Pharma strategies for combating generics

Generic drugs account for more than 50% of all prescriptions in the United States and 13% of the $427 billion prescription drug market worldwide in 2002.

By Editor on Mar 9, 2004

Generic drugs account for more than 50% of all prescriptions in the United States and 13% of the $427 billion prescription drug market worldwide in 2002. And even the most conservative estimates predict double digit growth for generics, in sharp contrast to only 6% growth in branded prescription drug sales, over the next five years.

With patents set to expire on more than $80 billion worth of blockbuster drugs by 2008, a major portion of branded drug sales face impending competition from generics. And with a growing trend of regulatory shifts favorable to the generics industry, most notably revisions to the Hatch-Waxman Act, the pharmaceutical industry is looking toward innovative non-patent strategies for combating generic competition and legal actions against brands's patents.

According to Jon Hess, lead analyst on a new study from Cutting Edge Information on combating generics, pharmaceutical companies must prepare earlier than ever before in the product lifecycle for generic competition. The companies that start earlier and really have a plan in place, with contingency options for different scenarios, are much more likely to see their plans work out favorably, he said.

Combating Generics: Pharmaceutical Brand Defense examines a variety of strategies available to brand teams and franchise and therapeutic area leaders for defending patents and maximizing asset returns against generic competitors. Hess and his colleagues recommend five principles for success in planning for generic competition:

Protect existing brands from patent challenges and generic competition through litigation and innovative strategies with generic competitors;

Switch patients to next generation drugs to balance existing brand defense strategies;

Assimilate public, political and regulatory changes into generics planning;

Initiate generics defense planning earlier and support it with necessary resources; and

Explore licensing, deal-making and market-crossover strategies as viable solutions to generic competition.

One key strategy, according to Hess, will be the practice of evergreening's developing line extensions or next-generation franchise extensions. This has proven to be one of the most successful strategies for retaining market share as generics prepare their drugs for market, he said. Switching patients to a next generation drug significantly diminishes the market share of the generic versions of the original drug when they end up hitting the market.

Some companies group this approach with other complementary strategies, including OTC switching, dual status (a blend of line extension and OTC switching), legal patent defense and distribution agreements with generics to successfully navigate the generics threat. Hess points to AstraZeneca's Prilosec-to-Nexium transition as the industry's success benchmark. The company successfully switched 40% of its Prilosec patients to next-generation Nexium and subsequently took Prilosec over-the-counter, and in turn grew its gastrointestinal franchise by nearly 9% from 2001 to 2002.

Others, however, have met with less than favorable outcomes from this approach, as evidenced Hess said by Schering-Plough's attempt to shift Claritin patients to Clarinex. The strategy failed because Schering experienced unanticipated delays in gaining FDA approval for its Clarinex manufacturing facilities, Hess said. That impacted their timeline and they had trouble switching patients over before the generics were out there, so they tried to take Claritin OTC, but in the end it was pretty detrimental to them.

Clarinex sales, just $654 million in 2003, have been disappointing, while Claritin prescription sales have dropped from more than $3 billion in 2001 to just $370 million in 2003.

Other strategies, Hess said, surprisingly find pharmaceutical companies establishing manufacturing and distribution agreements with generics manufacturers. This tactic called flanking generics's helps pharmaceutical companies retain a portion of the revenue from drugs facing patent expiration.

According to Hess, a typical agreement involves the generics company serving as a distributor of the non-branded, generic form of the drug, which continues to be produced in the branded drug company's manufacturing facilities. It keeps the pharmaceutical companies from having to lay people off when the generics hit the market and avoids cutting back production, he said. And sometimes the generic company will even pay royalties on sales to the pharma as well. So it's a give and take.

This kind of agreement has been established by a variety of companies, including GlaxoSmithKline's arrangement with Par Pharmaceuticals to supply generic Paxil and Bayer's agreement to supply generic Cipro to Barr Laboratories for distribution.

However, such arrangements can come with legal risks. For example, a California resident filed suit against AstraZeneca and Barr Laboratories in early 2001, claiming that a confidential settlement agreement between the two companies illegally keeps the price of the breast cancer drug tamoxifen, sold by AstraZeneca under the brand name Nolvadex, artificially high.

An alternative, according to Hess, is pseudo-generic strategies, which involve pharmaceutical companies with medications approaching patent expiration striking deals to produce and introduce their own identical version of branded drugs before the true generics hit the market. Hess said the pseudo-generic is only different from the branded drug in label and price and therefore not a true generic.

This strategy makes it difficult for other companies to enter the market once pharmacy shelves are already stocked with one generic,'s Hess said. Once a patient starts taking a pseudo-generic, switching them to another generic at the same price seems senseless to doctors and pharmacists.

The bottom line, Hess said, is to select a strategy and begin the planning process as early as possible, while supporting those efforts with ample budgetary and staffing resources.

To learn more about this study, visit the Cutting Edge Information Web site www.CuttingEdgeInfo.com or the study site www.PharmaGenerics.com.