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

2. 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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3. 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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4. 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 (C
=75.4m) accounted for 33 per cent of
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
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5. 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
Figure 3: Relative market share of Clamoxyl 500 =5.64 per box), Agram 500 =5.34), and Bristamox 500 =3.51)
(C (C (C
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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6. Chandon
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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7. 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
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8. 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 =17m profit for SB.
C
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
=36.7m, of which =28m came from
C generics will erode the profitability of the
Clamoxyl’s price cut, =4.5m from
C original brand. As this paper argues
subsequent price reduction by other however, and as the Clamoxyl case
amoxicillins and =4.2m from the
C 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)

9. 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.
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10. 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)

11. 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
=17m, however this was based upon their
C 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

12. 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)

13. 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