Article innovative marketing strategies after patent expiry the case of gsk-s antibiotic clamoxyl in france

Innovative marketing strategies afterpatent expiry: The case of GSK’santibiotic Clamoxyl in FranceReceived (in revised form) 7th August, 2003

Pierre Chandonis Assistant Professor of Marketing at INSEAD, where he teaches brand management to MBAs and executives. His area of

expertise is in brand management and in consumer behaviour for low-involvement products, with applications in the areas of

sales promotions and point-of-purchase marketing. He has published articles and books on these topics in leading academic

journals, including the Journal of Marketing Research and the Journal of Marketing.

INTRODUCTIONBefore assessing how best to respond to aloss of patent protection, it is important toconsider whether radical change is reallynecessary. It may be that the pharmaceuticalproduct is operating in a niche category thatis too small to attract challenging genericcompetition, at least in the short term. Itcould also be that the awareness and imageof the brand is so strong in patients’ anddoctors’ minds that it would retain most ofits equity even after the loss of patentprotection. In most cases however, theentry of generic competitors radically altersthe competitive landscape and calls forappropriate radical responses. In the nextsection, the five major strategies available topharmaceutical brands facing competitionfrom generics are briefly reviewed. This isfollowed by a review of the innovativemarketing strategy adopted by SmithKlineBeecham in France in the late 1990s, whenits Clamoxyl antibiotic faced a suddenincrease in competition from genericamoxicillin.

FIVE STRATEGIES FORCOMPETING AGAINST GENERICPHARMACEUTICAL PRODUCTSFigure 1 shows that the five majormarketing strategies available for aprescription drug facing competition fromgenerics involve a trade-off between brand

building and price competition. Of course,a company can also resort to non-marketing oriented strategies such as legalefforts to extend patent protection ortactical alliances with generic makers andcan simultaneously implement differentstrategies, thereby creating a hybridmodel. In a first stage, it is neverthelessuseful to review each strategyindependently, starting from the mostcommon to the least common.

DivestThis strategy involves cutting allpromotional and research expenses oncethe brand faces direct competition from

Pierre ChandonAssistant Professor of

Marketing,

INSEAD,

Boulevard de Constance,

Fontainbleu F-77300, France

Tel: +33 1607 24987

Fax: +33 1607 46184

e-mail:

[email protected]

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Figure 1: Marketing strategies after patent expiry

# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 65

generics and redirecting the savingstowards brands that are still enjoyingpatent protection. Sometimes, this‘milking’ strategy actually involves priceincreases to take advantage of the higherbrand equity of the brand among thesmaller segment of hard-core loyalcustomers. This strategy leads to thelowest levels of brand building (becausethe brand is not supported) and pricecompetition (because the price advantageof generics is not challenged).The success of this strategy hinges on theinertia of doctors, patients and the otherstakeholders (pharmacists, HMOs,governments). When their motivation toswitch to the newly-available generic islow, either because of low financialincentives or strong attachment to thebrand or to the value of brand equity forfunding research and development, such astrategy can deliver high profitability, atleast over the short term. Over the longerterm, however, the profitability of thisstrategy depends on the elasticity of theother still-patent protected drugs to theadditional promotional investments. Asmany examples have shown, it is notalways easy to convince doctors andpatients to upgrade to the new patent-protected drug in the category andpatenting these next-generation products isbecoming increasingly hard. One of themajor drawbacks of this strategy is that itencourages generic makers to challengedrug patents more aggressively, knowingthat the market will be all theirs as soon asthey have received the green light.

InnovateShort of introducing a completely newmolecule, pharmaceutical companies caninnovate by launching new forms anddosages or by demonstrating effectivenessfor new indications. They can alsoinnovate by offering better services fordoctors (eg hotline), and bettercommunication on the illness and on the

brand through higher promotion by themedical representatives. Compared withthe ‘milk and divest’ strategy, this optionalso entails low price competition, but canimprove the equity of the off-patent brandby offering additional patent protection.On the other hand, innovations requireyears of research before being authorisedand, in some countries, do not necessarilyextend the duration of the patent.

