Product and Brand Life Cycle Management

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Dennis Z. Kvesic Bayer Healthcare M ü llerstra ß e 178 Berlin 13353 Germany Tel: + 49 (0) 304 68 14486 Fax: + 49 (0) 304 68 94486 e-mail: dennis.kvesic@ gmail.com

THE NEED FOR LIFECYCLE MANAGEMENT (LCM) The average development costs of bringing a new drug to market is estimated to have risen from US $ 54m in the 1970s to around US $ 800m at the turn of the century. 1,2,3 Modern patent protection, introduced between 1836 (in the US) and 1877 (in Germany), was designed to safeguard intellectual property and allow companies to recoup costs incurred during research and development. 4,5 The period of time, however, for pharmaceutical companies to maximise the return on investment (ROI) has narrowed. Although patents now guarantee exclusivity for a period of 20 years, 5 it may take 12 – 15 years for drug

development (including testing and regulatory approval), leaving only around 5 – 8 years for commercialisation. The majority of revenues are usually achieved during this period of exclusivity. 6 It is therefore essential that the pharmaceutical industry maximises income from every drug within its portfolio during this period. 7,2

While the product lifecycle concept has been discussed in the literature since the early 1960s, 8 it is only in recent years that the pharmaceutical industry has placed greater emphasis on employing LCM strategies. Fewer pipeline products and blockbuster drugs are on the horizon, despite increased investment in research and development, and there is added

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Product lifecycle management: marketing strategies for the pharmaceutical industry Received (in revised form): 1st September, 2008

Dennis Z. Kvesic is a director of Global Strategic Marketing at Bayer HealthCare, and is the Head of a Global Brand Team at Bayer Schering Pharma (Berlin, Germany). Prior to his current responsibilities, he worked at Bayer ’ s Canadian subsidiary in both sales and marketing roles. He possesses a bachelors degree in Economics (University of Alberta, Canada) and an MBA in Marketing (University of Liverpool, UK).

Keywords brand loyalty , divestiture , indication expansion , lifecycle , reformulation , strategies

Abstract This paper reviews the conventional and more novel approaches to managing and extending the lifecycle of pharmaceutical products. In the context of stringent marketing regulations and an increasingly competitive landscape, greater emphasis will need to be placed on when and how each phase of a product ’ s lifecycle is managed in order to maximise return on investment. This paper describes each of the lifecycle management strategies currently practiced, when and how they might be used, and provides selected examples of implementation. Journal of Medical Marketing (2008) 8, 293 – 301. doi: 10.1057/jmm.2008.23

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pressure of expiration of patents protecting existing brands. 9,2 Research-driven pharmaceutical companies are therefore increasingly relying on LCM strategies to maximise their profi tability, particularly as ‘ The likelihood of a compound in preclinical development ever reaching the market is only one in 10,000 ’ 6 and development costs for new products continue to rise. 1

‘ Generic companies are stronger and more sophisticated ’ 10 than they were 30 years ago, and generic products are entering the market at an earlier stage of the lifecycle, in some cases prior to patent expiry. Furthermore, payers (reimbursement agencies, insurers, etc) are demanding more, and the issue of cost- effectiveness of drugs paves the way for generics post-patent and in some cases pre-patent expiry. In 2005, generics accounted for 56 per cent of all prescriptions dispensed in the US. 11 It is not surprising, therefore, that the industry is increasingly recognising the need for LCM strategies that will allow pharmaceutical companies to protect their investment and achieve the full value of return. 12

KEY CONSIDERATIONS FOR SUCCESSFUL LCM A number of factors for successful LCM were identifi ed in a benchmarking study that selected mid-sized companies, including nine of the top 12 pharmaceutical companies. 12 These success factors included the following:

Governance and organisation of LCM Core processes Knowledge and skills to support the process Monitoring and gauging success of the processes implemented.

The most successful LCM strategies were developed by those companies that were close to their customers and therefore had

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good market insight. Overall, success was achieved through a combination of the right internal structure, processes and culture. Development of LCM strategies is, to some extent, formulaic, and has been described as ‘ a process of knowing which questions to ask and effectively making go / no-go decisions at every stage of the product lifecycle ’ . 13 More importantly, it is ‘ a process of making the right decisions at the right time ’ for each product in the context of the overall product portfolio. 13

One of the most critical stages of successful LCM is managing the expiration of a patent, through strategies such as 4,14

maximising brand loyalty innovation regulatory and legal strategies introducing fi xed-dose combinations (FDCs) investing in generics pricing strategies switching from prescription to an over-the- counter (OTC) product and divestiture.

