Applied Project

Branded Generic Pharmaceuticals; Strategic Analysis and Comparison of the North American and Indian Marketplace

Andrew Weir

APRJ 699 April 13th, 2013

Word Count: 17,506 Prepared For: Dr. David Chapin

Abstract This applied project focuses on the role of branded generics in salvaging the profits of the global pharmaceutical industry. Both the North American and Indian marketplaces are analysed, compared and contrasted to determine how global pharmaceutical companies will overcome the revenue loss of key products due to patent expiration. Four key research questions focused the literature search around both the North American and Indian landscape to determine the feasibility of filling a revenue void using a branded generics strategy. The scope of the project was primarily to uncover the strategic and tactical means by which a branded generic strategy is employed. Based on the literature search the applied project utilized several analytical frameworks to further understand both the competitive landscape and the opportunity at hand. To accomplish this, a PESTEL analysis looked at the macroenvironment while a Porter’s Five Forces model uncovered where rivalry power could be found and leveraged. Finally the use of Game Theory was employed to draw strategic parallels between the theoretical practices and tactical implementation. Game Theory was also useful in demonstrating the way the competitive tactics used by the pharmaceutical industry could change the outcome of the situation despite large odds against them. In North America the competitive landscape is one of stability both from a political and legal standpoint. Paying stakeholders demand lower cost medicine which paves the way for branded generics. This strategy hinges on the Hatch-Waxman act which allows for a 180 day grace period of patent extension for those companies who are first to file an ANDA; a clear advantage for branded firms. Other profit salvaging tactics included dominating the supply chain, partnering with generic firms to create authorized generics and leveraging political and legal clout against competitors within the well defined legal system. In India the marketplace yields a drastically altered landscape compared to that of North America. Political corruption, poorly enforced patent laws and a low level of per capita spending on healthcare appears daunting at first. However the massive population coupled with a relatively large English speaking business community and a need for reputable pharmaceutical products has been a welcome mat for global pharmaceutical firms. Payment for medicine rests squarely with the patient who has a multitude of generic and counterfeit options to choose from. The literature search revealed that patients although poor by international standards are seeking a reputable and quality care provider amongst the disarray of untrustworthy pharmaceutical options. Firms in this environment will thrive based on their ability to purchase marketshare from local companies and leverage their manufacturing capabilities. In addition, being able to leverage a trusted global brand with patients is done in conjunction with using a sales force to promote these messages to physicians and pharmacists. Firms

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in this market have the rare opportunity to obtain a first mover advantage which will allow them to dictate future prices. Throughout this project the pharmaceutical firm Pfizer was used to focus the analysis and provide a more practical and applied approach to both the theory and tactics being used. This applied project concluded with a set of recommendations based on a SWOT analysis for each marketplace. In North America the critical success factors were; being able to leverage a first mover advantage, partner with generic manufacturers to keep prices high and intimidate competitors through the legal system. The strategy in India centered on having a strong and growing presence by which to start a foundation for future growth. In addition, partnering with local firms and creating an industry coalition would all help to gain pricing control with governments and payers in the future. This applied project concludes by stating that the branded generics approach may indeed salvage the profits of pharmaceutical companies but in turn the industry must adapt quickly to capitalize on this opportunity.

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Table of Contents Abstract ...............................................................................................................2 Introduction.........................................................................................................5 Research Purpose and Research Questions ...................................................7 Literature Review................................................................................................9

What role will branded generics play in North America to minimize the profit losses experienced by pharmaceutical companies when their products come off patent? .........................................................................................................9 Which business strategies are appropriate for makers of branded generics to pursue considering the competitive landscape in North America? ..................14 What role will branded generics play in India where the payer is primarily the patient? ...........................................................................................................20 Which strategies will allow branded pharmaceutical companies to remain profitable in India considering the competitive environment? ..........................26

Research Design...............................................................................................34 Results...............................................................................................................38 Analysis .............................................................................................................39 Recommendations............................................................................................42 Conclusion ........................................................................................................44 Appendices .......................................................................................................45 References ........................................................................................................47

Introduction The modern pharmaceutical industry began in the early 1900’s as a much needed supplier of basic products like insulin, penicillin and painkillers to support war efforts in North America. Humble yet noble beginnings propelled an industry into today what is regarded as one of the most profitable industries in the world (Grant, 2008). Through scientific revolution and technology, pharmaceutical products have decreased morbidity and mortality rates while significantly increasing quality of life outcomes. Many people rely upon the pharmaceutical industry to manage chronic health conditions whilst others expect vaccines will prevent them from becoming ill in the future. While the history of the pharmaceutical industry has been profoundly innovative and profitable the road ahead seems perilously uncertain. Many innovative products that enjoyed years of patent protection are now at the end of their patent life and are due to expire. Products such as Pfizer’s Lipitor and Viagra are what formed the financial back bone for the company producing combined revenue of over $5.5B in 2011. After these products lost their patent life in 2012, revenue dropped to $700M which represents almost a ninety percent decrease in year over year sales in North America (Nelson, 2012). So what is behind the decrease in profit besides a loss in patent exclusivity? Patients are still able to obtain these drugs but will now receive a generic or copied version of the originator product. Cost pressures from paying stakeholders such as governments, insurance companies and patients demand lower cost alternatives to provide for their healthcare needs. So where does this leave the pharmaceutical industry if not a soon to be distant memory of the past? This applied project takes aim at this very issue. Specifically how pharmaceutical companies will remain profitable despite their products losing patent protection. Taking the analysis a step further we will examine how the industry has evolved globally and examine how companies are entering new market spaces in countries like India. As the pharmaceutical industry evolves, the dynamics of the market will change with it including the demands from patients who want lower priced medicine that is reputable and delivers on a promise of efficacy and safety. Enter the seemingly paradoxical market for branded generic pharmaceuticals. The applied project will examine the role that branded generic pharmaceuticals will play in salvaging the profits lost by multinational pharmaceutical companies who seemingly have no recourse once their products lose patent protection. The term “branded generic” and “authorized generic” will be defined in this project and will be used interchangeably throughout to reflect the terminology used in the literature. The focus of this applied project is centered on four major research questions which give us greater insight into the potential role these new products will play in their respective markets.

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First the macroenvironmental factors involved in launching a branded generic product into the North American marketplace are examined through a PESTEL. What challenges and opportunities exist and what tactics can be used to both leverage the company’s key strengths and capitalize on the competitive situation at hand. To assist in the analysis, Michael Porter’s Competitive Five Forces model will be employed to determine where the market strengths are and how to best navigate or leverage them. The use of Game Theory will also be applied to demonstrate how pharmaceutical companies are altering the outcome of their competitive environment. The second half of the literature review is dedicated to uncovering the same macroenvironmental factors, this time focussed on the Indian marketplace. In order to compare and contrast the outcomes from both the North American and Indian marketplace the same analytical tools and frameworks will be used in both settings. The results of the literature search will provide credibility and relevance to the information presented throughout the project. This is also where a summary of findings can be found based on how the research was conducted. Critical to this applied project will be the analysis and recommendations which outline the specific findings from the literature review and highlight to the reader which specific tactics should be used to remain profitable. The analysis will make use of a SWOT to clearly articulate and summarize the direction for pharmaceutical companies looking to launch a branded generic. The recommendations and analysis section will focus on providing context relative to each marketplace and their associated challenges and opportunities. Finally the applied project concludes with a summary of the findings and an overall critique of the research.

Research Purpose and Research Questions Purpose The purpose of this applied project is threefold. First, to uncover the role that branded generic pharmaceutical products play in salvaging the profits of pharmaceutical companies once their original product loses patent protection in North America. Second it is to uncover the role of branded generics in an emerging market like India where the patient is the primary payer. Third, to compare and contrast the relative role that branded generics play in each market and explore the business opportunity that exists in each environment. The following research questions outline how the literature review will be focused:

1. What role will branded generics play in North America to minimize the profit losses experienced by pharmaceutical companies when their products come off patent?

2. Which business strategies are appropriate for makers of branded generics to pursue considering the competitive landscape in North America?

3. What role will branded generics play in India where the payer is primarily the patient?

4. Which strategies will allow branded pharmaceutical companies to remain profitable in India considering the competitive environment?

Management Domain This study is focused primarily in the realm of strategic management. Several theoretical tools and frameworks can be readily applied to the analysis of each research question. For example the use of Porter’s Five Forces, Game Theory and a SWOT analysis all provide relevant information to the analysis and conclusion of the project. Each framework relies on a number of research sources and explores both the micro and macro competitive environment. The topic was chosen as it relates to a very relevant and very real issue being faced by multinational pharmaceutical companies today. Almost all of them are experiencing major revenue and profit losses as a result of generic competitors making copied versions of their originator drug and selling them for a fraction of the original cost. Although this action is endorsed by North American and Indian governments there remains a large research and development gap for funding novel therapy and supporting basic science. As a result of the patent losses there have been thousands of job losses, plant closures and research projects put on hold. In Robert Grant’s 2008 textbook entitled Contemporary Strategy Analysis he indicates on p.70 fig. 3.2 that the pharmaceutical industry is the most profitable global industry based on statistics collected from 1963-2003. The next forty years may challenge that statistic and will certainly challenge the traditional operational and strategic methodology of most pharmaceutical company’s.

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Scope and Assumptions This applied project will focus primarily on the applied tactics being used by multinational pharmaceutical companies to preserve their profits using branded generic products in both the North American and Indian competitive environment. Because the environments are quite different the project delves into both the competitive opportunities and threats that can be derived from the macro environment as well as the company’s own internal strengths and weaknesses. One of the major limitations of this project is that it is not a predictor of future events but rather provides context to the current competitive environment. There may be relatively minor components of the project that relate to business law; specifically discussion around patents and copyright. However this is meant to provide context for the reader and is not meant to be explored in depth. Furthermore the ethical and social implications of these strategies and tactics are not in question throughout the project. The purpose of this project is to explore the profit mechanisms being used rather than the morality of the actions themselves. There is likely more research required on the future financial impact of branded generics and the relative marketing practices surrounding the promotion of these products but for the purpose of this project the individual strategies will remain the focus. The key assumptions of this project are that the information obtained from academic journals, media sources and interviews are true and accurate. It is important that the information being presented is less opinion and more fact which is why it is assumed throughout this project that statements being made are factual unless otherwise cited as the author’s opinion. The other key assumption is that the competitive landscape in both North America and India will remain relatively stable and unchanged from a policy perspective thereby not negating the findings in this project. It is assumed that dates and facts presented in this project are reflective of today, meaning they are current and are in no way predictive of the future unless specifically stated.

