This is the conclusion of a new study from Cutting Edge Information, which notes that big pharma companies are currently particularly exposed to patents that will expire on over $80 billion (€64bn)-worth of blockbuster drugs by 2008.
Patent litigation remains the most commonly used generic defence strategy among pharmaceutical companies: 71 per cent of drug companies have used legal battles to defend their patents in the past three years.
But is this a case of too little, too late? Too often, companies fail to develop generics defense strategies until late in a product's lifecycle, says the report, entitled Combating Generics: Pharmaceutical Brand Defense. 43 per cent of companies do not begin preparing for generic competition until well after launch and 86 per cent do not even begin to develop a generics defence strategy until a product is on the market, the report adds.
While patent defence constitutes a very costly strategy, failing to react may lead to a bleaker outcome. On average, branded drugs lose 15-30 per cent of their market share when a first generic version reaches the market. And sales decline by as much as 75-90 per cent when companies introduce subsequent generics.
Generic planning should start early in the labs and in the managerial and legal functions of the company, says Cutting Edge. Portfolio management plays a critical role in this process, as companies must understand how they will fill the holes left in the pipeline once a patent loses exclusivity.
The report acknowledges that product teams have enough to plan for before launch without having to consider a generic threat years ahead, but adds that research shows that firms which include generics defence strategies into their lifecycle management process earlier are better prepared to defend their patents when the time comes.
Unexpected problems may occur when companies wait too long to prepare patent protection strategies, it says. For example, Schering-Plough started to develop Clarinex (desloratadine), an extension of its blockbuster antihistamine product Claritin (loratadine), well before Claritin's patent expiration.
However, the US Food and Drug Administration delayed approval of the new drug due to compliance problems at Clarinex' manufacturing site. By the time Clarinex was launched, Claritin's patent had expired and S-P's antihistamine revenue stream had been exposed to generic competition.
Once a product reaches the market, much of its patent protection has already been exhausted during development and launch. On average, drug makers spend 12-13 years turning a patented compound into a marketable drug. That leaves only seven years for the drug company to earn back its investment before the core compound's 20-year patent expires.
The high number of products coming to market in the late 1980s and 1990s has meant that, in the past five years, the generics industry has grown from $21 billion to $40 billion, and it shows no signs of stopping.
"In the age of generics, speed is the key to survival," said Jon Hess, senior analyst at Cutting Edge.
In addition to formulation improvement, the report details a number of other defensive strategies that companies can adopt, including switching products from prescription to over-the-counter status, 'flanking' generics (in which brand-name drug companies sign licence agreements with their generic competitors to establish manufacturer-distributor relationships), and defensive pricing strategies.
It also includes an analysis of the market for generic versions of biologic drugs, tipped to reach $30 million worldwide in 2003 and nearly $12billion in 2010.
There are still regulatory obstacles to the approval of generic biologics, but the report is forecasting the first approvals - likely for insulin and human growth hormone, should be granted in the next couple of years.
However, the complexity and sheer expense of producing biologics means the generic market, when it does evolve, will look different than the conventional generic market. Generic biologics may not bear the huge discounts normally associated with generic sales, and second-generation innovator products may have very clear medical benefits over them, according to Cutting Edge.
Only a handful of companies, many of them closely linked to branded pharmaceutical players, have the resources to develop comparable biologic products - and weather the long legal battles that probably await such development, it predicts.