Dr. Bates Talkback: How to mount an effective defense against generics
Dr. Andree K. Bates explains how the key to beating generics lies in leveraging the sectors vulnerabilities
By on Feb 14, 2011Branded pharmaceutical companies are painfully aware of the astronomical growth of generics competition.
Generics captured 14% of the global healthcare market in 2004, and since then the numbers have only increased.
In the US, generics claim more than 50 percent of all prescriptions filled.
Throughout Europe, penetrations differ but are growing.
But its not all gloom and doom for pharma. Effective defense strategies exist that employ a variety of reactive and proactive measures.
And generics face some powerful challenges and damaging growing pains on the path toward dominance.
The generic advantage
What are the biggest factors encouraging generic penetration?
Patent expiration is one. As blockbusters lose patent protection, generic alternatives are flooding the market.
Branded pharmas can expect sales drops of up to 70 percent after patent expiration.
Revenues and market share also drop dramatically and quickly for brands facing cheaper generic alternatives. (For more on patent expiration, see Patent expiration: Innovate or die.)
Government pressure is another. Demand for drugs is rising as the worlds population increases and ages.
But governments the world over, desperate to keep costs as low as possible, are encouraging the use of generics versus branded alternatives, particularly for patients without insurance. (For more on market share loss to generics, see Forecasting for generic erosion rates.)
Loss of image is a third reason. The pharmaceutical industrys reputation has taken a hit in recent years with drug safety scandals, suspect pricing, and more.
Today, its broadly viewed as a cabal of companies exercising monopolies on cash-strapped consumers and countries.
Taken together, these factors offer what could be a knockout punch for an industry already burdened with increasing R&D costs, reduced pipelines, and struggling business models. (For more on pharmas challenges, see Will big pharma become a collection of marketing and distribution firms?.)
The generic vulnerabilities
But are generics immune? From pharmas vantage point, there may seem no limit to generic expansion.
However, generics companies will face some significant counter-strategies from pharma.
Well-planned brand defense strategies can and do actually work, and generics companies lament that they are preventing their successful entry into the market.
These strategies include launch optimization. Many companies are utilizing a variety of pre-launch approaches that have been found to have significant impact on launch success, including NPP programs and pre-launch analytics.
Both (especially when used together) help maximize the financial and market share impacts at launch and grow peak sales much faster than previously possible. (For more on launch optimization, see Leveraging launch experience in pharmerging markets.)
Another strategy is life cycle management. Line extensions (next-generation products) prevent generics from taking hold in the market by leveraging brand equity.
Pharma developers can change the medication dose, alter the delivery method, add safety profiles, produce extended-release drugs, create new drug indications, and more to create next-generation products with a new brand.
But this approach is not faring well in the face of patent challenges by generics.
A third strategy is patent defense. Pharma companies that use patent laws to provide different means of expansion and protection are finding success.
Patents can be obtained, not only for the main formulation and ingredients of a drug, but also for groups of components, processes used, and production methods, creating a network of secondary patents that include the manufacture, storage, and form.
This method is working as generics lack all they need to make a quality product and are prevented from entering the market.
A fourth strategy is the use of authorized generics. These are branded products relabeled and marketed under a generic name during the 180-day exclusivity period.
They are distributed through third-party licensing arrangements, agreements with generics manufacturers, or through a companys own generics subsidiary.
Authorized generics erode the potential economic value available from generics entry strategies and provide additional revenues for branded companies.
A fifth strategy is diversification into biologics and antibody technology. With very few chemical NMEs coming through the pipeline, antibody technologies, a form of biopharmaceuticals, are being studied more and more, as they confer many advantages.
These approaches are very difficult for generics to copy, and many are protected by intellectual property laws rather than patents, meaning they will not face patent expiry. (For more on biologics, see Personalized medicine: A kick-start for innovation?.)
The growth of biogenerics
Biopharmaceutical products and uses have risen dramatically in recent years and point to one path toward new sales and profits for branded companies.
The growth of biogenerics has been slow, though. Why?
Price discounting is less of an option for generics companies considering initial sales price and development costs, which are significantly higher for biogenerics due to the limited availability of the drug substance and minimum investment costs.
Additionally, the pace of innovation in biopharmaceuticals is unlikely to favor biogenerics.
No specific regulation or process adequately governs the development and registration of biogenerics in the US or the EU.
Streamlined registration procedures for generics are based on proof of identity through simple tests.
For small molecular weight substances, thats a much harder process.
Regulatory authorities are therefore asking for extensive demonstrations of biological activitymeaning lengthy and costly studies and approval timelines.
This regulatory framework is evolving, but is still not entirely conducive to generics.
Challenges to generics growth
What other factors are posing extreme challenges to the growth and solvency of the generics industry?
In general, companies face challenges achieving the high volume necessary to deliver the competitive prices consumers demand.
Along with the need to operate with lower margins and higher cost-sensitivity, generics are vulnerable.
And just as branded companies have in the past, generics are facing tough organizational choices as a result of the increasing competition.
It is easy to get beaten when the speed of bringing products to market is crucial, and suppliers are becoming competitors.
To meet the challenges, some generics companies are engaging in mergers and acquisitions to strengthen themselves through economies of scale in R&D, manufacturing and distribution, technology base supporting development, deeper pipelines, and financial strength for litigation costs.
Generics companies also lack bureaucratic support for increased applications and generic penetration.
More than 800 generics applications are languishing without approval due to lack of resources at the FDA Office of Generic Drugs (OGD).
Funding for OGD has been flat over the past few years, and the backlog continues to grow.
The generics threat is very real, and growing. However, generics are not all-powerful, invulnerable competitors.
To truly mount an effective defense against generics, branded companies must realize what is hurting generic growth and leverage it.
Dr. Andree K. Bates is CEO of Eularis, which applies analytics to determine the sales impact of marketing programs.