Biomedical Engineering Reference
In-Depth Information
for a new patent as it consists of a new molecule (e.g., Nexium is the next-generation
product of Prilosec).
Legal strategies are also widely used to extend the lifecycle of a drug and have a short
to medium-term impact on the sales of the drug (Burdon and Sloper
2003
). As the
branded drug's lifecycle is mainly determined by the period without generic competi-
tion, fi rms use various legal strategies to deter generic entry. These comprise patenting
strategies, where fi rms heavily protect their drug with multiple patents, and settling with
generic manufacturers to postpone generic entry. For example, the average number of
patents on a drug has seen a fi vefold increase from 1995 to 2005 (Frank
2007b
).
3
The overall strategy of a branded fi rm around patent expiry often combines
multiple strategies discussed above. These are not independent from each other and
to decide on and execute these strategies knowledge from different departments in
the company is needed, requiring the formation of cross-functional teams. For
example, the development of a reformulation of a drug requires R&D input, a mar-
keting plan, and support from the legal department on patenting and trademarking.
Some lifecycle strategies require many years to develop (e.g., combination drugs
due to new clinical trials), while others can be implemented overnight (e.g., price
change). An active lifecycle strategy can start already before the launch of a new
drug (e.g., see Fig.
2
in Kvesic (
2009
) for various extensions of nifedipine).
A manufacturer has invested heavily in successful drugs that near patent expiry.
In 2008, $50 billion was spent on R&D, not only to get drugs approved to the
market, but also to continuously support drugs that are on the market. In addition,
substantial amounts are spent on marketing drugs by informing and educating doc-
tors, patients, etc. When the patent on a drug expires, the drug has built various
assets that can be leveraged to extend a lifecycle.
To decide which lifecycle extension strategy a fi rm should pursue for a particular
drug, a fi rm should evaluate its own assets and the assets of the drug. These can be
divided into
reputational assets
and
knowledge assets
(Teece et al.
1997
).
Reputational assets come from the brand and the company's name. After patent
expiry, the branded drug can benefi t from its brand equity and trademarks. These
give a quality signal to doctors and patients and lower informational costs (Landes
and Posner
1987
). This can be used to slow down the impact of generics and can be
used for line extensions to leverage market power and brand equity from one market
or product to another. The fi rm also has knowledge assets. Some of them are pro-
tected by patents, but most are due to the fi rm's extensive experience in the market
and in the development of the drug. These knowledge assets comprise expertise in
technical areas, manufacturing, marketing, knowledge of doctor and patients, and a
good network. These knowledge assets should also be carefully evaluated and used
to decide on alternative lifecycle extension strategies. For example, this knowledge
may help to identify new potential market applications for the branded drug.
3
Another strategy sometimes used by fi rms is to corner supply, whereby the manufacturer makes
an exclusive contract with suppliers of scarce ingredients, prohibiting competitors to produce
generics. I will not further discuss this strategy as it is questionable from a legal perspective.
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