Provide more value for the moneyIntroducing new and improved flavours,packaging, or delivery systems (eg easy toswallow pills, or patches) can lead toadditional emotional or functionalconsumer benefits (eg higher compliance).The resulting differentiation enhances theawareness and image of the brand andhence increases its equity. Because theseinnovations typically do not extend patentlife however, it is more difficult to pass thecosts on to the consumer when facinggeneric competition and hence, thisstrategy’s lead is one step ahead towardsprice competition. In addition, theseimprovements can be easily copied bygenerics and thus often have only a weakimpact on sales, while reducing margins.These changes can also be perceived asmarketing gimmicks and hurt theperceived scientific integrity of the brand.

Invest in genericsPharmaceutical companies can try to fightat both ends of the market by introducingtheir own generic. This will reduce theprofitability of generic makers and maydeter them from entering the category.On the other hand, pharmaceuticalcompanies have realised that producingand marketing generics requires differentskills to their traditional business and thatit is difficult to be a strong player in bothbusiness models. To overcome thisdifficulty, pharmaceutical companies canlicense the drug before the expiry of thepatent in exchange for royalties. The new

International Journal of Medical Marketing Vol. 4, 1 65–73 # Henry Stewart Publications 1469–7025 (2004)66

Chandon

copy will typically be priced higher than atrue generic, but will benefit from first-mover advantage, preferential access toraw material and manufacturing know-how, while still deterring entry from othergeneric makers.

Reduce priceOn one hand, this strategy has the lowestpotential for brand building. On theother hand, narrowing the price gap withgenerics addresses the main problemcreated by the expiry of the patent; thatthe equity of the brand can no longersustain a large price differential with whatis, essentially, the same product. At theextreme, aligning the price with thegeneric will make doctors, pharmacistsand regulators indifferent between thetwo and may force the weakest genericmakers out of the business, given theirlower economies of scale. On the otherhand, price competition invites retaliationand can quickly degenerate into a pricewar that would kill all the profits in thecategory. Another issue to be kept inmind here is that most doctors whoprescribe the drug are not aware ofprices. Communicating the price changeis therefore an integral part of thisstrategy.

CONTEXT OF THE CLAMOXYLCASEWhen it was launched in 1974 byBeecham laboratories, Clamoxyl was thefirst amoxicillin available in France (it waslaunched under the Amoxil brand in theUSA and other countries). Clamoxyl wasa rare breakthrough product and enjoyedimmense success. Despite losing its patentprotection in 1980, Clamoxyl was still thehighest selling antibiotic in 1996. Tounderstand this peculiar situation, it isimportant to highlight some pointsregarding the antibiotics market and theregulatory and political environmentregarding generics in France.

The antibiotics marketDoctors are facing many uncertaintieswhen deciding which antibiotic toprescribe. It is difficult to identify thespecific bacteria that are responsible for thesymptoms, let alone to know withconfidence that these symptoms are notcaused by a virus. Some families ofantibiotics like amoxicillins have a largespectrum of indications and thereforecompete with other families such asmacrolides and first generationcephalosporins for the most commoncauses (respiratory infections). At the timeof the crisis, these more recent families ofdrugs were lucrative because they weremore expensive than amoxicillin, were stillpatent protected, and were heavilypromoted. As a result, the antibioticsmarket exhibits a very strong level ofcompetition.From the very beginning, Beechamlaboratories positioned Clamoxyl withstrong scientific support, notably aphotograph of dead streptococci. Thanksto the strong research and developmentefforts of SmithKline Beecham (SB),Clamoxyl quickly became available in oraland injectable forms adaptable to allsituations for adults and children. In linewith the functional positioning ofClamoxyl, SB always communicated onthe therapeutic benefit of theseimprovements. SB also provided excellentservice for doctors, ranging from a 24-hour hotline, to jars of sweets to offer tochildren during medical visits. Finally, SBpromoted Clamoxyl heavily, relying on adedicated salesforce and on distinctiveadvertisements emphasising the uniquenessof Clamoxyl and its red colour.