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Literature Review

What role will branded generics play in North America to minimize the profit losses experienced by pharmaceutical companies when their products come off patent? In answering this first research question it is critically important to define the meaning of “branded generics” as this is a relatively new term being used. In addition, the multiple definitions help to derive the context of the market situation as it stands currently. A branded generic still has an elusive definition for most considering the double entendre of its namesake. The Vice President of Industry Relations at firm Intercontinental Medical Statistics (IMS) Doug Long is in an excellent position to term the definition. The firm IMS is relied upon globally by most pharmaceutical companies to gather and interpret prescribing and market trend data. Mr. Long terms branded generics in one of three ways. First, as either a product that has lost patent and has simply been given a brand name. Second he refers to it as a product that has lost patent but has had some small innovation added to it like an extended release. Third, he defines branded generics as two off patent products that have been chemically combined into a new branded compound (Dearment, 2012). The term “branded generic” and “authorized generic” will be used interchangeably in this project to reflect what is written in the literature. PESTEL Analysis The purpose of this framework is to capture the macro environmental factors involved in shaping the overall North American market dynamics. Each element of the analysis takes a slightly different approach in providing a well rounded frame of reference to the situation. Grant (2008) describes a PESTEL analysis as being a way for businesses to “scan” the environment and determine what is relevant within the macroenvironment to their current situation which is formed by ties to customers, suppliers and competitors. Political Beginning first with a Macro view of the Canadian political landscape there is relative stability in the near future. The next national election is not scheduled until 2015 which provides the pharmaceutical industry relative predictability in terms of policy and administration. Of note however is a recent consensus agreement amongst Canadian provincial Health Ministers regarding generic drugs. A report titled “From Innovation to Action” concluded that the Pan-Canadian Purchasing Alliance which purchases heavily used branded drugs and other medical items should now include generic drugs (Canada pharmaceuticals & healthcare report, 2012). The ministers agreed on this directive in an effort to

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lower healthcare costs and create a competitive bidding process for generic drugs. In the United States the political landscape will enjoy another four years under the Presidential re-election of Barack Obama. Generally the existing policies under his leadership have been favourable towards the industry and would remain so in the near term. A recent development occurred in June 2012 when the US Senate passed legislation that will ensure new medicines continue to reach the market soon after the successful completion of clinical trials. This benefits pharmaceutical companies and patients alike. Under the fifth reauthorisation of the Prescription Drug User Fee Act (PDUFA), the government also benefits, since generic drugs will be introduced in a shorter timeframe, consequentially lowering spending on Medicare (United States pharmaceuticals & healthcare report, 2012). Both Canadian and U.S political leaders are focused on reducing healthcare costs which are rising with the aging population. This has placed a branded generic manufacturer in the unique position of having political support for its endeavours. In addition, there may be more widespread acceptance of these products in light of their anticipated cost savings. Economical The Canadian economic environment has benefitted tremendously from NAFTA particularly as the United States remains Canada’s largest trading partner. In fact the two economies are closely linked which means Canada is relatively vulnerable to U.S economic downturns and changes in market dynamics. Generally Canada has maintained a history of budget surpluses and a high debt to GDP ratio (Canada pharmaceuticals & healthcare report, 2012). This has benefited the country despite the global economic crisis and has positioned them for future growth and prosperity. Two looming threats to the economy would include both the pension crisis as Canadians live longer and the high level of consumer debt which threatens to cripple private consumption. Canada has taken calculated steps to ensure its economy thrives despite a negative global trend. This has come in the form of Canada’s Economic Action Plan which is centered on job creation and industry growth (Kennedy, 2012). The economic environment for the United States has been described as being “dangerously close to stall speed” (United States pharmaceuticals & healthcare report, 2012) which means that any unanticipated headwind could be enough to push the economy into a recession. Woodhill (2013) notes in a recent article that unemployment remains at an all time high of 7.9% meaning more Americans would be relying on social assistance. In light of rising cost pressures, companies may be tempted to move manufacturing operations abroad to countries like China and India which may perpetuate a dismal economy and diminish consumer confidence in production. Although the country has

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experienced a number of years of unfavourable economic conditions this does not discount the fact that the United States still remains the largest economic super power in the World. Bearing that in mind healthcare standards will remain a top priority in the ongoing pursuit towards a healthier more prosperous nation. The North American economic outlook may at first look rather unfavourable to a branded generic manufacturer considering the state of the current economic environment. However there may exist an unmet need by which consumers are looking for a recognizable, low cost medication that fits within their existing budget. This could present as a particularly attractive option for seniors, the unemployed and disabled people alike who generally don’t have the financial support of an employer paid drug plan. Social The North American population as a whole is aging as evidenced by Canada’s median age of 41. In fact people aged 55 and over in Canada represent almost a third of the population (CIA, 2013). The Canadian population as a whole is expected to grow at a moderate pace along with both male and female life expectancy (Canada pharmaceuticals & healthcare report, 2012). These figures have contributed significantly to the healthcare burden being faced in Canada as well as the mounting pressures to mitigate costs. Relative to its U.S counterpart which ranks 2nd in the world for healthcare spending at 16.5 percent of their GDP, Canada spends around 11 percent of its GDP on healthcare (CIA, 2013). These figures can be interpreted to mean North American’s place a high degree of emphasis on healthcare and quality of life for its citizens. The United States is fairly unique in that it possesses some of the highest standards of living around the world with the third largest population (CIA, 2013). In essence there is a large demographic of relatively wealthy people by global standards that readily accept Western medicine as part of their everyday life. In North America social attitudes toward the pharmaceutical industry are generally negative as indicated by an Ipsos Reid survey of over 18,000 adults (Boyon, 2012). Although it would appear as a possible threat to companies, this may actually prove to be an opportunity for the pharmaceutical industry to change perceptions and deliver a new value proposition to consumers via branded generics. Technological Both Canada and the United States are by relative standards exceptionally advanced in terms of technology. The CIA World Factbook (2013) rates both nations as providing excellent service though modern technology. These factors contribute toward a population that is both technically savvy and responsive to technological innovations. The internet has become a major source of information and commerce for North Americans.

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In this vein information and ideas can be shared more readily to a variety of stakeholders. From a sales and marketing perspective the relative low cost of information dissemination through technology means capturing a larger audience than ever before. Smartphones and tablet PC’s have continued to experience tremendous growth according to a global survey conducted by research firm NPD (Eddy, 2013). Both the high quality and speed of technological innovation throughout North America bolsters a relatively educated consumer base. These variables indicate a relative opportunity for new market entrants to reach their target market both quickly and efficiently. Environmental The Canadian environment has been generally regarded as a well protected and important part of the nation’s composition. A rich source of energy production; there have been continued efforts to instil controls and measurements of these processes to ensure a sustainable and renewable environmental landscape. Canada has not been immune to climate change and has implemented a number of key policies to address the challenges. Of particular relevance to the manufacturers of branded generics is the proposed 17% reduction in greenhouse gas emissions by 2020 (Environmental landscape, 2012). These regulations could impact where manufacturing operations are based and what equipment will be used. Naturally there is a cost to providing more environmentally friendly manufacturing practices; however this could also serve as an opportunity for manufacturers to promote their practices as part of a corporate social responsibility program. The United States has had a major impact on the environment contributing 36% of the world’s greenhouse gasses (Environmental landscape, 2012). At first it may appear that North America is lenient towards environmental protection and that a lax approach to enforcement has been taken. However under the new leadership of Barack Obama he states that the U.S is ready to lead the world on climate change (Environmental landscape, 2012). The support of these climate change initiatives from an incoming branded generic firm may prove beneficial to consumers who would readily support a company whose ideals are also environmentally sensitive. Legal The Canadian and American legal systems remain rather sophisticated by international standards and form the backbone of national ideals and promises that citizens and corporations abide by. Of particular relevance to this analysis is the differentiation between the Canadian and American legal systems in terms of the ability and likelihood of suing over patent infringement. The United States in comparison to its Canadian counterpart is litigious by nature as a result of laws

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that allow for compensation of non-pecuniary damages including patent infringement (DuPlessis, O’Byrne, Enman & Gunz, 2011). In Canada the patent protection laws, or more appropriately the enforcement of them through the legal system has been relatively weak. Currently, cases against patent infringements are often not even been tried for at least two years, during which period the infringing products may remain on the market (Canada pharmaceuticals & healthcare report, 2012). The report, Innovation For a Better Tomorrow through the Canadian Chamber of Commerce has stated that the country has fallen behind leading developed pharmaceutical markets, such as the US and Europe, in terms of patent protection. Relative to Canada the United States intellectual property laws are clearly defined and well enforced. In January 2011, the US Senate Judiciary Committee voted unanimously to send a patent reform bill to the Senate for voting. If the Patent Reform Act of 2011 gains approval in Congress, the new legislation would impose the first significant changes to the US patent system in nearly 60 years. The new system will consist of a first inventor- to-file mechanism by reducing litigation costs and work in favour of US inventors seeking intellectual property protection (United States pharmaceuticals & healthcare report, 2012). There represents a unique opportunity for the makers of branded pharmaceuticals to extend their profits while paving the way for future branded generic versions to enter the marketplace. Reiffen & Ward (2007) state clearly in their research that the purpose behind launching a branded generic to the marketplace is not only to gain marketshare, but perhaps more importantly to delay the onset of profit loss. Not only is there a defensive tactic at play here, but as the literature demonstrates there is also an aggressive offensive attack being launched on multiple fronts. Historically the makers of “blockbuster” pharmaceutical products simply counted down the days until their product went off patent with the full realization that a generic manufacturer would immediately cannibalize their profits almost overnight once the patent expired. In some cases this has been literally worth billions of dollars. This new market segment exists as a result of a loophole created by the U.S Hatch-Waxman Act of 1984 which requires generic manufacturers to simply prove bio equivalence to the reference drug they wish to copy. Historically when a new drug is introduced to market it must file a New Drug Application (NDA) to the Food and Drug Administration (FDA) which is comprised of a number of clinical trials proving safety and efficacy. This procedure is very costly and lengthy as it utilizes a great deal of corporate resources. Recognizing this fact the Hatch-Waxman Act allows generic manufacturers to file an Abbreviated New Drug Application (ANDA) who’s only requirement is to show blood equivalence (bioequivalence) to the reference drug. As a result, this process is much faster and cheaper providing ample opportunity for generic firms to enter the market space once the patent expires on the reference drug.

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Bearing history in mind, the branded pharmaceutical manufacturer has an enormous advantage over generic manufacturers for a number of reasons. First, the branded manufacturer has a minimal outlay of capital in order to produce the drug considering it is currently doing so. Secondly, it has the benefit of the first mover advantage over the other generic manufacturers who must wait for the patent to come off prior to beginning any sales activities. Third, the Hatch-Waxman Act states that once an ANDA has been accepted by the FDA, a 180 day period of market exclusivity shall be granted to that firm (CDER, 1998). In other words a “mini patent” which further allows the branded firm to collect profit from the market in a monopolistic fashion. Because the branded company already owns the reference drug in question it is not required to file an ANDA like a generic competitor would have to which saves the firm both time and money. A generic manufacturer would have to acquire the active ingredients, determine manufacturing capabilities, price, branding, distribution and then time the product launch correctly. The ability for a branded generics firm to set a monopolistic pricing scheme is significant because it maintains profit levels for the company that essentially owns both the branded and now the branded generic product. This strategy minimizes the erosive effect that is usually seen in the marketplace when this buffer is not in place. In essence, the pharmaceutical firms who produce branded generics are capable of transferring profits from their original branded product to the newly minted branded generic particularly during the 180 day period of exclusivity. Ultimately a branded generic product provides consumers with the promise of quality, familiarity and brand recognition; all of which increase consumer confidence and allows manufacturers to charge a premium (Singer, 2010).

