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Lifecycle Management: Base Jumping for Pharma


This document was written by Neal Hansen

Managing Director 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 coauthored 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

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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 faced patent expiry over the last five years. While this obviously represents a significant amount of

There is a patent cliff, and we are in the process 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!

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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

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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.

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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 copays 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.

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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.

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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.

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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?

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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-glider‌gravity will stick kick in, but maybe the way down could be a lot smoother!

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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.

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Basejumping for pharma