Pharmaceutical Lifecycle Extension Strategies - Innovation and Marketing in the Pharmaceutical Industry - page 238

endogenous. She fi nds that when endogeneity is ignored, branded advertising deters
entry. However, when correcting for endogeneity, advertising creates a barrier to
entry by generic fi rms. This is in contradiction to the fi ndings of earlier work.
Ellison and Ellison ( 2011 ) investigate strategic entry deterrence just before drugs
lose patent protection. Using a sample of 63 drugs that lose their patent between
1986 and 1992, they fi nd that investments to deter entry are nonmonotone in market
size. For small markets, no investments are necessary to deter entry, while for large
markets entry deterrence is impossible. Incumbents in medium-sized markets have
lower advertising levels and are more likely to reduce their price and advertising
near the patent expiry date.
In addition to patents, trademarks are available to protect the drug. They offer
less intellectual property protection than patents, but may be renewed indefi nitely.
Trademarks can refer to the drug's name, color, shape, etc. and signal quality and
goodwill and reduce consumer search costs. The patent period gives fi rms time to
develop trademarks in a monopoly market to retain the drug's value even after pat-
ent expiry. For example, AstraZeneca successfully transferred the trademark of
Prilosec (with the trademark: the purple pill) to its follow-up drug Nexium (the
purple pill with racing stripes).

8.3.3 Differentiation

Firms can retain branded sales after generic entry by differentiating their drug from
generics, which may justify their higher price. They can do that by providing more
value of their drug than generics without extending the patent of the drug. They can
introduce new fl avors, new coatings, improved packaging, easy-to-swallow pills, or
patches (Chandon 2004 ; Kvesic 2008 ). This can be supported by providing doctors
with free samples, which are typically not provided by generics. Another innovative
approach is to offer other support services, such as a hotline for doctors. Branded
manufacturers can also market the brand with a different message to patients or doc-
tors, without actually changing the drug's properties.

8.3.4 Divestiture

When a fi rm is not expecting a bright future for the drug after patent expiry, it can
divest or milk the drug (Chandon 2004 ; Kvesic 2008 ). This is a viable alternative if
a fi rm wants to free resources for other drugs in its portfolio. It involves cutting the
drug's marketing and R&D expenditures and selling or licensing the drug to another
fi rm. The branded manufacturer may also increase the price targeting brand loyal
customers and maximize short-term profi ts. Alternatively, a fi rm can milk the drug
by focusing on segments where it has the biggest advantage over generics (e.g.,
hospitals, marketing-sensitive doctors).