Before a specifi c approach is selected, a number of factors need to be taken into account:

Is there suffi cient time to implement the chosen strategy? ( Figure 1 ) What is the state of the company ’ s pipeline and how important is the brand in the portfolio? What type of market is it — a niche market or an under-established therapy area? How loyal are the customers (applicable to patients with chronic conditions)? Is there an unmet need that can be addressed? How will generics alter the competitive landscape? This will depend on

how easily the molecule and its delivery system can be reproduced the complexity or risk associated with administration the cost of the goods storage challenges what profi t generics companies are likely to make.

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Implementation of an LCM strategy largely occurs at a global level but, depending on the stage of the products lifecycle, it may become a regional / local decision. Adopting a particular strategy may also have to be altered to account for geographic variability. For example, considerations for the US market include its managed care systems, direct-to- consumer marketing, legislative policies and constraints, and the growing strength of the generic industry. The generic market varies in each country and can be at different stages of development and acceptability; for example, dominating in the US, but relatively small in Japan. 11 Different countries or regions are also infl uenced by patient demographics, the prescribing environment (ie recommended drug lists, managed care benefi t structures and medical insurance coverage / reimbursement), and local pharmaceutical regulations and guidelines. Indeed, some local guideline bodies preferentially support certain drug classes. Finally, for the success of LCM it is important that internally, regardless of team changes, the vision and strategic marketing plan for the product evolves, and key learnings are always made available. 2

UNDERSTANDING LCM STRATEGIES A wide range of strategies are available for achieving the maximum ROI once the

patent on a drug expires ( Figure 2 ). 13,14 Here, each of the possible LCM strategies is explored and the considerations for each outlined in more detail. Depending upon the importance (revenue) of the drug to the overall portfolio, successful LCM plans generally implement a number of concurrent strategies.

Maximising brand loyalty Some companies facing patent expiration have secured their market share by taking advantage of their longstanding position in the market and maximising brand loyalty. 4 During the period of exclusivity, companies invest in the brand name to create long-term loyalty by investing in research and using high-profi le promotion campaigns. Even late-phase promotion can help to maintain visibility ahead of other

Figure 1 : Timing consideration for LCM strategies

Figure 2 : Range of LCM strategies to maximise return on investment

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strategies. 6 Strong brand names may make it more diffi cult for other generics to enter the market competitively.

Considerations for adopting the ‘ maximising brand loyalty ’ strategy may be infl uenced by the consumers ’ trust in generic companies, as well as the reimbursement structure in the respective country. 13 There is also the question of whether marketing campaigns should be standardised, rather than customised, and thereby refl ect global decision making. 15,16 A global approach through standardisation is believed to be better suited to marketing campaigns that can be extended across national borders, and where the customers ’ needs are essentially homogenous. This strategy has the advantage of reducing the cost associated with developing brands, and has consistency in messaging and better control compared with a customised campaign; 15 it is therefore ideal for building a strong global brand identity.

Innovation A number of companies with well- developed LCM plans have succeeded in securing and / or maintaining market share following patent expiration and maximising their ROI using innovation strategies, such as launching second generation or reformulation products, indication extensions or providing more value for money.

Second generation / reformulation launch This is one of the most common strategies and can include new forms, synthesis techniques and dosages of the original drug. These innovations may allow for a secondary patent, which extends the period of exclusivity for the product. 3 Indeed, more than one-third of products launched in 2002 – 05 by the top 50 pharmaceutical manufacturers were reformulations. 17

For this strategy to succeed, however, it must be possible to differentiate the new formulation from the original drug and / or generics, and to provide a clear benefi t that can be communicated to patients and physicians. Promotion of the reformulated anti-depressant Remeron by Organon, prior to patent expiration, was not successful as incentives / benefi ts for patients to switch were minimal. 6 Furthermore, second generation / reformulation strategies require time and budget for research, authorisation and marketing, and may not extend the patent in some countries. 14 Despite challenges, market share through brand loyalty may be maintained if the improved product is launched while the original product is still in the market. Shire, for example, maintained visibility in the attention defi cit hyperactivity disorder market by launching an extended release reformulation of their drug a few months before the entry of generics. 6 The brand remained strong, with minimal decline in sales.

Indication expansion Indication expansion is another common strategy used by pharmaceutical companies for securing market share, by demonstrating effectiveness in the paediatric population, related conditions, or other disease areas. 6 As with second generation / reformulation strategies, developing the product for a new indication can allow for a secondary patent, which extends the period of exclusivity for the product and delays generic competition. Most research-driven pharmaceutical companies thoroughly investigate indication expansion, particularly where leverage can be achieved in closely related disease areas. 6 Nevertheless, successful indication expansion requires signifi cant investment in research and development, as well as careful strategic planning; for example, pricing for the new indication should

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ensure that the product will succeed against competitor products in the new disease area. 6

Providing more value Customer loyalty can be increased by further differentiating and enhancing the brand image. This can be achieved by ‘ introducing new fl avours, packaging, or delivery systems such as easy-to-swallow pills or patches ’ . 14 Providing value-added services or enhanced communications for physicians and patients such as educational brochures may also be considered.

