innovative

Innovative marketing strategies after

patent expiry: The case of GSK’s

antibiotic Clamoxyl in France

Received (in revised form) 7th August, 2003





Pierre Chandon

is Assistant Professor of Marketing at INSEAD, where he teaches brand management to MBAs and executives. His area of

expertise is in brand management and in consumer behaviour for low-involvement products, with applications in the areas of

sales promotions and point-of-purchase marketing. He has published articles and books on these topics in leading academic

journals, including the Journal of Marketing Research and the Journal of Marketing.









INTRODUCTION building and price competition. Of course,

Before assessing how best to respond to a a company can also resort to non-

loss of patent protection, it is important to marketing oriented strategies such as legal

consider whether radical change is really efforts to extend patent protection or

necessary. It may be that the pharmaceutical tactical alliances with generic makers and

product is operating in a niche category that can simultaneously implement different

is too small to attract challenging generic strategies, thereby creating a hybrid

competition, at least in the short term. It model. In a first stage, it is nevertheless

could also be that the awareness and image useful to review each strategy

of the brand is so strong in patients’ and independently, starting from the most

doctors’ minds that it would retain most of common to the least common.

its equity even after the loss of patent

protection. In most cases however, the Divest

entry of generic competitors radically alters This strategy involves cutting all

the competitive landscape and calls for promotional and research expenses once

appropriate radical responses. In the next the brand faces direct competition from

section, the five major strategies available to

pharmaceutical brands facing competition

from generics are briefly reviewed. This is High

Innovate (new forms,

followed by a review of the innovative dosage, services, etc.)

marketing strategy adopted by SmithKline

Beecham in France in the late 1990s, when Provide more value for the money

(new flavour, packaging, etc)

its Clamoxyl antibiotic faced a sudden

increase in competition from generic Brand

building

amoxicillin. Invest in generics





FIVE STRATEGIES FOR

Pierre Chandon COMPETING AGAINST GENERIC Reduce price

Assistant Professor of

Marketing, PHARMACEUTICAL PRODUCTS Low

Divest

INSEAD,

Boulevard de Constance, Figure 1 shows that the five major

Fontainbleu F-77300, France

Tel: +33 1607 24987 marketing strategies available for a Low High

Price competition

Fax: +33 1607 46184

e-mail:

prescription drug facing competition from

pierre.chandon@insead.edu generics involve a trade-off between brand Figure 1: Marketing strategies after patent expiry









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Chandon





generics and redirecting the savings brand through higher promotion by the

towards brands that are still enjoying medical representatives. Compared with

patent protection. Sometimes, this the ‘milk and divest’ strategy, this option

‘milking’ strategy actually involves price also entails low price competition, but can

increases to take advantage of the higher improve the equity of the off-patent brand

brand equity of the brand among the by offering additional patent protection.

smaller segment of hard-core loyal On the other hand, innovations require

customers. This strategy leads to the years of research before being authorised

lowest levels of brand building (because and, in some countries, do not necessarily

the brand is not supported) and price extend the duration of the patent.

competition (because the price advantage

of generics is not challenged). Provide more value for the money

The success of this strategy hinges on the Introducing new and improved flavours,

inertia of doctors, patients and the other packaging, or delivery systems (eg easy to

stakeholders (pharmacists, HMOs, swallow pills, or patches) can lead to

governments). When their motivation to additional emotional or functional

switch to the newly-available generic is consumer benefits (eg higher compliance).

low, either because of low financial The resulting differentiation enhances the

incentives or strong attachment to the awareness and image of the brand and

brand or to the value of brand equity for hence increases its equity. Because these

funding research and development, such a innovations typically do not extend patent

strategy can deliver high profitability, at life however, it is more difficult to pass the

least over the short term. Over the longer costs on to the consumer when facing

term, however, the profitability of this generic competition and hence, this

strategy depends on the elasticity of the strategy’s lead is one step ahead towards

other still-patent protected drugs to the price competition. In addition, these

additional promotional investments. As improvements can be easily copied by

many examples have shown, it is not generics and thus often have only a weak

always easy to convince doctors and impact on sales, while reducing margins.

patients to upgrade to the new patent- These changes can also be perceived as

protected drug in the category and marketing gimmicks and hurt the

patenting these next-generation products is perceived scientific integrity of the brand.

becoming increasingly hard. One of the

major drawbacks of this strategy is that it Invest in generics

encourages generic makers to challenge Pharmaceutical companies can try to fight

drug patents more aggressively, knowing at both ends of the market by introducing

that the market will be all theirs as soon as their own generic. This will reduce the

they have received the green light. profitability of generic makers and may

deter them from entering the category.