Which business strategies are appropriate for makers of branded generics to pursue considering the competitive landscape in North America?

Answering this question relies on a thorough examination of the competitive landscape. There are a number of analytical tools that can be used however this report will focus on the use of Porter’s Five Forces model and will draw parallels to Game Theory. The use of Porter’s Five Forces model will answer the question “what is the competitive pharmaceutical landscape in North America”? At that point we can assess which competitive strategies are appropriately tailored to the environment.

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Porter’s Five Forces Michael Porter’s initial thoughts on how competitive forces shape strategy were formed in1979 and later expanded upon in 2008. In the realm of strategic management Michael Porter’s work is not only one of the most heralded academic frameworks, it is also particularly relevant to this applied project. The job of the strategist is to understand and cope with competition. Too often managers take a myopic view of what their competitive environment looks like (Porter, 2008). In order to better understand the complexities of the competitive environment Porter created a “five forces” model which outlines the competitive forces according to both horizontal competition and vertical competition. Horizontal competition can be defined as competition from substitutes, entrants and established rivals. The vertical component can be described as the influencing factors from both suppliers and buyers (Grant, 2008). Each group has an ability to influence the competitive environment depending on how strong they are relative to the other forces in play. The simplicity of the five forces model contributes immensely to better understanding the market dynamics involved in shaping the environment. Porter (2008) makes a critical observation by remarking that the point of industry analysis is not to declare the industry attractive or unattractive, but to understand the underpinnings of competition and the root causes of profitability. This is relevant to the applied project in that many generic manufacturers and branded generic manufacturers should not only consider the attractiveness of the market, but also how their competitors will shape the amount of profit they can generate. This is particularly relevant for large firms like Pfizer, Merk and Abbott who are looking to fill revenue gaps despite massive losses from their mainstay products losing patent life. It only seems appropriate to tie the Porter’s Five Forces model to a current pharmaceutical company with a presence in the branded generics market like Pfizer. Pfizer is a global research based pharmaceutical company founded in 1849 by Charles Pfizer. With a market cap of $124B and annual sales of $50B, it is the largest firm in the industry. Pfizer employs over 81,000 people in 150 countries and is comprised of two main operations; Biopharmaceuticals and Diversified products. Biopharmaceuticals include primary care, specialty care, emerging markets, and oncology contributing towards 91% of Pfizer’s annual revenue. Diversified products include animal and consumer healthcare divisions. Pfizer possesses a growing portfolio of branded and generic products both in North America and the Emerging Marketplace. Pfizer’s competitive environment includes several branded and generic pharmaceutical companies. Recently, Pfizer completed a $68B merger with rival Wyeth pharmaceuticals; the largest in industry history (Pfizer.com, 2010).

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Threat of Entry The estimated cost of bringing a new molecule to market is roughly $1B. Only one out of six new drug prospects will likely deliver returns above their cost of capital, an unattractive prospect for new investors (Drug Development, 2003). However the generic manufacturing of off patent pharmaceuticals simply requires proof of blood equivalence in order to file an ANDA. In the case of Pfizer, to produce one of its existing drugs it would only have to undergo a fraction of the initial costs to re enter the same market space. A generic manufacturer would follow the same process however it would shoulder the additional burden of having to research the active ingredients, obtain suppliers, secure distribution channels, set prices and prime sales channels. Pfizer must now contend with a high threat of entry from competitors who can offer similar competitive advantages such as production economies of scale, access to distribution channels, limited legal and regulatory hurdles and relatively small capital requirements compared to new drug development. In some cases, Pfizer holds a small advantage in terms of absolute cost advantage referring to a lower per unit cost as a result of having exclusive supply to the active ingredients or having existing production processes already in place. However this is generally not the case when dealing with relatively simple drug production. The attractive profit margins coupled with the relative ease of market penetration may contribute to the influx of new entrants to this market. However the law of diminishing returns would play a major role as the focus shifts from product features and benefits to price. Threat of Substitutes Similar to other pharmaceutical companies, Pfizer faces the threat of generic competition once its branded products lose patent protection. In fact by 2014, eighteen Pfizer products will lose patent protection, exposing the firm to major financial voids and generic uptake (Holford et al. 2010). However, in an effort to minimize this threat and maintain some profitability Pfizer has entered into a partnership agreement with generic drug manufacturer Watson pharmaceuticals. This concept of complements noted in Porter’s model is illustrated by the agreement that Pfizer has to continue manufacturing Lipitor, with Watson paying for the manufacturing process and selling it to distributors (Marcial, 2009). This is an excellent example of an “authorized generic” whereby Pfizer has authorized Watson pharmaceuticals to produce the drug and maintain a share of the profit as a result. Watson, being a generic manufacturer itself sees the value in this partnership by not launching their own version of Lipitor and simply collaborating with the drug giant to split profits and keep prices elevated in the process. Pfizer cannot enter into these types of agreements with every generic manufacturer so they offer another solution to combat price. Peter Loftus (2011) describes in his article how Pfizer maintains a slower erosion sales curve by

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offering to pay for patients insurance co-pays. This way, a patient is able to maintain their existing treatment regime without having to switch to another product due to cost. As a result of the volume of products in its portfolio that are set to expire in the near future, Pfizer faces a large risk from generic competitors entering the market and cannibalizing its sales. Buyer Power In the healthcare market segment buyers would include the patients, insurance companies, distributors, pharmacies, governments, and HMO’s. Historically, Pfizer has faced a relatively small threat from buyers because of the relatively price insensitive marketplace. Pfizer is only one of a few companies who sell pharmaceutical products, so buyers have limited choice. In addition they may have held unique products all of which whom enjoyed patent protection. In today’s marketplace however buyers are demanding lower prices. In Canada the Council of the Federation's Health Care Innovation Working Group has been tasked with creating a bulk purchasing agreement for generic pharmaceutical products on behalf of all of the provinces (Lunn, 2013). In the United States HMO’s and insurance providers that represent millions of patients have been employing this tactic for many years. The threat from buyers is stronger than ever before for lower prices which may prove a limitation for branded generics if they cannot compete on price. Supplier Power Suppliers to the pharmaceutical industry would include the makers of active ingredients, packaging, distributors and consulting agencies. Due to the highly specialized nature of the products being manufactured at Pfizer, it only makes sense that vertical integration plays a key role in their competitive strategy. An example of vertical integration within Pfizer is Pfizer Centre Source. It is a contract pharmaceutical manufacturer (under Pfizer ownership) that creates fine chemicals, pre-filled syringes, and bulk active ingredients (About Us, 2010). Although a generic manufacturer may not be as vertically integrated as Pfizer they nonetheless have access to the same active ingredients to produce the generic versions of Pfizer’s products. Suppliers may not hold a tremendous amount of influence in this category particularly if the product has been on the market for a number of years and there exists a consistent availability of suppliers.

Industry Rivalry

In the realm of branded pharmaceutical products, Pfizer has a fairly entrenched market position and controls much of the oligopoly that is the pharmaceutical

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industry. However, stepping outside the comforts of patented lifecycles and market exclusivity, the company is now faced with a completely new set of rules and challenges. In thinking of launching their own generic product Pfizer now faces a number of generic manufacturers who will be offering the same product and competing solely based on price. Something that that has a tremendous amount of stakeholder support in lieu of anticipated cost savings. Additionally, the generic industry although capital intensive to enter initially, is comprised of a core group of companies like Teva, Mylan, Sandoz and Apotex (FiercePharma, 2010). Rivalry is fierce and manufacturers have maximized their ability to leverage economies of scale and scope to offer low prices. Although Pfizer has many of the same tools of the trade, they may need to re learn how to use them. As David Simmons, President of Pfizer’s Established Product’s Business Unit point out in a recent article about generic firms “…those folks were very different from Pfizer. They had been built to disrupt, so they could take more risk and act sooner, with less than perfect information. Everything was built around speed. They had very few layers of management” (Joni, 2010). Business Strategy and Game Theory The literature review demonstrates some creative albeit profitable mechanisms by which pharmaceutical companies have delayed the erosion of their sales and profits by generic firms. The Porter’s Five Forces analysis demonstrated that the competitive landscape in the generic realm is significantly different than what most traditional pharmaceutical firms are accustomed to. This part of the analysis is dedicated to uncovering the specific mechanisms by which pharmaceutical companies are employing to overcome these challenges. Of particular relevance here is their strategic use of Game Theory to change the outcome of the competitive environment. Game Theory Leveraging competitive information from the Porters Five Forces Analysis provides a valuable tool in the armamentarium of any manager looking for insights into competitive forces. Once understood it should be leveraged to its full extend, however one of the drawbacks of the model is its failure to take into account the competitive interactions among firms (Grant, 2008). With that in mind this applied project will also include an analysis of market entry based on Game Theory. The idea is to create a balanced and well rounded set of analyses that compliment one another in a synergistic manner. The literature review reveals one of the key tactics used by large pharmaceutical companies is to take full advantage of the Hatch-Waxman Act. This act provides a 180 day grace period to the company who is first to file their ANDA approved equivalent, however The Hatch-Waxman Act does not require a brand-name pharmaceutical company to file any sort of application in order to market a drug

