The pharma paradox
Posted 6th September 2010 in Articles, Commercial | 6 comments
Chris Rose
Roses Solutions
Much speculation has been made about the “New Commercial Model” and how the pharma business will survive the threat of generic competition, declining pipeline productivity, increased pressure on the bottom line etc.
However amongst all this speculation there is one belief that is being desperately hung onto to try and sustain the old pharma paradigm!
To quote a leading industry player, “patents represent the foundation of pharmaceutical innovation”.
If we examine this statement we immediately see a major flaw in the model!
Patents are not the foundation of innovation; patents are simply one way to protect innovation. (It could very easily be argued that patents in the pharma industry are one of the biggest barriers to innovation!)
The other flaw is that this statement suggests that all innovation is only relevant if it is “patentable”.
“…patents represent the foundation of pharmaceutical innovation”
In my first article I suggested pharma look outside the narrow focus of its own business model and learn from other industries. If we take the statement above how would other businesses view this?
Bernard Arnault is currently the richest European; did he amass his wealth from a “strong patentable pipeline”? Mr Arnault’s wealth comes from his shares in Louis Vuitton®, Moet & Chandon® and other successful brands.
Amancio Ortega is the next European with a very successful fashion retail business including the Zara® brand.
Karl Albrecht from Germany and owner of the Aldi® supermarket brand is 10th on Forbes Rich list 2010 (www.forbes.com)
Luggage, Champagne, clothes and supermarkets are two a penny (OK, maybe Champagne would cost a little bit more!) so how have these businesses built a huge wealth based on a product anybody else could copy?
It is not rocket science to see that it is the brands that people are buying and not the products and it is the brand that protects the asset from competition.
Why is this such a challenge for pharma?
Ever since I entered the pharma business 20 odd years ago the pundits and the agencies have been busy convincing us all on the importance of branding and brands and yet we all still fear the loss of exclusivity!
“Or, is it even simpler than that, and just that pharma marketers still have not grasped the true meaning of a brand?”
Is it time to simply admit that branding in pharma is no more than a simple management tool; controlling promotion, activities and the exuberance of the young?
Or, is it even simpler than that, and just that pharma marketers still have not grasped the true meaning of a brand?
The life cycle of any product is quite similar, although the time scale may vary from industry to industry. The benefit (or challenge!) pharma has is the long-protected period where the competition is not copies of your product but with alternative products or solutions to the problem.
If we consider this in terms of the brands mentioned above then there are a number of disconnects to pharma.
1. None of these products are protected by patents. We can buy luggage ranging from the very cheap to the very expensive and they can all transport our holiday wardrobe to Tenerife or Marbella! Has the focus on patents within pharma made us lazy towards the brand?
2. The others are primarily corporate or family brands. Louis Vuitton, for example, has a host of products that all sit within the “posh” luggage market. Is there any pharma company where the buying decisions are based on the emotional association with the corporate brand?
3. These companies have more control over the supply of their brands (Zara has its own retail outlets, Louis Vuitton is only supplied via selected outlets or its own shops, Aldi is the retail outlet etc.) The brand can therefore be nurtured within a controlled environment. Imagine if a pharma company only supplied the top teaching hospitals with their brands for “high end” diseases!
4. In each of these cases the buying decision is free from regulations regarding pricing and reimbursement or guidelines. (I only wish there were guidelines to restrict the brands my daughters asked to buy!)
Of course there are other differences, however the question remains is branding in pharma really a viable options for protecting your assets?
If we look at the post-patent market then this is where we can really see the benefits of all the branding work. In Sweden for example Alvedon® is still the leading Paracetamol product (despite being sold by AstraZeneca in 2008 to GSK) In the UK, the Calcichew® brand from Shire is still a leader in the competitive calcium and vitamin market.
Branding does therefore work as a product protection strategy post-patent expiry, however this is far from the minds of many of the industry leaders as they plan how to fill the large gaps in sales anticipated for the future.
So where does this leave us?
I believe that branding in pharma can help to build market share during the patent protected period by nurturing an emotional link to the product.
I would love to see if corporate branding would work in pharma, but it will take a brave CEO to take the leap forward and give it a proper try (i.e. not just a nice logo and strap line but a true commitment to a corporate brand and strategy)
“Patents are undoubtedly the most effective protection that innovation can have in the pharma industry”
Incidentally, I still wonder how many pharma companies actually use the marketing knowledge they have to develop their corporate brand and not just rely on their Investor Relations and PR experts. So many companies employ a mix of the three main corporate strategies all under the same brand name!