Innovate On the other hand, pharmaceutical

Short of introducing a completely new companies have realised that producing

molecule, pharmaceutical companies can and marketing generics requires different

innovate by launching new forms and skills to their traditional business and that

dosages or by demonstrating effectiveness it is difficult to be a strong player in both

for new indications. They can also business models. To overcome this

innovate by offering better services for difficulty, pharmaceutical companies can

doctors (eg hotline), and better license the drug before the expiry of the

communication on the illness and on the patent in exchange for royalties. The new







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Innovative marketing strategies after patent expiry





copy will typically be priced higher than a The antibiotics market

true generic, but will benefit from first- Doctors are facing many uncertainties

mover advantage, preferential access to when deciding which antibiotic to

raw material and manufacturing know- prescribe. It is difficult to identify the

how, while still deterring entry from other specific bacteria that are responsible for the

generic makers. symptoms, let alone to know with

confidence that these symptoms are not

Reduce price caused by a virus. Some families of

On one hand, this strategy has the lowest antibiotics like amoxicillins have a large

potential for brand building. On the spectrum of indications and therefore

other hand, narrowing the price gap with compete with other families such as

generics addresses the main problem macrolides and first generation

created by the expiry of the patent; that cephalosporins for the most common

the equity of the brand can no longer causes (respiratory infections). At the time

sustain a large price differential with what of the crisis, these more recent families of

is, essentially, the same product. At the drugs were lucrative because they were

extreme, aligning the price with the more expensive than amoxicillin, were still

generic will make doctors, pharmacists patent protected, and were heavily

and regulators indifferent between the promoted. As a result, the antibiotics

two and may force the weakest generic market exhibits a very strong level of

makers out of the business, given their competition.

lower economies of scale. On the other From the very beginning, Beecham

hand, price competition invites retaliation laboratories positioned Clamoxyl with

and can quickly degenerate into a price strong scientific support, notably a

war that would kill all the profits in the photograph of dead streptococci. Thanks

category. Another issue to be kept in to the strong research and development

mind here is that most doctors who efforts of SmithKline Beecham (SB),

prescribe the drug are not aware of Clamoxyl quickly became available in oral

prices. Communicating the price change and injectable forms adaptable to all

is therefore an integral part of this situations for adults and children. In line

strategy. with the functional positioning of

Clamoxyl, SB always communicated on

CONTEXT OF THE CLAMOXYL the therapeutic benefit of these

CASE improvements. SB also provided excellent

When it was launched in 1974 by service for doctors, ranging from a 24-

Beecham laboratories, Clamoxyl was the hour hotline, to jars of sweets to offer to

first amoxicillin available in France (it was children during medical visits. Finally, SB

launched under the Amoxil brand in the promoted Clamoxyl heavily, relying on a

USA and other countries). Clamoxyl was dedicated salesforce and on distinctive

a rare breakthrough product and enjoyed advertisements emphasising the uniqueness

immense success. Despite losing its patent of Clamoxyl and its red colour.

protection in 1980, Clamoxyl was still the

highest selling antibiotic in 1996. To The arrival of generic competition

understand this peculiar situation, it is After the expiry of Clamoxyl’s patent in

important to highlight some points 1980, generics and branded copies entered

regarding the antibiotics market and the the market, selling for at least 30 per cent

regulatory and political environment less than Clamoxyl. These generics were

regarding generics in France. not available in as many forms as







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Chandon





40%



All Amoxicillins

35%





30%









Share of adult antibiotics market

25%

Clamoxyl Pharmacists allowed

to substitute

20%





15%

New marketing

CNAM Letter strategy New price cut

10%





5%





0%

May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep-

94 94 95 95 95 96 96 96 97 97 97 98 98 98 99 99 99 00 00 00 01 01 01







Figure 2: Market share of Clamoxyl and of all Amoxicillins in the French adult antibiotics market (1994–2001)







