Presentation Transcript

1. Loss of Exclusivity (LOE) Management for Branded Products Returns Forecasting Monday, March 4| 3:30 PM-4:30 PM Ed Crimmins, Partner, Kindler & Crimmins Associates, LLC Steve Kindler, Partner, Kindler & Crimmins Associates, LLC
2. Session Objectives Discuss the impacts of Loss of Exclusivity (LOE) events Review HDMA’s LOE: An Inventory Management Case Study report Project overview Challenges Findings
3. LOE Event Definition A branded pharmaceutical product with an expiring patent is facing new competition from one or more generic manufacturers selling equivalent product at a fraction of the cost of the branded product.
4. Why Study LOE Events? The ‘Patent Cliff’- Drugs having $77bn in annual 2010 US sales will undergo an LOE event during the next 10 years Over 82% of that number going in the next 5 years. * 27 significant drugs were scheduled to lose patent protection and marketing exclusivity in 2012 and another 14 in 2013** * Non-Foods Magazine, “Drug Patent Expirations”, Volume 15 No. 1 2012-2013, Pgs. 153-154. ** 2011-2012 HDMA Factbook, “Table 95 Brand Patent Expirations: 2012-2013”, 2011, Pgs. 84-85.
5. LOE Impact by Year Source: “Drug Patent Expirations”, Non-Foods Magazine, Volume 15 No.1 2012 – 2013, 153-154.
6. LOE Conversion In 2006, branded drugs accounted for 36.6% of the prescription count and 80% of the prescription sales dollars.* By 2010, the branded prescription count had dropped to 22.4% while the prescription sales dollars dropped to 74.6%.* The pace of this movement is dependent on many factors, but is quickening with almost every LOE event. * 2011-2012 HDMA Factbook, “Table 89 US Prescription Drug Market Share by Generic and Branded Pharmaceuticals: 2006-2010”, 2011, Pg. 79.
7. Historic LOE Business Model Leverage robust pipeline to replace negative sales impact of LOE Pipelines can no longer be counted on to replace LOEs Sell what you can while you can Future impact of returns not fully considered or appreciated- “We’ll worry about that when the time comes.” Increase product cost to offset sales decline Historic price increases may contribute to ‘investment’ or speculative buying of LOE product
8. Significant Financial Impact LOE accelerates and magnifies the impact of reduced demand Options are limited once generic hits the market Merchandise will often sit until it expires All stakeholders have a shared goal Increase inventory productivity Reduce product returns No negative impact on sales or customer service
9. Project Beginnings Return Roundtable Held at conclusion of 2011 Product Lifecycle Management seminar Goal to identify case study opportunities based on the ‘Understanding the Drivers of Expired Pharmaceutical Returns’ report Loss of Exclusivity Overwhelmingly identified as the greatest potential case study opportunity Presents an opportunity for a collaborative effort between all trading partners ‘LOE: An Inventory Management Case Study’ project was commissioned by HDMA
10. LOE- An Inventory Management Case Study Goal To help trading partners better communicate and manage inventory before and after LOE event, ultimately reducing unproductive inventory and eventual unsalable / outdated return volume.
11. LOE- An Inventory Management Case Study Overview An exploration of how trading partners may be able to better communicate (both internally and externally) in order to improve management of the typical LOE sales and return trends Based upon an analysis of historical LOE events, the report identifies strategies a company can use with its trading partners to mitigate onhand inventory levels and reduce the volume of future expired product returns
12. LOE- An Inventory Management Case Study Overview The report is solely focused on analyzing and developing successful strategies for fixed date LOE events ‘At risk’ launches do not allow trading partners to prepare for and execute pre-launch activities aimed at proactively reducing and managing inventory levels
13. Any Surprise?
14. Questions We Hoped to Answer Is a collaborative model between the manufacturer, distributor, and retailer possible? Can an LOE event be managed and controlled by following a structured, well communicated plan? Do data and findings support established assumptions and theories?
15. Background Manufacturer and distributor members of the HDMA’s Returns Task Force, along with representatives of retail pharmacies provided subject matter expertise and / or data for the report Kindler & Crimmins Associates (KCA) acted as the clearing house for the collection of data and information
16. Background KCA compiled and analyzed the data and authored the report Due to the sensitivity of the subject matter and the proprietary nature of the data and information provided All data has been de-identified. No participating companies are identified in this presentation or the final report.
