Do Firm-specific Capabilities Influence Post-patent
Expiry Strategy in Pharmaceutical Firms?
Master Thesis
Advanced International Business and Management (Dual Award)
Researcher: Daniel Burgos Fernández
Supervisors: Stefanie Reissner & Sathyajit Gubbi
Student No. 130609021 (Newcastle)
Student No. S2332132 (Groningen)
Firstly, I would like to thank Cherish Wang. Her support encouraged me to keep going,
Secondly, I would like to thank the interviewees of this thesis. They expert knowledge was essential in the completion of the thesis
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Chapter 1: Introduction... 1
1.1 Introduction ... 1
1.2 Problem Identification... 3
1.3 Patent Justification ... 5
1.4 Research Gap and Motivations ... 6
1.5 Research Structure ... 7
Chapter 2: Literature Review ... 8
2.1 Introduction ... 8
2.2 Theoretical Foundations ... 8
2.2.1 Resource Base View ... 9
2.2.2 Pharmaceutical Firms Resources and Capabilities... 11
2.3 Research and Development Capability ... 12
2.4 Marketing Capability ... 14
2.5 Patent Expiry Literature ... 15
2.6 Pharmaceuticals Post Patent Expiry Strategies ... 17
2.6.1 Documented Post Patent Expiry Strategies ... 18
2.6.2 Divest ... 19
2.6.3 Marketing and Promotion Strategies ... 21
2.6.4 Create own Generics ... 21
2.6.5 Second Generation ... 21 2.7 Conceptual Framework ... 22 Chapter 3: Methodology ... 24 3.1 Introduction ... 24 3.2 Research Philosophy ... 24 3.3 Data ... 26 3.3.1 Capability Measurement ... 26
3.3.2 Post-Patent Expiry Strategies Measurement ... 28
3.3.3 Sample Cases ... 28
3.3.4 Data Collection ... 28
3.4 Reliability and Validity ... 29
3.5 Advantages and Limitations of the Sequential Explanatory Mixed Methods Design ... 30
3.6 Ethical Issues ... 30
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4.2 Capabilities Data Presentation ... 31
4.2.1 Conclusion of the Capabilities Data... 35
4.3 Blockbuster Post-Patent Examples Presentation... 35
4.3.1 Capabilities Levels of the Sample Firms ... 35
4.3.2 Diovan (Novartis) ... 35 4.3.3 Advair (GSK) ... 37 4.3.4 Lipitor (Pfizer) ... 39 4.3.5 Levaquin (J&J) ... 40 4.3.6 Revlimind (Celgene)... 41 4.3.7 Prilosec (AstraZeneca) ... 41
4.3.8 Conclusion of Blockbuster Post-Patent Examples ... 42
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Figure 1: Conceptual Framework ... 23
Figure 2: Marketing Capability 2014 ... 33
Figure 3: R&D Capability 2014 ... 33
Tables
Table 1: Data Sources ... 27Table 2: Blockbuster Drugs Expiration Date ... 28
Table 3: Capabilities Table ... 32
Table 4: Level of Capabilities ... 34
Table 5 : Sample Firms Capabilities Level ... 35
Table 6: Summary of Results ... 43
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Chapter 1: Introduction
1.1 IntroductionAccording to the Food and Drug Administration (FDA), drugs are products intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals. An innovator drug, also referred as brand name drug, is the original product that has undergone and passed the rigorous test and evaluations involved in developing the drug product. Conversely, a generic drug is the same as an innovator drug with respect to conditions of use, active ingredients, route of administration, dosage form, strength, quality, safety, performance characteristics and labelling. In addition, the generic drug must be bioequivalent to (i.e. perform in the same way as) the innovator drug. The generic drug must have the same intended use as the pioneer product that serves as its prototype. Thus a generic drug becomes a perfect substitute of an innovator drug.
Not all innovator drugs have the same importance for a pharmaceutical firm. While an innovator drug of an uncommon disease may generate low volume of sales; a drug, which is frequently used to treat common medical problems such as high cholesterol, diabetes, high blood pressure, asthma and cancer, may generate large volume of sales. When an extremely popular drug generates annual sales of at least $1 billion for the company that creates it, the drug is then called a blockbuster. In 1979, after being sold in more than 100 countries; Cimetidine was the first drug ever to reach more than $1 billion a year in sales, thus making it the first blockbuster drug. Therefore, the patent expiration of a blockbuster has worst consequences to the firm that the expiration of a low volume sales drug. This thesis is interested in blockbuster products, as the post patent strategies are larger consequences to the pharmaceutical firms.
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the U.S. for 20 years from the date of filing. Patent protects an innovative drug and allows the innovator firm to take legal action against anyone who makes, uses, sells or imports the innovative drug without the innovator firms’ consent. The regulation defines three criteria that must be met for an invention to be patentable: must be new, may not be obvious, and has to be capable of industrial application. The underlying motive to seek patent protection is economic: usually, firms will seek to obtain such protection to such an extent that the benefits of the invention at least exceed the costs of obtaining and maintaining the rights of patent (Herman, 2011). Patents can ensure appropriate legal protection for technological developments to achieve commercial and research and development objectives.
When pharmaceutical firms face the expiry date of a patent of an innovator drug other pharmaceutical firms can introduce generic copies in the market, which will compete directly with the innovator drug. The generic drugs boom grew importance after the Hatch-Waxman Act of 1984 as it created an abbreviate mechanisms for the approval of generic copies. For most part, the act beneficiated the generic drugs specially by awarding the first generic challenger 180 days of generic marketing exclusivity, a bounty often worth millions of dollars, but it also created a longer period of market exclusivity of innovative drugs (Herman, 2011). Generally, pharmaceutical firms with patented drugs generally held on to their market share position beyond patent expiration (Statman, 1981). Nevertheless, the introduction of the Hatch-Waxman Act of 1984 was designed to encourage exploration of new molecules as it rewards innovation.
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than 182 million dollars on sales as soon as generic drugs enter the market. To put this in perspective, IMS Health, a health care information provider, predicts that by 2016 patent expirations will have caused a loss of $106 billion in sales from innovator drugs over the previous five years, with the heaviest burden in 2012 and 2013. To cite the largest example, Pfizer’s Lipitor, the best-selling prescription drug in history, went off patent in 2011, and analysts expected Lipitor sales to decline from about $11 billion in 2009 and 2010 to just above $3 billion in 2015 (Jimenez, 2010). A second example of generic entry is the fluoxetine in the antidepressant market, in 2001. Within two weeks the market share of the generic fluoxetine exceeded the market share of Prozac, the innovator drug of Eli Lilly (Druss et al., 2004). The principal consequences for the firm that formerly held the patent are that its products lose market share and profitability in a very brief period (Pearce II, 2006). Innovative firms have at any point in time considered the following questions: what is the next move after patent expiration? How can it be possible to maintain sales levels when facing generic competition? What is the best strategy option to pursuit after patent expiry based on firm’ specific capabilities? As there are not specific theories expressing the suitable strategies for certain firms and due to the fact that the strategies pharmaceutical firms are following do not turn out effective, it is worth exploring to what extent pharmaceutical’s R&D and marketing capabilities determine which strategy to pursue post patent cliff of innovator drugs.
