Generic erosion inevitable, but
can be reduced
With drugs worth nearly $140
billion in sales coming off patent by 2016, brand manufacturers can expect to
face a decade of unrelenting generic competition. However, the severity and
speed of brand erosion can vary significantly, depending on a number of
factors, which manufacturers can potentially use to their advantage to lessen
the impact of generic competition.
With declining returns from drug development pipelines, the preservation of
branded revenues is key for drug manufacturers. Inevitably though, once the
core product patent of a pharmaceutical drug expires, generic companies will
launch their own, cheaper versions of the drug. These are usually at a
discount price to the brand, which encourages switching from the branded
product to the cheaper generic.
This switching can be driven by mandatory regulations, by physician and
pharmacist incentives, or by reducing or eliminating out-of-pocket spend for
the patient. Switching from a branded product to a generic erodes the volume
of branded drugs prescribed and so usually also erodes the brand's revenues.
However, the speed and impact of brand erosion can fluctuate, depending on
factors such as country-specific prescription, and pricing and reimbursement
(P&R) regulations, product formulation, success of the targeted brand, and the
implementation of lifecycle management (LCM) strategies.
Increasing generic competition
Following patent expiry of a drug, generic manufacturers enter the market as
soon as they possibly can in order to gain first to market status, taking the
first and usually largest bite at the cherry that is unprotected brand
revenues. Usually between two and four generics enter the market during the
first three months following a patent expiry, although this can be as high as
32 generic entrants, as observed with generic versions of Roche's injectable
antibiotic ceftriaxone, in Italy. Over time, additional generic manufacturers
subsequently enter the market.
Datamonitor research shows that of the six major pharmaceutical markets (US,
France, Germany, Italy, Spain and the UK), brands in Germany experience the
greatest number of generic competitors, while those in the US and UK
experience the least after two years of generic competition.
Brands with high revenues generally face a greater number of generic
competitors than brands with low revenues. This is because generics companies
can earn potentially greater revenues through targeting more successful
brands. However, as more generics enter the market, the revenue potential for
each individual generic company decreases accordingly. Nevertheless, the
greater the brand value, the higher the number of generic competitors that can
be accommodated.
Formulation impact
In general, the value of a brand, whether a blockbuster or one with revenues
of less than $50 million per year, is not linked to the level of erosion it
experiences after patent expiry. However, one characteristic which does affect
sales erosion is the formulation of the brand. Manufacturers of standard oral
tablets experience a greater level of brand erosion than those producing
alternative formulations. This is indicative of the relative ease of producing
oral tablets, capsules and liquids, in addition to the higher prescription
rate of such formulations. This in turn leads to greater revenue potential.
Conversely, branded oral long-lasting drugs and other technologically advanced
formulations, generally do not experience significant erosion from generics.
This demonstrates the significant value of these formulations, as well as the
brand-protecting ability of such LCM strategies. It is also a significant
financial benefit to the manufacturer if it can switch patients to patent
protected formulations.
However, once the formulation patent covering branded, long-lasting
formulations expires, or when generics companies develop their own
non-infringing long-lasting formulations, which is happening more frequently,
the original brand will inevitably face generic incursion and erosion. So,
while reformulation strategies may be effective at staving off generic
competition in the short-term, ultimately manufacturers need to develop truly
novel drugs in order to maintain franchise and portfolio revenues in the face
of generic competition.
Related research:
•
Generic Series: Benchmarking Patent Expiries - Key Factors Affecting Brand
Erosion at Patent Expiry
•
Generic Series: An Introduction to the Canadian Generics Market - Key trends
and leading companies shaping the market
