In the past 20 years, the pharmaceutical and home and personal care markets have emerged as some of the most dynamic and competitive in the world. Advances in technology, the growth of the global marketplace and increased competition between products have all driven changes to industry practice. Brand New Challenge discusses the importance of brand for IP in the pharmaceutical, home and personal care industries. Using case studies from market leaders and expert insight, this paper brings together thoughts and opinions from key industry figures and looks at how these changes have impacted on the use of trademarks and branding in these two key sectors.
By Benedict Ely, Trademark Business Manager at CPA
White Paper Contents
The pharmaceutical industry faces significant challenges regarding trademark and brand management, not least because investment remains heavily biased towards research and development (R&D) and patent registration and protection. However, growing pricing pressures and new regulatory demands, in addition to the ever-present countdown to patent expiry for key products, look set to further change the manner in which products are created and marketed. In order for pharmaceutical companies to retain their competitive advantage and premium pricing, effective trademark and branding strategies must be employed.
Patents are Essential but They Expire
In this industry patent protection is undeniably a critical asset. It gives companies exclusive rights to manufacture a patented product, which is necessary to recover substantial R&D investment. For this reason, companies operate sophisticated patent protection strategies throughout the term of each patent and are willing to devote further investment to lawsuits against allegedly infringing manufacturers.
However, once a drug's patent has expired, exploiting the life cycle of a product becomes a much more difficult proposition. More often than not, the loss of patent protection has a significant financial impact on a company's bottom line.
As a result, when a drug goes off patent, companies rarely seek to back the existing brand, instead working to offset the loss in revenue by reallocating their sales forces and marketing spend to other, patent-protected variants, or by launching their own generic versions. However, there is no assurance that this strategy will be effective in the long term. Indeed, as Margaret Lewis, patent attorney at Stephenson Harwood, explains: 'Until quite recently, it was common practice for pharmaceutical companies to support their product until about three years before its patent was due to expire. They would then launch a variant of the original product, protected by a new patent (for example, a different salt, or isomer, of the active ingredient). They would then market it as a newer and better product, although the clinical evidence to support the claimed benefits was often thin, and the validity of the later patent was sometimes questionable.'
Strict controls make R&D expensive
All pharmaceutical companies are subject to stringent controls on the development, manufacture, marketing, labelling, distribution and pricing of their products. All R&D activity is heavily regulated, which means the process for a product to reach the marketplace is lengthy and expensive. In addition, companies must obtain and maintain regulatory approval for each jurisdiction they target in order to bring a product to market - a process which generally takes from six months to several years from the date of application.
As a result, not all products will make it to market. As Pfizer stated in its 2004 Annual Report: 'Discovering, developing and testing a new medicine has rightly been described as the riskiest research process in the world. The average time taken to develop a new medicine has increased from six years in the 1960s to 12 years today, mostly due to the added safety and therapeutic value studies that are now integral to the drug's approval and acceptance. The number of new drugs approved by the US FDA has been declining, down to 17 in 2003 from a high of 53 in 1996. One harsh reality: about half of all new drug candidates fail in the late stages of clinical trials, after the bulk of R&D costs have been incurred.'
Fighting off the generics
In addition to patent expiration and regulatory issues, new entrants in the form of generics are another big issue for pharmaceutical companies. Generic drugs must be bioequivalent to the brand name drug: equivalent in ingredient, dosage, strength, route of administration, safety and intended usage. However, generic manufacturers are not seeking to recover heavy R&D costs, and as a result are able to charge significantly less than the original brand, so eroding the premium brands market share. 'Because brand life is tied very closely to patent life in the pharmaceutical sector, pharma brands are relatively short-lived,' says Tom Blackett, Deputy Chairman of the Interbrand Group. 'Not all pharmaceutical brands disappear when their products' patents expire, but such is the pressure from cheaper generic products that expensive brand marketing becomes no longer financially viable, and brands rapidly dwindle.' One way that branded pharmaceutical companies have responded to this increased competition from generic products is by licensing their branded products to generic companies (the so-called 'authorised generic').