Clamoxyl. Generics quickly gained about increased competition from other families

half of the amoxicillin market (see Figure of antibiotics, helped by their substantially

2). Yet, most producers of generic drugs higher promotional investments. Still, in

were not breaking even because they the year ending in August 1996, Clamoxyl

lacked the wide portfolio of products remained the most prescribed antibiotic in

necessary to achieve economies of scale. France, captured 34 per cent of the

To counter the loss of the patent, SB amoxicillin market and 8.8 per cent of the

developed and tested different improved total antibiotic market. Its turnover

versions of the molecule, which could =75.4m) accounted for 33 per cent of

(C

have been marketed as a replacement for SB’s antibiotic sales and 18.2 per cent of its

Clamoxyl, but to no avail. In the absence total sales.

of a foreseeable breakthrough, SB invested

in the brand by developing new forms and Regulatory and political environment

dosages (eg 1 g dose necessitating only one Multiple public authorities regulate the

take per day; sugarless Clamoxyl for pharmaceutical industry in France. Each is

children) and continued to promote quite autonomous and looks after different

Clamoxyl through medical representatives aspects like licensing, pricing,

and advertising. In addition, the arrival of reimbursements, etc. The price and

many undifferentiated generics and copies reimbursement levels are decided after

ironically helped reinforce the positioning negotiation with the pharmaceutical labs

of Clamoxyl as the only true amoxicillin. and depend on the incremental therapeutic

The progression of generics halted after benefits that the new drug would offer.

1985 and the market share of Clamoxyl Social security reimburses 65 per cent of

remained stable for about 10 years, when it the price of antibiotics, but 85 per cent of

started to erode again (losing about two French people have private insurance,

market share points in 1996). Whereas which reimburses the rest. In practice,

some of its decline was due to competition patients do not pay for their

from generics, part of it was also due to pharmaceutical products and can visit as







68 International Journal of Medical Marketing Vol. 4, 1 65–73 # Henry Stewart Publications 1469–7025 (2004)

Innovative marketing strategies after patent expiry





80.0







70.0







60.0







50.0 CNAM Letter

(July 1996) New Marketing Strategy

(October 1996)

40.0





30.0







20.0





10.0







0.0









(C (C (C

Figure 3: Relative market share of Clamoxyl 500 =5.64 per box), Agram 500 =5.34), and Bristamox 500 =3.51)

in 1995 and 1996







many doctors (general practitioners and encourage the systematic choice of

specialists) as they want. Up until 1999, alternative, less costly drugs. In practice

pharmacists were not allowed to substitute however, the French authorities used a

the prescribed drug with its generic mixture of persuasion and threats of future

counterpart. As a result, French annual per financial sanctions to encourage doctors to

capita expenditures on pharmaceutical opt for generic drugs.

products were (and still are) the highest in

Europe. Clamoxyl is targeted

Little had been done to really curb In July 1996, the social security agency

medical expenses up until 1996, when the responsible for the reimbursement of drugs

´

Juppe reform (named after the French (the CNAM) sent a letter to all doctors

Prime Minister who led it) granted new urging them to prescribe generic

power to the regulatory bodies. The new amoxicillin instead of Clamoxyl. Although

law established limits on the number of doctors regarded this as an interference and

authorised prescriptions and on the choice an attack on their freedom of prescription,

of drugs and proposed to set up a it affected them because of the threats of

computer network that would monitor future financial sanctions and because a

doctors’ prescriptions more easily and strong media campaign pointing the finger







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at them. Clamoxyl sales saw a sharp Clamoxyl, but as an advanced cure for

decline of 29 per cent in the three months specialised problems (eg sinusitis, patients

following the CNAM letter (see Figure 2). at risk such as children) and in cases of