The arrival of generic competitionAfter the expiry of Clamoxyl’s patent in1980, generics and branded copies enteredthe market, selling for at least 30 per centless than Clamoxyl. These generics werenot available in as many forms as

Innovative marketing strategies after patent expiry


Clamoxyl. Generics quickly gained abouthalf of the amoxicillin market (see Figure2). Yet, most producers of generic drugswere not breaking even because theylacked the wide portfolio of productsnecessary to achieve economies of scale.To counter the loss of the patent, SB

developed and tested different improvedversions of the molecule, which couldhave been marketed as a replacement forClamoxyl, but to no avail. In the absenceof a foreseeable breakthrough, SB investedin the brand by developing new forms anddosages (eg 1 g dose necessitating only onetake per day; sugarless Clamoxyl forchildren) and continued to promoteClamoxyl through medical representativesand advertising. In addition, the arrival ofmany undifferentiated generics and copiesironically helped reinforce the positioningof Clamoxyl as the only true amoxicillin.The progression of generics halted after

1985 and the market share of Clamoxylremained stable for about 10 years, when itstarted to erode again (losing about twomarket share points in 1996). Whereassome of its decline was due to competitionfrom generics, part of it was also due to

increased competition from other familiesof antibiotics, helped by their substantiallyhigher promotional investments. Still, inthe year ending in August 1996, Clamoxylremained the most prescribed antibiotic inFrance, captured 34 per cent of theamoxicillin market and 8.8 per cent of thetotal antibiotic market. Its turnover(C=75.4m) accounted for 33 per cent ofSB’s antibiotic sales and 18.2 per cent of itstotal sales.

Regulatory and political environmentMultiple public authorities regulate thepharmaceutical industry in France. Each isquite autonomous and looks after differentaspects like licensing, pricing,reimbursements, etc. The price andreimbursement levels are decided afternegotiation with the pharmaceutical labsand depend on the incremental therapeuticbenefits that the new drug would offer.Social security reimburses 65 per cent ofthe price of antibiotics, but 85 per cent ofFrench people have private insurance,which reimburses the rest. In practice,patients do not pay for theirpharmaceutical products and can visit as

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Figure 2: Market share of Clamoxyl and of all Amoxicillins in the French adult antibiotics market (1994–2001)


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many doctors (general practitioners andspecialists) as they want. Up until 1999,pharmacists were not allowed to substitutethe prescribed drug with its genericcounterpart. As a result, French annual percapita expenditures on pharmaceuticalproducts were (and still are) the highest inEurope.Little had been done to really curb

medical expenses up until 1996, when theJuppe reform (named after the FrenchPrime Minister who led it) granted newpower to the regulatory bodies. The newlaw established limits on the number ofauthorised prescriptions and on the choiceof drugs and proposed to set up acomputer network that would monitordoctors’ prescriptions more easily and

encourage the systematic choice ofalternative, less costly drugs. In practicehowever, the French authorities used amixture of persuasion and threats of futurefinancial sanctions to encourage doctors toopt for generic drugs.

Clamoxyl is targetedIn July 1996, the social security agencyresponsible for the reimbursement of drugs(the CNAM) sent a letter to all doctorsurging them to prescribe genericamoxicillin instead of Clamoxyl. Althoughdoctors regarded this as an interference andan attack on their freedom of prescription,it affected them because of the threats offuture financial sanctions and because astrong media campaign pointing the finger

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Figure 3: Relative market share of Clamoxyl 500 (C=5.64 per box), Agram 500 (C=5.34), and Bristamox 500 (C=3.51)

in 1995 and 1996



at them. Clamoxyl sales saw a sharpdecline of 29 per cent in the three monthsfollowing the CNAM letter (see Figure 2).The market share of all amoxicillinproducts increased, but not as much as themarket share of Clamoxyl decreased,suggesting that some of the sales lost byClamoxyl were diverted towards otherfamilies of antibiotics. Within amoxicillin,most of the substitution went towards thecheapest generics such as Bristamox ratherthan towards branded copies such asAgram (see Figure 3).