The drawbacks of all of these approaches are that the patent life is not extended and, if there is generic competition, costs cannot be passed on to the customer. There is a risk that the product improvements are perceived as ‘ marketing gimmicks ’ with potential detrimental effect on the brand image, or that improvements may be copied by generic companies. In the short term, margins / profi tability may be downwardly affected; however, these costs may be recovered through delaying the erosion of the sales of the brand.

Fixed-dose combinations Protecting a product by introducing an FDC therapy may be a challenging strategic option. If the ‘ new product ’ , however, is launched in a new indication and the combination is not deemed obvious, FDC therapy can be treated as a new agent and receive signifi cant market exclusivity. 13 Alternatively, protection can be gained by combining the drugs in atypical dosages for a new patient population. 13 Regardless of approach, investigating an FDC may be a worthwhile strategy for many products / companies.

There have been a number of successful FDC applications recently in the anti- hypertensive drug market. Exforge ® , a combination of amlodipine, a calcium

channel blocker and valsartan, an angiotensin II receptor blocker has been shown to effectively reduce blood pressure and, in addition, offers an improved side- effect profi le compared with amlodipine alone. 18 Exforge ® was approved for the treatment / management of hypertension by the Food and Drug Administration (FDA) in the US in December 2006 and in the EU in January 2007. 19

More commonly, an FDC is only protected by the formulation patents surrounding the combination technology. There is also the drawback of competition from the companies producing the individual products. Other considerations that need to be taken into account before an FDC strategy is adopted include: 13

Does the FDC fi t with current treatment practices? Is there suffi cient data to support the new doses and will physicians still require titration? Will the FDC limit single-drug usage? Will the brand identity of the individual drugs be affected by the combination product, if both are being promoted? What pricing strategy should be used?

Investment in generics One possibility for the research-driven pharmaceutical company facing patent expiration is to introduce their own generic drug, 10 or alternatively, ‘ license the drug to a generic company before the expiration of the patent in exchange for royalties ’ . 14 In fact, some branded innovator research and development companies have their own generic branches for this purpose. A licensed generic company will have the advantage of preferential access to raw materials and manufacturing know-how, ahead of their competition. In addition, in the US, the fi rst generic applicant challenging a patent is given an incentive of 180 days of market exclusivity, either from the date

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commercial marketing starts or from the date of the court decision. 10 This exclusivity may delay or deter other generic manufacturers from entering the market. Furthermore, a generic option introduces the possibility of expanding the market share for the drug by either drawing market share from other branded drugs in the class or by drawing new patients into the class. 10

Considerations for this strategy include: the trade off between the royalties from the generic company versus the loss of revenue from the original branded drug; further investment in the branded drug, if any; and the extent to which an authorised generic drug would deter other generic companies from participating. Many branded pharmaceutical companies today have either divested their generic subsidiaries, or run them as an entirely separate business. For example, the pharmaceutical companies Novartis and Pfi zer have taken this approach with Sandoz Inc. and Greenstone Ltd., respectively.

Regulatory / legal approach Another strategy open to pharmaceutical companies to protect their patent position is to pursue available legal avenues. For example, Title II of the Hatch-Waxman Amendment, Drug Price Competition & Patent Term Restoration ACT, 1984 grants patent extension of up to 5 years for products that lost patent life during the FDA ’ s regulatory review of the drug. 20 Increasingly, the validity of patents are being challenged to allow launch of generic molecules before patent expiration, 6 and consequently litigation has almost become an accepted and necessary part of business models for research-driven pharmaceutical companies. Litigation, however, is costly and may damage relationships with regulators and authorities, as well as negatively refl ect on corporate image. In the US, companies

can be granted a six-month patent-term extension in return for conducting paediatric clinical trials, which maybe reduced to three months, pending review. 13 Since the passing of the Best Pharmaceuticals for Children ’ s Act , generic companies are also now allowed to generate paediatric indications. 21

Pricing strategies Pricing is certainly of key importance when a drug goes off-patent and faces the prospect of less-expensive generics fl ooding the market. The pharmaceutical company must decide whether to maintain the price and potentially lower sales volume, reduce the price and meet the competition head on, 4 or even raise prices to increase profi tability in the short term. With a strong brand image, price reduction can be effective as one of a number of strategies. Although this may deter weaker generics from entering the market, it can also instigate a price war that can reduce profi ts. 14 Another approach is to ‘ bundle ’ products. For example, companies discount the branded drug heavily when it has a few years remaining on patent and, by doing so ensures it is listed in the formulary of a pharmacy benefi t management company. 4 This helps build up patient and physician loyalty. Larger discounts might be offered at a later stage, if other drugs marketed by the company are also being included on the formulary.

