In a recent study, Prof. Marcel Corstjens of Insead, Ira Horovitz of the University of Florida and Edouard Demeire of C.E.L.forpharma (1) have analysed if pharma companies benefit from being the first entrant in a specific therapeutic category. The study covered drugs in 7 therapeutic areas in 4 countries (US, France, Germany and UK) over a 12-year time period.
The magnitude and direction of the first mover advantage was measured by assessing whether the first entrant in a market generates more sales during the first 5 years of its lifecycle, relative to later entrants. Or: would on the contrary a second or later entrant show enhanced commercial performance due to the first entrant’s market preparation (so called “shaping the market”)?
The study did not find any statistically significant advantage for first entrants – neither did it find a significant disadvantage. This means that order of entry, or time since first entry, is not a factor that explains greater or smaller sales. A number of other studies either confirmed this, or found only a very mildly statistically significant advantage for pioneers (2,3,4). Academic studies have found similar evidence in other industries such as video players, graphical computer interfaces and other consumer goods.
This finding contradicts many pharma R&D managers’ intuition according to which being the first to innovate brings a commercial first mover advantage. Indeed, pharma companies are trying to speed up the final stages of development, approval and launch stages as Net Present Value models promoted by corporate finance dictate that earlier sales is better than later sales. In speeding to the market, managers discard the fact that they may reach lower sales over the lifecycle, hence more than compensating for the gained time.
An independent study from IMS (5) did reveal that later entrants do benefit from faster uptake as market preparation takes less time.
| What could be the possible reasons for having no advantage in being the first entrant? |
- The most often cited reason is that first movers need to get a new category of drugs approved amidst scepticism of regulators, reimbursement authorities and the physicians themselves.
- A second entry in a category may increase the credibility of a new mode of action as more clinical studies confirm the beneficial effect of the products in this category. A second entrant also provides more data to substantiate the first entrant’s claims with data from another source.
- A third reason why first movers may not make it to the top of their category is that they may have been in such a hurry to launch that the quality of the launch preparation is compromised (e.g. no product team in place 6 months before the launch, inappropriate Phase IIIb studies or difficult funding situations that limit early uptake to situations where exceptional funding is available).
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IMS’s Sarah Rickwood, who constructed a 4000 product / 8 country launch database (5), reports that lack of time, both corporate and affiliate, is one of the 4 main reasons for launch failures.
One of the factors that explain the pressure on global headquarters of pharma companies to launch according to announced (and sometimes over-optimistic) timetables is the fear of deceiving the stock market. |
| However, a trend that might increasingly favor first launches is the increased importance of evaluative committees such as NICE in the UK and IQWiG in Germany. These organizations evaluate incremental benefit over existing products. For example, in life threatening diseases, benefit is often determined as Overall Survival or Progression Free Survival versus “gold standard”. It becomes increasingly difficult for a second entrant to demonstrate superiority over the first entrant in a category. |
| Advice to pioneers in order to maximize the first mover advantage is to: |
- Construct entry barriers which make life difficult for the second entrant;
- Build brand awareness, brand loyalty a.s.a.p.,
- Define clinical hurdles for further entrants, forcing second entrants into niches by rapidly expanding clinical programs across patient populations
- Find ways to “own” investments, hence avoiding that the second entrant can benefit from a lower market shaping investment, ultimately focusing all their investment in a market share battle.
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| Advice to followers to minimize the first mover’s advantage is to: |
- Detect key weaknesses in the pioneer’s evidence set
- Aim for launching at the time the “early majority” is starting to adopt a product (a theory promoted by Geoffrey Moore in Crossing the Chasm (6))
- Attempt to capitalize on market shaping investments made by the pioneer, focusing all investments on an immediate market share battle.
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References
- “New-product success in the pharmaceutical industry: how many bites at the cherry?”, Marcel Corstjens, Edouard Demeire and Ira Horowitz, in Economics of Innovation and New Technology, Vol. 14, No. 4, pp. 319 – 331 (June 2005).
- “Entry order as a consideration for innovation strategies”, Fredric J. Cohen, in Nature Reviews Drug Discovery, Vol. 5, No. 4, pp. 285-294 (April 2006).
- “Pioneering Plus a Broad Product Line Strategy: Higher Profits or Deeper Losses ?”, W. Boulding and M. Christen, in Management Science, Vol. 55, No. 6, pp. 958 – 967 (June 2009)
- “Can a Late Mover Use International Market Entry Strategy to Challenge the Pioneer?”, Marc Fischer, Venkatesh Shankar and Michel Clement, in Marketing Science Institute Reports (2005)
- “Launch Excellence”, Sarah Rockwood (IMS), in Pharmaceutical Executive (April 2009)
- “Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers”, Geoffrey A. Moore, New York: HarperBusiness Essentials (1999)
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