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as an authorized generic. This strategy dis-incentivizes generic manufacturers and incentivizes them to do their own R & D, allowing for a more level playing field from a cost perspective (Chandler & Samaroo, 2010). This tactic is described by Grant (2008) as one of deterrence and changes the game’s equilibrium by imposing costs on other players for actions that we deem to be undesirable. Just the mere capability or potential for a branded firm to execute such a manoeuvre may be seen as “signalling” from generic manufacturers and may deter or delay them from entering the market. Grant (2008) describes signalling as selective communication designed to influence a competitor’s perception and thus evoke a desired reaction. Many branded firms are employing this tactic in order to preserve their first mover advantage which comes with it several key benefits. Chief among these benefits are the market exclusivity granted to them in a monopolistic environment by being able to set the price for payers. These market conditions also favour the development of brand loyalty, brand recognition, supply chain management and positioning themselves for the role of defender once the market conditions change (Grant, 2008). Secondly, the branded firm will employ all legal resources at its disposal to not only challenge the inevitable ANDA filings from generic competitors, but it will also make an attempt to create secondary patents on things like it’s production process, formulation and unique mechanism of action (Reiffen & Ward, 2007). This in essence changes the structure of the game itself by not allowing a generic firm to compete in the same space. It also deliberately forces a smaller manufacturer to consider its profit margins considering the litigation costs involved in challenging multiple patents. Changing the structure of the game itself is designed to not only influence the outcome but more importantly to increase the profit potential or realize a greater share of the profits available (Grant, 2008). As the litigation process is generally lengthy, a generic manufacturer may lose out on valuable sales time while the branded generic firm benefits from a lack of competition. Third, the branded firms will acquire the active ingredients required to produce the drug by controlling the supply chain and effectively forcing generic competitors to seek key ingredients elsewhere at an anticipated premium. This tactic is particularly effectively in biological medicines which are inherently expensive and difficult to replicate especially if lacking key organisms (Jacobs & Johnson, 2012). These tactics blunt the main strategy behind generic entry into the market which is to compete solely based on price. This tactic involves following through on a commitment to enter the market. Grant (2008) states that in order for deterrence to be effective it must be credible by being backed up with a commitment. In the case of a generic manufacturer they may view control of the supply chain as a deterrent and not enter that market space. Fourth, many big name pharmaceutical companies are changing their operating structures to be more nimble and adaptable to the new business environment. Pfizer for example has adopted the philosophy of many of its generic competitors

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by simply forming its own generic subsidiary firm called Greenstone (Greenstone.com, 2013). Since 1993 Greenstone has been manufacturing generic versions of Pfizer’s off patent products to the point where it now ranks as the fifth largest generic manufacturer in the world (FiercePharma, 2011). Pfizer would apply a value-added strategy as a defensive shield around newly introduced generic products, whereas in the later phases of the product’s maturation a cost-leadership strategy would have to focus on price-benefit and low manufacturing costs. Successful execution of demand-side (value-added) and supply-side (cost-leadership) strategies requires a firm to employ innovative organizational structures and management know-how (Chandler & Samaroo, 2010). Finally the industry has resorted to one final ”Hail Mary” approach which involves the use of a Citizen’s Petition to delay the approval of generic entry to the market. A citizen’s petition is usually filed by a pharmaceutical company on the evening of a decision by the FDA and includes all of the information, reviews, data and statements as to why the FDA should not approve the generic product (Silber, Lutinski & Taylon, 2012). Each citizen’s petition must be reviewed by the FDA and like many large bureaucracies; it takes time to do so. In the meantime the branded firms continue to enjoy market exclusivity and a monopolistic market. Many of these tactics have been questioned ethically and have been termed “pay for delay” tactics as they are seen as stalling tactics by the pharmaceutical industry in an effort to retain profit margins (Kong & Seldon, 2004)

What role will branded generics play in India where the payer is primarily the patient? According to the Dow Jones Index (2011) the emerging marketplace is comprised of twenty one countries. Among them China and India play the largest role due to their population size however Brazil, Russia, Indonesia, Mexico, South Africa and the Philippines also form a major part of the developing global economy. Although these countries share a common trait of developing their respective economies and infrastructures, they are vastly different in terms of social factors, customs, norms and morays. Unlike the North American or even European marketplace where socialized healthcare is prominent, the emerging markets of (BRIC) Brazil, Russian, India and China still rely on patients to pay out of pocket for medical and drug related expenses. This creates an entirely new market opportunity in comparison to the more developed nations because almost two thirds of the world’s population lives in these emerging markets (Thomas, 2012). One nation in particular has been undergoing rapid changes in its socioeconomic growth and as a result has created larger consumer demand and a need for improved health and well being measures. India continues to provide a number of exciting possibilities in the

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realm of branded generics and this analysis aims to take a closer look at their role as a developing nation. To better understand the macroenvironment a PESTEL analysis has been employed to dissect the various subtleties involved in shaping the pharmaceutical environment. Each component of the PESTEL helps to demonstrate both opportunities and threats for potential market entrants. PESTEL Analysis Political India has a rich history that spans many centuries and many dynasties. A formal democratic system in India has relied heavily on British influence since its Independence in1947. Since that time there has been a distinct effort to increase trade both foreign and domestic. The priorities have centered on agriculture, education, infrastructure, urban renewal, water, and employment (Political landscape.2012). India has not been immune to corruption in its government and has struggled with this issue most recently within its own government. A BBC report uncovered that affidavits filed by candidates to the Election Commission at the time of contesting elections found that a third of all lawmakers faced criminal charges (Biswas, 2013). A report from Market Watch (2012) suggests that political relations with both Pakistan and China are patchy and there remains a threat of violent attacks from either country. India’s political landscape holds promise in that it welcomes new business and economic stimulus. However a major threat exists in the corrupt and potentially volatile political environment which could very likely impact business outcomes for a branded generic manufacturer. Economic The current economic outlook for India is rather weak considering the recent devaluation of the rupee by almost twenty percent and the low GDP growth forecast of five percent which is below its average of seven (India Business Forecast Report, 2012). Economic growth is further hindered by a lack of quality infrastructure and widespread corruption throughout the country. These factors pose a major business risk to potential investors who may be tempted by the future growth potential, but who may have to ride a wave of uncertainty before realizing positive gains. India’s economy is bolstered by a number of variables such as a large English speaking population and relatively low wages as compared to developed nations. India has played a significant role in outsourcing from developed nations in order to manage costs. In fact services are the dominant source of economic growth, accounting for nearly two-thirds of India's output, with less than one-third of its labour force (CIA, 2013). From an employment perspective, this represents an

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attractive value proposition for potential investors as they look to set up operations within an educated and English speaking environment. India has many long-term challenges that still require attention such as poverty, inadequate social infrastructure, limited non-agricultural employment opportunities, inadequate availability of quality basic and higher education, and the challenge of accommodating rural-to-urban migration (CIA, 2013). Social A promising demographic statistic is approximately half of India’s population is under 25 years of age (India Business Forecast, 2012). This bodes well from a sales forecast perspective as it represents a lengthy time in which to recoup investments given the future patient years of this population. Indian per capita spending on medicine is, and will remain, relatively low (US$13 in 2011, US$27 in 2016 and US$45 in 2021). This is reflected by the fact that thirty percent of India’s population remains below the poverty line (CIA, 2013). Considering the relatively low healthcare expenditures a pharmaceutical manufacturer will have to carefully manage costs and weigh the cost benefit of entering the market. Although Hindi is the spoken language of the majority of residents (81 percent), English is recognized as the official language of business which bodes well for potential business entrants with headquarters in North America. India has a fast growing English speaking, urban middle class. According to India's census data from 2001, more than one third of married Indian women have chronic energy deficiency, and more than half are anaemic, while 45 percent of children under three are severely and chronically malnourished. Only 42 percent of children between the ages of 12 and 24 months have completed their immunization schedule, and 14.4 percent have not received a single vaccination (India Business Forecast, 2012). Additionally the birthrate is poorly controlled as a lack of contraceptive options exists in addition to social stigmas for women. Clearly there remains a large business opportunity within the country however access to affordable healthcare poses a significant obstacle. Other obstacles include low literacy rates among women and a life expectancy of around 65 years of age. Technological Despite widespread poverty and social inequity, India has managed to become the second largest user of mobile phone technology in the World (CIA, 2013). India continues to rapidly adopt the internet, television and radio as forms of media used in local households. The uptake is in response to growing consumer demand for choice and commercial products which are becoming available at a rapid pace. From the perspective of a branded generic pharmaceutical manufacturer like Pfizer, the media uptake from potential consumers will greatly benefit the company who is looking to leverage their brand from a quality and safety perspective.

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India thrives on having a growing English speaking population that is capable of providing professional services at a low cost. Recognizing the opportunity at hand, the government has taken steps to make India an attractive business destination to both foreign and local investors. For instance India offers several advantages that make it a preferred R&D destination for biotechnological research. These include large tax breaks, no import tariffs or excise duties and tax holidays for corporations looking to establish operations in India. The country has the largest number of Food and Drug Administration-approved manufacturing plants in the world which facilitates local production and distribution. India has more than 300 colleges specializing in bioinformatics and the biological sciences, producing more than 500,000 students annually (India Business Forecast, 2012). The nation also has proven competence in fermentation-derived pharmaceuticals, which can be leveraged in biogenerics. With the overwhelming number of patients that require safe and effective pharmaceutical intervention to improve their quality of life, these technological regulations provide an attractive business opportunity. Environmental India is a poor performer on the Environmental Performance Index (EPI). In an EPI study published in 2012, India was ranked 125th out of 132 countries. India’s dependence on mainly coal-based thermal energy has resulted in a host of environmental problems and increased India’s share of greenhouse gas emissions (India Business Forecast, 2012). According to the CIA (2013) India produces the majority of its electrical power by burning fossil fuels and is the fourth largest emitter of carbon dioxide gas in the world. Poor laws and regulatory enforcement have meant that corporations spend little time worrying about their environmental footprint in India. The focus remains on spurring economic development whilst environmental policy takes a backseat. From the perspective of a branded generic manufacturer, the environment in both its natural state and from a policy perspective pose little to no threat towards the operations of a pharmaceutical company. Legal Of greatest concern to a branded generic pharmaceutical manufacture is their ability to protect their innovations from being copied illegally including the unauthorized use of their brand name and logo’s for the commercial benefit of other enterprises. Unfortunately, India’s legal system contains some serious legal loopholes that have failed to be addressed. A major cause of these legal delays is understaffing due to low levels of legal graduates. India has fewer than 15 judges per 1 million people, a figure that compares poorly with countries such as Canada (around 75 per 1 million) and the US (104 per 1 million) (India

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Business Forecast, 2012). Copyright and intellectual property protection laws are both weak and poorly enforced, making this business environment risky from a branded generic perspective. The major driver of the country's generic drug market is the patent regime, which does not meet international standards. Under Indian intellectual property law, drug makers can use reverse engineering to manufacture drugs patented before 1995. This means that many blockbuster medicines are available in India at very low prices (India Business Forecast, 2012). The challenge is that not all of these products contain the actual ingredients that they claim to have and many come from counterfeit drug operations. Branded Generics in India The current realities of consumer incomes in India makes affordable healthcare out of reach for many. With over 40 percent of inhabitants living below the poverty line this poses a major challenge to deliver medicine to those in need meaning many simply go without. Around 78 percent of healthcare expenditure in India is out-of-pocket of which 72 percent is spent on pharmaceuticals (Sinha, 2012). As a result, this market is inundated with low cost generic products which compete solely on price. In fact Indian firms manufactured products for nearly 60,000 generic brands, covering 60 key therapeutic areas. Approximately 80 percent of this domestic production consisted of formulations, while the remaining 20 percent comprised bulk drugs. The top ten manufacturers accounted for nearly 37 percent of the market share, which demonstrates that although a third of the manufacturers have a strong market presence, there remain a large number of independent and fragmented manufacturers as well (Chidambaram, 2012). This market space and price segment has attracted makers of counterfeit products which offer another level of affordability and often time unreliability. An example from Bloomberg Businessweek illustrates the point by highlighting that counterfeit products have been found to contain chalk, brick dust, paint, pesticides and one rare report of human fetuses (Gillette, 2013). This unreliability means that patients do not receive the correct dose or even the active ingredients, putting patients at grave risk. The global realities of counterfeits are such that in 2009 the World Health Organization estimated their worldwide sales to be worth in excess of $75B (Growing Threat, 2010). Nonetheless with a lack of regulation and enforcement these manufacturers must be considered competitors considering the meagre healthcare spending by most citizens. A lack of education on the part of the patient and their relative ease of access equates to an unstable environment where some patients may end up receiving lethal or often ineffective treatments which will further discourage an already suppressed population. This in essence weakens the market potential

