Next-generation drug development: risky and costly, but worth it

Generic drugs, which drive a $40 billion dollar generics industry expected to hit $60 billion by 2007, account for 53% of all prescriptions filled in the United States today.

According to a new report from pharmaceutical research firm Cutting Edge Information, brand name companies have turned to the risky business of next- generation drug development to protect revenues from generic competitors.

"Next-generation drug development is chancy because substantial investment must be made up-front and without a guarantee of return," said Eric Bolesh, lead author of "Combating Generics: Pharmaceutical Brand Defense for 2007". "However, next-generation development is one of the most effective means of protecting revenue streams from off-brand challengers."

Next-generation development has had its successes and failures. The industry's ideal is AstraZeneca's Prilosec-to-Nexium switch. Before generic competitors hit the heartburn market, AstraZeneca had successfully switched 40% of its Prilosec customers to Nexium. By Prilosec's 2nd year of generic exposure, AstraZeneca managed to grow its franchise by almost 9%.

GlaxoSmithKline's Augmentin did not fare as well. Franchise sales plummeted 72% in the US - despite the launch of Augmentin XR, an extended release form - when Augmentin first faced its generic competitors in 2002.

Cutting Edge Information's study, "Combating Generics: Pharmaceutical Brand Defense for 2007", examines numerous strategies to counter generic drugs. The report, which contains illustrative case studies, explores a number of strategies in detail and identifies critical principles for success.

"Setting realistic goals and having a well-thought-out plan is important. Generic competition in any given market is inevitable. Start your next- generation drug development early -- just after product launch -- and be ready to show patients that the benefits gained from the scientific advances of a next-generation drug outweigh the savings that come from switching to generics," said Bolesh.