The market share of all amoxicillin bacterial resistance to Clamoxyl. The

products increased, but not as much as the specialised positioning of Augmentin

market share of Clamoxyl decreased, limited its prescriptive potential, but

suggesting that some of the sales lost by enabled SB to keep Clamoxyl’s

Clamoxyl were diverted towards other positioning as the antibiotic for the

families of antibiotics. Within amoxicillin, majority of common infections. It also

most of the substitution went towards the allowed Augmentin to be priced at 2.3

cheapest generics such as Bristamox rather times the price of Clamoxyl.

than towards branded copies such as SB decided against following this

Agram (see Figure 3). strategy for the following reasons. First,

despite perception of the contrary by some

MARKETING OPTIONS FOR doctors, Augmentin and Clamoxyl were

CLAMOXYL not direct substitutes. Clamoxyl had fewer

The rapid decline in market share caused side-effects and was more effective than

by the CNAM letter, combined with the Augmentin for some key indications. The

slow but continuous erosion of Clamoxyl level of resistance to Clamoxyl was still

sales over the last year and the continued low in 1996 and, last but not least,

promotional support for other families of Clamoxyl tasted better than Augmentin.

antibiotics was a source of deep concern Secondly, repositioning Clamoxyl as a

for SB. The management forecast that new all-purpose antibiotic would seriously

Clamoxyl’s market share of the antibiotics damage the credibility of SB (which had

market would drop to 8 per cent at the been arguing to the contrary for 12 years)

end of 1996 (compared with 10.6 per cent and would require new price negotiations

in 1995 and 8.8 per cent in the year ending with the CNAM. Finally, promoting both

in August 1996) if they changed nothing Clamoxyl and Augmentin increased

to their strategy. Changing nothing was doctor’s awareness of amoxicillin, the key

therefore not an option: Even Clamoxyl, component in both drugs, at the expense

one of SB’s ‘jewel drugs’ had to confront of other families of antibiotics.

competition from generics one way or the

other. SB therefore considered each of the Innovate or provide more value for

strategies outlined in Figure 1.1 money

This strategy was difficult to follow,

Milk Clamoxyl and invest in simply because it was becoming very

Augmentin difficult to improve upon Clamoxyl.

One obvious idea would be to stop Clamoxyl was already available in more

investing in Clamoxyl and to redirect all forms than any other brand. In addition,

the freed resources towards Augmentin, obtaining the license and launching a new

which was still patent-protected. dosage or form would take years and

Introduced in 1984, Augmentin is a could be easily copied by generics, once

combination of amoxicillin and clavulanic authorised. It was also difficult to think

acid, an inhibitor that neutralises the most about how Clamoxyl could be promoted

prevalent mechanism of bacterial resistance differently to doctors (direct-to-consumer

to amoxicillin. When it was launched, advertising is forbidden in France). What

Augmentin was not positioned to doctors could SB say that doctors did not already

and sold to the CNAM as an improved know? Clamoxyl had the highest brand







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Innovative marketing strategies after patent expiry





awareness and best image of all patients and the media. This is important,

amoxicillins. The very strong promotional since people are often not aware of drug

and advertising pressure from macrolides prices and not accustomed to the idea of

and cephalosporins also implied that it price haggling over medical products. A

would be very difficult for SB to large price cut would also be hard to

significantly reverse the balance of power match by generics drug makers, who

in favour of the overall amoxicillin would need the approval of their

category. corporate management to retaliate at this

On the other hand, by pointing the level. It would also probably wipe out

finger at Clamoxyl, the CNAM letter has copies (such as A-Gram) that were priced

made it a symbol of the new hardball at a 10 per cent discount by encouraging

attitude of the government, putting their manufacturers to stop their

pressure on branded drugs and on doctors. promotion. Finally, it would deter the

By continuing to fight for Clamoxyl, SB entry of new generics.