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for profit and creates an unfair playing field for manufacturers who follow regulations. As a result, branded generic products enter the market as a recognized and trusted consumer healthcare product (Gilbert, Ural, & Lopez 2012). With the gradual rise in average wages and healthcare standards within India, there remains significant market potential for branded generics to position themselves as market leaders considering their relative vale proposition (Thomas, 2012). Branded generics offer what their competitors may not have which is a reliable product backed by a reputable enterprise. Big Pharma's hopes for branded generics in emerging markets are founded on the hopes of increased profits and share price. In India, as in plenty of other emerging markets, there are hundreds of versions of some generic drugs, made by companies of vastly different reputations. A branded generic stands out amongst others, just as domestic drugmakers branded generics do (Staton, 2012). In addition, the firms behind branded generics may be able to persuade physicians to prescribe their medication preferentially via an established sales force and through the use of targeted advertising. Using their commercial infrastructure to sell generic drugs is an attractive opportunity for many large pharmaceutical firms. India is primarily a self-pay market where patients are brand conscious for fear of forgeries and low-quality. Drugs are detailed, advertised and command higher prices close to relatively low innovative drug prices (Boswell, 2009). Despite the opportunity in India for branded pharmaceuticals to compete the marketshare they will capitalize on and the revenue potential is still relatively unknown. There remains a wide range of estimates throughout the literature on just how lucrative the Indian market could be. A number of top name companies are pining after the Indian market to ensure a foothold in what is thought to be an important part of the emerging markets. In 2010 Miles White, the CEO of Abbott Laboratories was quoted as saying “It is important for us to be in the top 5 branded generics in the emerging markets” (Kandybin & Genova, 2012). Executives from other major firms have also commented on the subject such as the CEO of GlaxoSmithKline Andrew Witty. He states that “We are able to create different tiers of products at prices they haven’t previously seen” (Singer, 2010). This endorsement emphasizes the vast opportunity that exists in India and the willingness of corporate executives to drastically alter their traditional operating structures to harmonize within the new environment. The industry’s largest firm Pfizer, created an entire division called Established Products which is dedicated to the preservation of profits of many of the company’s off patent brands. David Simmons who is the general manager of Pfizer’s Established Products division was quoted in 2009 as saying "Our aspiration is to be the leader in this area, specifically in the next five years; we are looking to be one of the top five

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companies". He puts Pfizer's current rank at about 14th (Boswell, 2009). Pfizer will certainly leverage its brand recognition and marketing prowess to gain consumer confidence and build rapport within the medical community. An important detail of India is the stark contrast by which these products are marketed and sold to consumers. Unlike North America and Europe where physicians and insurance companies dominate promotional efforts, now the patient has a voice by means of purchasing power. With the consumer at the helm there is a greater potential for the landscape to evolve in their favour. Specifically insurance companies, patient coalitions and political spending will increase in an effort to bring reciprocity amongst both patients and healthcare providers. A mutually beneficial outcome would encourage branded generics to continue their value added approach while keeping patient access to medicine a central theme in their mission.

Which strategies will allow branded pharmaceutical companies to remain profitable in India considering the competitive environment?

Michael Porter classifies strategy in three ways which are cost leadership, differentiation and focus (Grant, 2008). In North America the branded pharmaceutical firms have thrived on bringing to market innovative and novel therapies for a variety of ailments. Their very existence is protected and defended against infringement by iron clad patent laws that severely penalize those who violate them. In North America there is a clearly defined differentiation strategy at work which has been the operational basis for how pharmaceutical companies have conducted themselves. The North American landscape is dominated by a relatively small oligopoly of companies who can lobby the government for favourable rulings and set prices to their liking. India however is clearly dominated by another; almost polar opposite version of what is occurring in North America. Branded pharmaceuticals are almost rare to non existent, patent laws are weak and poorly enforced by the authorities and most importantly there is little differentiation amongst the competing firms. The term competing firms almost takes on new meaning relative to the North American marketplace as there are literally hundreds of generic manufacturing companies all providing identical products. Their propensity to coalesce is marred by the fact that there is very little incentive to do so. These firms are almost all generic manufacturers competing on price alone and pose a significant challenge to branded companies looking for a slice of the revenue pie. The branded firms seem very much out of their element, almost akin to a fish out of water. What good could their existence possibly bring to this market except of course more choice in an already oversaturated market? How can their bulky operational structures and vertical hierarchies compete with the lean, flat, low margin generic manufacturers? If a branded firm were to try and enter this market space surely the potential for failure exists considering both their

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inexperience and their weaknesses in this operating environment. The potential for failure exists as one may draw the conclusion that a branded generic firm is one that could potentially be “stuck in the middle”. Porter classified being stuck in the middle as a firm that is guaranteed low profitability. These firms either lose high volume customers that demand low prices, or must bid away profits to get this business from the low cost firms. A firm that remains stuck in the middle likely has an unfocussed corporate culture and a conflicting set of organizational values (Grant, 2008). Because Porter viewed differentiation and cost leadership as being mutually exclusive the question remains “where do branded generics fit in”? Returning to the Porter’s Five Forces model we can ascertain the relative market forces at work in the Indian marketplace. The use of Porter’s Five Forces model will help answer the question of which strategies will allow branded pharmaceutical companies to remain competitive in India considering the competitive environment. At that point we can assess how they will compete and which strategies are appropriately tailored to the environment. Porter’s Five Forces This analysis will again draw on the example of Pfizer to focus on specific examples of where competitive market forces impact a company trying to launch a branded generic product into the Indian marketplace. Threat of Entry In looking at the overall pharmaceutical landscape in India it appears there are a variety of competitors. From counterfeiters to local generic manufacturers and multinationals, all have a stake in the market. From Pfizer’s point of view that is looking to breach the market and carve out a piece of marketshare they will face relatively few barriers to entry. But so too will other entrants making this a relatively diluted market space with a high number of competitors offering similar products that compete mainly on price. Indian laws and regulations are minimal in terms of health and safety requirements, instead leaving the scrutiny of these aspects up to the company itself. Although there are several FDA approved manufacturing sites already in operation in the country, Pfizer will have to consider a make or buy decision in terms of developing a local manufacturing presence. Indian law plays a small role in limiting or governing pharmaceutical practice in its country. Their focus remains on attracting companies to invest capital in stimulating their economy and creating growth. The government has not intervened as far as regulating the market or the players within it. This is a welcome mat no doubt for many companies looking to enter the market, but also presents equal challenges once in the market. In terms of differentiation and

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prosperity Pfizer can expect to invest in creating entry barriers for other potential entrants. Threat of Substitutes India has a robust manufacturing sector spurred by cheap labour and an abundance of employable workers. At present there are over twelve thousand pharmaceutical manufacturing units of which close to three thousand are large scale. Of the large scale units only forty five belong to multinationals (Agrawal & Saibaba, 2001). Clearly a branded generic firm must not only establish a manufacturing presence, but must also determine how to make the most efficient use of the available resources. Despite widespread use and adoption of generic pharmaceuticals in India there remains an interesting paradox in play. Although generic drugs are thirty to sixty percent cheaper than their branded counterparts, generic medicines have not found favour with buyers yet. The lower price is often being equated with poor quality, which has the health department worried. Some doctors are asking patients to buy generic medicines at their own risk (Mitra, 2013). Scores of buyers plead with authorities to offer branded medicine because they have been advised by doctors against generic drugs despite the huge price advantage. They fear the medicine might not be potent or may lack effectiveness. Cost measures have forced the use of generic medicine on most consumers; however there is a clear lack of trust on their behalf. Although many of the manufacturing facilities in India comply with FDA standards of operation many consumers are leery or simply are unaware of what this means. The impact of government corruption, counterfeiters and low overall spending on healthcare has dissuaded any favouritism from consumers towards generic pharmaceuticals. This is a unique situation considering most patients cannot afford much more than the most basic and inexpensive of options. Despite the potential cost burden to patients, it seems they are willing to consider paying more for a product that ensures their well being. This also speaks to the overall importance of India developing a well defined healthcare system. Opportunity lies in the fact that branded generic manufacturers can offer a reputable brand name and product for a slight premium over competitors. Generic manufacturers will have to work hard as a coalition to convince consumers that their products are both safe and effective. This is a costly endeavour considering the generic manufacturing business model which relies on low overhead and minimal capital outlay for sales and marketing efforts. Buyer Power As in North America there are a number of stakeholder groups that constitute as buyers. However in India it is the patient that holds the majority of the buyer power as opposed to insurance companies or HMO’s in North America. Other

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important stakeholders would include wholesalers and distributors at a retail level. The delineation occurs as a result of a lack of national healthcare spending in India and the cost burden for medical care that many citizens must endure. However an interesting paradox is at play here. The World Bank (2006) reports that thirty five per cent of the Indian population earns less than US$1 per day and that most of India’s workforce, nearly eighty per cent (836 million) work in the unorganized sector, with an average salary of below $0.50 per day (Singal, Nanda, & Kotwani, 2011). With that in mind patients seem to have little or no faith in the quality of generic medicines available at public facilities. Patients appear to be reluctant to purchase generic medicines at generic drug stores on the premises of public facilities because of questionable quality. So as a group of buyers there remains a significant opportunity for the makers of branded generic pharmaceuticals to capitalize on the lack of trust from buyers and their attitudes towards generic manufacturers. The poor population appears ready and willing to increase the percent of income they spend on drugs if that means a better more trustworthy product is made available to them. In other words there is a real potential for Pfizer to charge higher prices for a more reputable product. Supplier Power Much like the buyers in this market the suppliers are a relatively fragmented group. Chemicals and raw materials available for the products Pfizer and other companies would be manufacturing are readily made available through suppliers globally. The supply chain can be serviced from a number of vendors and is not dependant on one or the other to ensure success. In addition, switching costs between suppliers is quite low meaning that Pfizer for example would have significant bargaining power in terms of driving price down to keep their margins as high as possible. With labour and COGS being so low it is possible that some suppliers would look to vertically integrate and create their own pharmaceutical divisions. However this is generally the exception as opposed to the rule as in the case of Orchid Chemicals and Sashun Chemicals who launched their own pharmaceutical companies (Orchid.com & Sashun.com, 2013). With the sheer volume of products that Pfizer has the capacity to produce they are sure to drive volume discounts from their suppliers and leverage existing channels to maximize cost savings. With supplier power so low Pfizer can continue to try and monopolize parts of the supply chain to discourage potential entrants into the market. Where Pfizer must be vigilant is in monitoring the quality of its suppliers, particularly the suppliers of the active ingredients which drastically affects the efficacy of their products. Industry Rivalry The advantage Pfizer holds in this area is that once it enters the market it will enter as a reputable force that brings with it a dominant value proposition relative