1.2 Problem Identification
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the exclusive marketing of the patent is reduced by the length of clinical trials and processing times of authorisation market records: such as 12 years intervene on average between the filling of patent and new medicine marketing, the time of effectual safety is so decreased from seven to eight years for a statutory time of two decades (Chaudhuri, 2013). On the other hand, competitive environment in the pharmaceutical industry has changed dramatically, both during the life of the patent and its expiration. During the term of the patent, medicines recording a commercial success are now quickly exposed to the therapeutic competition of similar products indicated for the same scope as the original drug without infringing on his patent (Grabowski & Vernon, 1992). This therapeutic competition is limited by many barriers to entry, both economic and regulatory. By creating a therapeutic comparative drug, pharmaceuticals can gain a large market share usually worth millions of dollars. In addition, regulation protects the innovation via patents. Marketing a copy of a patented product without permission of the patent owner immediately triggers litigation with a risk of heavy losses imitator. Patent legislation is not homogeneous around the world. Each country has power to decide its own regulation standards. The United States (U.S) offers high protection to innovations, while European regulation is a bit lower and the regulation in developing market is much lower. This makes easier to copy an existing drug in developing markets that in the U.S.
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patent innovator product. What do innovator drugs manufactures do to face this price pressure of generics? To what extent do the drug manufacturer R&D and marketing capabilities determine which strategy to pursue post innovator drugs patent expiry?
1.3 Patent Justification
A patent is the primary way for society to benefit from scientific advances, especially when it comes to developments in sensitive fields such as medicine, agriculture and the environment (Chaudhuri, 2013). Traditionally it is believed that the publication of the results of an experiment is the quintessential way to share new knowledge, however, this formula does not mean that the company, which will run this knowledge, benefit from thereof.
Leveraging knowledge compulsory passes to develop a product that can be applied to the part of the company involved or needed, for example a group of patients suffering from the same disease or people who suffer. The development of a product from a basic knowledge entails considerable economic and human investment, which would not take place without a predictable return on investment (Galizzi et al., 2011). Precisely here lies the importance of patents; it is the basis on which to perform the financial and human effort to convert knowledge into a product, benefiting society. In UK, developments or novel technologies that involve an inventive step and are susceptible of industrial application are considered patentable. The patent gives the holder a monopoly of commercial exploitation for their invention which is basically a right to prevent that allows to prevent others from exploiting his invention, but in no way implies a license or permit for the development or use of the protected invention.
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studies consulted the research results and capable of being patented, approximately 75% of which is protected by patent, while 25% is eligible for protection through business or trade secret and is that one of the positive effects of social patent is the fact that, in exchange for the privilege granted by the state, generally requires the publication of the patented object (Herman, 2011).
1.4 Research Gap and Motivations
Despite the considerable work that has been done on pharmaceutical markets, which patent expiry strategy works best for each pharmaceutical firm is a still relatively unexplored area even though there are many strategies the pharmaceutical firms are following. Each pharmaceutical firm is distinctive as its key resources and capabilities differ from other pharmaceutical firms. Therefore, a strategy that may be suitable for one pharmaceutical firm may not be advisable for another. The thesis studies this literature gap by analysing what kind of resources portfolio best match with the possible blockbusters patent expiry strategies.
Innovator drugs face a difficult time when they face patent expiry. When a patent expires, lower-priced generics can be introduced by competitors. As a result, the innovator drug manufacturer experiences a significant decrease of revenues. Most of the pharmaceutical firms are struggling with the current situations. Therefore, it is increasingly important for pharmaceutical firms to defend their revenues (Bruce, 2003). As currently the strategies they follow after patent expiry are not effective and it is necessary to explore whether the firms should choose different strategies based on their own conditions and give some suggestions for the firms to overcome the competition of generic drugs.
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The thesis has theoretical and practical implications. Firstly, the author expects that the thesis contributes to the RBV literature as the pharmaceutical firms not only identify the resources and capabilities but also link these characteristics to their strategies selections. Secondly, the pharmaceutical firm’s top management can have better understanding of pharmaceuticals patent expiry strategies and how the firms’ capabilities affect in their implementation.
1.5 Research Structure
The structure of the thesis is as follows:
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Chapter 2: Literature Review
2.1 IntroductionFirstly, the theoretical perspective of the resource-based view is introduced and marketing and R&D capabilities are reviewed. The RBV is a widely accepted theoretical perspective that suggesting that the basis for the competitive advantage of a firm lies primarily in the application of a bundle of valuable tangible or intangible resources at the firm's disposal (Wernerfelt, 1984).
Secondly, a background of patent expiry literature is reviewed. Pharmaceutical firms have to be more familiar with the patent expiry options before they make the suitable strategies after the patent expiry.
Thirdly, pharmaceutical firms post patent expiry strategies are reviewed. This section elaborates on the strategic options that pharmaceutical firms have when facing blockbuster patent expiry. It is important to understand the strategies that pharmaceuticals use when patent expiry in order to find if there is a relationship between the strategies employed and the firm’s capabilities. Consequently, the thesis tries to identify if there is a relationship between the firms capabilities and the post patent strategies employed.
2.2 Theoretical Foundations
The thesis bears on conceptual work in strategy (e.g., Wernerfelt, 1984; Teece et al., 1997) and marketing (Day, 1994) that emphasizes firm-specific capabilities and assets as the fundamental determinants of business performance. Consequently, the core theory of this research project is the based view (RBV). The resource-based perspective views a firm as a bundle of resources and capabilities (Wernerfelt, 1984) and states that the characteristics of a company’s internal resources and capabilities are sources of sustainable comparative advantage.
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connection to firm performance (Conner, 1991; Rumelt, 1984; Mahoney & Pandian, 1992; Rugman & Verbeke, 2002). This paradigm shifted from the narrow neoclassical focus to a wider rationale, and the coming closer of different academic fields (Conner, 1991; Mahoney & Pandian, 1992).
This thesis is not interested in finding the performance characteristics of post patent expiry strategies. Instead, it tries to understand if the firm’s capabilities impact on the decision making of the post patent expiry strategies employed. The concepts of the RBV theory assume that pharmaceutical’s capabilities determine which strategy to pursue post patent expiry of innovator drugs. For instance, if company A has high level of R&D capabilities the company is assumed to follow a post-patent strategy were company A can leverage its R&D expertise. Therefore, the thesis aims to verify if the above statement is indeed correct.
2.2.1 Resource Base View
To understand the terms, the thesis uses the following definitions: A resource is defined as stocks of available factors that are owned or controlled by the firm (Amit & Schoemaker, 1993). Resources consist of tangible components like financial and physical assets like property (factory and machinery) and intangible components like human capital, patent and technology knowhow (Grant, 1991; Amit & Schoemaker, 1993). Resources are the inputs available to a company which helps to perform its operations (Grant, 1995). Also, these authors state that resources, if considered as isolated factors, do not result in productivity; hence, coordination of resources is important.
