2. This document was
written by
Neal Managing Director
Hansen Datamonitor Consulting
Neal leads a multi-disciplinary team focusing on the provision of
customized solutions to leading players in the pharmaceutical and
biotechnology industries in key areas suc such as lifecycle
management (LCM), portfolio and brand strategy, in- and out-licensing
and forecasting.
Prior to this role, Neal was the European Head of Consulting within
Wood Mackenzie’s Life Sciences Practice. During his time at Wood
Mackenzie, Neal led commercial assessment, scenario planning and
war gaming projects for numerous top tier and mid-cap pharmaceutical
companies in Europe, the US and Japan.
Earlier in his career, Neal held various senior roles within Datamonitor
including Lead Consultant and Lead Analyst for Strategic and
Company Intelligence encompassing Strategic Insight, eHealth Insight
and PharmaVitae Company Tracking. He has authored in-depth
analysis on strategic issues affecting the pharmaceutical industry,
focusing on lifecycle management, pharmaceutical sales force
strategies, competitive dynamics in mature and emerging markets and
the changing nature of the global generics sector.
He has chaired and spoken at numerous conferences in the field of
lifecycle management and the changing nature of the generics
industry. His work has featured in In Vivo, The Economist, The Wall
Street Journal, MedAd News and PharmaFocus. Most recently, he co-
authored Pharmaceutical Lifecycle Management Making the Most of
Each and Every Brand and leads a Late Stage Lifecycle Menagement
Training Course for C.E.Lforpharma.
Neal holds a PhD in Pharmacology and a MA in Natural Sciences (both
from the University of Cambridge).
If you have questions, please contact Neal on +44 20 7551 9199 or
nhansen@datamonitor.com
To find out more about Datamonitor Consulting contact on
info@datamonitorconsulting.com or visit
www.datamonitorconsulting.com
White Paper 2
Lifecycle Management
3. Lifecycle Management:
Base Jumping for
Pharma
If there is one fact that even the most casual observer of the pharma industry is aware of, it
is that there is a patent cliff, and we are in the process of falling off it! Latest numbers would
suggest that brands generating more than $150bn in global sales in 2010 will lose primary
patent protection in at least one major market by 2015,
building on the $ in 2005 branded revenue that has There is a patent
faced patent expiry over the last five years. cliff, and we are
in the process of
While this obviously represents a significant amount of falling off it!
money for the pharma industry, it is the concurrent
challenges in R&D, both in terms of productivity (replacement
revenues) and costs (increasing investment needs) that brings the patent cliff to the fore. At
a time when pharma needs its R&D more than ever, funding is threatened by the sometimes
massive drops in cash flow that follow major patent expires. Moving forward, pharma will
become ever more dependent on the successful management of its older products before,
through and after patent expiry to maximise the profit flow to the rest of the business. Call
them mature, established or heritage brands, one thing is common: they cannot be left on
the shelf to wither and die as they have in the past!
White Paper 3
Lifecycle Management
4. But What is the Problem?
Brands have always faced patent expiry, so this shouldn’t come as a shock to anyone.
Surely pharma’s approach to managing patent expiry is now well honed, with a strong
organisational approach to managing the transition from exclusive brands to multisource
markets? Sadly the reality is often far from the truth, with many companies historically
focusing on doing all they can to delay the time to patent expiry, and then crossing their
fingers and hoping that their local markets will pull off a minor miracle on their own. While
the generics industry has embraced multi-source competition and developed a highly
profitable growth market, pharma has chosen in most cases to cling on to its traditional
branded mentality and take whatever is left behind. In the coming years, it will be those
companies that can successfully restructure their thinking to effectively manage the
transition from exclusive to multi-source brand marketing that will be best positioned to win.
So what does pharma need to do? This article is not going to touch on legal and regulatory
strategies focused on maximising the exclusive life of a brand – these are without doubt
critical, and in many cases hugely valuable, but simply delay the inevitable. When such
tactics have all run out of steam, pharma needs to do three key things well before it can
effectively manage patent expiry:
Understand what will actually happen at and after patent expiry – in our base jumping
analogy, it makes sense to understand more than gravity before you step over the edge!
Jumpers needs to fully understand the terrain, the winds and air currents and what else
might be in the way before they take the plunge. In the same way, pharma needs to
understand more than just numbers (what degree of erosion can you expect), but the look
and feel of the stakeholder landscape and competitive markets post patent expiry. After all,
how can you play if you don’t really know what will happen and how your competitors think?
Get your own house in order and streamlined for success – if you are going to jump off a
cliff, it is a good idea to be as light and nimble as possible, without carrying too much excess
baggage. Before looking at how to compete with new rivals, pharma must first look at driving
efficiencies in costs for each brand to maximise profit margins. Taking a 360 degree view on
costs is critical to ensure that spending is truly optimised. Reviewing royalty agreements,
SKU rationalisation and harmonisation, and optimising sales and marketing spend can all
support a brand’s streamlined transition into a world of generic competition
Understand where and how you can compete and develop tactical plans accordingly. Base
jumpers are skilled athletes…it is not just about a leap and a prayer, it is about meticulous
planning, the right equipment and the ability to manage the fall effectively. For pharma,
understanding the drivers of success of different tactical approaches for different product
types in different markets is critical to develop an optimised plan. Doing nothing can be the
White Paper 4
Lifecycle Management
5. best approach and is a viable choice, but proactive management of patent expiry can
prevent leaving valuable profits on the table.
These three areas of focus hide a multitude of challenges and opportunities. There are far
too many to cover in such an article, so instead let’s consider four key rules to hopefully help
those peering over the edge.