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to its competitors. Once in the market Pfizer can expect a low level of retaliation from competitors trying to defend their market share. Competitors aren’t likely to cut prices even more and any legal action to impede their entry would be unlikely given the costs involved. Because rivals are focussed on creating a low cost product, Pfizer must be a differentiator in terms of how it approaches the market if it intends on charging a premium for its branded generic products. Porter (2008) states that industry rivalry will be high when competitors are highly committed to the business and have aspirations for leadership. Especially if they have goals that go beyond economic performance in the particular industry. However in India we see this is not necessarily the case as it would be in North America. There is a loose link between the generic manufacturers and their key stakeholders as defined by the government, insurance companies, doctors and healthcare employees, distributors and patients. Pfizer may signal through past experience that it intends to be a market leader and is focussed on delivering more than just profits in terms of improving India’s overall healthcare system. Game Theory and Analysis of the Competitive Environment This portion of the literature review turns once again to the use of Game Theory to further understand the rationale and strategic implications behind the actions of each rival. The parallels to Game Theory will be drawn throughout the following section which focussed on the specific tactics used by pharmaceutical companies in India to remain profitable. Clearly the branded generics segment in the emerging marketplace has a growing presence which means it is not stuck in the middle. In fact some researchers believe that the simultaneous pursuit of differentiation and low cost production provides a key element in the creation of “blue ocean” opportunities (Grant, 2008). Blue ocean opportunities involve creating entirely new industries or recreating existing ones. In blue oceans, demand is created rather than fought over as there is ample opportunity for growth that is both profitable and rapid (Kim & Mauborgne, 2004). Upon first glance it would appear branded generic firms are trying to be profitable by creating their own market space using unique branding emphasizing quality and safety. However it could also be argued that because they are competing in a generic market space which is typically dominated by cost leadership that this is where their focus is. They run efficient plants that leverage economies of scale and outsource complexity to control overhead costs. So the question remains, if branded generic companies are capable of performing in both areas how are they able to achieve profitability? Success in India will depend on a number of factors. First, the companies pursuing a branded generic strategy cannot be “stuck in the middle” therefore they need to determine what differentiation strategy will allow them to charge a premium for their products while keeping overhead costs to a minimum.

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A multipronged approach tailored to India’s market will mean prices will fluctuate relative to the market and what consumers can afford. For example Singer (2010) reports that companies will offer both a branded “premium” product for the more affluent consumer and a more mainstream branded generic which is still higher priced than a no named generic. This segmentation approach may act as a signal to competitors that branded generic firms are able to compete on a multitude of levels. Although a premium product may have limited uptake in such an economically challenged country, the mere fact that this company can provide the reference drug that others are copying is enough of a credible threat to competitors that it may dissuade some from entering the market. Grant (2008) notes that signalling alone is not enough of a deterrent on its own, it must be credible to be perceived as a threat. For example a novel cancer therapy might fit into the “premium” category as it would have little to no competition from rivals and an overall monopoly allowing it to dictate prices. However considering India’s current economic and legal landscape this would not be a good option for a number of reasons. First, there are few Indians who would actually be able to afford the medicine and second there is a high likelihood that a generic competitor would be lurking in an attempt to reverse engineer the product and sell it at a drastically reduced price. The landscape is not favourable towards novel therapies and does not create a reward system for those that do have one. So the makers of a branded pharmaceuticals would be better served in trying to launch already established portfolios towards disease burdens that are relatively high in the country. The branded generics have another tactic over and above rivals that will help them justify their prices by using a sales force to promote the products to doctors. This strategy is supported in the research conducted by Gilbert, Ural, & Lopez (2012) who highlight the importance of a sales force in creating trust and brand recognition among healthcare providers who may be key influencers of a patient’s purchase decision. A sales force would go a long way in not only differentiating the many choices available to patients, but it would also lend credibility to branded generics having the endorsement of healthcare practitioners behind them. A sales force can also act as a conduit of information flow between stakeholders and strategists who may be looking for local market insights to gain a competitive advantage. The stakeholder approach promoting multiple products allows the branded generic firms to increase their value proposition. Grant (2008) notes that a company may seek to change the structure of the industry in which it competes in order to create favourable conditions for profit or to gain market share. A sales force is typically unheard of in the generic pharmaceutical industry which relies solely on price to sell their products under the guise that overhead costs be kept to a minimum. The structure of the “game” is radically changed when branded multinational firms enter the marketplace and push the traditional boundaries of industry.

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Returning to the manufacturing component there remains an important critical success factor in branded generics and that is low cost manufacturing. This can be achieved in a number of ways. First, the branded generic firms can produce their product in their existing manufacturing sites and simply ship the product globally. Or, they can choose to do what Gilbert, Ural, & Lopez (2012) recommend which is to contract out the manufacturing process to local country sites using their local talent. This has a number of advantages. First, it is a demonstration of goodwill to those countries, many of which may be developing nations that rely on foreign investment for economic stimulus. Second, the show of goodwill may diminish regulatory hurdles and avoid import tariffs that could otherwise diminish profitability. This is a strategy that according to Grant (2008) encompasses both competition and cooperation. In many business relationships, competition results in an inferior outcome for the players compared with cooperation as demonstrated in the famous “prisoners dilemma” example. Several generic manufacturers have taken to collaborating with branded multinational firms to maximize their production capacity and drive their own growth. There has been a growing trend among branded pharmaceutical firms in pursuit of this strategy through the acquisition of locally operated manufacturing sites. For example (Boswell, 2009):

In June 2008, Japanese drug company Daiichi Sankyo acquired India's Ranbaxy for $4.9bn.

In July 2008, UK-based GlaxoSmithKline (GSK) spent $410m to acquire a 16% stake in South Africa-based Aspen. GSK one month later announced a license and supply agreement with India's Strides Arcolab and Onco Therapies.

In June 2009, GSK announced a marketing agreement with India's Dr. Reddy's Laboratories. In October 2008, French major Sanofi-Aventis acquired Czech Republic-based Zentiva for $2.6bn. In April 2009, Sanofi bought Medley, of Brazil, for $664m and Mexico-based Kendrick for $30m.

These partnerships increase a branded generic firm’s ability to enter the market quickly and leverage existing manufacturing sites from reputable local companies. To highlight the importance of moving quickly in this market take for example Abbott laboratories who in 2010 purchased Piramal Healthcare for $3.72B and seven percent of the total Indian pharmaceutical market. Abbott’s CEO was quoted as saying “India pharmaceutical sales are expected to more than double in the next five years”. With this acquisition, Abbott gains immediate market leadership in India driving sales with the country’s largest sales force, largest market share, fastest growth rates (17.5%) and largest product portfolio with over 350 products (Sharma, 2010). One of the most important critical success factors with branded generics is pricing the product appropriately. In this market if the price is not aligned with demand from consumers then a firm can likely bet on not selling their product. With that in mind researchers Singal, Nanda & Kotwani (2011) published an

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article in the Indian Journal of Pharmacology detailing the pricing strategy of branded generic firms. Their findings are highlighted in table form in the appendix of this report. Their methodology was simple; take five commonly prescribed pharmaceutical products and compare both the “branded” and “branded generic” prices against one another at both the retail and patient levels to determine where the greatest mark-ups lie and ultimately where the greatest profit could be found. The results tell a compelling story behind the strategy and incentive for retailers to sell branded generics to patients. In most cases the branded product was sold to patients at a thirty percent mark-up. However the exact same product sold as a branded generic sold anywhere from three hundred to over a thousand percent mark-up (Singal et al., 2011). Keep in mind the initial wholesale costs and retail costs are much lower than their branded counterpart, but this example demonstrates the profit incentive for retailers to sell branded generic products favourably over branded products. Grant (2008) underscores the importance of commitment in the use of deterrence in Game Theory and strategic business decisions. The pricing strategy outlined in the above report reflects accepting the increased risk of selling a higher priced product in an environment where consumer spending is minimal. The pricing strategy could also be described as a “hard commitment” which will bind an organization to a future course of action signalling to competitors the very real threat of competition. The advantage for branded generic firms with this strategy is that generic manufacturers would be unlikely or even unwilling to raise their prices to match those of the branded generic firms. This ensures the branded generic firms retain a breadth of exclusivity on the market considering their unique value proposition relative to competitors. This report highlighted two important consumer behaviour traits that are being capitalized upon. First, physicians and patients alike are apprehensive towards generic drugs fearing quality safety and efficacy are not comparable to the branded products. Secondly, consumers are driving demand for branded products recognizing that they are guaranteed to get the appropriate dose, strength and formulation required. Clearly a branded generic falls squarely in between these two consumer expectations and manufacturers are trying to capitalize on this by offering retailers the ability to make larger profits through their mark-ups to patients.

