Management decisions regarding end patent strategies in the South African private pharmaceutical market

Abstract

The loss of patent protection for a pharmaceutical product is a significant event for manufacturers. Although this phenomenon has been occurring in the industry for decades, it has been of increased interest during the past few years due to the much publicised “patent cliff” experienced by a number of major pharmaceutical manufacturers. Recent developments in emerging economies such as India and South Africa have brought the concept of intellectual property rights under review. The traditional approach to extend market exclusivity through the use of secondary patents is no longer valid. New product strategies are now required to transition from a patent protected market to an open market. This study adds to the current literature by investigating post-patent strategies pursued in the South African private pharmaceutical market. The primary focus was to determine the rationale behind choosing a particular strategy. This study, exploratory in nature and structured around five propositions, investigated strategies to manage the patent expiry and potential entry from generic competitors. These included manipulating price, increasing promotion, developing value adding product extensions or launching a clone. Information was gathered through 14 interviews with product managers responsible for implementing the chosen strategy. The interviews were conducted using a structured questionnaire as well as open-ended questions. Five companies were selected for the study using purposive sampling and each company then self-selected which products would be discussed. The most pursued strategy for the sample was to launch a clone. This allowed the manufacturer to compete with lower priced generics using the clone as well as continue to profit from the remaining brand loyal, price insensitive consumers with the original product. The price of the original product was not used to deter entry or compete with generic products. Profit-maximising behaviour was exhibited by the reduction in advertising and promotional spend after patent expiry. When available, the use of product extensions to extend market exclusivity continued to be a preferred strategy.