'In terms of its audience, a brand is far more than just a name, logo or advertising jingle; these are merely triggers of recognition. A brand is a highly compressed "bite" of information containing numerous messages. These messages are informed by personal experience of the product, by communications, by the purchasing environment, by the packaging and opinions of others. If the overall impression of the brand is positive and a need exists, then the doctor or consumer may consider selecting the brand.'
TOM BLACKETT
Looking beyond the patent
To deal with the issues of patents expiring, loss of monopoly, premium pricing and generics encroaching on sales, pharmaceutical companies should focus on building a brand from the outset. If they develop a plan early on, the product can be leveraged beyond patent expiration. By developing the patent first and then building the brand and strengthening it over a 10-year period, this should ensure that when the patent expires the end users have already bought into the brand values. This means they will remain loyal to the brand, despite the emergence of competing, lower-cost products on the market. 'In terms of its audience, a brand is far more than just a name, logo or advertising jingle; these are merely triggers of recognition,' says Tom Blackett. 'A brand is a highly compressed "bite" of information containing numerous messages. These messages are informed by personal experience of the product, by communications, by the purchasing environment, by the packaging and opinions of others. If the overall impression of the brand is positive and a need exists, then the doctor or consumer may consider selecting the brand. If the user's experience of the product is positive and the brand lives up to its promise, then beliefs about the brand are reinforced and further selection is likely.' Some pharmaceutical brands can outlive patent expiry. Ventolin is still a highly popular and much-prescribed treatment for asthma - and, famously, Viagra remains the best-known treatment for male impotence. 'This is largely because both brands in their time were revolutionary cures, and both enjoyed "first mover" status', says Tom Blackett. 'Viagra created the market for such products and, because the whole area is one of great fascination, its name has become synonymous with the genre.'
Viagra owes its immediate success to patent protection and to an effective, mass media awareness campaign. However, having built a strong product, Pfizer did not stop there, but instead, ensured its long-term return on investment by planning past patent expiration, both by building a brand, and by implementing a communication strategy tied to the long-term benefits of improved family life and relationships. As a result of this bond with the consumer, Pfizer is able to fight off other competing drugs that come onto the market. 'Essentially in terms of return,' says John Peacock, trademarkattorney at Eric Potter Clarkson. 'It all comes down to marketing spend. Viagra instantly blitzed the market and reaped the rewards, but for most companies it takes years to build up a reputation.'
Trademarks last for ever
Unlike patents, trademarks have the advantage that they can last for ever. As John Peacock emphasises: 'Corporations, no matter their industry, should be making the most of the rights provided by trademark registration by registering their brand in its most distinctive form, including name, logo, shape and colour and so on. This will make it difficult for other companies to produce products that echo the registered qualities. If they do create imitation products, the trademark right owner can then pursue them for infringement, a situation which cannot take place in the field of patent protection once the patent has expired.'
However, pharmaceutical companies can find themselves in a complicated situation when it comes to creating branding strategies for products in the R&D pipeline. As John Peacock explains: 'Pharmaceutical companies should be thinking about registering trademarks during product development, but instead tend to wait until clinical trials are completed, just in case the products don't make it to market. While this makes sense on one hand; on the other, it means that those products that do make it through to launch have to be quickly branded and the relevant trademarks registered.'
For this reason, most companies will have protocols and procedures in place based on the estimate of time it will take to get to market. GlaxoSmithKline, for example, has a Global Pharmaceutical Trademark Development Process. Its procedures cover timelines for registrations and prescribe the details of how trademarks are needed, evaluate the importance of components, such as sub-brands, and assess the benefits and availability of a global brand. (Source: 'Watch your marks: trademark protection at GlaxoSmithKline', IP Review, issue seven)
Leveraging brand equity
It is clear that the pharmaceutical industry as a whole needs to take a more strategic approach to developing new brands, and to managing established brands to maximise competitive advantage.