MARKETING OPTIONS FORCLAMOXYLThe rapid decline in market share causedby the CNAM letter, combined with theslow but continuous erosion of Clamoxylsales over the last year and the continuedpromotional support for other families ofantibiotics was a source of deep concernfor SB. The management forecast thatClamoxyl’s market share of the antibioticsmarket would drop to 8 per cent at theend of 1996 (compared with 10.6 per centin 1995 and 8.8 per cent in the year endingin August 1996) if they changed nothingto their strategy. Changing nothing wastherefore not an option: Even Clamoxyl,one of SB’s ‘jewel drugs’ had to confrontcompetition from generics one way or theother. SB therefore considered each of thestrategies outlined in Figure 1.1

Milk Clamoxyl and invest inAugmentinOne obvious idea would be to stopinvesting in Clamoxyl and to redirect allthe freed resources towards Augmentin,which was still patent-protected.Introduced in 1984, Augmentin is acombination of amoxicillin and clavulanicacid, an inhibitor that neutralises the mostprevalent mechanism of bacterial resistanceto amoxicillin. When it was launched,Augmentin was not positioned to doctorsand sold to the CNAM as an improved

Clamoxyl, but as an advanced cure forspecialised problems (eg sinusitis, patientsat risk such as children) and in cases ofbacterial resistance to Clamoxyl. Thespecialised positioning of Augmentinlimited its prescriptive potential, butenabled SB to keep Clamoxyl’spositioning as the antibiotic for themajority of common infections. It alsoallowed Augmentin to be priced at 2.3times the price of Clamoxyl.SB decided against following this

strategy for the following reasons. First,despite perception of the contrary by somedoctors, Augmentin and Clamoxyl werenot direct substitutes. Clamoxyl had fewerside-effects and was more effective thanAugmentin for some key indications. Thelevel of resistance to Clamoxyl was stilllow in 1996 and, last but not least,Clamoxyl tasted better than Augmentin.Secondly, repositioning Clamoxyl as anew all-purpose antibiotic would seriouslydamage the credibility of SB (which hadbeen arguing to the contrary for 12 years)and would require new price negotiationswith the CNAM. Finally, promoting bothClamoxyl and Augmentin increaseddoctor’s awareness of amoxicillin, the keycomponent in both drugs, at the expenseof other families of antibiotics.

Innovate or provide more value formoneyThis strategy was difficult to follow,simply because it was becoming verydifficult to improve upon Clamoxyl.Clamoxyl was already available in moreforms than any other brand. In addition,obtaining the license and launching a newdosage or form would take years andcould be easily copied by generics, onceauthorised. It was also difficult to thinkabout how Clamoxyl could be promoteddifferently to doctors (direct-to-consumeradvertising is forbidden in France). Whatcould SB say that doctors did not alreadyknow? Clamoxyl had the highest brand


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awareness and best image of allamoxicillins. The very strong promotionaland advertising pressure from macrolidesand cephalosporins also implied that itwould be very difficult for SB tosignificantly reverse the balance of powerin favour of the overall amoxicillincategory.On the other hand, by pointing the

finger at Clamoxyl, the CNAM letter hasmade it a symbol of the new hardballattitude of the government, puttingpressure on branded drugs and on doctors.By continuing to fight for Clamoxyl, SBwould be seen as fighting for doctor’sfreedom of prescription and for continuingresearch and development. To be effective,this message would have to be coupled witha price reduction to nullify the financialarguments put forward by the CNAM.