Lastly, the true value of a pharma brand, I believe, comes in the post-patent era. Not immediately when you face “the cliff” but once the shares and sales begin to grow following the initial losses.
Patents are undoubtedly the most effective protection that innovation can have in the pharma industry. However, long-term value can be gained through branding and maybe, just maybe, the best thing that could happen to true innovation (implementation of new ideas) would be a new perspective on patents and how they are implemented as well as a focus on other areas for innovation.
About the author:
Chris Rose has worked in Sales and Marketing roles within the Pharmaceutical Industry for over 20 years leading the launches of primary care and specialty products. After recently leaving the position of Business Unit Director at Nycomed, Chris is currently working for SAM, a specialist recruitment company and is a Partner in Roses, a Marketing Consultancy company based in Sweden.
Contact chris@roses-solutions.com for help in developing your strategy and identifying business solutions or visit the website (www.roses-solutions.com).
Does pharma really ‘get’ branding?
8th September 2010, 09:54
Chris, thanks for the article, but I am afraid that I struggled with some of it...
- The wealth of individuals and their companies does not have a message for companies with shareholders, simply that these are people who have grown businesses without giving much of them away.
- 'strong patentable pipeline' - as soon as you equate 'copyright' or 'trademark', the argument is less effective. In each case quoted, the ® is a guarantee of repeatable quality expectation. You can't, at will, copy a Zara® dress or a bottle of Moet & Chandon® and slap their logo on it (you put the ® signs on there yourself...). You can try your best to copy it, but certainly can't pass it off. So, brands in their case are an expensively bought guarantee of quality. In their markets, people aren't just looking for 'a dress' or 'a champagne', but have been marketed a lifestyle association, among other things. Each of the individuals quoted would have something to say if you were to infringe their registered trademarks...
- in the case of pharmaceuticals, there is another couple of reasons that generics take share from branded molecules: pharma still tends to spend the life of a product selling the molecule (and no additional value), so there is an inevitable consequence that, when physicians or payers see a guaranteed identical copy cheaper (and the people guaranteeing it is identical are trustworthy, like MHRA is trustworthy), they will lose literally nothing in trusting the cheaper copy. They're not risking the dress looking odd, or a bag only lasting a month, or the champagne tasting awful at their daughter's wedding... Honestly, how many people, with their own money, would not buy a non-Zara dress if a body guaranteed it was an IDENTICAL copy in every way...
- (as you say) emotional attachments to brands get lost quickly when there is an informed buyer in the way (which there isn't in the cases quoted). Try making Nycomed's IT department provide you with a Mac laptop, instead of a PC, and see how far an attachment to Mac will get you!
I agree that some brands have maintained well post-patent expiry. Some of this is down to brand loyalty, or habit, but all have maintained a business strategy that mitigates the expiry (reduced price to compete with generic, for example).
All that said, I do agree that the industry doesn't 'get' branding. However, even here, I'd point to brands like Lipitor, as possibly the best brand in any industry. Outselling essentially similar products (in some cases) 4 to 1 (including ostensibly 'better' products), and generating $14-16billion in revenue, is no mean feat (that is around 5 times more per year than LVMH makes from its WHOLE drinks portfolio (Moet Chandon, Dom Perignon and Veuve Clicquot champagnes, Hennessy cognac, etc.).
The main point is that it is not an 'either/ or'... Patents do protect innovation (in every industry), and brands form a shorthand for everything the product is and isn't (including the associations such as the niceness of the shops, or the fact that a racing driver wears the same watch) - no reason to set them against each other.
8th September 2010, 10:47
Hi Mike
If I read this correctly we are agreeing, aren't we?
We all know that most major clothing brands source their products from contract manufacturers and put their label on it (we all remember the stories of "Boss" suits off the back of a lorry pre labeling. They all come form Turkey don't they? I doubt they have ever been touched by a German!!)
It is the brand people are buying; I very much doubt that my daughter would buy a dress from Primark even if she knew it was exactly the same as the dress from Zara!
The brand is protecting the product and innovation in these companies not a patent. I think we both agree on that! Could there be more innovation in pharma if there was less reliance on patents? I think so.