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1990). Therefore, limited control of superior resources cannot achieve competitive advantage for the organization, but how an organization exploits its few resources, puts its capabilities to best use, invest and enhance its existing capabilities can generate immobility and inimitability to its resource-capability framework (Peteraf, 1993; Song et al., 2007).
In marketing literature, there has been thorough use of RBV framework to analyse firm performance (Dutta et al., 1999; Lieberman & Dhawan, 2005), to comprehend the interaction between marketing and other functional capabilities and their effect on performance (Song et al., 2007, Song et al., 2005; Song et al., 2008), and particularly to understand inter-organizational relationship performance (Palmatier et al., 2007). The research indicated that there is a significant relationship between capabilities and performance. Strategic management academics have used RBV to understand the inter-firm difference in performance (Barney, 1991, Peteraf, 1993; Makadok, 2001). Moreover, RBV theory suggests that heterogeneity in organization performance is due to ownership of resources that have differential productivity (Makadok, 2001). This thesis is not interested in finding the performance characteristics of post patent expiry strategies. Instead, it tries to understand if the firm’s capabilities impact on the decision making of the post patent expiry strategies employed. The concepts of the RBV theory assume that pharmaceutical’s capabilities determine which strategy to pursue post patent expiry of innovator drugs. For instance, if company A has high level of R&D capabilities the company is assumed to follow a post-patent strategy were company A can leverage its R&D expertise. Therefore, the thesis aims to verify if the above statement is indeed correct.
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firms. The resource must be rare in the sense that it is scarce relative to demand for its use or what it produces. It must be inimitable or difficult enough to imitate. It must be non-substitutable meaning that other different types of resources cannot be functional substitutes.
The VRIN characteristics mentioned are individually necessary, but not sufficient conditions for a sustained competitive advantage (Dierickx & Cool, 1989; Priem & Butler, 2001). Although the VRIN framework is very useful for identifying resources it does not apply well went looking at capabilities. If we look back at our definition of capability, it is the ability of the firm to use its resources to effect a desired end.
2.2.2 Pharmaceutical Firms Resources and Capabilities
For the purposes of this research thesis two critical business functions in the pharmaceutical industry are identified. They are research and development (R&D), and marketing. The ability of the firm to use its resources to archive high levels of R&D results is its R&D capability. In the pharmaceutical industry archiving high levels of R&D results simplifies to the innovation of the organization or its products mainly the discovery of new drugs or the improvement of existing drugs. In addition, the ability of the firm to use its resources to archive economic efficient levels of marketing is its marketing capability. Marketing is communicating the value of a product or brand to customers, for the purpose of promoting or selling that product, or brand. In the pharmaceutical industry archiving economic efficient levels of marketing translates to obtaining high product and firm visibility which incentivises sales.
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However, it is not clear if post patent firm behaviour is influenced by the level of the R&D capabilities.
Marketing focus on creation of customer demand and how to offer customers a unique value proposition (Karmakar, 1996). Academic research on marketing capabilities commonly assumes that the primary objective of marketing resources is to generate sales, though Day (1994) contends that marketing capabilities should centre on the customer, such that the objective of marketing resources is the creation of customer value in terms of serving customers better and encouraging the market to prefer one brand to another (Bolton, 1998; Bolton & Drew, 1991; Keller, 1993; Sheth et al., 2000; Srivastava et al., 2001). In the pharmaceutical industry marketing capabilities are critical for the sale of medicines especially post patent expiry, because of the increase in competition. Physicians have to know that the medicine exist in order to prescribe it and when substitutive drugs are sold in the same market, normally the one with high visibility capture high market share.
From the above discussions, the thesis assumes that functional capabilities (R&D and marketing) have a significant impact on a firm's post patent strategies. However, to the author knowledge, there has been no research to integrate all these constructs and find out if there is a relation of the strategies used by pharmaceutical firms post patent expiry based on the firm’s marketing and R&D capabilities.
2.3 Research and Development Capability
Research and development represents a critical business function for multiple high technology firms. Even during economic recession, many pharmaceutical firms continue to invest heavily in research efforts based on the assumption that innovation performs an important factor that influences firm outcomes. However, academic research addressing the organizational impact of R&D only lends partial support for the assumed relationship between R&D and firm outcomes. The link from R&D to stock prices has been studied by Chan, Lakonishok & Sougiannis (2001) and Eberhart et al. (2004).
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conflicting findings have emerged regarding whether R&D yields increasing (Henderson & Cockburn, 1996) or decreasing returns to scale (Graves & Langowitz, 1993). In addition, the majority of studies investigating the relationship between R&D efforts and firm performance find mixed results (Lin et al., 2006; Schoenecker & Swanson, 2002). While contributing to the understanding of the organizational role of R&D efforts, this thesis reflects the belief that link between R&D and patent expiration strategies provides an opportunity to achieve a better understanding of the role of R&D effort and to begin to contribute to the explanation of the mixed findings present in the literature.
Grabowski & Vernon (1992) results suggest that most drugs studied across a wide array of products introduced in the 1970, did not generate enough revenues to cover average R&D cost, even though they contributed to firm profits, in that the incremental revenue exceeded the incremental production cost and were useful in treating patients. The increasing costs of bringing innovative products to the market, as well as increased cost of utilization of pharmaceuticals contribute to increased pharmaceutical expenditure. The perception of high pipeline (drug in developing stages) cost puts pressure on pharmaceutical companies to build confidence in the proposition that their products are worth the additional expense. One potential approach to building this confidence, and maintaining investment incentives, is for the pharmaceutical company to share the risk of a situation in which there is uncertainty about whether the product is effective for potential customers (Cook et al., 2008). Such risk-sharing arrangements for pharmaceuticals, like strategic alliances, can be used to signal high quality when product quality is not fully observable. Pharmaceutical firms often cooperate with other organizations in order to reduce the risk when aiming to develop new innovative drugs.
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(Magazzini et al., 2004) pharmaceutical firms cannot only rely on external collaboration. A pharmaceutical firm can research and develop its products using internal resources or it can do it by cooperating with external organizations.
2.4 Marketing Capability
The literature considers elements of the marketing mix (Gatignon & Hanssens 1987; Capon et al., 1990; Narayanan et al., 2004) and describes the way in which the promotion process can be evaluated with respect to spending. Pharmaceutical firms employ a variety of strategies to promote their innovative drugs, including direct-to-consumer advertising, physician detailing, journal advertising and provision of free samples for physicians to distribute in their offices. For innovative drugs, Huskamp et al. (2008) demonstrated that, promotional expenditures decrease dramatically when second generation of the drug is introduced.
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may be as much as double what it spends on research and development and double what is reported in the literature.
Jambulingam & Sharma (2010) analyse the stock price reaction to warning letters send to 14 major pharmaceutical companies about search engine advertising. They find a significantly negative stock market reaction for the firms who received the warning letters as well as for the firms that did not receive a warning. It suggests that the letters had negative impact on shareholder’s value to the industry as a whole. The results indicate that internet marketing is important for pharmaceutical firms.
