Pharmaceutical Branding Leave Them Vulnerable to Generics

Pharmaceutical companies have historically been product focused. While the companies might talk about marketing, they are really sales organizations. Sales companies view themselves as product developers who push their products at a market. Drug companies take products from R&D and detail them to doctors. A marketing company would be more focused on customer needs and relationships and would measure themselves not by sales, but rather by customer satisfaction and retention.

Obviously, pharma companies are heavily regulated and the concept of customer attraction and retention might be a bit alien. Some would argue impossible. I would argue the opposite. Because of the way pharma companies see their value, they brand products with no connection to the parent company, which leaves them highly vulnerable when their patents expire and generic companies enter. When that happens, the market immediately becomes commoditized, i.e., dependent on price.

Pharma companies have screamed for years about the fact that they develop the drugs, investing, on average, $800 million and 12-years to bring a drug to market. Those are those that succeed through Phase III. There are many failures along the way. The heavy investments by drug companies in R&D has made the US the leader in pharmaceutical innovation.

Think about the intangible asset value of a research-based pharma company. They have the organization, the people, the resources and the ingenuity to develop life-saving drugs. It bewilders me, then, that these companies do build their corporate reputations and instead focus on product branding. Product branding is typically done because the scope of brands of the company and the number that compete with one another lend themselves to letting the product carry the value. This is a consumer products model. There is little value in the company. The value is with the product.

In more scientific companies, we typically find masterbranding or endorsed branding, where the company associates itself with the product because the customer finds value in the company behind the product. One would think that this would be the case for pharma companies. If there is significant intangible value in Merck, Novartis, Pfizer, Genentech, AstraZeneca, etc., etc., would it not be smart from a branding perspective to utilize that equity in their branding strategy?

This has not been the case in pharma. So, when the patent expires, generic companies can seize more value than they should be able to grab because the value was almost totally within the product. If there were association to the parent, it would be more difficult for the generic company to take as much value. There could be an opportunity by the original manufacturer to differentiate on value rather than price alone. Pharma companies always try to make the claim that they were the original discoverer and distributor of the drug. Why would they not invest in bringing that value to the market more forcefully? It could prove to be a turning point for many companies that creates a barrier to generics. While they would likely still loose the patent to a generic company, they would be able to maintain more of the real value in the drug for a longer period of time.

Challenges for the Newly Merged Pharma Companies

The consolidation in the pharmaceutical industry continues. It is interesting that last year at this time I was teaching a Pharmaceutical Marketing MBA class and said that consolidation was predictable. Most of the students, all mid-level at pharma companies in various disciplines outside of marketing, pushed back that this would not happen. I think it was more of a wish on their part rather than good market observation.

Anyway, the consolidation has been going on and will continue. We likely are moving to what the Boston Consulting Group called the "Market of Three". That is, as an industry matures, consolidation occurs until there are three major broad players, with a group of niche players.

There are huge opportunities awaiting these newly formed companies to enhanced their perceived value with stakeholders. When a company says they will be the "new ..., they are in fact framing expectations for stakeholders that something will be different. That is, there will be new attributes, associations and experiences that were there previously. From a brand and reputation perspective, this is a double-edged sword. On the one-hand, these companies can get out of the starting gate with new positioning, brand and reputation initiatives designed to prove that they are in-fact new. Or, they can simply hope that new means that they will be accretive at some point in their financial performance, which I would argue is insufficient to prove their newness.

I would hope that these companies are looking at how they created value before, individually, and how they will be creating value going forward; that they reidentify for themselves and for others their strategic group with which they compete; that they engage in organizational change efforts to bring the new cultures into alignment (60-70% of mergers fail due to culture clashes); and that they look for ways to enhance their reputation with there key stakeholders.

It will be interesting to see how many of these companies do anything more than simply try to tell people that they are new.