Why does it matter?
The development of a new drug is a complex progress. It is costly: One study assessed both capitalized and out-of-pocket costs for bringing a single new drug to market to be about $1.8 billion and $870 million, respectively. It has a high chance of failure: A study for Drug Development covering the 1980s and 1990s found that only 21.5% of drugs that started Phase I trials were eventually approved for marketing. From 2006 to 2015, the success rate dropped to just 9.6%. It’s also very time consuming: a drug can take 6 – 30 years to develop. The clinical trial phase alone takes 76 – 79 months.
Once the patent is set, it usually lasts no longer than 20 years. When pharmaceutical companies lose their patents, it hits them hard. Eli Lilly laid off hundreds of sales staffs when its antidepressant Cymbalta went off patent at the end of 2013, while the loss of protection on Merck’s asthma medication Singular prompted the drug maker to reduce its workforce by 33%. When generics make it to the market, branded drugs can lose up to 90% of their sales, per a recent Dickson Data graphic. According to EvaluatePharma, Pharma companies stand to lose between $19-34 B due to patent expiry in 2017 alone. In the graph, you can see the history and the future trend for the global prescription drug market.
So exactly who is going to eat up the $19 billion (estimated) loss in 2017? It seems that Merck, GSK, Eli Lilly, and Pfizer all have more than one drug at risk. The other unlucky ones include Altana, Bristol, Lundbeck, Norvatis, Orphan Europe, Purdue Pharma, Questcor, Roche, Teva, Valeant, and Vanda.
According to FiercePharma, drugs that face just one or two copycats under the Hatch-Waxman Act first-to-file rules will have a six-month scrimmage after the patent expiration but before the real competition—and real pricing battle—begins against multiple generics. At that point, small-molecule meds typically face competition from generics that are 80% to 85% cheaper than the originals.
How to deal with it?
In general there are 5 options for the exit strategy of LOE (Loss of Explicitly) drugs: Compete on product, compete on price, compete on place (distribution), compete on promotion (branding), and quit competing.
Compete on product
There may be other implications and usages for the drugs before the patents expire. In that case, instead of developing a new drug, apply for a separate patent for new applications. That is exactly what Merck did for its drug Proscar, which was originally designed for benign prostate enlargement treatment. Later, they also found it works great for Finasteride — treating male pattern baldness, and subsequently applied for a patent for this application/condition. 
Drugs can also be combined for similar application. When GSK was about to lose its patent for AZT (an ingredient to fight HIV infection) for example, it combined AZT and Lamivudine which were under separate brand names (Retrovir, Epivir) into a new brand Combivir, which also treats HIV infection. 
Compete on price
The most intuitive option is to lower the price to compete with generic offering, however, another alternative to consider is produce a new sub-brand that follows a more cost – efficient strategy to compete on the pricing.
Compete on place (distribution)
Another critical factor that is often neglected by the market is distribution. Though generic suppliers can develop new products, it is hard to steal away a partnership with distributors and retailers. As John Hess, a senior analyst from Cutting Edge Information puts it: “It’s more and more popular nowadays, that a typical agreement will be signed, which specifies that the generic company will serve as a distributor of the nonbranded, generic form of the drug, which will continue to be produced in the branded drug company’s manufacturing facilities”
Compete on promotion (branding)
It is one thing that generics are cheaper, it is another story that customers know about it and trust it. Establishing customer loyalty at an early stage is crucial. Involve incentives such as points system for over the counter drugs, or introduce education center and other events for physicians will increase their willingness to continue using the brand. Data from DSN drug news show that 43% of consumers join loyalty programs because of the desire to earn rewards. Only 17% of those in loyalty programs say they joined out of love for the brand’s products and just 5% because of a shared identity with brand values
There is no eternal cash cow. Looking at the product life cycle, everything goes through the process of question mark > star > cash cow > dog. If none of the above competitive strategies make sense, it’s time to “sunset” your product.
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 Paul, Steven M.; Mytelka, Daniel S.; Dunwiddie, Christopher T.; Persinger, Charles C.; Munos, Bernard H.; Lindborg, Stacy R.; Schacht, Aaron L. (2010). “How to improve R&D productivity: The pharmaceutical industry’s grand challenge”. Nature Reviews Drug Discovery. 9: 203–14. doi:10.1038/nrd3078. PMID 20168317.
 “R&D costs are on the rise”. Medical Marketing and Media. 38 (6): 14. June 1, 2003.
 “Clinical Development Success Rates 2006-2015” (PDF). BIO Industry Analysis. June 2016.