would be seen as fighting for doctor’s

freedom of prescription and for continuing WHAT HAPPENED

research and development. To be effective, The strategy ultimately followed by SB

this message would have to be coupled with for Clamoxyl was innovative on many

a price reduction to nullify the financial points. First, because they implemented

arguments put forward by the CNAM. many of the options reviewed here

simultaneously. Secondly, because they

Reduce price explored new routes by moving the debate

A price reduction would help tackle the from price haggling towards a more

source of the problem. Clamoxyl was still comprehensive solution. The solution was

a strong brand but was it strong enough to a direct result of the dynamics of

warrant a 30 per cent price premium over competition between antibiotics and of a

generic amoxicillin, especially in the face deep understanding of the long-term goal

of intense pressure by the CNAM and the of the CNAM, which is to lower their

media in favour of substitution? The main reimbursements, not to reduce the price of

issue with this strategy is that it was a particular drug. Yet, its letter encouraged

inconsistent with SB’s corporate some doctors to substitute Clamoxyl not

philosophy and business model, which with only generic amoxicillin, but with

were oriented towards the discovery of the still-patent protected and more

innovative drugs, not price competition. It expensive, macrolides and cephalosporins,

is also risky because generics would resulting in a net increase in expenses for

eventually lower their price, as this was the CNAM.

their only competitive advantage. SB therefore negotiated a gentleman’s

Even if SB decided to reduce the price agreement with the CNAM, whereby

of Clamoxyl, the size of the cut is a hotly Clamoxyl would be taken off the table of

debated issue. On the one hand, a small drugs to be substituted in subsequent

price cut might be sufficient to reduce the CNAM letters. In exchange, SB lowered

price gap to the level of the brand equity Clamoxyl’s price to the level of the

gap. This price cut could also be selectively cheapest generic amoxicillin (–30 per cent

implemented only on the forms facing on average) and promised to continue to

competition from generics. On the other promote Clamoxyl, and thus Amoxicillin,

hand, a drastic price cut aligning so as to reduce the switch towards more

Clamoxyl with the cheapest generic would expensive macrolides and cephalosporins.

be easy to communicate to doctors, Simultaneously, SB sent an open letter to







# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 71

Chandon





all French doctors in October 1996, SB had forecasted an 8 per cent market

announcing the price reduction and the share for Clamoxyl if they changed

decision to continue to develop and nothing. Compared with the ‘no move’

promote Clamoxyl. Consistent with the scenario, SB’s strategy generated a positive

scientific positioning of Clamoxyl, the C

=17m profit for SB.

letter emphasised that this decision ensured

continued medical research and freedom of Longer-term effects

prescription for the doctor. The letter was As expected, generics continued their slow

accompanied by an advertising campaign growth, helped by a widening price gap

in the specialised press emphasising that with Clamoxyl, continued pressure from

Clamoxyl offered doctors ‘the power of the government and media in favour of

choice’. generics and continued promotional effort

by still patent-protected drugs (see Figure

Immediate effects 2). SB lowered the price of Clamoxyl

The announcement that SB would align again in September 1999 by 17 per cent on

the price of Clamoxyl with the price of average, while maintaining research and

generics generated a lot of positive media promotional efforts. As a result, SB was

exposure for Clamoxyl and SB. Probably able to stabilise Clamoxyl’s market share

due to the size of the price cut, for a while. The positive effects of the

competitors did not immediately match price cut however, were more than offset

Clamoxyl’s new price. As a result, by a new law introduced in the spring of

Clamoxyl regained all the market share 1999, which allowed pharmacists to

lost to generic amoxicillin within a couple substitute branded drugs with generics and

of weeks (see Figure 3). granting them higher margins on generics.

By the end of 1997, Clamoxyl’s market The continued fall in sales was also due to

share was actually higher than its pre-July the decision by generic amoxicillin’s to

1996 level, gaining 3 percentage points to match the two price reductions initiated

stabilise at around 20 per cent of the adult by Clamoxyl. Yet, the market share of

antibiotics market (see Figure 2). As amoxicillin continued to decline and the

predicted by SB, their strategy also total cost of reimbursing antibiotics for the

improved the market share of amoxicillin social security system therefore increased

in the antibiotics market (about 33 per cent over the period.

in 1997 compared with 29 per cent in

1996). The total savings for the CNAM in CONCLUSION

September 1997 were estimated by SB at It is inevitable that the competition from

