Biomedical Engineering Reference
In-Depth Information
price-insensitive segment of the market and benefi t from its brand equity (Frank and
Salkever
1992
). At the same time, the fi rm has to decide on the promotion for the
branded drug around patent expiry (Berndt et al.
2003
). The branded drug has
enjoyed a legal monopoly during its patent-protection period and likely has built
substantial brand equity and goodwill (Caves et al.
1991
; Hurwitz and Caves
1988
).
Around patent expiration, the fi rm must decide on whether to keep investing in this
brand equity, focus the promotion on specifi c segments of the market, or largely cut
the promotion. The marketing department of the fi rm can also decide to differentiate
the branded drugs from generics by providing additional value to its product, with-
out obtaining a new patent (Chandon
2004
; Kvesic
2008
). For example, they can
offer extra service to their product or produce a different fl avor of the drug.
Furthermore, fi rms can decide to divest or milk their product (Kvesic
2008
).
The introduction of branded generics and switching a drug to become available
OTC require a long-term commitment of a fi rm and may bring a healthy stream of
revenues over a longer period of time. Branded generics are cheaper versions of the
branded drug that build on the branded drug's name and are marketed or licensed by
the manufacturer (Berndt et al.
2007
). This allows the fi rm to capture a share of the
generic profi ts and possibly increase the equilibrium price of generics, which in turn
may lead to a higher share for the branded drug (Kamien and Zang
1999
; Reiffen
and Ward
2007
). A fi rm can also opt to make the drug available to consumers by
getting OTC approval (Berndt et al.
2003
; Ling et al.
2002
). This option is limited
to drugs that have a low potential for abuse and have proven to be reasonably safe
and well tolerated. OTC drugs make up 28 % of the unit prescriptions in the United
States (Danzon and Furukawa
2008
).
R&D strategies require more time to execute, but potentially have a long-term
impact on the sales of the drug. The advantage of R&D into extensions of an exist-
ing drug is that it can benefi t from the information obtained from past clinical trials
(O'Connor and Roth
2005
). This makes drug development more effi cient and
decreases the development costs and risks substantially (Chong and Sullivan
2007
;
Fleming and Ma
2002
). New indications and reformulations are frequently used
R&D strategies to extend a drug's lifecycle (Dubey and Dubey
2009
). Upon
approval, both can extend the monopoly period of the branded drug for several
years. Increasing the number of approved indications also expands the potential
market for the drug. In 2004, 84 % of the top 50 prescription drugs had obtained
additional indications after approval (Sandner and Ziegelbauer
2008
). Reformulations
use the same active ingredient as the original drug, but provide substantial improve-
ments to the drug that make the drug more effective, reduce side effects, or provide
patients with more convenience. Between 1989 and 2000, 65 % of the approved
drugs in the United States were reformulated versions of existing drugs (Hong et al.
2005
). Firms can also opt for combination drugs, which are two or more drugs (i.e.,
pills, injections, patches, or inhalers) combined into one drug (i.e., pill, injection,
patch, or inhaler) (Herrick and Million
2007
). In 2009, worldwide sales for combi-
nation drug were over $30 billion. Combination drugs require more substantial
R&D investments, but can receive their own patent. Similarly, fi rms can develop a
next-generation product that is based on a drug already on the market, but qualifi es
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