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Research Design

This applied project is primary conceptual in nature. That is to say it relies on a wealth of secondary information via published journals, articles and media sources. The major databases to be included in the search will be Business Source Complete, SAGE, Google Scholar, Proquest Business database, CIA Factbook, ABI/Inform Complete, Academic Search Complete, Canadian Newsstand Complete, Factiva, Google search engine and YouTube. Considering this topic is relatively new and is gaining noticeably more attention with the “patent cliffs” and the gaping revenue holes that need to be filled; a search within the last fifteen years will provides sufficient background and context for this project. It is important to note that many of the very patents in question were formed about fifteen years ago and now many of them are due to expire which coincides nicely with the timing of this project and the appropriate subject matter area. Additionally the information on India is quite recent as the country continues to mould itself into a developed economy. Because of the rapid changes, most of the relevant information pertaining to this applied project can be found within a fifteen year time period as well. Historically on the other hand, the North American landscape provides for a much deeper frame of reference however for comparison the last fifteen year time period was used in an effort to demonstrate the impact of recent policy changes and their effect on the market. This strategy was more a function of trying to tie both macroenvironmental factors together in order to compare and contrast them in the analysis of the project. The goal of the literature review and associated research was to combine each aspect with coursework in a synergistic manner. The idea was not simply to gather and regurgitate data as a sort of “summary” report. Rather, the point was to gather information and tie it together with the readings and conceptual coursework material. Using the textbooks from the various MBA courses and study guide material was combined to create a focused and relevant analysis. Because the data used in this project is anticipated to be all secondary, there was no need to seek ethics approval from the academic counsel. Interviews and data will be gathered secondarily and will reflect this in the references. Analytical Tools and Frameworks Throughout the Applied Project several management frameworks were used in helping to further analyse both the macro environment and the factors involved in shaping the market. This portion of the applied project will rely on more organic thought and development, although much of this will tie into the literature currently available. Fundamentally, a better understanding of these variables should produce stronger recommendations and support my conclusion. This

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section will focus on providing some background on the various frameworks and tools used in the applied project. PESTEL Analysis The purpose of this framework is to capture the macroenvironmental factors involved in shaping the overall market dynamics. Each element of the analysis takes a slightly different approach in providing a well rounded frame of reference to the situation. Grant (2008) describes a PESTEL analysis as being a way for businesses to “scan” the environment and determine what is relevant within the macroenvironment to their current situation which is formed by ties to customers, suppliers and competitors. There are certainly aspects of this analysis that will vary depending on the region being identified; either North America or India. For example political unrest in the India may be extremely relevant to the branded generic firms looking to compete in the country. Similarly the evolution in policy decisions concerning pharmaceutical patent protection may be of significant if not critical importance to firms operating in North America. Hence, this analysis will focus on the relevant events that pertain to the pharmaceutical industry and more importantly their impact on branded generics. Porter’s Five Forces Michael Porter’s initial thoughts on how competitive forces shape strategy were formed in1979 and later expanded upon in 2008. In the realm of strategic management Michael Porter’s work is not only one of the most heralded academic frameworks, it is also particularly relevant to this applied project. The job of the strategist is to understand and cope with competition. Too often managers take a myopic view of what their competitive environment looks like (Porter, 2008). In order to better understand the complexities of the competitive environment Porter created a “five forces” model which outlines the competitive forces according to both horizontal competition and vertical competition. Horizontal competition can be defined as competition from substitutes, entrants and established rivals. The vertical component can be described as the influencing factors from both suppliers and buyers (Grant, 2008). Each group has the ability to influence the competitive environment depending on how strong they are relative to the other forces in play. The simplicity of the five forces model contributes immensely to better understanding the market dynamics involved in shaping the competitive environment. Porter (2008) makes a critical observation by remarking that the point of industry analysis is not to declare the industry attractive or unattractive but to understand the underpinnings of competition and the root causes of profitability. This is relevant to the applied project in that many generic manufacturers and branded generic manufacturers should not only

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consider the attractiveness of the market, but also how their competitors will shape the amount of profit they can generate. This is also relevant for large firms like Pfizer, Merk and Abbott who are looking to fill revenue gaps despite massive losses from their mainstay products losing patent life. Understanding the competitive environment through a five forces analysis will surely be of value to any manager who is considering entry into a new market space. Game Theory Leveraging competitive information from the Porters Five Forces Analysis provides a valuable tool in the armamentarium of any manager looking for insights into competitive forces. Once understood it should be leveraged to its full extend, however one of the drawbacks of the model is its failure to take into account the competitive interactions among firms (Grant, 2008). With that in mind this applied project will also include an analysis of market entry based on Game Theory. The idea is to create a balanced and well rounded set of analyses that compliment one another in a synergistic manner. Game theory is the true brainchild of brilliant mathematician John von Neumann who with the help of Oskar Morgenstern in the early 1940’s created the famous works titled Theory of Games and Economic Behaviour (Holler, 2002). These works focused primarily on individual rational players and conflicting interests. The “prisoner’s dilemma” is a classic game model and an example of how one competitor may choose to either cooperate or compete with another firm (Grant, 2008). One of the key outcomes between game theory and this applied project will be the ability to not only understand the competitive landscape but to also form a systematic and rational approach to market decisions. This is particularly relevant to both branded generic firms (Big Pharma) who are looking to enter a new market space but also to established generic manufacturers who may be looking to offer similar “me too” products to the same customer. This applied project explores the role of several game theory variables such as cooperation, deterrence, commitment, changing the structure of the game and signalling. All of these strategic choices will affect the outcome of the game and determine which firm will receive the highest payoff. The Nash equilibrium is of importance to this applied project as it suggests no player can increase their payoff by a unilateral change in strategy (Holler, 2002). With that in mind the role of cheating; particularly in India where social infrastructure is still developing could be an issue. How will branded generic firms charging a slight premium for their product win the game against low cost local generic firms who may be using any means necessary to produce an ultra low cost product? Cheating in game theory violates the predictability of the outcomes and could be a factor in this applied project.

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SWOT Analysis The SWOT analysis is a rudimentary tool that will help simplify the context of the discussion around branded generics. Specifically, this model will be applied to firms who wish to launch a branded generic in either the North American or India. The results from this analysis show where opportunities lay both in terms of internal structure and function and in terms of market exploitation and competitive weakness. These results also contribute towards strengthening the concluding remarks and recommendations. The strengths and Weaknesses of the firm must be explored in the context of relevance to the firm. The so called internal environment, which is predicated upon an examination of the firm’s main competitive characteristics include things like the firm’s major competitive advantages and where their performance may be lacking. This internal analysis will help shape what the overall firm looks like in terms of a competitive force in the marketplace relative to other firms. Exploring the opportunities and threats in question should be done to include those variables that are relevant to all firms in competition. These should include market variables and opportunities that are accessible to all firms. For example the increasing trend towards socialized healthcare in India may signal a major profit opportunity for all firms as their products begin to become more accessible to patients. As familiar as the SWOT analysis has become there remain some limitations to the model. Grant (2008), states that the SWOT analysis is a rather superficial model that simply classifies various attributes of the firm while failing to achieve any depth of the internal and external environment. Considering its limitations the SWOT analysis will still provide a valuable snapshot of the market and the firms that compete within it.

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Results

The literature search revealed a wealth of information about the North American marketplace. Specifically the information was relatively abundant regarding the macroenvironment including facts and figures to support the PESTEL analysis. There were a number of very relevant sources that addressed the lingering issue behind the Hatch-Waxman act and branded generics in the market. Where sources became scarce was in the search for the future of branded generics in the North American marketplace. There remained relatively few sources that could define with any manner of precision their future impact and revenue potential. This left the question of how applicable branded generics may actually be in North America moving forward and provided a limitation in shaping the scope of this applied project. The scope of the applied project was defined as one that reflected the current market situation and not one that could forecast the future impact of branded generics. The literature search of the Indian marketplace provided an abundance of data related to the macroenvironment. As part of a growing economy there was alignment from multiple sources on the growing demand for quality healthcare in India. As well the literature search revealed the stark contrast to the North American market both in terms of economic factors but also in terms of legal, political and social expectations. The results of the literature search noted that there was such a lack of regulation in many aspects of the Indian economy that corruption at many levels is apparent. The corruption and lack of social infrastructure was found to be a hindrance not just for new entrants, but also to established rivals as well. From a historical context both the branded pharmaceutical firms and generic manufacturers held opposite positions in the market. The literature search revealed an interesting paradox about the global pharmaceutical industry in terms of rivalry. First that multinational companies also known as Big Pharma were solely research and development companies trying to recoup costs. Secondly, the generic firms were solely a manufacturer trying to limit costs in order to compete solely on price. The data now demonstrates that each firm will have to take on a broader scope of practice in order to remain competitive in the industry. No longer can one or the other afford a myopic view of the marketplace or their own operating structure. This will pose unique challenges for both companies who are entrenched in their respective roles. It may mean a reorganization of resource deployment and more dynamic strategic thinking from within the industry. Finally the research was conclusive in determining that branded generics in India and to a smaller extent in North America will play a role in filling the revenue gaps of multi national pharmaceutical companies. However due to the fluctuation in the global economy the definitive results are relatively unknown.

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Analysis

For simplicity and clarity, the analysis is split into two themes analysing both the North American and Indian marketplace. In both cases it is presumed that Pfizer is the company wishing to enter the market and therefore this analysis is based on factors relative to that company. A SWOT analysis has been included in each section to provide the reader with a snapshot of the competitive environment and where the potential lies for Pfizer. North America

Pfizer - SWOT Analysis

Strength Weakness Globally recognized brand Established supply chain and

distribution channels Key influencer of political figures and

policy decisions Possess first mover advantage under

hatch-Waxman act No need to file an ANDA (cost savings)

Ability to set price Vertically/backwards integrated Significant financial and legal

resources at its disposal

Minimal generic market experience Bureaucratic company with very long

(vertical) hierarchies and approval processes

Bulky operating structure and rigid operational structure – lack flexibility or speed

Higher overhead and operating costs relative to generic firms

Opportunity Threat Stable political environment – relatively

democratic and not overly corrupt Payers favour a generic medicine due

to cost Economic recession places more

burden on Medicare and emphasis on low cost medicine

New industry value proposition with branded generic

Technically adept and reachable target market for marketing purposes

Strong legal environment in the U.S encourages patent protection

Relatively weak patent protection in Canada

Weak patents can be challenged and provide costly legal battles

Generic manufacturers possess market expertise and the operating model to succeed in a generic environment

Payers demanding lowest prices for medicine

The SWOT analysis at first glance appears to heavily favour Pfizer’s entry into the North American market with a branded generic product. The key is their ability to navigate the legal, political and payer hurdles successfully. Pfizer has advantages in terms of production and distribution capabilities, but its ability to leverage financial and legal resources should definitely not be overlooked. Pfizer can leverage its globally recognized brand and capitalize on the opportunity to introduce a new value proposition to its paying stakeholders. Ultimately a company like Pfizer has roots deeply entrenched into research and development

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which lends credibility in justifying where the price is set. Pharmaceutical innovation has very little government intervention and society as a whole relies on the industry to produce new and innovative ways to improve healthcare. Pfizer is an integral part of this process and can provide leverage over generic manufacturers come policy decision time. Their value proposition is one of respected quality and prosperity for future health outcomes again allowing them to justify the price with paying stakeholders. The analysis of the literature review made it clear how important the political and legal landscape is in North America. Considering the intense legal framework surrounding patent protection and its ensuing litigation it is a crucial priority for Pfizer. Not only do policy decisions have profound impacts on profits, but they also shape the underlying rules of the game. The Porter’s Five Forces model demonstrated that there are clear threats from entrants, substitutes and buyers creating a fiercely intense rivalry among competitors. The model also demonstrated a power shift from pharmaceutical company to the buyer group in the generic environment. The buyers are a sensitive and demanding group of stakeholders that value good healthcare at the lowest possible cost. Pfizer employs several tactics related to Game Theory which credibly deter new market entrants. Their tactics rely on a deep understanding of opponents and their relative predictability and ensuing outcome. Pfizer can rely on its tremendous size to out muscle would be competitors by monopolizing supply chains and stifling market entry. Their strategies serve to position them as defender in this hostile environment. By levelling the playing field they can force generic manufacturers to raise costs and diminish their profitability. Although Pfizer has used a number of tactics to blunt the erosion of profits from generic firms, it seems that the courtroom is ultimately where the battle will be won or lost.