Reduce priceA price reduction would help tackle thesource of the problem. Clamoxyl was stilla strong brand but was it strong enough towarrant a 30 per cent price premium overgeneric amoxicillin, especially in the faceof intense pressure by the CNAM and themedia in favour of substitution? The mainissue with this strategy is that it wasinconsistent with SB’s corporatephilosophy and business model, whichwere oriented towards the discovery ofinnovative drugs, not price competition. Itis also risky because generics wouldeventually lower their price, as this wastheir only competitive advantage.Even if SB decided to reduce the price

of Clamoxyl, the size of the cut is a hotlydebated issue. On the one hand, a smallprice cut might be sufficient to reduce theprice gap to the level of the brand equitygap. This price cut could also be selectivelyimplemented only on the forms facingcompetition from generics. On the otherhand, a drastic price cut aligningClamoxyl with the cheapest generic wouldbe easy to communicate to doctors,

patients and the media. This is important,since people are often not aware of drugprices and not accustomed to the idea ofprice haggling over medical products. Alarge price cut would also be hard tomatch by generics drug makers, whowould need the approval of theircorporate management to retaliate at thislevel. It would also probably wipe outcopies (such as A-Gram) that were pricedat a 10 per cent discount by encouragingtheir manufacturers to stop theirpromotion. Finally, it would deter theentry of new generics.

WHAT HAPPENEDThe strategy ultimately followed by SBfor Clamoxyl was innovative on manypoints. First, because they implementedmany of the options reviewed heresimultaneously. Secondly, because theyexplored new routes by moving the debatefrom price haggling towards a morecomprehensive solution. The solution wasa direct result of the dynamics ofcompetition between antibiotics and of adeep understanding of the long-term goalof the CNAM, which is to lower theirreimbursements, not to reduce the price ofa particular drug. Yet, its letter encouragedsome doctors to substitute Clamoxyl notwith only generic amoxicillin, but withthe still-patent protected and moreexpensive, macrolides and cephalosporins,resulting in a net increase in expenses forthe CNAM.SB therefore negotiated a gentleman’s

agreement with the CNAM, wherebyClamoxyl would be taken off the table ofdrugs to be substituted in subsequentCNAM letters. In exchange, SB loweredClamoxyl’s price to the level of thecheapest generic amoxicillin (–30 per centon average) and promised to continue topromote Clamoxyl, and thus Amoxicillin,so as to reduce the switch towards moreexpensive macrolides and cephalosporins.Simultaneously, SB sent an open letter to



all French doctors in October 1996,announcing the price reduction and thedecision to continue to develop andpromote Clamoxyl. Consistent with thescientific positioning of Clamoxyl, theletter emphasised that this decision ensuredcontinued medical research and freedom ofprescription for the doctor. The letter wasaccompanied by an advertising campaignin the specialised press emphasising thatClamoxyl offered doctors ‘the power ofchoice’.

Immediate effectsThe announcement that SB would alignthe price of Clamoxyl with the price ofgenerics generated a lot of positive mediaexposure for Clamoxyl and SB. Probablydue to the size of the price cut,competitors did not immediately matchClamoxyl’s new price. As a result,Clamoxyl regained all the market sharelost to generic amoxicillin within a coupleof weeks (see Figure 3).By the end of 1997, Clamoxyl’s market

share was actually higher than its pre-July1996 level, gaining 3 percentage points tostabilise at around 20 per cent of the adultantibiotics market (see Figure 2). Aspredicted by SB, their strategy alsoimproved the market share of amoxicillinin the antibiotics market (about 33 per centin 1997 compared with 29 per cent in1996). The total savings for the CNAM inSeptember 1997 were estimated by SB atC=36.7m, of which C=28m came fromClamoxyl’s price cut, C=4.5m fromsubsequent price reduction by otheramoxicillins and C=4.2m from thesubstitution of more expensive antibioticsby amoxicillin.Financially, the new strategy did not

break even: The higher market share didnot compensate for the 30 per cent pricereduction. However, the pre-July 96situation cannot be used as a realisticbenchmark given the rapid erosion ofClamoxyl’s market share. As noted earlier,

SB had forecasted an 8 per cent marketshare for Clamoxyl if they changednothing. Compared with the ‘no move’scenario, SB’s strategy generated a positiveC=17m profit for SB.