As Rebecca Robins, Global Marketing Director of Interbrand Wood Healthcare, explains: 'As equity in the brand name can be leveraged, so can equity in the brand identity as a whole, including the visual component of the brand, such as use of colour and shape. AstraZeneca's purple pill migration from Prilosec to Nexium can be seen to have become a benchmark of this within the industry.' (Source: 'Building Better Brands: Brand life cycle management, myth or reality?', Rebecca Robins, Brandchannel.com)
As a result of increasing brand awareness, the commercial success of brands has become a key driver of corporate strategy for companies the world over. Although the need for rigorous patent protection remains, the spotlight is increasingly shining on trademarks with their ability to secure and enhance brand equity.
The global stage The global reach of today's trademark legislation comes with its own challenges. As Gordon Wright from Elkington and Fife points out: 'Take the enlargement of the EU. Companies can now register a Community Trade Mark covering a product throughout the 25 member states. This means product regulation must be extended to all countries, but also that companies must choose their mark carefully to fit their brand requirements in all territories.' Most companies will choose to register and search for their trademarks in the territories most important to them, but cross-border sales can lead to embarrassing mistakes if the proper research is not carried out.
A critical barrier to global branding in the pharmaceutical sector is trademark availability. As Tom Blackett explains: 'Class 5 (pharmaceutical preparations) of the world's trademark registers is one of the fullest of all trademark classes, and finding names that have not already been registered is extremely difficult. This is why many products are sold globally yet carry different names in different countries. For example, Zantac is the registered name of GlaxoSmithKline's anti-ulcerant in many countries, including the US and the UK, but is known as Azantac in France.'
Drugs that are on prescription are also branded in a different fashion than OTC products. As John Peacock explains: 'Pharmaceutical companies will tend to trademark a different type of name depending on whether their audience is the healthcare professional or the public itself. For the healthcare professional, they will opt for a more technical sounding, composite name, which gives an indication of the chemical ingredients of the product. For OTC or consumer-care products, they will choose to trademark a more associative type of name which will hint at the benefits of the contents, for example, Elastoplast, Neurofen and so on."
'Pharmaceutical companies will tend to trademark a different type of name depending on whether their audience is the healthcare professional or the public itself. For the healthcare professional, they will opt for a more technical sounding, composite name, which gives an indication of the chemical ingredients of the product. For OTC or consumer-care products, they will choose to trademark a more associative type of name which will hint at the benefits of the contents, for example, Elastoplast, Neurofen and so on.'
JOHN PEACOCK
Launching a product
Apart from OTC sales, the audience and market for the pharmaceutical industry, in the first instance, is the healthcare professional. Unlike most markets where consumers make their own brand choice and purchase decision, patients pass their brand choice to their doctor or GP, who diagnoses the condition and prescribes the appropriate medication. The end user may be the same, but it is the GP who is ultimately buying into the brand on the consumer's behalf.
Pharmaceutical brands begin their active life some years before marketplace launch. If the new product is particularly novel then it is not unusual for it to be featured in learned papers presented at industry forums and featured in specialised publications. Very often the new product's brand name will be used as well as the generic name, thereby preparing the audience for its launch and post-patent life. This is becoming a popular way of 'seeding in' new brands, albeit among specialist audiences. As Tom Blackett explains: 'Generally the period leading up to the launch of the new brand will see extensive activity by company representatives, selling in the new brand to doctors - general practitioners, specialists, nurse practitioners, etc - and health authorities. The launch of the brand will be accompanied by advertising in trade journals and extensive direct mail activity. The process of managing the brand is quite complex because target audiences and communication channels can be numerous, and the sheer volume of material involved extensive. Ensuring a consistent brand message and "look and feel" throughout is vital, but often difficult to achieve.'
But a doctor's choice of medicine depends not simply on their patient's condition or their awareness of a type of drug, they also need to take into consideration the prescription guidelines developed by the health authorities, including price control restrictions. In response to rising healthcare costs, many governments and medical authorities have instituted schemes that favour the substitution of generic pharmaceuticals for more expensive brand-name drugs. Even in the US and the EU, political pressures to reduce spending on prescription drugs has led to legislation which encourages the sale of generic products.
