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
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
2
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.
3
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.
4
LOE Impact by Year
Drug Patent Expirations
$30
2010 US Sales ($ billions)
$26.1
$25
$20
$15
$12.1
$10.4
$10
$8.8
$6.0
$5
$3.0
$2.2
$1.9
2017
2018
$3.7
$2.4
$0
2012
2013
2014
2015
2016
2019
2020
2021
Source: “Drug Patent Expirations”, Non-Foods Magazine, Volume 15 No.1 2012 – 2013, 153-154.
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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.
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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
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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
8
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
9
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.
10
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
11
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
12
Any Surprise?
13
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?
14
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
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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.
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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
17
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.
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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
19
Retail Process: Prior to LOE
Question
Do you quantify, track and monitor
inventory levels (value, days/weeks onhand) for brands facing future LOE?


Response
Yes- 3 retailers
No- 3 retailers
Do you communicate upcoming LOE events
with pharmacies?

Yes- All retailers
If ‘yes’, how far in advance do you notify
them?




Less than one week prior- 1 retailer
One month prior- 2 retailers
More than one month prior- 1 retailer
Supply/velocity based prior- 2 retailers
If you warehouse branded pharmaceuticals,
when do you begin reducing purchases for
the branded item facing LOE?




Discontinue prior to LOE- 1 retailer
Supply/velocity dependent- 2 retailers
One month prior- 1 retailer
Not applicable- 2 retailers
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Retail Process: Prior to LOE
Question
Do you manage, systematically limit or
restrict replenishment for pharmacy
purchases of brands facing LOE?



For brands facing LOE that are located in
automated dispensing machines, what
specific steps, if any, do you take to manage
this inventory?

Do you have any discussions with
manufacturer of branded item facing LOE?
If ‘yes’, what information and data is
requested and provided?






Response
Yes- 4 retailers
No- 2 retailers
Suggest removal from machines
o No time specified- 1 retailer
o Less than 1 month prior- 1 retailer
o 1-2 months prior- 2 retailers
Not applicable- 2 retailers
Yes- 3 retailers
No- 2 retailers
Only if onhand is excessive- 1 retailer
Return requested- 2 retailers
Data analysis and sales program- 1
retailer
No information- 3 retailers
21
Retail Process: Post LOE
Question
Do you communicate LOE events with
pharmacies?

If ‘yes’, what are your instructions or
communications comprised of?*




If you warehouse branded pharmaceuticals, 
do you accept pharmacy returns back to the 
warehouse?
If you warehouse branded pharmaceuticals,
when do you discontinue
warehousing/distributing the branded item?



*
Response
Yes- 6 retailers
Monitor orders- 2 retailers
Return / transfer excess inventory- 4
retailers
Promote benefits of generic- 2 retailers
Remove from automation- 1 retailer
Yes- 4 retailers
Not applicable- 2 retailers
Discontinued prior to LOE- 1 retailer
Once salable returns are sold through or
all onhand becomes short-dated- 3
retailers
Not applicable- 2 retailers
Total is greater than 6 since retailers communicate multiple messages related to this topic.
22
Retail Process: Post LOE
Question
Are you able to return salable (full, sealed, 
pristine) product for brand impacted by LOE
to your warehouse?
Are you able to return salable (full, sealed, 
pristine) product for brand impacted by LOE
to your wholesaler? If ‘yes’, are there any
limitations?
Response
Yes- 4 retailers
Are you able to return salable (full, sealed, 
pristine) product for brand impacted by LOE
to the manufacturer? If ‘yes’, are there any 
limitations?

Yes- 1 retailer
o No limitations noted.
No- 2 retailers
Sometimes- 3 retailers
o Dependent on situation
Transfer internally- 3 retailers
No transfer, hold until expired- 3
retailers
How do you handle residual partial bottles
for brands impacted by LOE?


Yes- 6 retailers
o Limitations based on product
dating.
23
Retail Process: Post LOE
Question
Do you have an internal product redistribution program that could be used to
handle residual inventory for brands
impacted by LOE?


Response
Yes- 5 retailers
No- 1 retailer
Do you manage or restrict pharmacy
purchases for brands impacted by LOE?


Yes- 2 retailers
No- 4 retailers
Do you quantify, track and monitor inventory
levels (value, days/weeks on-hand) for
brands impacted by LOE?
Do you have any discussions with
manufacturer of branded item impacted by
LOE?

Yes- 6 retailers



Yes- 2 retailers
No- 2 retailers
Only if onhand is excessive- 2 retailers
If ‘yes’, what information is requested and
provided?


Return requested- 2 retailers
Inventory information and return
request- 1 retailer
No information- 3 retailers

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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
25
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
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27
28
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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
30
31
32
33
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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
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36
37
38
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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
40
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LOE Management ChallengesManufacturer
• 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
43
LOE Management ChallengesDistributor
• Completeness of purchase information
• Completeness of return information
• Evolution of data warehousing and reporting
44
LOE Management ChallengesRetailer
• 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
45
LOE Management ChallengesAll Trading Partners
Other Factors Impacting Conversion:
– Single-source vs. Multi-source generic
– Acute vs. Maintenance
– Titrated and neurologic product
46
Project Findings
Key elements in successful programs:
– Planning
– Communication
– Measurement
47
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.
48
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
49
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.
50
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
51
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
52
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
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Conclusion
• 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
There is no silver bullet!
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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
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