Given the large decline in expected sales that usually occur where generics enter the market, brand companies begin planning a strategic response to this entry in advance of the patent expiration of a commercially important product. These responses are typically referred to as Life-Cycle Management (LCM) strategies. The options used by brand firms:
1) the introduction of a new therapeutic class for the same indication;
2) the introduction of a new formulation (e.g., a new delivery system or a combination product) that has improved therapeutic benefits in terms of patient tolerance, compliance, safety or efficacy;
3) the introduction of an Over-The-Counter product.
Each of these strategies has been employed on a selective basis with some success by brand firms.
The most effective life-cycle management strategy seems to be the introduction of a new class of therapies. Competition evolves in pharmaceuticals by the introduction of new classes of entities with superior therapeutic properties to prior generations of products. Firms that have a commercially important product subject to patent expiration will frequently be conducting R&D on new therapeutic approaches for the same indication. However, there are no guarantees in this regard because the candidates for the next advance in therapeutics often span a large spectrum. Furthermore, the R&D process is subject to many technical, regulatory, and competitive uncertainties with long time durations.
Another life-cycle management option for the brand firm is the introduction of a product line extension such as a new delivery system. Under the Hatch-Waxman Act (1984), a new formulation involving additional clinical trials is eligible for a 3-year exclusivity period. Moreover, a new delivery mechanism or formulation may be covered by a new patent. One of the most successful cases in this regard was the introduction by Pfizer of Procardia XL, a once-a-day formulation of a leading calcium channel blocker for hypertension. The extended release Procardia improved the tolerability and the side-effects profile associated with the active ingredient.
As a consequence, Procardia XL appeared to be a much larger commercial success than the earlier formulation of Procardia. This life-cycle management strategy has been employed in several other situations with somewhat mixed success. The weekly formulation of Prozac, for example, has enjoyed only very limited success. The degree of therapeutic improvement is a key factor in the success of this life-cycle management strategy.
A third basic option available in the case of some therapeutic categories is to develop an over-the-counter version of a product subject to patent expiration.
The strategy has been employed for example for anti-inflammatory pain relievers such as Motrin and Naprosyn, anti-ulcer therapies such as the H2-blockers Tagamet and Zantac, proton pump inhibitors such as Prilosec, and in several other therapeutic categories. However, a shift to OTC status requires approval by the FDA that the drug is safe for self-medication (Juhl 2000; McCarran 1991; Schweitzer 1997). A company will normally need to submit new clinical trial evidence to that effect. If approved by the FDA, the company receives a 3-year exclusivity period for its OTC drug in recognition for the new clinical trial work.
A key driver of success in the OTC market is the ability to capitalize on the brand loyalty enjoyed by the prescription product. The number of category shifts to OTC status approved by the FDA has grown over time.
At the same time, there are many therapeutic categories where this is not as viable strategy because they would not meet the FDA’s requirement on safety for self-medication (e.g., mental health and cancer drugs). The FDA has also declined several product requests for shifts to OTC status, such as anticholesterol drug agents.
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