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Market Exclusivity – Product Life-Cycle Management

Market exclusivity is a critical component of valuation. When patent and regulatory exclusivity expire, generic versions of small molecule drugs will decimate the sales of the brand products. For the top-selling brand drugs, there may be 10 or more generic equivalents and the generic price may drop to 5% of the brand price in the U.S. market. For biologics, there are expected to be fewer competitors and the price erosion is not expected to be as large.

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Brand marketing managers do not just sit back and wait for the generics. With as little as a year of market data on their new product, they can prepare and assess a list of possible line extensions.  Four types of line extensions were very popular in the 1980s and 1990s.

  •  The first line extension was once-daily products to replace oral products taken several times daily, with the presumed benefit being patient compliance. [My question to that argument is ‘if a patient forgets to take 1 pill in 10 for whatever reason, is it better to miss one covering 6 hours or one covering 24 hours’.] For the brand pharma company, the key was to get the once-daily products to market prior to generic competition and change physician prescribing to the once-daily products. Many brand products are now launched as once-daily versions and the generic companies have both the time and the formulation expertise to develop generic equivalents of once-daily products.
  •  The second was a combination of two drugs in a single tablet, such as the combination of the diuretic HCTZ (hydrochlorothiazide) with certain hypertension drugs and the combination of two pain drugs such as tramadol and acetaminophen. The presumed benefit could be patient compliance or a superior clinical benefit. Timing, comparative benefits and pricing are again critical for the success of this type of line extension.
  •  A third was the use of single-isomer drugs to replace isomeric mixtures, such as the replacement of Prilosec (omeprazole) by Nexium (esomeprazole). Sepracor, acquired by Dainippon Sumitomo Pharma in 2009, was the pioneer of this approach based on its chemistry expertise in chiral synthesis. Regulators are now asking for detailed information on isomeric mixtures – which isomers are active, do any have safety concerns, etc. – and their preference is for enriched or single-isomer drugs.
  •  The prescription to over-the-counter switch has been used in two main classes of drugs, the antacids (H2-antagonists and PPIs) discussed in earlier blogs and the non-sedating anti-histamines. The FDAs concern in these cases is primarily safety – can a consumer without physician guidance safely and effectively use these drugs. The FDA has previously rejected a low-dose OTC statin application from Merck and Pfizer recently halted development of an OTC Lipitor product because patients could not use their LDL information to make a decision on using this statin without help from a physician.

Line extensions also occur among the biologics.

  •  Two of the most well-known line extensions are the PEGylated EPO and G-CSF products sold by Amgen. By adding the PEG or polyethylene glycol to the proteins, the plasma half-life and presumably the biological activity is lengthened. This is not a universally applicable strategy for biologics.
  •  HGH (human growth hormone or somatropin) was originally approved by the U.S. FDA in 1976 although it had been used to treat children for the prior 20 years. The source of this product was human cadavers but the occurrence of Creutzfeldt-Jakob disease resulted in the withdrawal of that product. Genentech developed a recombinant product with 1 amino acid added to the natural HGH structure (Protropin; now discontinued and replaced by Nutropin with the natural HGH structure) and Eli Lilly developed a recombinant product identical to the natural HGH structure. An extensive court battle resulted in both products having a period of U.S. exclusivity after which several competitive products were approved. There are now several new clinical indications for the various products and the marketing battle is fought using new formulations, new delivery devices such as auto-injectors, and corporate reputations.
  •  Insulin has been used to treat Type 1 diabetes since the original research by Banting and Best at the University of Toronto and the development of a commercial isolation process by Eli Lilly. Insulin isolated from porcine and bovine pancreas was used for over 50 years until recombinant products became available. [Pancreas would occasionally be the same price per pound as a good steak.] There are now 3 major players in the recombinant insulin market – Eli Lilly, Novo Nordisk and Sanofi Aventis – who compete with different formulations (short-, medium- and long-duration, and pre-mixed) and auto-injector systems. There are many complementary products in the diabetes market including the blood glucose diagnostic tests and insulin pumps (the diagnostic and medical device markets will be discussed in future blogs).

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If you are looking at a potential investment in a pharmaceutical company, you have to ask questions about market exclusivity. The information on patent and regulatory data exclusivity is relatively easy to find and some information on product-life cycle management can be found in corporate securities filings and clinical trials databases.

Sales in the global pharmaceutical market should hit $1 trillion in 2015. In the next blog, I will highlight some public data on sales by product and therapeutic category and company valuations.

[The author and his immediate family members may have long or short positions in the shares of some companies mentioned in or assessed during the preparation of this blog. Past share price performance may not be an indicator of future share price performance. This blog does not consider the investment objectives, financial situation or particular needs of any particular person. Investors should obtain professional advice based on their own individual circumstances before making an investment decision.]

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