Despite - or, perhaps, because of - these pressures, a product's brand equity can make a major difference to shareholder value. Patients are n ow taking a more active interest in their own health and are actually influencing the doctor's prescription by asking for certain well-known drugs. As a result, the pharmaceutical industry is targeting the end user as never before. As Pfizer reported in its 2004 Annual Report: 'An average doctor visit in America lasts seven minutes - a brief time in which to cover a lot of vital information. The information we offer to patients through mass media helps focus the conversations people have with their doctors. This information helps acquaint patients with the latest treatments. And it helps doctors in the diagnoses of many serious conditions - from depression to cancer - that hinge on the accurate reporting of symptoms.
'Evidence and experience show that our direct-topatient communication helps people talk more freely with doctors, especially about sensitive conditions. No one likes to speak about ED, an overactive bladder or possible exposure to HIV. But hearing these conditions demystified in print and on screen - and talking about them with medical professionals - can change, extend and save lives.'
In the US, some direct-to-consumer marketing practices are now permitted and direct-to-consumer advertising has taken off. However, in other territories the consumer marketing of pharmaceutical products is heavily regulated. In many countries, particularly those in Europe, companies are prohibited from marketing many drug products directly to consumers. In Europe, it's limited to 'statements relating to human health, not products'. This can take the form of an unbranded disease awareness campaign aimed at building awareness of the condition and its symptoms and might include anything from branding a new class of drugs to branding a condition. 'Leveraging the power of language surrounding the brand can play a critical role in helping to shift mindsets and influence behaviour,' says Rebecca Robins. 'Recent examples include the transition from "urinary incontinence" to "overactive bladder".' Starting the brand-development process too late can make or break a brand when it finally reaches the market.
Although the home and personal care sector - like that of pharmaceutical - ploughs its resources into R&D and the patent protection of new technologies, the home and personal care sector tends to rely on the brand at a much earlier stage. Because this industry is less regulated in terms of clinical trials and more fast-moving in terms of product launch and sales, the time taken to develop and launch a product is considerably less than in the pharmaceutical sector.
The Market
The global healthcare market is growing rapidly, due to various factors including: the ageing population in developed countries, unmet needs in many therapeutic areas, the adoption of more consumerist lifestyles in emerging economies, and increased consumer demand fuelled by broad and rapid access to information. At the same time, the healthcare industry is under pressure to reduce prices as purchasers in the public and private sectors seek to curb rising healthcare costs.
In order to remain competitive, companies have to maintain a continuous flow of successful new products or brand extensions of existing products to cover substantial R&D costs.
Historically, products were often marketed under distinct brands in different countries or localised areas. Although patented elements (if any) would remain the same, the home/personal care product might have its own specific packaging and tailored advertising to appeal to the local market. In these circumstances, corporate strategy remains focused on developing a series of brands with leading positions in their respective markets. These are chosen because they are best placed to prosper over time, backed by consumer understanding and strong category positions. However, the key challenge with this approach is the increasing need to consolidate large portfolios and build brands that will beat competitors on the global stage.
The effects of globalisation As markets have expanded and globalisation has served to standardise consumer tastes, many corporations are beginning to discard their localised branding strategies in favour of a centralised global approach. Companies seeking to remain competitive have been focusing their resources onto fewer but more potent brands. This has been supported by legislative harmonisation. The benefits are self-evident: the use of a common brand vocabulary in marketing activities and cross-market registration strategies can reduce production and marketing costs, create greater recognition for retailers and standardise pricing for customers.
'Global brands are the "holy grail" of all brand marketers,' explains Tom Blackett. 'A single brand name and logo across all countries of interest enables the brand owner to establish a common brand identity. This can lead to economies of scale in marketing investment - and, importantly, impact and prestige.'