C C

=36.7m, of which =28m came from generics will erode the profitability of the

C

Clamoxyl’s price cut, =4.5m from original brand. As this paper argues

subsequent price reduction by other however, and as the Clamoxyl case

C

amoxicillins and =4.2m from the demonstrates, this does not imply that

substitution of more expensive antibiotics pharmaceutical companies should not put

by amoxicillin. up a fight. Clamoxyl is obviously worse

Financially, the new strategy did not off now than it was in the summer of

break even: The higher market share did 1996. The continuous investments in brand

not compensate for the 30 per cent price building, coupled with well-publicised

reduction. However, the pre-July 96 price cuts, and win-win agreements with

situation cannot be used as a realistic the French social security system however,

benchmark given the rapid erosion of helped extend the life of the brand for half

Clamoxyl’s market share. As noted earlier, a decade, generating substantial profits.







72 International Journal of Medical Marketing Vol. 4, 1 65–73 # Henry Stewart Publications 1469–7025 (2004)

Innovative marketing strategies after patent expiry





Every pharmaceutical company facing Professor of Marketing at INSEAD;

competition from generics should Olivier Kovarski, Professor of Marketing

therefore carefully review the different at ESC Normandie; Jacques Lendrevie,

marketing strategies briefly outlined here Professor of Marketing at HEC; Sarah

before deciding to pull the plug on their Spargo, Research Associate at INSEAD

brands. It may be more profitable, and and Marc Vanhuele, Associate Professor of

considerably less risky, to add a few years Marketing at HEC. The case studies and

to an old brand’s life by continuing to teaching notes are available from the

invest in it, even for a reduced margin, European Case Clearing House at:

than to let generics take over the market in www.ecch.cranfield.ac.uk and an

the hope that the newly freed investments inspection copy of the case can be

will substantially boost the sales of other downloaded at: faculty.insead.edu/

still patent-protected brands. ´ ´

chandon/mm1/resume/resume.htm. The

authors thank Pierre Chahwakilian (GSK,

France) for his invaluable assistance writing

ACKNOWLEDGMENTS the case studies and Neeraj Mehrotra

This article is based on two INSEAD case

(INSEAD MBA 03) for his research

studies (‘Marketing Strategies in the

assistance.

Competition Between Branded and

Generic Antibiotics: Clamoxyl in 1996 (A- Note

case) and Augmentin in 2002 (B-case)’), 1 Marketing their own generics was not considered

both written by Pierre Chandon, Assistant at that time for a variety of reasons.









# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 65–73 International Journal of Medical Marketing 73

Case Commentary



Innovative marketing strategies after

patent expiry



Pierre Chandon writes: story is the importance of replacing a

In 2003, what can we learn from what narrow problem definition (price

happened to Clamoxyl in France in 1996? competition from generics) in favour of a

The Clamoxyl story shows that real understanding of the goals and

pharmaceutical brands can have constraints of the key stakeholder (in this

considerable equity and can thus put up a case, the French social security system’s

successful defence against generics. This is goal of reducing the growth in antibiotic

a lesson that many pharmaceutical reimbursements). This lesson still holds

companies should ponder, given how today, although the specific strategy

little respect they generally have for their implemented in 1996 is no longer valid.

brands. For example, we too often see Consider Augmentin, whose patent

newly merged corporations happily expired in France in 2002. The new law

forfeiting esteemed old brands in favour introduced in 1999 shifted a significant

of new acronyms with zero awareness and amount of power from the doctor to the

weak image. A market-savvy company pharmacists, who are now allowed to

would not give up that easily on these change a prescription to any cheaper

fantastic brands and on the value that they generic. Most generics offer higher unit

have, inside and outside the company. margins and therefore Augmentin would

Similarly, too few pharmaceutical not gain if they were to reduce the price.

companies know how to leverage the Doctors would be more likely to

power of their brands through careful prescribe it but pharmacists would

brand extensions or coherent brand continue to sell generics instead (and

architecture (the relationship between the would be irritated at the lower margins

corporate brand and all the product for Augmentin). GSK therefore decided

brands). Finally, pharmaceutical to license Augmentin to three generic

companies are still learning how to brand makers six months before the end of the

the total customer experience, that is, not patent protection period. In exchange for

just the product, but the name, the royalties, these generics producers

packaging, the delivery system, and the obtained manufacturing know-how and,

pre- and post-consumption information most importantly, a head start deterring

search. entry of other generic makers and hence

Another lesson from the Clamoxyl reducing price competition.