17. Sources of Information Manufacturers LOE Product and Attribute Information Sales and Return Data Process Interview Distributors Sales and Return Data Process Interview Retailers LOE Event Process Questionnaire Process Interview
18. Why Retail Focused? Inventory Management Agreements between manufacturers and distributors have successfully reduced inventories while providing increased visibility to distributor inventory Most manufacturers and distributors have identified retail returns as the ‘black hole’ Retail pharmacies (chain, mass, independent and food stores) represent approximately 55% of the pharmaceutical market share (2010 sales dollars)* * 2011-2012 HDMA Factbook, “Table 109 Pharmaceutical Sales by Customer Categories: 2009-2010”, 2011, Pg. 79.
19. Retail Process Information Participating retailers were asked to complete an LOE Event Process Questionnaire The responses detailed significant retailer handling variations that appear to have impacted product return rates This information was extremely helpful in identifying successful practices that resulted in lower rates of returns
20. Retail Process: Prior to LOE
21. Retail Process: Prior to LOE
22. Retail Process: Post LOE *Total is greater than 6 since retailers communicate multiple messages related to this topic.
23. Retail Process: Post LOE
24. Retail Process: Post LOE
25. Data Analysis Background for the LOE Event Specific information for each product Sales and Return Analysis Illustrate the timing and pace of sales decline related to the LOE date Establish the return baseline prior to LOE Retailer Returns Total Returns Illustrate the total returns (raw dollars) for each participating retailer Adjusted Returns Illustrate the return rate, adjusted for company pharmacy sales, for each participating retailer
26. Product 1 Analysis Background information: Manufacturer handling: No inventory management plan Generic competition: Multisource immediately Product dating at LOE: ‘Normal’ dating- 18-24 months of shelf life
27. Product 2 Analysis Background information: Manufacturer handling: Basic inventory management plan Generic competition: Single source initially Product dating at LOE: ‘Long’ dating- 30+ months of shelf life
28. Product 3 Analysis Background information: Manufacturer handling: ‘Aggressive’ inventory management plan Generic competition: Single source initially Product dating at LOE: ‘Long’ dating- 30+ months of shelf life
29. Product 4 Analysis Background information: Manufacturer handling: ‘Aggressive’ inventory management plan Generic competition: Single source initially Product dating at LOE: ‘Long’ dating- 36+ months of shelf life
30. LOE Management Challenges- Manufacturer Retail sales data limitations Lack of pharmacy level inventory information LOE date is known, but not necessarily the entrance date of LOE competitors Retailer identification of return data Completeness of return information
31. LOE Management Challenges- Distributor Completeness of purchase information Completeness of return information Evolution of data warehousing and reporting
32. LOE Management Challenges- Retailer Pharmacy specific inventory may not be captured or available at the NDC level Lot and expiration information is generally not captured or tracked at the pharmacy level Lack of available data There is a significant disparity in inventory productivity between pharmacies Certain product attributes may limit ability to transfer excess inventory DEA Scheduled products Refrigerated products
33. LOE Management Challenges- All Trading Partners Other Factors Impacting Conversion: Single-source vs. Multi-source generic Acute vs. Maintenance Titrated and neurologic product
34. Project Findings Key elements in successful programs: Planning Communication Measurement
35. Project Findings Planning Planning should be initiated far in advance of the LOE event to create detailed handling plan All affected internal departments and stakeholders should be involved.
36. Project Findings Communication Internal communications to avoid departments working in silos and at cross-purposes External communications to ensure that each trading partner is aware of the plans of the other trading partners Includes the sharing of both information and data on a regular basis before, during and after the LOE event
37. Project Findings Measurement Establish a baseline that all can agree upon. Regularly measure progress and performance. Allows trading partners to assess their respective performance against their plan.
38. Successful Management Illustration Manufacturer informs distributor/retailer of LOE and relevant dates Each trading partner holds internal meetings to develop handling plans Distributor/retailer share inventory information and handling process with manufacturer Replenishment orders closely monitored
39. Successful Management Illustration Retailer communicates conversion and inventory information with manufacturer Retailers utilize all available return and redistribution opportunities Manufacturer works with distributor/retailer to address non-moving, residual inventory prior to product expiration
40. Other Manufacturer Approaches Aggressive replenishment management prior to LOE Inventory reduction Potential out of stock situations Shift of responsibility Limit return liability through policy changes Retailers bear burden Does not reduce inventory or future return volume Continued sales effort Increased sale of branded inventory Inventory and return impact not known at this time
41. Conclusion There is no silver bullet! Each LOE event has its own unique circumstances that must be considered There is no ‘one size fits all’ approach that will work for every situation Proactive planning and sharing of information is critical Anticipate obstacles and challenges and adjust plans accordingly
42. Closing Questions? Report copies will be available through HDMA Contact Information: Steve Kindler 717-439-1954, skindler@kindler-crimmins.com Ed Crimmins 717-884-6128, ecrimmins@kindler-crimmins.com Website www.kindler-crimmins.com