How to get more value out of the products you already have
Dr. Andree Bates
Many large brands have already undergone patent expiry or are about to undergo such a change. This includes: Lipitor, Plavix, Seretide, Seroquel, Crestor, Xyprexa, Singulair, Aricept, Actos, Diovan, Effexor, Lexapro, Symbicort, Arimidex, Zometa, Cozaar, Valrex, Levaquin, Xalatan, Keppra, Lamictal, Avandia, Protonix, Imigran (the main international name for Imitrex). This is not even the full list despite being quite an extensive list! This is significantly decreasing the bottom line for these companies.
Of course, new brands are coming through the pipeline to replace these, but in many cases they are not being adopted with the enthusiasm of the previous products since the levels of innovation and improvement offered over their predecessors is often not considered to be significant. This means that the lost revenue from patent expired products will not necessarily be fully replaced by new blockbusters. It may not be the case for all companies. But with a significant number having fewer truly innovative drugs in the pipeline, and the cost of bringing new drugs to market constantly rising (and many new drugs are failing to repay their R&,D investment), the solution will come from getting every last drop of revenue from existing products. Many companies focus on life cycle strategies to do this, which are often evaluated in terms of top-line growth.
However, what is also needed is an integrated holistic approach that maximizes both the growth of the existing individual products and also the life-time profit contribution of the entire portfolio.
“This means that the lost revenue from patent expired products will not necessarily be fully replaced by new blockbusters.”
How can this be achieved?
To achieve this, companies must improve their product management and insights in strategy, execution and financial management and have a clear picture of exactly what it takes to get every last drop of revenue from the entire portfolio. Simply looking at market research data will not be enough. Simply looking at ROI of activities will not be enough. Chief Marketing Officers and Marketing Directors need to have a clear picture of the whole portfolio picture in order to make informed and profitable decisions.
The use of current market (rather than historical data driven) predictive modeling, and a study by McKinsey showed that the use of less expensive sales &, marketing channels can reduce costs by 50 percent in the late phases of the lifecycle, and peak sales can be reached three to nine months earlier than if these channels were not introduced. In addition, the use of predictive models like “94.8” can also show fundamental areas that are hindering growth and address these for vastly improved financial results. The financial impact gained when these improvements are applied simultaneously is substantial. However, different companies, of course, will have different results. Typically we have seen improvements in brand sales from $50 million to as much as $500 million by implementing this approach.
Taking this even further, the 94.8 approach can enlarge this analysis to the company’s whole product portfolio and model the overall performance taking into account expected patent expirations and price pressures. By using this approach, the financial benefits over 2 years have often been seen in the range of an increase of $500 million in larger markets.
There are many avenues that can be explored when you know exactly what is having the most impact on your brands’ growth rates, and where the hindrances to growth lie for both individual brands and the portfolio. It could be that the product messages need to be addressed, it could be a sales force effectiveness issue, it could be that the communication channels are not performing, it could be that the team need to enlarge the playing field by addressing additional indications. An example of doing this well was when Bayer achieved considerable success in evolving Adalat (nifedipine) for new markets. Adalat was launched in the 1970s as an anti-anginal therapy (taken 3 times daily). Adalat’s label was then expanded to include hypertension (with a longer acting formulation also). As a result, Adalat sales continued to grow until they exceeded $800 million a year by the early 1990s. In 1991, Bayer released a once-daily dosage form to match the emergence of competitive products with a similar duration of action. Bayer’s success in identifying new indications and dosage forms, which were drivers for those markets and indications at the time, ensured that its sales continued to climb to $1.17 billion by 2000— 25 years after the drug was first commercialized!
“There are many avenues that can be explored when you know exactly what is having the most impact on your brands’ growth rates, and where the hindrances to growth lie…”
Other insights could be to focus on a franchise model, or create new formulations, or even creating an RX-to-OTC Switch among many other strategies. A successful example of this was Prilosec and its evolution into Nexium which was an OTC switch that was carried out simultaneously with the launch of the successor to the original brand. Prilosec was approved by the FDA in 1989. AstraZeneca developed a derivative, esomeprazole which was approved by the FDA in 2001. Nexium was launched in 38 markets in 2001, and in 2003 it was the fastest-growing product in its class, with sales up 62 percent year-on-year to $38 billion. Meanwhile, the patent on Prilosec had expired in October 2001, and the company obtained FDA approval for an OTC version, which was launched under the Prilosec name in December 2002. This strategy enabled them to sell the established brand of Prilosec over the counter, while also marketing a follow-on prescription product under the Nexium brand. Smart marketing, well executed with a knowledge of the drivers for the therapy areas.
Other uses include knowing when to stop flogging a dead horse! Business has to be about profitability, and the process must include a means of holding a yardstick to the financial contribution of every product so that those that no longer deserve a place in the portfolio can be discontinued or sold, or supported by an altered promotional mix that offers significantly greater returns. In our analytics we have found some companies continue supporting products using traditional marketing mixes that have long ceased to be profitable and cannot be turned around. In one study, by Cap Gemini, it was found that 36% of the company’s product lines were unprofitable. It also turned out that more than half the company’s subsidiaries had 5+ unprofitable products. The company found that savings of 15 percent of the cost of supply operations could be achieved by dropping unprofitable product lines. Although there is an understandable unwillingness to reduce product lines in these days of lower numbers of NMEs coming through the pipeline, however the years ahead will not be kind to companies that persist in carrying unprofitable products. More robust approaches and metrics are required for understanding the real financial contribution of each product to the company moving is critical if companies are to identify and properly support the top-performing products of the future and reap the maximum profits possible.
A holistic portfolio management analytics approach will be vital for pharmaceutical companies to develop. This needs to:
• Start early and don’t consider this a ‘one off’ effort
• Introduce a broader company portfolio approach to measurement of value
• Focus on profitability throughout the lifecycle of each product and across the entire portfolio
Utilizing this type of approach will make certain that companies will get the most financial impact from their brands, and achieve their portfolio’s true potential.
About the author
For more information on the analytics discussed that underpin these approaches, please contact Dr Andree Bates of Eularis http://www.eularis.com
Is your portfolio achieving its full potential?