Anthony J. Knight writes: strong global branding and positioning,

This case hinges on three main points: prescribing inertia and the establishment of







74 International Journal of Medical Marketing Vol. 4, 1 74–77 # Henry Stewart Publications 1469–7025 (2004)

Case Commentary





a mutually beneficial relationship with a without cost, both real and opportunity.

government reimbursement authority. The latter should be valued in terms of

The branding used for Clamoxyl/ peak sales value time gained for a patent

Amoxil set new standards in clarity and protected molecule that could have

consistency of promotional material, brand benefited from that resource. It is doubtful

image and positioning. This placed the that there was any financial advantage in

product in a class of its own with this strategy over taking a royalty from

performance and reliability to match; it out licensing and cash cowing the residual

was an icon of its age. There was a strong high price sales while withdrawing

emphasis on palatability for children promotion.

reinforced by the give-away sweets of the There is little doubt that strong

same flavour. The message was clear — branding, line extensions, process patents,

prescribe this product and the patient innovative delivery technologies and

would take it and get better; the security licensing deals all serve to slow down the

of knowing that the patient was unlikely rate of decline of patent profits, but the

to get worse or to have significant side- reality today is that payers take active

effects and lead to out of hours calls. steps, through policies and penalties, to

Thousands of doctors did just that and the drive down prescribing costs for post-

product lived up to its promise, which, patent molecules that have constituted a

coupled with a general ignorance of cost drain on health budgets. Post-patent profit

and an unchallenged view of the freedom protection strategies need to be in place

to prescribe, created a strong post-patent long before patent expiration, the inhaler

loss position. Thus two of the main planks market provides a good model for

for post patent loss survival were in place. observing this. Active promotion should

Only one, strong branding, survives as an be reserved for cases where the product

option in today’s markets. The offer is not reproducible, or tactically in

opportunity to negotiate a win-win response to a local opportunity.

position with a reimbursement authority Return on marketing investment must

remains an opportunistic strategy that is drive resource allocation decisions in

dependent on local circumstances and today’s pharmaceutical environment.

unlikely to be a universal option. Generics, whatever the strategy, do not

The gain for GSK was estimated at provide the yields required when

C

=17m, however this was based upon their competing for investment revenue or

view of the decline in market share capital in a mainstream pharmaceutical

resulting from doing nothing. Without company. They do, however, make sense

that estimated further decline, the project to highly focussed, low overhead, branded

did not break even. The commitment to generic specialist company from whom

continue promotion would not be royalties can flow for many years.



Anthony J. Knight

was formerly Customer Marketing Director at Parke-Davis and is the founding partner of the Portland Partnership, a

pharmaceutical strategy consultancy. He can be contacted at tony@knightworld.com; URL: www.knightworld.com









Tony Booley writes:

Pharmaceutical companies often do not The likely degree of competition from

consider the range of strategies open to generics will be influenced by external

them when faced with a patent expiry. factors such as the competitive situation







# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 74–77 International Journal of Medical Marketing 75

Case Commentary





with regard to parallel imports; which product could be licensed out to a generics

influences the relative attractiveness of a company in exchange for royalties.

market for a generic competitor. The Perhaps pharmaceutical companies should

competitive landscape at patent expiry is recognise that managing a brand post-

very country specific due to the differing expiry is a specialist area? There are also

regulatory and market landscapes. For speciality pharmaceutical companies that

example, the retention of brand equity will manage brands post patent expiry.