As reviewed, marketing activities are of great importance for the pharmaceuticals. Pharmaceuticals should develop their marketing capabilities to achieve superior performance. With the RBV as a core theory, the thesis assumes that the firms that spend most money on marketing are more experienced and capable of using marketing strategies when they are facing patent expiry.
Despite the considerable work that has been done on pharmaceutical markets, which patent expiry strategy works best for each pharmaceutical firm is still relative unexplored area. Each pharmaceutical firm is distinctive as its key resources and capabilities differ from other pharmaceutical firms. Therefore, a strategy that may be suitable for one pharmaceutical firm may not be advisable for another. The thesis has already identified R&D and marketing as critical activities of pharmaceutical firms and in the next section is going to explore the patent expiry literature and the researched post-patent strategies that pharmaceutical use.
2.5 Patent Expiry Literature
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the prices of innovative products increase after the entry of generics. The generic products enter the market with an important price discount that declines over time (Grabowski & Vernon, 1992). In the study of (Grabowski & Vernon, 1996) generic competition was found to be intensified in United States, with the major innovative products normally losing half of their market share within one year of patent expiry. Ching (2010) developed an empirical dynamic oligopoly framework to study competition between innovator drugs and generic drugs. The framework focuses on the role of consumer learning, heterogeneity in explaining, respectively, the initial slow increase in the market share for generic drugs and the pricing increase of the innovative products after generic entry. Regarding the diffusion of generic drugs, Morton (1999) takes a different view and analyses the entry decision of generic manufactures in the market opened by patent expiration. The products that treat chronic diseases as well as size and percentage of hospital sales are market features that were found to facilitate entry. More recent studies have addressed the problem looking also at other countries apart from United States and have suggested that both generic penetration and the impact on prices are linked to the extent of price regulation.
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which the innovator product loses revenue is proportional to both the size of the market and the price of the original brand prior to generic entry.
The patent owner has the right of deny others from using its patented technology for a particular period of time only. When the patent term terminates the technology becomes of public domain. After patent expiry innovator pharmaceuticals cannot restrain others from manufacture copies of their drugs. As soon as generic copies of an innovator drug enter the market, the innovator drug sales decline. Due to the reduced price of generics, the market share of the innovator drug generally falls intensely in the following years after patent expiry. Therefore, generic drug manufacturers face great opposition from innovator pharmaceuticals when they start manufacturing generic copies of the innovator drugs (Thakur & Ramacha, 2012). Mehta & Mehta (1997) call for the need of a well-formulated proactive strategy when pharmaceuticals companies face a very hostile competitive environment from generic drugs as soon as the patents of their innovative drugs expire. Their study on five cases tries to identify strategic options for pharmaceutical firms facing patent expiry. They conclude that a head-on collision with generics on price or introducing company own generics is the least effective approach. Instead, pharmaceuticals can leverage their reputation to protect their leadership, margins and volume. The next section explores possible strategies discussed in the literature that the innovator pharmaceuticals can adopt when facing patent expiry.
2.6 Pharmaceuticals Post Patent Expiry Strategies
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2.6.1 Documented Post Patent Expiry Strategies
First, reducing the price and competing in price with the generic drugs address the issue created by the patent expiry (Agrawal & Thakkar, 1997; Chandon, 2003; Kvesic, 2008), which is that, the product can no longer sustain the price differential. Customers will be indifferent between the products and they will be likely to keep buying the one they already used. The problem with this strategy is that competing in at the bottom end of the market creates a low quality image and it will damage the firm’s quality image.
Second, influencing the medical fraternity (Thakur & Ramacha, 2012), physicians are influenced by the innovator pharmaceuticals and led to prescribing only innovative and expensive drugs to patients. This strategy was commonly used in the past, but now physicians face restrictions by the governments and the insurance companies when perceiving innovative products and in some cases they are only allowed to prescribe generics.
Third, providing more value for money (Chandon, 2003) by introducing new and improved flavours, packaging, or delivery systems (i.e. easy to swallow pills, or patches) can lead to additional emotional or functional consumer benefits (i.e. higher compliance). The resulting differentiation enhances the awareness and image of the brand and hence increases its equity. However, these improvements can be easily copied by competitors and the innovative drug is likely to end up with the original problem.
Fourth, creating a bundle of patent rights for a particular drug technology (Thakur & Ramacha, 2012). When pharmaceutical firms obtain a number of patents on processes, reformulations or dosage regimes, patent clusters are created in order to set up a system which can delay the generic drugs entering the market. This strategy is based on making various layers of protection and making it difficult for the generic companies to successfully launch a generic drug with complete legal certainty as to not lead to infringement. This legal uncertainty arising out of patent clusters leads to delays in the launch of generic drugs for a considerable period of time.
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enforces their patent rights by engaging in legal proceedings against the generic companies in courts.
Sixth, pharmaceuticals could switch products from prescriptions to over the counter status on patent expiration Agrawal & Thakkar’s (1997). When was nearly the end of its patent protection, SmithKline-Beecham developed a milder version of Tagamet for heart-burn that could be sold without a prescription. The problem of this strategy is that it can only be applied to all the products because many have legal restriction of over the counter sales.
In addition to all the mentioned strategies, diversification strategy, in terms of entering into a related or unrelated business and/or entering into a new geographic market is considered to be of great importance to a firm's long-term leadership position in its own industry (Hoopes, 1999; Goerzen & Beamish, 2003; Nachum, 2004; Narasimhan & Kim, 2002). Strategic management literature has studied extensively the costs and the benefits of diversification strategy and its effect on competitive advantage for a firm (Chakrabarti et al., 2007; Palich et al., 2000; Ramanujam & Varadarajan, 1989). Academics have specially focused on the effect of product/service diversification that is defined as the synergy in different lines of business (Berger & Ofek, 1995; Bettis & Mahajan, 1985) and, international diversification or geographical diversification in a different market (Fang et al., 2007; Ghoshal, 1987; Kim et al., 1993) on firm performance. Hitt et al. (1997) claimed that the ability of an organization to manage such diversification depends on their cross-functional capabilities and coordination activities. Nath, et al. (2010) analyses the impact of marketing capability, operations capability and diversification strategy on performance. Their results suggest that overall diversification has a negative impact on logistics firm's performance. In the pharmaceutical industry, blockbuster patent expiration would impact less on pharmaceutical firms who are well diversified.
2.6.2 Divest
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skills and the pharmaceuticals with this right R&D capabilities can leverage their expertise to the firm advantage. Therefore their post patent expiry strategies would differ from firms with lower R&D capabilities. Pharmaceutical firm with high level of R&D capability may leverage its expertise and focus on the developing medicines which are very difficult to make and very difficult to copy. For example, instead of manufacturing a pill, which can be very easily copied they can manufacture vaccines or inhalator products which are much harder products to be copied. The thesis analysis if the level of R&D capability determines post patent expiry strategy.
When a blockbuster patent expiries, pharmaceutical firms have the strategy option of divesting the drug (Chandon, 2003; Kvesic, 2008). The pharmaceutical firms can divest by cutting all the promotional, R&D and other expenses that directly affect the drug. In other words, the pharmaceutical will not invest more money in the drug after its patent has expired. Divesting the drug does not mean that pharmaceutical firms stop selling the drug immediately after patent expired. Instead the drug will still be sold until its market share drops to such small percentage that is not profitable for the firm to manufacture the drug. This process can take from two to twenty years (Kvesic, 2008) depending various factors such as competition intensity and customers incentives to switch brand.