Longer-term effectsAs expected, generics continued their slowgrowth, helped by a widening price gapwith Clamoxyl, continued pressure fromthe government and media in favour ofgenerics and continued promotional effortby still patent-protected drugs (see Figure2). SB lowered the price of Clamoxylagain in September 1999 by 17 per cent onaverage, while maintaining research andpromotional efforts. As a result, SB wasable to stabilise Clamoxyl’s market sharefor a while. The positive effects of theprice cut however, were more than offsetby a new law introduced in the spring of1999, which allowed pharmacists tosubstitute branded drugs with generics andgranting them higher margins on generics.The continued fall in sales was also due tothe decision by generic amoxicillin’s tomatch the two price reductions initiatedby Clamoxyl. Yet, the market share ofamoxicillin continued to decline and thetotal cost of reimbursing antibiotics for thesocial security system therefore increasedover the period.

CONCLUSIONIt is inevitable that the competition fromgenerics will erode the profitability of theoriginal brand. As this paper argueshowever, and as the Clamoxyl casedemonstrates, this does not imply thatpharmaceutical companies should not putup a fight. Clamoxyl is obviously worseoff now than it was in the summer of1996. The continuous investments in brandbuilding, coupled with well-publicisedprice cuts, and win-win agreements withthe French social security system however,helped extend the life of the brand for halfa decade, generating substantial profits.


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Every pharmaceutical company facingcompetition from generics shouldtherefore carefully review the differentmarketing strategies briefly outlined herebefore deciding to pull the plug on theirbrands. It may be more profitable, andconsiderably less risky, to add a few yearsto an old brand’s life by continuing toinvest in it, even for a reduced margin,than to let generics take over the market inthe hope that the newly freed investmentswill substantially boost the sales of otherstill patent-protected brands.

ACKNOWLEDGMENTSThis article is based on two INSEAD casestudies (‘Marketing Strategies in theCompetition Between Branded andGeneric Antibiotics: Clamoxyl in 1996 (A-case) and Augmentin in 2002 (B-case)’),both written by Pierre Chandon, Assistant

Professor of Marketing at INSEAD;Olivier Kovarski, Professor of Marketingat ESC Normandie; Jacques Lendrevie,Professor of Marketing at HEC; SarahSpargo, Research Associate at INSEADand Marc Vanhuele, Associate Professor ofMarketing at HEC. The case studies andteaching notes are available from theEuropean Case Clearing House at:www.ecch.cranfield.ac.uk and aninspection copy of the case can bedownloaded at: faculty.insead.edu/chandon/mm1/resume/resume.htm. Theauthors thank Pierre Chahwakilian (GSK,France) for his invaluable assistance writingthe case studies and Neeraj Mehrotra(INSEAD MBA 03) for his researchassistance.

Note1 Marketing their own generics was not consideredat that time for a variety of reasons.



Case Commentary

Innovative marketing strategies afterpatent expiry

Pierre Chandon writes:In 2003, what can we learn from whathappened to Clamoxyl in France in 1996?The Clamoxyl story shows thatpharmaceutical brands can haveconsiderable equity and can thus put up asuccessful defence against generics. This isa lesson that many pharmaceuticalcompanies should ponder, given howlittle respect they generally have for theirbrands. For example, we too often seenewly merged corporations happilyforfeiting esteemed old brands in favourof new acronyms with zero awareness andweak image. A market-savvy companywould not give up that easily on thesefantastic brands and on the value that theyhave, inside and outside the company.Similarly, too few pharmaceuticalcompanies know how to leverage thepower of their brands through carefulbrand extensions or coherent brandarchitecture (the relationship between thecorporate brand and all the productbrands). Finally, pharmaceuticalcompanies are still learning how to brandthe total customer experience, that is, notjust the product, but the name, thepackaging, the delivery system, and thepre- and post-consumption informationsearch.Another lesson from the Clamoxyl

story is the importance of replacing anarrow problem definition (pricecompetition from generics) in favour of areal understanding of the goals andconstraints of the key stakeholder (in thiscase, the French social security system’sgoal of reducing the growth in antibioticreimbursements). This lesson still holdstoday, although the specific strategyimplemented in 1996 is no longer valid.Consider Augmentin, whose patentexpired in France in 2002. The new lawintroduced in 1999 shifted a significantamount of power from the doctor to thepharmacists, who are now allowed tochange a prescription to any cheapergeneric. Most generics offer higher unitmargins and therefore Augmentin wouldnot gain if they were to reduce the price.Doctors would be more likely toprescribe it but pharmacists wouldcontinue to sell generics instead (andwould be irritated at the lower marginsfor Augmentin). GSK therefore decidedto license Augmentin to three genericmakers six months before the end of thepatent protection period. In exchange forroyalties, these generics producersobtained manufacturing know-how and,most importantly, a head start deterringentry of other generic makers and hencereducing price competition.

