Pharmaceutical Lifecycle Extension Strategies - Innovation and Marketing in the Pharmaceutical Industry - page 246

of ten patents on a drug, compared to an average of two patents in 1995 (Frank
2007b ). As a result the length of the nominal patent period for branded drugs has
increased (Hemphill and Sampat 2011 ). At the same time, Hemphill and Sampat
( 2011 ) fi nd that the fraction of drugs receiving patent challenges has increased; they
are challenged sooner, and drugs with higher sales are challenged more often. Bruce
( 2003 ) provides various patent cases for pharmaceuticals. Patents also deter entry as
the costs to invent around, license, or challenge the patent can be large (e.g., in the
software industry, Cockburn and MacGarvie 2011 ).

8.5.2 Generic Settlements

Manufacturers can settle with a generic manufacturer that challenges the patent on
the branded drug, to drop the patent challenge or delay generic entry (Bulow 2004 ).
These settlements involve a payment of the branded manufacturer to the potential
generic entrant. These are also referred to as sweetheart deals and can be very profi t-
able. It works especially for the fi rst generic manufacturer that has a 180-day exclu-
sive marketing period. There is a clear incentive for branded manufacturers to pay
the generic manufacturer to delay entry, due to the higher margins for the branded
drug. These settlements are highly disputed by the antitrust authorities (e.g., FTC)
and society, but are not immediately forbidden by law. Several cases have been in
court, with mixed outcomes (Forden 2011 ; Frank 2007b ).

8.5.3 Summary of Legal Strategies

The biggest part of the profi ts from pharmaceutical drugs is earned during the period
in which the drug is protected by patents. Hence, fi rms can extend the patent on a drug
or delay generic market entry to obtain extra profi ts. There are two main ways of
delaying generic entry (see Shuchman ( 2006 ) for a case discussion of these strategies
for Plavix). Over the last 15 years, fi rms have adopted a strategy of multiple patents to
protect a branded drug, increasing the market exclusivity period of the drug, and fi rms
are involved in settlements with generic manufacturers to postpone their market entry.
Research comparing the return on these legal strategies to other lifecycle extension
strategies would help fi rms to make tradeoffs on which strategy to prioritize.

8.6 Conclusion and Suggestion for Future Research

Lifecycle extension strategies in the pharmaceutical industry are becoming a popu-
lar way for pharmaceutical fi rms to make profi ts. While lifecycle extension strate-
gies have existed for some time, the rising costs of developing a new drug and the