Isabel Verniers

The Successful Launch and Diffusion of New Therapies

For many large pharmaceutical firms that sell branded drugs, the successful launch of new therapies remains the key to profitable growth. New therapies are essential in enabling pharmaceutical companies to overcome the challenge of generic substitution—the replacement of branded drugs with generic alternatives, at the initiative of either physicians or pharmacists—as the patents of older drugs in their portfolios expire. Generic drugs enter the market at much lower prices compared with the original branded drugs that they replace, as generic drugs do not need to go through the risky, costly, and lengthy process of new drug development. Grabowski and Vernon (1992) show that an original brand typically loses half of its market share 1 year after patent expiration. Generic substitution is ever increasing in scope and speed, given government regulations in many countries that promote generic dispensing at the pharmacy, in an attempt to control drug spending. Granted, there are multiple ways in which pharmaceutical firms that produce brand-name drugs can fight the trend of generic substitution. Some companies (e.g., Pfizer) own their own generic subsidiaries, others (e.g., Bayer, Merck Serono) offer diagnostics and other types of services in addition to their drugs or try to convince patients or physicians to be brand loyal, for instance, through social media (e.g., Johnson & Johnson). Nevertheless, the successful launch of new branded drugs remains crucial to the survival of such pharmaceutical companies and continues to be their primary means of differentiation.