Anthony J. Knight writes:This case hinges on three main points:

strong global branding and positioning,prescribing inertia and the establishment of


a mutually beneficial relationship with agovernment reimbursement authority.The branding used for Clamoxyl/

Amoxil set new standards in clarity andconsistency of promotional material, brandimage and positioning. This placed theproduct in a class of its own withperformance and reliability to match; itwas an icon of its age. There was a strongemphasis on palatability for childrenreinforced by the give-away sweets of thesame flavour. The message was clear —prescribe this product and the patientwould take it and get better; the securityof knowing that the patient was unlikelyto get worse or to have significant side-effects and lead to out of hours calls.Thousands of doctors did just that and theproduct lived up to its promise, which,coupled with a general ignorance of costand an unchallenged view of the freedomto prescribe, created a strong post-patentloss position. Thus two of the main planksfor post patent loss survival were in place.Only one, strong branding, survives as anoption in today’s markets. Theopportunity to negotiate a win-winposition with a reimbursement authorityremains an opportunistic strategy that isdependent on local circumstances andunlikely to be a universal option.The gain for GSK was estimated at

C=17m, however this was based upon theirview of the decline in market shareresulting from doing nothing. Withoutthat estimated further decline, the projectdid not break even. The commitment tocontinue promotion would not be

without cost, both real and opportunity.The latter should be valued in terms ofpeak sales value time gained for a patentprotected molecule that could havebenefited from that resource. It is doubtfulthat there was any financial advantage inthis strategy over taking a royalty fromout licensing and cash cowing the residualhigh price sales while withdrawingpromotion.There is little doubt that strong

branding, line extensions, process patents,innovative delivery technologies andlicensing deals all serve to slow down therate of decline of patent profits, but thereality today is that payers take activesteps, through policies and penalties, todrive down prescribing costs for post-patent molecules that have constituted adrain on health budgets. Post-patent profitprotection strategies need to be in placelong before patent expiration, the inhalermarket provides a good model forobserving this. Active promotion shouldbe reserved for cases where the productoffer is not reproducible, or tactically inresponse to a local opportunity.Return on marketing investment must

drive resource allocation decisions intoday’s pharmaceutical environment.Generics, whatever the strategy, do notprovide the yields required whencompeting for investment revenue orcapital in a mainstream pharmaceuticalcompany. They do, however, make senseto highly focussed, low overhead, brandedgeneric specialist company from whomroyalties can flow for many years.

Anthony J. Knightwas formerly Customer Marketing Director at Parke-Davis and is the founding partner of the Portland Partnership, a

pharmaceutical strategy consultancy. He can be contacted at [email protected]; URL: www.knightworld.com

Tony Booley writes:Pharmaceutical companies often do notconsider the range of strategies open tothem when faced with a patent expiry.

The likely degree of competition fromgenerics will be influenced by externalfactors such as the competitive situation

