Patents are a powerful protector. A patent allows a company to enjoy limited competition and profit from a monopoly on a product. It also prohibits other companies from selling exact copies of the patented product. While this is great for the startup, a concern is what happens when the product goes off patent protection.
When I was completing my MBA requirements at Columbia Business School, I also worked at a large pharmaceutical company in New York where I studied the impact of drugs facing generic competition and formulated strategies for dealing with generics. One strategy for a company whose drugs are facing patent expiration is to try to extend the life of the patent through various legal means, such as filing for additional patents or challenging the validity of existing patents held by competitors. Another strategy is to focus on developing and bringing new drugs to market to replace the revenue lost from expired patents. Additionally, the company could also look into developing a generic version of the drug after the patent has expired and market it at a lower price point. Diversifying the company’s product portfolio and seeking out new revenue streams through licensing or partnerships can also be a viable strategy. Ultimately, the best strategy will depend on the specific circumstances and resources of the company. These issues will be detailed next.
Patent Life
Patents issued in the United States are for a fixed term and cannot generally be extended past their lifetimes. The term of a U.S. utility patent is 20 years from the date it was filed in the United States. The USPTO may extend the term for delays in patent office examination and certain delays in FDA regulatory processes. The term may be reduced if certain disclaimers are used by the applicant during prosecution.
The maintenance fees must be paid 3 1/2, 7 1/2, and 11 1/2 year after the issuance of a utility license. Otherwise, the patent will expire at 4, 8 or 12 years. The term of a U.S. design patent is 15 years after it’s issued. A U.S. Plant Patent is valid for 20 years after it’s issued.
When a product loses patent protection, it means that the exclusive rights granted to the patent holder for a certain period of time have expired. This means that other companies can now produce and sell generic versions of the product without infringing on the patent. This can lead to increased competition and lower prices for consumers. It also means that the original patent holder will no longer be able to exclusively profit from the product, which can have a significant impact on their revenue.
Additionally, companies that produced the product under the patent protection may have difficulty maintaining their market position, as new competitors can enter the market. To prepare for this, companies may try to diversify their product line, or look for new patents to protect their products.
Overall, the loss of patent protection can have a significant impact on the companies that hold the patent, as well as the market for the product in question.
A patent can’t be extended beyond its original term. Patenting an improvement to the original patent invention is the only way to extend your protection. However, a new patent will protect only the improvement and not the original invention. This will allow others to copy the improved invention and make use of it when the original patent expires.
However, rivals can introduce lower-priced versions to the item after a patent expires. According to research in 18 industries, 17.2 new producers are introduced into the market every year after a patent expires. After two years, this number rises to 25.1. The main consequences for the company holding the patent are that their product is no longer in demand and that they lose profitability within a short time.
Over the next decade, many of the most important drugs in the industry are likely to fall off the patent cliff. This will put pharma giants on the edge as investors scramble for their next blockbuster.
The four most popular drugs in the industry that are expected to be under generic pressure over the next few years include Humira (Keytruda), Revlimid, Revlimid, and Eliquis. Moody’s analysts have written that nine of the top 20 most-sold drugs in the industry will lose their exclusivity in the next few years. According to Fierce Pharmaceutical, it’s difficult to predict when competition will heat up as there could be many patents protecting these medicines. Mike Levesque from Moody’s, the lead author of this report, stated that it’s impossible to know. It is also not clear if some companies will be able to evade generic competitors through court or when regulatory approval will be granted.
Next year, the most-grossing drug in history, AbbVie, will finally be challenged by copycat biologics from the U.S. The biggest beneficiaries of biosimilars, however, won’t be necessarily the generic drug manufacturers. Instead, the top beneficiaries could be the middlemen Cigna or CVS Health who will negotiate and dispense the drugs to patients.
Humira, a drug that treats a variety of diseases including rheumatoid arthritis and gut disorders, has brought in over $200 billion in its lifetime. The Wall Street Journal notes that it is expected to bring in $21 billion this year. Although biosimilars are available in Europe from 2018, Humira has been protected by a thicket patents until 2023 when Amgen and Teva Pharmaceuticals will start rolling out their versions.
The Food and Drug Administration (FDA) has approved seven biosimilar versions. This means that margins will be squeezed as more companies vie for a piece of the blockbuster. According to FactSet data, AbbVie will make money from Humira over several years. The drug’s annual revenue is estimated at $4 billion through 2026.
As the price of the drug drops, the U.S. taxpayer and consumer will be benefited by the increased competition among biosimilar manufacturers. According to UnitedHealth Group’s Optum Rx, specialty drug costs such as Humira account for 2% of all prescriptions but 50% of drug spending. It estimated that biosimilars could save more than $100 billion in the next five-years.
The savings will also be beneficial to pharmacy-benefit mangers (or PBMs), such as Optum Rx and Cigna’s Evernorth/Express Scripts and CVS’s Caremark. These managers negotiate discounts and then distribute the medication to patients via specialty pharmacies.
