Beating The Generic Process

Anyone who works with drug manufacturers knows that once a drug gets closer to its patent expiring, they are going to look for creative ways of extending the patent life – new approvals (e.g., pediatric dosing), an extended release (XR) version, or a me-too drug for example. And, as a product manager, who can blame them.

As the payor or the public, this is a greedy action that they take. In another WSJ article from the other day (“How a Drug Maker Tries to Outwit Generics”), it deals out the strategy that Cephalon (the manufacturer) is taking relative to its narcolepsy drug Provigil. I give them credit for a well thought through plan (although I am not sure I would have made it public).

Over the past 4 years, they have raised the price by 74% (now $8.71 per tablet). At the same time, they are preparing to bring a longer acting version of the drug called Nuvigil to market. So what does this price increase accomplish:

• They are maximizing revenue and profit in the waning years of the patent (which expires in 2012).
• They are going to launch Nuvigil in 2009 at a much lower price which will encourage most payors to exclude coverage of the higher priced (and older) Provigil and shift utilization to Nuvigil.
• When the patent expires in 2012, anyone still on Provigil will be quickly moved to the generic version, but most of the market share will have shifted to Nuvigil so they can then begin to raise the price on that drug with less dramatic market share erosion.

This wouldn’t work in a lot of drug classes because there already is a generic available and dramatic price increases would drive utilization to the generic alternatives. But, if you are one of the only brand drugs to treat a condition, you have a lot of pricing upside.