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GfK Healthcare | March 2010 | |
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Generic Pharmaceuticals and the Health Care Marketing Researcher  This is an article I thought, for certain, I would never have to write in my career! During the time I have been in the industry, the concept of pharmaceutical marketing researchers actively working toward optimizing the sale of generic products was anathema. When the word “generic” was said, respectable pharmaceutical marketers would wrinkle their brows and talk with disdain about these products that could be, “for all we knew,” manufactured in somebody’s bathtub. Pharmaceutical marketing researchers were in the business of helping to launch and maintain the franchises of premium-priced, name brand products. To the extent that we were involved with generic products at all, it was in supporting our companies’/clients’ efforts to minimize their use after patent expiry of branded drugs. Moreover, since much of my career, gratefully, overlapped the golden age of the pharmaceutical industry, with new patent-protected products and even new classes of drugs being introduced virtually daily, generics were low on our radar screens. In later years, however, these drugs started to lose their patent protection. Initially, pharmaceutical companies believed that, out of a combination of brand loyalty and fear by physicians and patients of generic inferiority, they could retain the lion’s share of the sale of their molecule under their brand name and with their pricing structure or slight price reductions. At the time, those more senior in our profession will recall, prescription pads carried two lines for the doctor to sign. A signature placed on one line indicated that the prescriber felt the patient’s condition made the “brand necessary,” while a signature on the other line allowed the pharmacist to substitute an approved generic version of the drug. Thus, when a significant branded product went off patent, early years of generic incursion saw all stops being pulled out by the original developers of the drug to hold on to their market. Pharmaceutical sales representatives regaled physicians with stories of the infamous “Italian tetracyclines” that had been imported into the United States, sold at low cost and had disastrous side effects. Doctors were more generally reminded of the far less rigorous testing that generics had to undergo than did the original brands, and that the sales of brand name products by brand name companies were required to ensure the ongoing funding of drug development. And, despite the fact that the same dosage of a product was frequently given to a 250-pound man and a 90-pound woman, pharmaceutical companies scrambled to have their products considered as falling into “critical dosage categories.” All of these stories, of course, were bolstered by large supplies of samples designed to set firmly into patients’ minds the look of “their medications.” The result of all of this work was that in most categories these tactics held off generics for only a relatively brief period of time. As more and more products became generically available, without any horror stories being reported, physicians became more and more comfortable permitting substitution, especially as patient requests for cost savings, managed care and regulatory pressure pushed them in this direction. A classic case in point was oral contraceptives, where a few dollars a month extra for the brand seemed a small enough price to avoid an unwanted pregnancy. Again, as generic products began to make inroads into the marketplace, and horror stories failed to be heard, patients increasingly moved toward the lower-cost generics, which now constitute 50 percent of the market. Pharmacists were also involved in our marketing research at the time, with various “value-added” services that the product originator could offer being evaluated by our respondents in focus groups, depth interviews, etc., as means of holding on to the business after patent expiry. In brief, the pharmacists were all appreciative of the services (e.g., continuing education, inventory management) being offered, but consistently reminded us that they were in business to make a profit, that they could make a bigger profit on what they had no reason to believe were inferior generics and therefore would buy and dispense the drugs on which they could get the best deal. After a few years of increasingly bootless attempts to keep generics away, the folk wisdom finally set in that within a year of patent expiry, even a blockbuster product would unavoidably lose the large majority of its market share. Done deal! Or not. The last few years have seen a significant resurgence of interest in the concept and reality of generics. An excellent article in the Feb. 16 edition of The New York Times described the role branded generics are increasingly playing in the strategies of major pharmaceutical companies. It is, indeed, a complicated and important one to understand. First, one must understand that, as usual, some companies – Novartis is a prime example – were, and declared themselves to be, pioneers on the generic frontier as a part of their overall diversification strategy to make up for the shortfall in profits in the branded pharmaceutical field. One must also understand that most of the other major pharmaceutical companies are now falling in line with this strategy. Second, it is important to understand that the generic strategy being pursued by most of these