This strategy can deliver high returns when customers motivation to switch to the newly-available generic is low, either because low financial incentives or strong loyalty to the innovative product (Kvesic, 2008). In addition the major advantage of this strategy is that pharmaceutical firms avoid direct confrontation with generics and redirect the savings towards products that are still enjoying patent protection or in research and develop new drugs (Kvesic, 2008).
While pharmaceutical firms that have high marketing capabilities may leverage this capabilities to retain market share once the patent of the drug expired. Pharmaceutical firms with high levels of R&D capabilities may concentrate in its core competence and divest the drug once its patent expired in order to leverage new drug discovery and the development of new patent protected drugs.
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H1b: A pharmaceutical firm with high levels of marketing capabilities, would not divest the drug after patent expiry.
2.6.3 Marketing and Promotion Strategies
Although patent rights are granted for a fixed term of 20 years in almost all countries, the term of a trademark protection could be infinite, if it is consistently used by the owner (Agrawal & Thakkar, 1997). Due to strong market hold of the innovator drugs maintained through marketing, the generic drugs experience lower adoption in the market (Thakur & Ramacha, 2012). After patent expiry an innovator drug pharmaceutical with high levels of marketing capabilities may leverage its capabilities to retain its market share and compete face to face against newcomers.
H2: A pharmaceutical firm with high levels of marketing capabilities, would use marketing strategies to promote the drug after patent expiry.
2.6.4 Create own Generics
After patent expiry, pharmaceutical can invest in generics and try to fight at both ends of the market (Agrawal & Thakkar, 1997; Kvesic, 2008; Thakur & Ramacha, 2012). Pharmaceutical firms can launch their own generic brand of the off-patent innovative drug. They can launch their own generics through their innovative firm or can license the drug to a generic drug firm before the patent expires in exchange of royalties Chandon (2003). This strategy involves competing with the generics after the patent has expired and firms may need to be active in its marketing and promotions activities to obtain a high market share. Therefore, pharmaceutical firms with high levels of marketing capabilities may leverage its capabilities to brand a new generic drug after the patent of the innovator drug has expired.
H3. A pharmaceutical firm with high levels of marketing capabilities, would create its own generics of the drug after patent expiry.
2.6.5 Second Generation
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introduction of the follow-on drugs in market is a few years before the patent expiry of the original innovative drug, so that switching to the follow-on medicine is complete before the introduction of generics into the market (Thakur & Ramacha, 2012). This strategy needs to ensure patients shift to the new drugs prior the launch of the generic drugs in the market.
A way of improving an existing product is the introduction of successive product generations as it is typical of many industries. These next-generation products often embody new technology or confer enhanced benefits, and hence have the potential of replacing or obsolescing products previously introduced in the same category (Norton & Bass, 1987). When the current leader possesses higher research and development competence, it tends to invest more in R&D than rivals to retain its lead position Ofek & Sarvary (2003). In addition, a pharmaceutical firm with high levels of R&D capabilities may leverage its capabilities to produce second generations of innovator drugs that are patented protected.
H4: A pharmaceutical firm with high levels of R&D capabilities, would generate second generation drugs after patent expiry.
2.7 Conceptual Framework
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Figure 1: Conceptual Framework
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Chapter 3: Methodology
3.1 IntroductionThe aim of this chapter is to explain the main characteristics of this research and state how the presented hypotheses will be tested. The chapter is structured as follows. The first section gives an explanation of the research philosophy. The second section looks at the necessary data in order to test the hypotheses, how this data is structured, and how it is collected. The third section explains the ethical issues involved in the research.
3.2 Research Philosophy
The thesis follows a pragmatic research philosophy with a deductive approach. In the literature review hypothesis have been formulated and they are tested using mix methods design (Tashakkori & Teddlie, 2003). Mix methods research design is a procedure for collecting, analysing and “mixing” both quantitative and qualitative data at some stage of the research process within a single study, to comprehend a research problem more thoroughly (Creswell, 2002). The rationale for mixing is that neither quantitative nor qualitative methods are enough by themselves to capture the trends and situation details, such as finding if firm-specific capabilities influence post-patent expiry strategy in pharmaceutical firms. When used in combination, quantitative and qualitative methods complement each other and allow for more exhaustive analysis (Green, Caracelli, & Graham, 1989, Tashakkori & Teddlie, 1998). In quantitative research, the researcher relies on numerical data. She adopts post-positivist allegations for developing knowledge, such as cause and effect thinking, reduction to specific variables, hypotheses and questions, use of measurement and observation, and the test of theories (Ivankova, 2002). The investigator separates variables and causally relates them to determine the magnitude and frequency of relationships. Moreover, the researcher herself determines which variables to investigate and chooses instruments, which will yield highly reliable and valid results.
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With this approach, the investigator makes knowledge claims based on the constructivist (Guba & Lincoln, 1982) or advocacy/participatory (Mertens, 2003,) perspectives. Qualitative research data is collected from those who are involved in the everyday life of the setting in which the study is framed. Data analysis is based on the values that these participants perceive for their world. Ultimately, it produces an understanding of the problem based on multiple contextual factors (Ivankova, 2002). In a mixed methods approach, the researchers build the knowledge on pragmatic grounds (Creswell, 2003; Maxcy, 2003) affirming truth is “what works” (Howe, 1988). They choose approaches, as well as variables and units of analysis, which are most appropriate for finding an answer to their research question (Tashakkori & Teddlie, 1998). A major principle of pragmatism is that quantitative and qualitative methods are compatible. Thus, both numerical and text data, collected sequentially or concurrently, can help better understand the research problem.
While designing a mixed methods study, three issues need consideration: priority, implementation, and integration (Creswell, Plano Clark, Guttman, & Hanson, 2003). Priority indicates which method, either quantitative or qualitative, is given more importance in the study. Implementation indicates whether the quantitative and qualitative data collection and analysis appears in sequence or in chronological stages, one following another, or in parallel or concurrently. Integration indicates the phase in the research process where the mixing or connecting of quantitative and qualitative data takes place.
This study will use one of the most popular mixed methods designs in strategic management research: sequential explanatory mixed methods design, consisting of two distinct phases (Creswell et al., 2003).
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drug is facing patent expiry. The post patent expiry strategies used by pharmaceutical firms are measured in a qualitative because for a better description of the strategies employed.