White Paper 5
Lifecycle Management
6. Rule 1: The World is a Varied Place, and the
Balance of Stakeholder Power after Patent
Expiry is Key
In the pre-patent expiry world, the focus on pharma is to get its unique molecules used,
working with regulators to ensure the product is available, with physicians to ensure it is
prescribed and in many countries with payers to ensure market access. Once a physician
has decided to use the molecule, everything downstream is mostly automatic, and the
patient will receive the brand. However, once multisource competition is available, a new set
of influencers on final dispensing decisions take hold.
In many markets, the pharmacist may take control, using generic prescribing or substitution
laws to control costs and maximise profits. Payers can control markets through enforced
generic prescribing or dispensing targets, reference pricing, patient co-pay variations and
introduction of tenders for multisource agents. Physicians still play a critical role in some
markets, while in others they are relegated to bystanders. Patients can be elevated to critical
brand drivers where self pay rules exist, but can also face huge penalties in terms of co-
pays if demanding brands in others. For pharma it is critical to understand the balance of
power in different market types and develop sets of tactical plans accordingly to most
effectively manage profit.
White Paper 6
Lifecycle Management
7. Rule 2: Generics Companies are Businesses
Too
There is more to the generics game than price competition: It is a common perception with
pharma that the generics business is all about selling drugs as cheaply as possible with the
goal of taking as much share from branded players as possible. This is a very naïve view of
the generics industry from several key dimensions, and is one of the key factors that leads
to pharma’s failure in many cases to manage patent expiry effectively. After all, if you don’t
understand your rivals, how can you effectively compete with them? Generics companies do
not look at all potential targets equally, but instead are masters at commercial portfolio
strategy, balancing mass market ‘loss leaders’ with specialty profit maximisers.
Understanding how a generics player might view an individual target will go a long way to
understanding how such competitors will respond to branded company tactics, and thus will
enable more effective strategic planning.
White Paper 7
Lifecycle Management
8. Rule 3: Product-Based Differentiation is
Desirable, but Not Essential if you have the
Right Commercial Strategy
Pharma’s desire is always to gain differentiation from the competition, as such angles are
the lifeblood of the marketing organisation. For products facing patent expiry differentiation
is both doubly important and doubly challenging to make successful. One the one hand,
anything that can give an edge over direct generic rivals must be good, while on the other
hand, gaining any kind of premium or preferential usage if not targeted towards a real unmet
need can be a significant challenge. As such, any investments in late or mature stage
formulation, combination, device or packaging tactics must be carefully evaluated to ensure
ROI, and in most cases targeted to geographies where such enhancements are valued by
the influencing stakeholders (e.g. BRIC markets).
For many (perhaps even most) brands facing patent expiry, such differentiation is unlikely to
be feasible, but that doesn’t mean pharma should give up. Establishing a strong commercial
strategy, including plans for price competition (list, discount, rebate, co-pay support etc.),
stakeholder management and potentially an approach to play directly in the generic market,
is essential to ensure global profit maximization. The benefits of strong global coordination
of such efforts cannot be understated – leaving such tactics in the hands of local markets in
today’s intertwined reference priced world can be the road to disaster.
White Paper 8
Lifecycle Management
9. Rule 4: Playing with a Generic Strategy Can be
Valuable
…but only if you know what you are doing (and why!)
Three core approaches to playing in the generics market exist for a brand owner. The first
approach is the true own generic, where a company sells a low cost generic version of their
brand, usually through their own generic subsidiary. The second approach is the licensed
generic, where the brand company sells the finished dose to a generic company, who then
sells the generic under their own brand. The third approach is the true ‘authorised’ generic,
where the branded company allows a competitor generic to launch ahead of patent expiry,
usually as a result of a settlement or an agreed up-front payment and/or royalty.
All three of these approaches rely on the own generic being able to establish, and maintain
a competitive advantage within the competitive generics markets, and thus are most
effective in situations where the expected competition is not overly fierce. Own generic
strategies, for example, can make sense in markets where tender deals for generics are
common, such as with German sick funds or some hospital contracts, where provided you
can offer a competitive deal, you can take 100% of the market. Authorised generics deals
only tend to work in markets where a first-to-market advantage for a generic can be
sustained, for example in certain brand loyal European markets and in situations where
competition will be forcibly limited for a defined period, such as during the 180 day
exclusivity period in the US; after all, why would a generic company pay up front for early
access if they did not believe they could reap a competitive advantage after other
competitors entered?
Whatever the outside world may think, generic strategies will increasingly become part of
the arsenal of branded pharma’s approach to global success in the next decade. The critical
question will be who can make it work most effectively, to the benefit of both the company
and the healthcare system?
White Paper 9
Lifecycle Management
10. Conclusion
So, the patent cliff is here: strap on the parachute, and get ready to jump. At a minimum,
check the weather reports and look down to make sure you know what you are facing before
you jump. At best, rebuild the parachute into a hang-glider…gravity will stick kick in, but
maybe the way down could be a lot smoother!
White Paper 10
Lifecycle Management
11. ABOUT
Datamonitor Consulting
Datamonitor Healthcare Consulting is a leading life sciences strategic consultancy firm that
helps clients to operate smarter and more profitably in the complex pharmaceutical and
biotech industries.
Through our industry focus, depth of functional expertise, and strong scientific and market
knowledge, we are able to tackle highly complex challenges, issues and opportunities in
your business and market.
Over 90% of our clients are repeat customers – confirmation that we continue to deliver the
vision, collaboration and critical decision-making support you expect from a valued
independent advisor. To discuss your business requirements further, please contact us at
info@datamonitorconsulting.com.
Datamonitor is owned and operated by Informa plc (“Informa”) whose registered office is Mortimer House, 37-41 Mortimer
Street, London, W1T 3JH. Registered in England and Wales Number 3099067.
White Paper 11
Lifecycle Management
