In Brazil, Sanofi maintains broad sales representative relationships with both physicians and pharmacists. In 2009, Sanofi also bolstered its reach by acquiring Medley Pharma and signing a marketing and distribution partnership with Minancora. As a result, Sanofi continues to have a strong ability to affect stakeholder choice.
• What is the expected level of generic competition, and what is the profile of the generic competitors? The expected level of generic competition was high in Brazil, with limited formulations and a focus on primary care physicians. This presented an opportunity for a pediatric formulation targeted toward pediatricians.
By applying the three key questions to each geographic market, companies will find new avenues to realize revenue for a brand beyond loss of exclusivity. Each scenario opens possibilities for alternatives to the traditional strategic options and will help companies more effectively maximize the value they extract from their end-of-life brands. This analysis of the geographic markets must be begun early, however, so that strategic planning can be completed well in advance of loss of exclusivity. PC
ABOUT THE AUTHOR
Rohit Sood is a Senior Practice Executive in Campbell Alliance’s Brand Management Practice. He comes to Campbell Alliance with more than 10 years of management consulting experience, including global life-cycle and portfolio planning, global commercial strategy, licensing and acquisitions, organization design, and technology strategy and implementation.