How the drugs are administered is key. Biological drugs refer to medications that are made from a living system such as a microorganism, plant cell or other organism. Infusions or injections are the most common way to take biologics. The majority of biosimilars that have been approved in the U.S. so far are administered in close consultation with a physician in a clinical setting.
Morgan Stanley’s earlier analysis suggests that pharmacy-benefit managers will cover more than 70% of all branded sales through 2025. These benefits will then be dispensed directly to patients by specialty pharmacies. Morgan Stanley claims that pharmacy-benefit managers will have a greater influence on shaping demand.
Contrary to Europe, where the government decides what drugs it covers, in America, pharmacy-benefit managers are for-profit and negotiate with drug companies to determine which drugs they will place in their formulary. PBMs can be won over by drug companies offering discounts or rebates on the list price. Every PBM will have a different approach to how itcovers Humira Biosimilars. However, the common thread is that the companies dispensing Humira could see an increase in earnings.
Optum Rx, United’s PBM, was the first to announce how it will transition to Humira biosimilars. Heather Cianfrocco,the chief executive officer at Optum Rx, stated that AbbVie’s drug will be offered along with three other medications next. Optum Rx’s decision is expected to generate double-digit-percentage savings on the drug for clients next year, the company said in a statement. It will also be a boon to the companies that administer it.
Revenue differences can amount to hundreds of millions of dollars due to how quickly brand share falls after patent expiration. What strategy can pharmaceutical companies use to predict the rate at which revenue will drop?
strategy pharmaceutical companies use to predict the rate at which revenue will drop
1. Rely on Trademark Branding to Drive Customers to the Patent-Expiring Brand
Trademark registration can be used to protect the brand that is burned into doctor’s mind over twenty year life. However, the intermediaries such as the pharmacy can substitute generics if the cost is lower. As such you still have to factor in price with the major drug distributors.
2. Understanding which factors influence share retention
Market share retention following drug patent expiration can be affected by individual product attributes as well as drug class attributes. Complexity of dosage administration is one example of product attributes. An innovative or novel drug delivery system is more likely to be a preferred choice than generic alternatives.
Generics that are already available in one drug class will not have an impact on the prices of others. Share losses due to drug patent expiration will be higher if a new therapeutic category is introduced to the market. These dynamics are essential to manage a drug’s post expiration strategy.
3. To drop prices or not?
It might make sense for brands to preventively drop prices in order to maintain market share. However, this doesn’t always work. To maintain margins on sales, some brands will choose to increase or maintain the price of shares as they fall.
Sometimes, it is a good idea to preventively lower the price of brand-name prescription drugs. If the manufacturer lowers prices in order to be more competitive with generics, then products with high price retention characteristics are more likely to retain more market share. However, there are exceptions so it is important to have a good understanding of the market.
4. Work with Authorized Generics Manufacturer
Authorized generics can be used to protect a brand that is facing patent expiration. This is the classic co-opetition game. There won’t be a flood of generics if you enter into an agreement before the patent expires. This means that the erosion of brand name prices is slower. Multiple generics are possible and a strong partner can be licensed to make the generic.
Brand names could experience rapid price erosion if they don’t have a well-researched strategy to deal with the expiration of drug patents. Prices will drop quickly after patent expiration depending on many factors, including the amount of competition and drug class as well as the complexity of drug administration. Price changes can occur as patent expiration approaches. Authorized generic deals may be used in certain cases to reduce the impact of drug patent expiration.
5. Make improvements to the original patent
Using new advances, the company can improve the original formulation. Take the pencil – erasable pencil analogy, the initial patent can cover the original technology (the pencil), and the new patent can cover advances made to the original technology (the erasable pencil). In terms of drugs, the second patent may cover new delivery mechanisms, or longer life-time for the drug, for example.
Yet other strategies can include include:
- Developing a generic version of the product: After the patent for a drug expires, other companies are free to develop and market generic versions of the drug. This can be a profitable strategy for the original patent holder, as they can continue to sell the drug at a lower price point.
- New Indications: Companies can try to find new indications for the existing product, which can help extend the product’s life cycle and generate new revenue streams.
- Line extension: Companies can also try to create new variations of the existing product, such as different dosages or formulations, to extend the product’s life cycle.
- Diversifying product portfolio: Diversifying the company’s product portfolio, through R&D and licensing or partnership agreements, can help reduce the impact of lost revenue from expired patents.
- Cost cutting: Companies can also implement cost-cutting measures to maintain profitability, such as consolidating operations, reducing headcount, and streamlining production processes.
- Licensing and partnerships: Companies can also look into licensing or partnering with other companies to market and distribute their products.
- Litigation: Companies can also file lawsuits against other companies that try to market generic versions of the product before the patent expires, to try to maintain their market share and revenue.
Ultimately, the best strategy will depend on the specific circumstances of the company and the product in question.