Techdirt.com had this post this morning commenting on brand name drug pricing -- particularly for those drugs approaching the end of their patent life. Though this blog can be a bit hysterical many times when it comes to the pharma industry and it perceived negative behaviors - the second part of this post makes an interesting point for marketers to consider.
The observation is that companies with brand name drugs that are about to come off patent are tending to raise prices more dramatically on those drugs compared to their whole portfolio -- presumably as they have more of a monopoly position while the last vetiges of their patents are in effect. The blog asks if this is short-sighted profit taking?
The blog also notes that historically brand-name drugs, due to their previous marketing/branding efforts, tended to still be able to claim a price premuim in the market over generic competitors. So in raising the magnitude of that premium now, aren't these marketers making it even more attractive for consumers to switch quicker when a generic becomes available? Effectively, is raising prices signifcantly prior to patent expiration just a recipe for causing quicker conversion to competitive products when they are available?
Would companies in fact be better off, maybe lowering price slightly towards the end to make price differences less dramatic when the generics came in (though this depends on prices generic companies woudl choose to offer as well) and rely on that branding to carry the day in holding on to more share when the competition hits? Isn't that what branding is for anyway? To increase perceived value of a product.
It would be interesting to analyze because I think the recent data shows that generic conversion is happening much quicker now. In part, is that due to price increases on a product shortly before patent expiration? Or is the bigger factor, the reality that more third party payers are much more organized in making the switch to generics happen sooner. Either way, does a big price increase just prior to patent expiration or a moderation of pricing to better compete with generics result in a bigger total profit for the drug in question.
It's interesting to contemplate.
Posted by Bruce Lehr April 8th 2011.