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India

Pfizer - SWOT Analysis

Strength Weakness Globally recognized and trusted brand

name Established sales force – information

conveyance and key influencer Established Products portfolio with vast

product offering Significant financial and operational

resources

Relatively little experience competing against generic manufacturers

Lack an established supply chain and distribution channels

Little to no foothold in either the political or legal environment

Opportunity Threat Large and growing population of brand

conscious consumers English is recognized as the language

of business High need for basic healthcare

products such as vaccines and oral contraceptives

Technological uptake is high from consumers facilitating access to target market

Several well established FDA approved manufacturing sites

Consumers fear quality issues among generic products and counterfeits

Few barriers to market entry Readily available suppliers and

educated workforce

Corrupt and volatile political environment

Basic infrastructure is still lacking in crucial areas such as roadways

Crime, poverty, healthcare and basic education are sub optimal

Weak patent laws are poorly enforced Low per capita spending on healthcare Presence of counterfeits violates

consumer trust and dilutes the market Oversaturated market with little to no

differentiation beyond price

The SWOT analysis reveals a long list of opportunities for Pfizer despite the potential for failure. The analysis reveals an obvious cry from consumers who have fuelled a demand for quality, low cost medicine. Although many manufacturers and perhaps even some counterfeiters may offer this promise to patients, there truly is a lack of trust from consumers and a lack of market leadership from drug producers. This is important because it reflects the lack of differentiation among competitors due to the relative ease of market entry and the focus on price. Examining the lack of trust from consumers we can see that consumers make quality determinations based on price. Consumers generally believe that a higher priced product relative to others in the same category reflects a superior product. Branded generics fill this void and crate a market space unto themselves through their unique value proposition. What Pfizer will find attractive about the Indian market is the enormous revenue potential from the large population. Although their incomes and socioeconomic status levels do not compare to North American or European standards, the sheer volume of potential patients is a magnet for the industry. As the economy

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continues to drive forward, so too will the paying potential of patients. In addition Pfizer can quickly enter the market by using its vast financial reserves to purchase manufacturing and distribution capabilities in India. Rather than start from scratch Pfizer has the opportunity to literally purchase marketshare and make use of the many FDA approved manufacturing sites. The Porter’s Five Forces model was instrumental in demonstrating the challenges that lay ahead for Pfizer. Key findings from the model indicated that entry, substitute and buyer forces have created a unique competitive environment where each player is focused on simply entering the market. There remains a lack of industry power as a coalition force which does little to change political or legal landscapes. This does not bode well for Pfizer who typically has an advantage in these areas as demonstrated in North America. Pfizer will have to win the war by leveraging its sales force and brand, incenting distributors and marketing its products to create an entirely new market segment where it can then act as a defender.

Recommendations

Using Pfizer as the example throughout this project has allowed for a more specific and relevant example of a pharmaceutical company looking to breach a new market. It also demonstrates how profits can be salvaged in existing markets using branded generics. With that in mind the recommendations will be tailored specifically to Pfizer reflecting both the North American and Indian markets. The recommendations presented below are created using the principles of the SMART acronym. This stands for Specific, Measurable, Achievable, Realistic and Timely. These recommendations are a reflection of both the literature review and the analysis presented in this report. Most importantly they aim to leverage Pfizer’s key strengths to maximize opportunities while also minimizing weaknesses and diminishing threats. The Recommendations for Pfizer in North America are as follows:

1. Be first, be fast: Gaining the first mover advantage is critical in capitalizing on both the Hatch-Waxman 180 day patent protection and in setting the price. Pfizer should anticipate the loss of patent from its key brands and establish a branded or authorized generic launch. The launch should surprise generic firms who may be trying to time the patent loss with their own product; therefore 3-6 months prior to patent loss is when the branded generic should be launched.

2. Create value where it matters most to stakeholders: The branded

generic should reflect the realities of stakeholder expectations which are quality products that are known to be safe and effective. Above all they must be priced to reflect the expectations of generic product and not one

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that is trying to recoup development costs. Pfizer should offer its products at a 20 percent premium to generic firms to reflect the additional value for consumers. Using direct to consumer advertising, Pfizer should promote therapeutic choice for patients and commit via this advertising to assist with their insurance co-pay. This should be done at launch and continue throughout the profitable lifecycle of the product.

3. Collaborate to win marketshare: In order to gain marketshare it will be

critically important to establish manufacturing and licensing agreements with generic manufacturers to create branded or authorized generics for distribution. This profit sharing approach will ultimately allow Pfizer to keep its prices higher than if there was no collaboration. Pfizer should try and maximize these situations with products that are easily copied and where it cannot control the supply chain to its advantage.

4. Create a disruptive atmosphere for competitors: In order for Pfizer to

compete in this market space it will need to develop a series of disruptive innovations to thwart competitive actions. First, Pfizer should challenge all attempts to infringe on their copyright and continue to patent each aspect of the drug and the manufacturing process including the packaging. Secondly, Pfizer should commit to a Citizen’s Petition with each challenge to its products in order to delay the launch of a generic competitor. This should be done at the very last moment towards the end of the 180 Hatch-Waxman period in order to preserve market exclusivity further. Third, Pfizer should leverage its lobbying power to enforce policy protection surrounding the use of its branded generics and to ensure a prosperous future regarding the research and development of future medicine. These tactics will force generic manufacturers to increase their production costs and eventually may reshape the generic landscape altogether creating a more favourable climate for Pfizer to compete in.

The Recommendations for Pfizer in India are as follows:

1. Establish a visible market presence: By 2015 Pfizer should aim for a 20 percent country marketshare considering the number of products in its portfolio exceeds 300. Pfizer should leverage the use of mobile phone technology to market their products and deploy their sales force to act as key influencers of prescribers and distributors to favourably position their value proposition with patients. The Pfizer name is globally recognized for quality and innovation. These attributes should be leveraged through extensive marketing campaigns in order to raise awareness and differentiate from the competition.

2. Be nimble and responsive to change: Competing against generic firms

means Pfizer needs to reshape their organizational structure to be flatter. In doing so they shorten the approval and decision process, creating a

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faster, leaner organization. The country should have no more than two levels between sales representative and general manager. This will ensure Pfizer can quickly redeploy targeted messages and marketing campaigns to keep up with the evolving market.

3. Collaborate with industry and government: Pfizer is a global leader in

the healthcare industry, however in India there remains a lack of industry leadership. Not only is this important to establish by 2014, but it will serve to align the needs of the industry with those of government. Ultimately having a stakeholder position with government entitles Pfizer to a share of voice and an opportunity to shape the competitive landscape moving forward. Pfizer should establish links with patient groups and healthcare associations to entrench its leadership position and gain supporters of its mission.

4. Leverage local capabilities and talent: The Indian government has

announced significant tax savings for foreign investors looking to establish a presence in India. With a wealth of English speaking, low wage, college educated workers to choose from, Pfizer should aim to have 90 percent of its workforce local to the country. This will serve them well as local workers eliminate the need for culture training and relocation allowances for foreigners. This also ensures wage costs are low and contribute to keeping overhead costs to a minimum.

These recommendations reflect the need for Pfizer to buffer its profit losses in North America which represent its largest revenue source. It also demonstrates the tremendous opportunity for growth and profitability in India which can be capitalized upon in the near future. The simultaneous approach of these actions will diminish the potentially steep profit losses that Pfizer could assume.

Conclusion Stepping into the realm of generic pharmaceuticals requires a shift in strategic thinking and tactical execution. As the pharmaceutical industry looks towards the future there stands an opportunity perhaps once never before contemplated with branded generics. The global demand for healthcare remains an ever-present opportunity for firms like Pfizer to rise to the challenge of reshaping and re thinking their organization. This project embodies the collaborative efforts from a number of different sources. A thorough literature search was conducted using several research databases and sources to uncover insights about branded generics and their use as an instrument to salvage the profits of pharmaceutical companies. The literature search was guided by four key research questions which aimed to explore the role of branded generics in both the North American and Indian market. The literature search was then further refined through the use of a

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PESTEL analysis to uncover the macroenvironment and even further through a Porter’s Five Forces analysis. These tools were instrumental in discovering the main opportunities and threats in each market as well as the competitive forces at work. Finally the use of Game Theory detailed the strategic means firms use to shape the market and grow market share. The literature search combined with the analytical tools uncovered a number of unique characteristics about each market. The findings suggest that branded generics play a unique role in both North America and India but ultimately serve to slow the erosion of profits in North America and grow the market in India. The findings also determine that the payer is ultimately the most important stakeholder regardless of the market. Their demands serve to shape the pharmaceutical market by determining the price for the products. The results were conclusive in determining that in North America it is the legal and political landscapes that must be dominated. However in India success will be found by leveraging brand awareness and acquiring other firms to create a market presence. Based on an assessment of the information found in both the literature search and the analysis a set of recommendations was developed. These recommendations included four guidelines for Pfizer’s successful use of branded generics both in the North American and Indian marketplace. The recommendations incorporated elements of the analysis which included a SWOT analysis to outline noticeable trends and establish a course of action. Although the healthcare markets are vastly different between North America and India there remains common ground in improving global health outcomes. The current environment is one of change and evolution for an industry that relied heavily on consistent innovations for years. Now it must face uncertainty and decide how to maintain the delicate balancing act of supplying the world’s pharmacy while keeping shareholders smiling. One thing remains certain however; that branded generics are a truly unique innovation representing a historical shift in the way the pharmaceutical industry delivers its value proposition.

Appendices

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Demonstrating the mark-up (percent) of branded generics in India (highlighted in yellow) Singal, et al.: Evaluation of Branded vs. branded-generic medicines

Table 1: Comparative price structure of Branded and Branded-generic medicines Trade name of medicine Pharmacological name, Manufacturer PTR (1x10) MRP (1x10) Mark-up (retailer)

strength and dosage form Cetirizine HCL 10 mg/tab Alerid tablets (B) Cipla INR 27.16 INR 35.31 30

Cetcip tablets (B/G) INR 2.24 INR 25.00 1016

Fludac capsules (B) Fluoxetine HCL 20 mg/cap Cadila INR 29.80 INR 37.26 25

INR 6.00 INR 28.00 Cadflo capsules (B/G) 367

Ciprobid tablets (B) Ciprofloxacin 500 mg/tab Cadila INR 54.84 INR 68.56 27

INR 15.00 INR 68.56 Ciprodac tablets (B/G) 357

Lanzol-30 capsule (B) Lansoprazole 30 mg/cap Cipla INR 42.36 INR 53.77 27

INR 15.68 INR 47.25 Lansec-30capsule (B/G) 201

Restyl tablets (B) Alprazolam 0.25 mg/tab Cipla INR 11.85 INR 14.82 25

INR 2.20 INR 11.34 Tranex tablets (B/G) 415

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