companies is not primarily focused on the United States, but rather on the majority of the world where patients pay for medications out of their own pockets, and are thus not shielded from the impact of price as is provided in the United States by managed care, formularies and co-pays. Third, one must understand that in much of the world, and especially in developing countries, the issue of distrust in generics that characterized the U.S. marketplace years ago is alive and well, and not without reason considering some of the quality control issues surrounding locally manufactured medications in those countries. In fact, an interesting tension is set up by more affluent patients in these countries wanting the quality assurances provided by the trade dress of large, multinational companies, and the desire of local governments in these same countries to have as many as possible of the medications used there to be manufactured in-country. More specifically, Eastern Europe, Asia and Latin America are, not surprisingly, the geographic areas in which this battle is being fought most intently. The result is that the concept of “branded generics,” i.e., products manufactured by trusted companies and therefore perceived as being of higher quality and worth a higher price than potentially counterfeit commodity products, is on the rise in many places around the globe. It is important to note here that it is the reputation of the manufacturer, rather than of the product, that breeds trust and thus is of import. Thus, these products are not treated as a commodity, and they can be priced in the open space between interchangeable generics and premium-priced, patent-protected brands. While not everyone in the target countries can pay such prices, the billions of people that reside in such countries constitute a highly viable market just the same. On a different but related topic, we are now starting to see the emergence of biosimilar initiatives as yet another component of strategic diversification on the part of what were formerly thought of simply as “major pharmaceutical companies.” While biological products can never be claimed to be generically equivalent, they can be launched in such a way as to take much of the market away from the often very expensive original biological products. This approach, which has only recently begun to develop a significant head of steam, can be expected to increase greatly in size and importance as more companies pursue the strategy, making more biosimilar products available. But what are the implications of all of this for health care marketers and marketing researchers? There are several. First, as it is finally realized that in the United States health care must be reformed beyond taxing the wealthy to pay for coverage of those currently uncovered, and that we must truly move to bring under control the health care marketplace that constitutes one-sixth of our gross domestic product, we can expect a significantly greater focus on reducing the cost of pharmaceutical and biological products, and we can expect generically equivalent and biosimilar products to be increasingly employed as cost-saving measures. Second, as increased focus is placed on obtaining profitability from true global marketing, especially in emerging countries, we can expect companies with excellent reputations and a broad line of trusted generics to prosper. Again, although we will not be looking for patients in these countries to pay $15 a pill for the management of erectile dysfunction, the number of the people in such countries and the ability of many of them to pay a significant out-of-pocket price for medicines will surely become more hotly pursued as price pressures in the U.S. marketplace continue to shrink profitability here. Finally, as the era of the blockbuster drug comes to an end with the patent expiry of billions of dollars worth of drugs in the next few years and companies seek to capture profitability from other sources, offering their own and partnered products on a branded generic basis makes a tremendous amount of strategic sense. And dollars. Although I typically like to close presentations and articles with clear guidance as to what we, as marketing researchers, should be doing about issues I have been discussing, and/or by referring readers to a book that can provide further information on the topic, here I can do neither. Since, as previously discussed, recent decades of pharmaceutical marketing research have seen our sole contribution in the area of generics to be limited to the investigation of increasingly ineffectual ways to make them go away, it is difficult in 2010 to be very specific in terms of pronouncements. What can be said at this point with some certainty, however, is that branded generics and biosimilars will play significantly greater roles in the portfolio profitability of a greater number of corporations as what were formerly “drug companies” increasingly diversify to become health care and wellness companies. As marketing researchers, we have very few methodologies in our bag of tricks specifically aimed at dealing with the issues discussed here, and we had best begin working in earnest to develop some if we intend to provide guidance and risk reduction to our clients, be they internal or external. Rest assured that as we develop clearer insights as these markets emerge, we will share them with you. Similarly, as always, we will welcome any commentary you might like to share with us in these important areas.  Richard B. Vanderveer, Ph.D. CEO, GfK Healthcare   |