3.3 Data
3.3.1 Capability Measurement
As mentioned in the literature review, the conceptualization and measurement of capabilities is perhaps the most significant criticism of the RBV. There is not a global accepted way of measuring capabilities. This thesis assumes that capabilities are developed by the investment and expenditure on its related resources. A company than spends more on the resources that influence a given capability, has a better capability than a competitor that spends less. With this assumption the thesis measures capabilities with a simple equation. R&D capability is measured by the following equation:
R&D capability = R&D expenditure / Total Revenue
The marketing capability is measured by the following equation:
Marketing capability = Marketing expenditure / Total Revenue
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Data Total Revenue R&D Expenditure Marketing
Expenditure
Measurement Revenue R&D expenses
Selling, General and Administrative expenses
Source Income Statement Income Statement Income statement Table 1: Data Sources
While larger firms tend to have more expenses than smaller firms, expenses are divided by the total firm revenue to control firm size. The equation results of a percentage. The result of the equation by itself has no meaning. To mean something it has to be compared with other firms. Therefore, when comparing two firms R&D capabilities, the firm with higher percentage, given by the formula above, has the strongest level of the capability.
With a sample of 45 pharmaceutical firms chosen randomly, the thesis identifies the industry average level of the capabilities. Therefore, a firm above the average has a high level of the capability and a firm behind the average means that the level of its capability is weak.
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3.3.2 Post-Patent Expiry Strategies Measurement
The post-patent expiry strategies used by pharmaceutical firms are measured qualitative. A descriptive summary of the post-patent strategies used by pharmaceutical firms in a given case.
3.3.3 Sample Cases
In other to test the hypotheses four real life samples chosen randomly are studied. A sample involves a drug that has gone out of patent. They identify the strategies that pharmaceutical firms carried out after the drug’s patent expired. The samples are chosen randomly. The real life examples that analysed are: Lipitor (Pfizer) which patent expired in 2011, Advair/Seretide (GlaxoSmithKline) which patent expired in 2012, Diovan (Novartis) which patent expired in 2011 and Levaquin (Jonson & Jonson) which patent expired on 2011.
Firm Year Lipitor (Pfizer) 2011 Advair/Seretide (GlaxoSmithKline) 2012 Diovan (Novartis) 2011 Levaquin (J&J) 2011 Revlimind (Celgene) 2019 Prilosec (AstraZeneca) 2001
Table 2: Blockbuster Drugs Expiration Date
3.3.4 Data Collection
The quantitative data which involves total revenues, R&D expenses, and marketing expenses is obtained by manually looking at the financial statement of the firms. The financial statement is obtained by accessing the firm’s annual report. The data of the years 2014, 2013 and 2012 is collated. The three years of data are collected in order to reduce the possibilities of a large bias such as company restructure after a takeover.
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qualitative data is the reviews of publish press articles. Secondary, three interviews with industry insiders are carried out with the objective of data triangulation. The interviews followed a semi structured in depth interviews (Punch, 2005). Appendix 1 shows the semi structure questionnaire that was sent to the interveners in advance so they could prepare the answers before the interview. Thirdly, firms’ annual reports. Finally, firms’ internet homepages. The results of the data analysis will be reported in the form of the discussion.
3.4 Reliability and Validity
Reliability indicates the accuracy and precision of a measurement procedure (Thorndike, 1997). Validity indicates to the degree to which a study accurately reflects the specific concept or construct that the researcher is attempting to measure (Thorndike, 1997).
The criteria for determining a qualitative research differ from quantitative study. In qualitative design, the researcher seeks believability, based on coherence, insight, and instrumental utility (Eisner, 1991) and trustworthiness (Lincoln & Guba, 1985) through a process of verification instead of using traditional validity and reliability measures. The singularity of the qualitative study within a specific context is that it can be exactly replicated in another context. However, statements about the researcher’s position, the core assumptions, the selection of participats, the biases and values of the researcher, enhance the study’s chances of being replicated in another setting (Creswell, 2003).
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3.5 Advantages and Limitations of the Sequential Explanatory Mixed Methods Design
The advantages and limitations of mixed methods designs have been widely discussed in the literature (Creswell, Goodchild & Turner, 1996; Green & Caracelli, 1997; Moghaddam, Walker, & Harre, 2003).
Advantages of this design include:
1. It is simple implement for a single researcher, as it sequentially proceeds from one stage to another.
2. The design is practical for analysing quantitative results in more detail.
3. The research design is particularly useful when unpredicted results emerge from a quantitative study (Morse, 1991).
The limitations of this design include: 1. Long time to complete.
2. It requires access to resources to collect both types of data.
3. Quantitative results of the first stage may indicate no significant differences.
3.6 Ethical Issues
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Chapter 4: Findings
4.1 IntroductionThis chapter is divided in two sections. First, the level of capabilities of the sample companies is displayed. Second, the thesis describes the strategies employed by six firms when the patent of one of their blockbuster drugs expired.
4.2 Capabilities Data Presentation
The table below reflects the marketing and R&D capabilities figures of the sample firms for the years 2014, 2013 and 2012. At the bottom of the table the industry average is shown.
Capabilities Table
No.
Chart Firm
Marketing
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28 UCB 29.31% 31.79% 30.99% 27.75% 28.28% 24.87%
29 Allergan 39.20% 39.99% 38.84% 16.46% 16.54% 17.31%
30 CSL 14.93% 16.21% 16.11% 8.74% 8.62% 8.01%
31 Chugai Pharma 18.73% 19.75% 19.95% 17.52% 17.53% 17.24% 32 Mitsubishi Tanabe Pharma 27.57% 27.98% 28.39% 17.06% 15.86% 17.24% 33 Dainippon Sumitomo pharma 29.05% 26.15% 29.97% 20.07% 17.08% 16.24% 34 Kyowa Hakko 36.61% 34.45% 33.92% 14.30% 12.81% 13.44% 35 Shionogi 33.22% 32.43% 33.27% 17.92% 18.74% 20.05% 36 Mylan laboratories 21.26% 20.54% 20.31% 7.61% 7.41% 5.95% 37 H. Lundbeck 36.14% 27.53% 32.67% 20.80% 18.82% 19.72% 38 Fresenius 14.46% 14.97% 15.55% 1.59% 1.71% 1.58% 39 Actavis 27.51% 23.60% 19.81% 8.31% 7.11% 6.80% 40 Celgene 26.44% 26.48% 25.50% 31.69% 34.99% 32.02% 41 Shire 33.64% 33.47% 43.03% 17.73% 18.92% 21.05% 42 Hospira 18.84% 18.55% 16.81% 7.71% 7.54% 7.42% 43 Grifols 19.69% 20.37% 20.80% 5.39% 4.50% 4.75% 44 Endo International 32.46% 30.70% 31.05% 5.44% 7.78% 7.12% 45 Taro 12.08% 12.88% 15.92% 7.30% 6.93% 6.78% Industry average 28.44% 27.92% 27.92% 15.05% 14.80% 14.66%
Table 3: Capabilities Table (GSK, 2014; GSK, 2013; Novartis, 2014; Novartis, 2013; J&J, 2014; J&J, 2013; Pfizer, 2014; Pfizer, 2013; Roche, 2014; Roche, 2013; AstraZeneca, 2014; AstraZeneca, 2013; Sanofi, 2014; Sanofi, 2013; Abbott, 2014; Abbott, 2013; Merck KGaA, 2014; Merck KGaA, 2013; Bayer, 2014; Bayer, 2013; Eli Lilly, 2014; Eli Lilly, 2013; Bristol-Myers Squibb, 2014; Bristol-Myers Squibb, 2013; Abbvie, 2014; Abbvie,2013; Teva, 2014; Teva, 2013; Takeda, 2014; Takeda, 2013; Novo Nordisk, 2014; Novo Nordisk, 2013; Astellas, 2014; Astellas, 2013; Daiichi Sankyo, 2014; Daiichi Sankyo, 2013; Otsuka, 2014; Otsuka, 2013; Gilead, 2014; Gilead, 2013; Baxter, 2014; Baxter, 2013; Merck, 2014; Merck, 2013; Eisai, 2014; Eisai, 2013; Biogen Idec, 2014; Biogen Idec, 2013; Amgen, 2014; Amgen, 2013; Valeant, 2014; Valeant, 2013; Akzo Nobel, 2014; Akzo Nobel, 2013; UCB, 2014; UCB, 2013; Allergan, 2014; Allergan, 2013; CSL, 2014; CSL, 2013; Chugai, 2014; Chugai, 2013; Mitsubishi Tanabe Pharma, 2014; Mitsubishi Tanabe Pharma, 2013; Dainippon Sumitomo Pharma, 2014; Dainippon Sumitomo Pharma, 2013; Kyowa Hakko, 2014; Kyowa Hakko, 2013; Shionogi, 2014; Shionogi, 2013; Mylan, 2014; Mylan, 2013; Lundbeck, 2014; Lundbeck, 2013; Fresenius, 2014; Fresenius, 2013; Actavis, 2014; Actavis, 2013; Celgene, 2014; Celgene, 2013; Shire, 2014; Shire, 2013; Hospira, 2014; Hospira, 2013; Grifols, 2014; Grifols, 2013; Endo, 2014; Endo, 2013; Taro, 2014; Taro, 2013)
33 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 0 10 20 30 40 50
Marketing Capabilty 2014
Firm Industry average
Figure 2: Marketing Capability 2014
The chart below shows the R&D capability figures of the sample firms in 2014 (look at the table above for the chart number).