Brands going from strength to strength
In the home and personal care sector, the use of a global brand is growing in strength. The most obvious case is Unilever. In 1999, 75% of the company's brands contributed less than 10% to its total sales. With this in mind, the company is in the process of reducing its brand portfolio from 1,600 to about 400 brands; keeping hold of those brands which bring in the bulk of its sales. (Source: 'Brand Vitality: Unilever's approach to IP protection, IP Review, issue 10) The implications of this have been considerable. Single brands must now cover either a wider geographical area or a much wider range of products, embracing more than one class. As a result, the value of each brand has increased.
Johnson & Johnson echoed this in their own 2004 report, suggesting that the success of their product lines was directly related to consumer perceptions of, and their allegiance to a brand. CEO William C Weldon wrote: 'Besides providing attractive levels of growth, the brands that make up our consumer segment are remarkably enduring. Generations of customers recognise these names: Johnson's Baby products, Band- Aid Brand, Neutrogena, Tylenol. Consider that Band- Aid Brand is an 85-year-old product line that still shows strong growth. Endurance plus growth is a unique proposition offered by our consumer products.'
There are other benefits from a global brand, too: for example, the European Commission's advertising regulations stipulate that companies cannot receive marketing authorisation unless they have a single mark, as the use of different names for different countries poses an artificial barrier to parallel imports. 'This means companies have to register a single mark and therefore adapt their brand strategy and pricing policies and launch strategies in accordance,' says John Peacock. 'By launching a product in one territory in the EU, they have actually launched in the whole of the internal market of the EU, whether they like it or not. They have exhausted their rights.' As such it is important that a corporation produces one brand for the territory and launches - or licenses - it in Europe or the world as a whole.
The volume of trademark registrations generally gives a rough indication of business confidence within an industry, and of a company's intention to invest in the branding of its products. The pharmaceutical and home and personal care industries have consistently filed large numbers of trademarks as new products are developed and existing ones have their brands subtly refined. GlaxoSmithKline (GSK), for example, has 110,000 registered trademarks spending £1.5 million (US$2.8 million) each year on renewals alone. (Source: 'Watch your marks: trademark protection at GlaxoSmithKline', IP Review, issue seven).
Interbrand's annual study of the 100 most valuable brands holds very few surprises, with companies such as Novartis, Pfizer and Johnson & Johnson all featuring. From the results of their study, Interbrand also suggests that brand value accounts for approximately a third of shareholder value, correlating directly with stock market value - with strong brands leveraging higher returns and less risk. (Source: Business Week Special Report, 1 August 2005/Interbrand corporate literature 2005)
As with any industry, the creation of a brand within the pharmaceutical and home and personal care industries is intricately linked to the trademarks registered. Brands may evolve over time and geographical reach, but without a registered trademark to support the product, a company leaves itself open to potential infringement activity, both before and after the protecting patent expires.
In the pharmaceutical industry, the growth in the generic sector is challenging pharmaceutical patents as never before. If a company wishes to ensure the future success of those products it has invested millions in R&D to protect, it would be wise to begin looking at trademark and brand strategy from the moment the product leaves the scientist's lab.
Meanwhile, in the home and personal care sector, increased competition and legislative harmonisation on the global stage looks set to shake up traditional marketing practices. Today's market is no longer about owning and developing as many brands as possible; the onus is on finding and protecting those key brands which ensure a company's bottom line.
Whether a company places importance on the value of the brand or not, what is clear, is that for many companies, strategising intangible assets effectively increases capital value.
About CPA Global
With clients in over 100 countries, CPA Global is a leading provider of legal process outsourcing services and the world's top intellectual property (IP) management specialist. Founded in 1969, CPA Global provides lifecycle management services for intellectual property such as patent, design and trademark searching, watching, renewals, and portfolio strategy in over 181 jurisdictions. CPA Global is also a leader in the growing market for outsourced contract management and litigation support services, helping law firms and corporations to realize value by managing risk, cost and capacity. CPA Global employs over 1,000 people in 16 offices in 8 countries. www.cpaglobal.com