In some countries, government price controls may prevent the use of price increases, 6 and where reference pricing for multi-source drugs is employed, raising prices may result in patients paying the difference between the cost and the reference price. For example, in Italy, products priced above the reference price are not reimbursed and the patient has to pay the full cost. In the US, increasing price will only work while the market has a high proportion of indemnity / full

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medical coverage plans; this will be less successful if pharmaceutical cost containment methods used in managed care are adopted. 6

Other considerations for using a pricing strategy include: 7

Use of global pricing strategies — patent expiry may occur at different times in different markets and profi tability may be undermined if pricing reductions are brought in too early where there is existing high profi tability and remaining patent protection. Presence of state-controlled generic pricing, which is fi xed at less than the brand price (often 30 per cent less). Planned follow-on products or line extensions.

Prescription to OTC products By switching products from prescription to OTC status, research-driven pharmaceutical companies can extend their brands and reduce market loss to generic companies upon patent expiration. Switching to OTC status in Europe has the advantage that it can be advertised direct to patients, however this is prohibited for prescription medicines, although not in the US. In some countries, it may be possible to run the prescription and OTC drugs side-by-side, however, not all drugs are suitable for OTC. The most suitable are those for conditions that are nonserious and easy to self-diagnose, with drugs that are nonaddictive, have a wide safety margin to avoid overdose, and are easy to administer. 22 Although timing is not essential for the prescription to OTC strategy to work, it is preferable to apply for switching before the patent expires, so that a foothold can be gained in the OTC market ahead of generic competition. 22 Also, valuable marketing time can be gained if the patent expiration and OTC approval are very close together. This strategy results in generic companies needing to revise labels and packages —

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delaying the launch process. 4 Timing varies in different countries — in Germany it takes nine months or longer to switch a product from prescription to OTC, while in the UK it has recently been shortened to about seven months as part of a government initiative which focuses on the role of the patient. 6

The decision to switch to OTC requires increased marketing expenditure, possibly new branding, and depends on the market-specifi c environment. For example, OTC switch in the US generally results in the removal of the drug from health plans and the loss of reimbursement status; 23 in Germany there is no provision for dual prescription and OTC status, while in France there is currently no formalised OTC switch procedure.

Switches from prescription to OTC have been popular in the antacid market. When the successful anti-ulcer drug Tagamet ® was nearing patent expiration (1995), SmithKline-Beecham (SB) developed a milder version of the drug for the relief of heart burn that could be sold OTC. The branded competitors followed suit and soon developed nonprescription versions of their own products (Pepcid ® and Zantac ® ) long before either of the patents expired in 2000 and 2002, respectively. 4

Several anti-histamines have also been successfully switched from prescription to OTC. Schering-Plough ’ s Claritin ® (loratadine) was switched to OTC in the US in November 2002, just before the product ’ s patent expiry. OTC Claritin ® ’ s success was aided by focussed marketing of the product and changes in insurance policies, which made the price of OTC Claritin ® comparable to the prescription version. This strategy helped Schering- Plough prolong the product lifecycle and maintain sales. It, however, also resulted in the decline of the prescription anti- histamine market because of intense generic OTC competition. 23

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Divestiture Divesting a product involves cutting promotional and research expenses, selling the product or licensing its manufacture once the brand faces direct competition from generics. This can occur at any point in the product ’ s lifecycle, and allows investment to be redirected towards other products in the company ’ s portfolio. 14 Depending on environmental restrictions, prices are often increased prior to patent expiration to take advantage of the strong brand loyalty among customers. 4 This will only provide short-term profi t before the generics enter the market. An increase in price prior to patent expiration may also be taken by generic companies as a signal for possible divestiture, causing them to enter the market more aggressively than they would have otherwise. In selecting this strategy, a company must be confi dent that they will derive no benefi t from continuing to market the product themselves post-patent expiry, and often refl ects internal challenges such as a lack of strategic fi t with the company ’ s portfolio, lack of suffi cient sales, or lack of marketing resources.

Given the current environment, the reduced volume of pipeline products, and the strength of the growing generics industry, LCM plans are an essential tool to ensure pharmaceutical companies remain successful. Pharmaceutical regulations require that for launch, a product must be at its optimum stage of development — it must be in its most effective formulation. This may leave limited room for further development in the future. Furthermore, many therapeutic areas are already well established and crowded with numerous ‘ me-too ’ products. If the perception is that there are no unmet needs, the challenge will be to innovate and introduce new compounds. To maximise ROI, LCM strategies must be developed early in the product lifecycle, even from the preclinical stage. Strategies

for individual products, however, cannot be selected in isolation and need to be considered in the context of the company ’ s overall portfolio.

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Strategies in the Face of Generic Competition, Brussels, Belgium .

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