Figure 3: R&D Capability 2014
The firms above the line of the industry average have a high R&D or marketing capability and the firm below the average line has a low marketing capability.
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Marketing Capability Table R&D Capability Table
Firm Marketing Figure Marketing Capability Level Firm R&D figure R&D Capability Level AstraZeneca 49.82% 9 Celgene 31.69% 9
Allergan 39.20% 9 Bristol-Myers Squibb 28.55% 9
Otsuka 38.78% 9 UCB 27.75% 9
AbbVie 38.70% 9 Eli Lilly 24.13% 9
Daiichi Sankyo 36.95% 9 Eisai 21.74% 9
Astellas 36.67% 8 Amgen 21.42% 8
Kyowa Hakko 36.61% 8 AstraZeneca 21.38% 8
H. Lundbeck 36.14% 8 H. Lundbeck 20.80% 8
GSK 35.84% 8 Takeda 20.19% 8
Eisai 35.06% 8 Dainippon Sumitomo pharma 20.07% 8
Eli Lilly 33.75% 7 Biogen Idec 19.51% 7
Shire 33.64% 7 Roche 18.78% 7
Merck KGaA 33.25% 7 Astellas 18.43% 7
Shionogi 33.22% 7 AbbVie 18.28% 7
Takeda 32.88% 7 Shionogi 17.92% 7
Endo International 32.46% 6 Shire 17.73% 6
Abbott Laboratories 32.25% 6 Chugai Pharma 17.52% 6
Bristol-Myers Squibb 30.37% 6 Novartis 17.14% 6
Novo Nordisk 30.13% 6 Otsuka 17.14% 6
Novartis 29.72% 6 Daiichi Sankyo 17.10% 6
J&J 29.54% 5 Mitsubishi Tanabe Pharma 17.06% 5
UCB 29.31% 5 Merck & Co 17.00% 5
Akzo Nobel 29.27% 5 Pfizer 16.92% 5
Dainippon Sumitomo pharma 29.05% 5 Allergan 16.46% 5
Pfizer 28.42% 5 Bayer HealthCare 15.58% 5
Mitsubishi Tanabe Pharma 27.57% 4 Novo Nordisk 15.50% 4
Actavis 27.51% 4 GSK 15.00% 4
Merck & Co 27.48% 4 Merck KGaA 14.81% 4
Sanofi 26.97% 4 Kyowa Hakko 14.30% 4
Celgene 26.44% 4 Sanofi 14.28% 4
Roche 26.34% 3 Gilead Sciences 11.47% 3
Teva 25.05% 3 J&J 11.43% 3
Valeant Pharmaceuticals 24.52% 3 CSL 8.74% 3
Baxter 24.17% 3 Baxter 8.52% 3
Amgen 23.42% 3 Actavis 8.31% 3
Biogen Idec 23.01% 2 Hospira 7.71% 2
Mylan laboratories 21.26% 2 Mylan laboratories 7.61% 2
Grifols 19.69% 2 Teva 7.34% 2
Hospira 18.84% 2 Taro 7.30% 2
Chugai Pharma 18.73% 2 Abbott Laboratories 6.64% 2
CSL 14.93% 1 Endo International 5.44% 1
Bayer HealthCare 14.46% 1 Grifols 5.39% 1
Fresenius 14.46% 1 Valeant Pharmaceuticals 2.98% 1
Taro 12.08% 1 Akzo Nobel 2.54% 1
Gilead Sciences 11.98% 1 Fresenius 1.59% 1
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4.2.1 Conclusion of the Capabilities Data
The numbers allocated to the firms indicates the marketing and R&D capability levels. If a firm has a 9, it indicates that the firm has the highest capability level in the industry. Conversely, if a firm has a 1, it indicates that the firm has the lowest capability level in the industry. Therefore, AstraZeneca is the sample firm with the highest level of marketing capabilities and Gilead Sciences the lowest. Moreover, Celgene has the highest level of R&D capability and Fresenius the lowest. The data is analysed and discussed in chapter 5.
4.3 Blockbuster Post-Patent Examples Presentation
This section involves the qualitative descriptive analysis of blockbusters post-patent strategies employed of the sample pharmaceutical firms.
4.3.1 Capabilities Levels of the Sample Firms
Marketing R&D Novartis 6 6 GSK 8 4 Pfizer 5 5 J&J 5 3 Celgene 4 9 AstraZeneca 9 8
Table 5: Sample Firms Capabilities Level
4.3.2 Diovan (Novartis)
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The plan to deal with the Diovan patent cliff focused on three major initiatives. Firstly, Novartis aimed to accelerate the development of a new blockbuster drug in order to launch it to the market to replace Diovan sales drop (Jimenez, 2010). Novartis would increase the development speed of a group of oncology drugs that included Afinitor, which was first designed to treat renal cell carcinoma and was nearly ready for the market. However, the drug could also be used to treat a number of other cancers as well (Jimenez, 2010). Afinitor received approval for the treatment of advanced breast cancer in July 2012, and generated sales of more than $1 billion a year (Novartis, 2014).