Private vs public money? One of my great teachers told me we are all in one business; the money making business! Now if these guys are making money and increasing their wealth (while their companies are running as sustainable business) show me a shareholder who would not like a piece of that action!
8th September 2010, 11:10
I think we're broadly agreeing ;-)
I don't see patents as part of the problem, however, so mostly disagree with the suggestion of a flaw in the view that innovation needs to be patentable... I think that view is right.
The registration of a defendable trademark protects the innovation and product in these companies, and the brand wouldn't be expensively built if that didn't exist. Even if Boss add a label to a suit made elsewhere, they are still guaranteeing its quality by doing so (and designing it, making it available for sale in a trendy high street outlet, etc.).
I'd suggest that, if your daughter could buy a Zara-identical dress, right down to the label, at a third the price (that is, no way she could tell the difference, other than maybe in the packaging...), over the Internet, I think she would (I know my wife would!)... That is the challenge with selling molecules versus other molecules - if you let the molecule do the heavy lifting in your differentiation story, once anyone can sell the exact same molecule, you're done...
Making money from branded generics (which is essentially what Zara is, or Louis Vuitton, or Moet) isn't alien to pharma: Teva do incredibly well out of it, for example.
I'd suggest that pharma's problem isn't that there isn't enough innovation. There are still lots of drugs coming through. Unfortunately, they keep launching more and more that don't make money...
9th September 2010, 13:27
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Chris' paradox is a great piece of writing.
Let me add to the point that he makes, writing: (...) just that pharma marketers still have not grasped the true meaning of a brand?(..)
Would anyone really believe that pharma is actively branding a product when pharma allows a patient after 3 years of taking his life-saving drug, asking the nurse or the physician for "A new script of my athma-spray!"
We know, agree and acknowledge that the prescriber's decision making power is marginalizing and has been close to zero for many years already when it comes to refills for chronically ill patients.
It is the patient who asks for a brand!!!
How many patients do have an idea of their drug's name? Have you ever encountered a haptic and unique sensation when touching a drug pack?
How often did you identify that a pharmaco created the name of a drug to make it memorable for a patient?
.... and so on...
Now, don't tell me that we are not allowed to approach patients, because this is right, but mostly used as an excuse to avoid change.
Just compare your brand with Viagra. It is a prescription only drug! But it is a brand.
Just try something similar - and you wll see, that "loss of exclusivity" will loose the threat of "loosing sales".
Let us continue sharing thoughts!
17th September 2010, 06:23
Interesting Blog Chris and inspiring discussion.
On reflection, my first thought was: What about Generics? Several companies step into this market with the same conditions as the ones you benchmark pharma with, and through which you generated your 4 "disconnections". Yes "branding" indeed is a very important perspective for commercial success.
However, since pharma is still (and will be?) working and surviving through the R&D business model, there's more to success then just branding in itself. At both sides of the model! At the one end of finding (enough) successful compounds to sustain business on an acceptable level. At the other hand, at the selling (marketing and sales) end of it.
Now there's a lot going on at the search for innovative drugs and the way this (business) process is evolving. To get a great insight refer to "Rebuilding the R&D engine," by Jean-Pierre Garnier (
Harvard Business Review, may 2008). But I leave this discussion to that. The discussion re. patent protection and innovation has to start here, in my view.
At the marketing sight, however, there's more then just branding, because there's more than branding in health care.
Pharma has to reflect on its very positioning towards care for health: Is it just delivering molecules in easy administering ways? Or, is its position structurally related to what “aid” pharma will rise as a partner in care for health?
You guess right. I tend to start thinking form that point of view. Only so, pharma will be capable of thinking to add value on top of effective products! It may then arrive at wondering what an “integrated offering” to health care might constitute. Added value to all stakeholders and specifically patients. I’m convinced that when the “brand” is filled with such value, pharma will grow into more then just a commercial product company and create an overall better image to the greater public. So important to the brand of pharma itself?
Thanks for reading.
Rob Halkes
20th October 2010, 16:13
Thanks for all of your comments; it is great that the article stimulate some response! I am still perplexed by the idea that innovation and patents are inexorably linked in pharma. The guy who first came up with the idea of multiple sales forces probably had the biggest impact on the industry in the past 20 years and that innovation was not patentable!
Branding was more of a subtext to the article but sort of took over since branding is frequently used to protect innovation outside of pharma!