may be influenced by factors such as Another strategy is to license the brand

computerised substitution, which is to another company to manage post-

sometimes mandatory. patent situation. This requires skilful

Companies also need to be proactive valuation of future cash flows. It may be

with older brands that may have been hit better to have the future value of the

by generics, as brand revitalisation may be brand revenue stream now to invest in

possible later in the life cycle. Getting price brand building in other more profitable

increases when employing a milking areas. The marketing risk can also be

strategy depends very much on the pricing passed onto another company. Companies

framework in individual countries. One with a branded pharmaceutical portfolio

method that has been employed is to need to constantly evaluate marketing risk

‘foster’ products to another company that across the portfolio and actively manage

may be in a better position to gain price this risk.

increases. In countries such as the UK, it is When considering a price reduction

now very difficult to get price increases strategy, we need to look at an approach

due to the constraints of the UK that reduces the price selectively through

Pharmaceutical Price Regulation Scheme different deal structures. Examples would

(PPRS) system. It is not always easy to be hospital contracts or brand

persuade doctors and patients to upgrade ‘equalisation’ deals with larger retail

to the new patent-protected drug. We pharmacy chains, where a company’s

therefore need to consider replacement branded prescription line is sold at brand

strategies such as those employed by Astra price and also dispensed for generic

Zeneca with Losec or Schering Plough prescriptions, but reimbursed at an agreed

with Neo-Clarityn. In addition to generic price. The pharmacy benefits

fragmenting the business by dosage form, through lower administration costs and

consideration needs to be given to not having to stock both the branded and

outflanking the generics by taking the generic product. The pharmaceutical

brand over the counter (OTC). Some company benefits by effectively and

innovations such as extended use or selectively shutting out the generic

changed formulations can be brought to equivalent of its product.

market relatively quickly if developed by It is not surprising that Clamoxyl was

an organisation committed to giving the still the best selling antibiotic in 1996.

project sufficient priority. A case can be France has until recently at least, had

made for a partnership or out-licensing to greater difficulty in containing healthcare

a speciality pharmaceutical company. costs due to the local market structure.

Concerning an ‘invest in generics The existence of primary care gatekeepers

strategy’, branded pharmaceutical in the UK renders the NHS more suitable

companies have recognised that producing to cost containment. Compared with other

and marketing generics requires different countries, France had remained a more

skills and a different businesses model. largely branded market. Overall in 1996,

Therefore the possibility exists that the generics only accounted for 2–3 per cent







76 International Journal of Medical Marketing Vol. 4, 1 74–77 # Henry Stewart Publications 1469–7025 (2004)

Case Commentary





of total prescriptions by value compared consideration was given to shifting

with approximately 40 per cent by value manufacturing to India or China in order

in Germany and 25 per cent in UK. to preserve margins? Also were there any

Did SB consider investing in brands formulation changes possible that would

other than Augmentin? Augmentin was reduce the cost of goods? The campaign

considered principally to retain business in appealing to French doctors’ ‘freedom of

the same market. Extra investment in prescription’ obviously had the right

other SB brands may have given a greater emotional impact at the time. The SB

return? Given that SB’s business model marketing strategy demonstrates how

was oriented towards the discovery of rational and emotional marketing practices

innovative drugs and not price can work well together.

competition, why did SB in 1996 or earlier Pharmaceutical companies generally do

not consider divesting the brand to not put up much of a fight post patent

another company? The net present value expiry. This is because their business

(NPV) of this strategy may have been models are focused elsewhere. However,

superior given the strong brand equity and the emergence of speciality pharmaceutical

historical sales situation, which would have companies, whose business model allows

driven the forecasts. them to focus on and manage brands post

No mention is made of manufacturing patent expiry opens up a host of new

considerations. As Clamoxyl needed to strategic options for managing this phase

increasingly compete on price, what of the product life cycle.





Tony Booley

is a board director of Alliance Pharmaceuticals and has 23 years’ experience in the pharmaceutical and healthcare industry

including posts at the multinationals Leo Pharma, Glaxo Wellcome and Getinge Industrier. He can be contacted at

tonybooley@alliancepharma.co.uk; URL: www.alliancepharma.co.uk









# Henry Stewart Publications 1469–7025 (2004) Vol. 4, 1 74–77 International Journal of Medical Marketing 77