Secondly, Novartis decided to increase its efforts to expand more quickly in emerging markets (Jimenez, 2010). Novartis business was not growing as fast as the competition in China, Russia, Brazil and India. A major issue was that it is difficult and expensive to employ and train enough sales employees in those countries in order to archive highest quality growth (Jimenez, 2010). The firm invested heavily invested in a training and recruitment centre in Asia which hired and trained 500 people a year for four years (Jimenez, 2010). In 2011 Novartis China business grew by 38%, and in the second quarter of 2012 Novartis emerging growth markets contributed 24% of total sales (Novatis, 2013).
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4.3.3 Advair (GSK)
As a patent expiry strategy GSK tries to ensure their business is diversified and when they have a single product going out of patent they try to minimize the impact. GSK have a consumer out keep business (Smith, 2014). This means that GSK aims to create customer loyalty where customers’ satisfaction is high; customers trust the brand and will continue purchasing GSK products. This provides a foundation of sales that is not impacted by patent. They also have a different business models to mitigate the risk associated with patent expiry. For example, the firm has a vaccine business and a vaccine business does not suffer patent in the same way as the traditional products (Smith, 2014). In the past the firm have used line extensions. However, the company does not normally use them as payers rather have a lower cost generic than actually have quite basic product improvements (Smith, 2014). The firm does not typically launches generic products. Sometimes GSK have licenced a generic product to try to maintain some revenue selling branded generics and sometimes products as a second brand but they do not usually do it (Smith, 2014). GSK have strategic alliances in some markets but that is not so much to do with the patent cliff that is to give more coverage to sell the product (Jones 2014).
Advair is marketed under various trade names in different countries including Seretide, Viani, Adoair, Foxair. It is a medicine that is used in asthma and chronic obstructive pulmonary disease as it helps to prevent attacks of breathlessness or asthma (Drugs, 2015a).
The uniqueness of this drug is that is developed combining two existing medicines – Fluticasone and Salmeterol. Both ingredients work together to help keep the airways open and make it easier to breathe (EMC, 2015).
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tablets in a week so in the U.S. there is something called the patent cliff. However, with inhaled products is very difficult and the decay may be 5% or 10% over a number of years. The decay is because similar products from competitors rather than a lot of products from a copycat generics, because they are very difficult products to manufacture and they often have challenges making them not stable all the time (Smith, 2014).
The reasons why there are not generics in the markets are that inhaled products have a different level of requirements for clinical information. The testing regimes for inhaled products are quite complex so it is very hard to copy the product (Smith, 2014). If it is a simple tablet they can do what they called biochemical studies to look at how easy a drug can come out of the product or they may look it with a dissolution study to see how easy the product would break down the tablet. So it is a lot easier. Thus when you have a great complex inhaled product with a drug also have an interaction with the device, the competitors would almost have to do their own clinical studies. In this case, the barrier of entry is much higher (Smith, 2014). Another reason with respiratory products is that it is very difficult to make and often they have quite tie specifications (Jones, 2014). Therefore, the manufacture knowhow of the products is also a barrier of entry.
Advair is about 20 per cent of GSK company sales (Palmer, 2014; GSK, 2013). The knowhow associated with the product is so important that the company have never considerate divesting it (Smith, 2014). However, sometimes GSK divest products at the end of their lifecycle. The products are usually divested in a territory by territory basis so the firm may divest in the US and retain the product in Europe or GSK may divest in U.S. and Europe and retaining the product in developing markets, because the brand have more equity there (Jones, 2014).
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4.3.4 Lipitor (Pfizer)
Lipitor hit the market in 1997 and quickly gained the second position within the cholesterol medicines with 18% market share within the first year, the second year become the market share leader (Hannigan, et al., 2013). In 2006, Pfizer made 12.9 billion dollars on Lipitor sales, making it the best-selling drug ever. The drug by itself generated 20 percent to 25 percent of Pfizer annual revenue (Pfizer, 2007).
Lipitor is a prescription drug that is used to lower the LDL “bad” cholesterol and triglycerides in the patient’s blood. The medicine lower the risk of heart attack, stroke, certain types of heart surgery, and chest pain in patients who have heart disease or for heart disease or risk factors for heart disease such as age, smoking, high blood pressure, low HDL or family history of early heart disease (Lipitor, 2014). The molecules of Lipitor were discovered by Bruce Roth and co-workers at Parke-Davis (Roth, 2002), since they were acquired by Warner-Lambert (Hoefle, 2000). Warner-Lambert developed the drug initially but needed to catch up in the market so they teamed up with Pfizer. In 2001, Pfizer took full control of Lipitor.
The first patent for Lipitor expired in March 2010. However, a generic version was not introduced until November 2011. Funk (2013) described the five strategies that Pilfer used to face generic entry. First, the company paid for delay agreements. These agreements consist on paying another drug manufacturer to delay bringing its generic version to market (Funk, 2013). Pfizer and the generic manufacturer Ranbaxy entered into a settlement agreement that did not allow Ranbaxy to make generic Lipitor until November 2011. Since Ranbaxy gained the rights of being the first generic, no other generic manufacturers were allowed to make a generic version until 180 days after Ranbaxy first started selling its version. Therefore, other drug manufactures had to wait until May 2012 in other commercialise the drug.
Second, Pilfer authorized Watson pharmaceuticals to commercialize a generic version of Lipitor from the 30 November 2011 in return of 70 percent of the profits (Funk, 2013). With this measure Pilfer was competing with a generic version against Ranbaxy in the first to approval 180 days of exclusivity.
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(Funk, 2013). The theory states that firms reduced the prices of the innovative product to face generic competition, but in this case they actually increased the price in 2012 were generics were in the market.
Fourth, Pfizer offered customers discounts. In 2011, the firm began to promote a program that supplied Lipitor to privately insured patients for a $4 co-payment. It was below the average co-payment for other brand-name drugs and below the average co-payment for generics in general. More than 750,000 people have signed up for the program, named Lipitor for You (Funk, 2013).
Fifthly, Pfizer kept the marketing spending to the same level through patent expiration date. Although Pfizer took any measures to reduce the impact of the patent cliff, Lipitor sales dropped from $9.6 billion in 2011 to $3.9 billion in 2012, a 60 percent decrease (Funk, 2013).
4.3.5 Levaquin (J&J)
Sometimes great selling products are derived from the next generation of an existing drug. This is the case of Levaquin, the broad spectrum antibiotic which is the third generation of fluoroquinolone (Emedexpert, 2014). It is widely used in the treatment of mild-to-moderate respiratory and urinary tract infections due to sensitive organisms (Marks, 2014). Levaquin is a brand name of the drug levofloxacin and it was developed by Janssen Pharmaceuticals and approved by the FDA in December 1996 and it went out of patent in July 2011.
When the patent expired, 12 generic manufacturers including Sandoz, Glenmark Generics and Torrent pharmaceutical introduced Levaquin generics in the market (Ready, 2011). In 2011, before patent expiration, Levaquin was on the top 25 drugs that generated the most sales (J&J, 2013). After patent expiration, Levaquin sales drop dramatically and in 2010 Levaquin generated $1,357 million. The figure dropped to $623 million in 2011 and in 2012 the company reported only $75 million in Levaquin sales (J&J, 2013).