Case Commentary


with regard to parallel imports; whichinfluences the relative attractiveness of amarket for a generic competitor. Thecompetitive landscape at patent expiry isvery country specific due to the differingregulatory and market landscapes. Forexample, the retention of brand equitymay be influenced by factors such ascomputerised substitution, which issometimes mandatory.Companies also need to be proactive

with older brands that may have been hitby generics, as brand revitalisation may bepossible later in the life cycle. Getting priceincreases when employing a milkingstrategy depends very much on the pricingframework in individual countries. Onemethod that has been employed is to‘foster’ products to another company thatmay be in a better position to gain priceincreases. In countries such as the UK, it isnow very difficult to get price increasesdue to the constraints of the UKPharmaceutical Price Regulation Scheme(PPRS) system. It is not always easy topersuade doctors and patients to upgradeto the new patent-protected drug. Wetherefore need to consider replacementstrategies such as those employed by AstraZeneca with Losec or Schering Ploughwith Neo-Clarityn. In addition tofragmenting the business by dosage form,consideration needs to be given tooutflanking the generics by taking thebrand over the counter (OTC). Someinnovations such as extended use orchanged formulations can be brought tomarket relatively quickly if developed byan organisation committed to giving theproject sufficient priority. A case can bemade for a partnership or out-licensing toa speciality pharmaceutical company.Concerning an ‘invest in generics

strategy’, branded pharmaceuticalcompanies have recognised that producingand marketing generics requires differentskills and a different businesses model.Therefore the possibility exists that the

product could be licensed out to a genericscompany in exchange for royalties.Perhaps pharmaceutical companies shouldrecognise that managing a brand post-expiry is a specialist area? There are alsospeciality pharmaceutical companies thatwill manage brands post patent expiry.Another strategy is to license the brand

to another company to manage post-patent situation. This requires skilfulvaluation of future cash flows. It may bebetter to have the future value of thebrand revenue stream now to invest inbrand building in other more profitableareas. The marketing risk can also bepassed onto another company. Companieswith a branded pharmaceutical portfolioneed to constantly evaluate marketing riskacross the portfolio and actively managethis risk.When considering a price reduction

strategy, we need to look at an approachthat reduces the price selectively throughdifferent deal structures. Examples wouldbe hospital contracts or brand‘equalisation’ deals with larger retailpharmacy chains, where a company’sbranded prescription line is sold at brandprice and also dispensed for genericprescriptions, but reimbursed at an agreedgeneric price. The pharmacy benefitsthrough lower administration costs andnot having to stock both the branded andgeneric product. The pharmaceuticalcompany benefits by effectively andselectively shutting out the genericequivalent of its product.It is not surprising that Clamoxyl was

still the best selling antibiotic in 1996.France has until recently at least, hadgreater difficulty in containing healthcarecosts due to the local market structure.The existence of primary care gatekeepersin the UK renders the NHS more suitableto cost containment. Compared with othercountries, France had remained a morelargely branded market. Overall in 1996,generics only accounted for 2–3 per cent


Case Commentary

of total prescriptions by value comparedwith approximately 40 per cent by valuein Germany and 25 per cent in UK.Did SB consider investing in brands

other than Augmentin? Augmentin wasconsidered principally to retain business inthe same market. Extra investment inother SB brands may have given a greaterreturn? Given that SB’s business modelwas oriented towards the discovery ofinnovative drugs and not pricecompetition, why did SB in 1996 or earliernot consider divesting the brand toanother company? The net present value(NPV) of this strategy may have beensuperior given the strong brand equity andhistorical sales situation, which would havedriven the forecasts.No mention is made of manufacturing

considerations. As Clamoxyl needed toincreasingly compete on price, what

consideration was given to shiftingmanufacturing to India or China in orderto preserve margins? Also were there anyformulation changes possible that wouldreduce the cost of goods? The campaignappealing to French doctors’ ‘freedom ofprescription’ obviously had the rightemotional impact at the time. The SBmarketing strategy demonstrates howrational and emotional marketing practicescan work well together.Pharmaceutical companies generally do

not put up much of a fight post patentexpiry. This is because their businessmodels are focused elsewhere. However,the emergence of speciality pharmaceuticalcompanies, whose business model allowsthem to focus on and manage brands postpatent expiry opens up a host of newstrategic options for managing this phaseof the product life cycle.

Tony Booleyis a board director of Alliance Pharmaceuticals and has 23 years’ experience in the pharmaceutical and healthcare industry

including posts at the multinationals Leo Pharma, Glaxo Wellcome and Getinge Industrier. He can be contacted at

[email protected]; URL: www.alliancepharma.co.uk

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