MARKETING INSIDER

Pharma Myth-Busting
By E. M. (Mick) Kolassa, PhD

In conversations with pharmaceutical marketers, several “rules of thumb” seem to pop up on a regular basis. Although many of these are founded in fact, more seem to be the product of urban legend. Each of these myths is based on logical assumptions and is reinforced by the way marketers spend their time and budgets, but the logic is often flawed and the money misspent.
Among those that appear most often are:

• First-mover advantage and the effect of order of market entry
• The value of brand names and brand equity
• The cash market is less price sensitive than managed markets
• Low prices have helped products to succeed
• High prices are why some products failed

First-Mover Advantage
Nearly everyone in pharmaceutical marketing has some rule to determine the value of order of entry into the market. The vast majority of academic research in this area has been done with consumer products with little differentiation that compete in exactly the same market. Although this line of research might provide some useful guidance, it is misleading when applied to pharmaceuticals.

I once noticed a chart, framed on the wall of a product manager’s office, that gave the expected market shares for products based on their order of entry into the market. She said it was from an article and added, “It’s just great, it tells me just what I can expect when I enter a market.” Based on research, we know that most pharmaceutical
marketers believe in the power of order of entry. But the data shows that fewer than half the first movers maintain their dominant share. Capoten, the first ACE Inhibitor, lost out to Vasotec; Prozac went from the only SSRI to number 2 in prescriptions when Zoloft came along; Cozaar, the first ARB, slipped after the launch of Diovan. But why would our markets be different? Because the difference between Zantac (a second entrant) and Tagamet (the first entrant) was not its flavor or packaging, it was its dosing, efficacy, and safety—factors that drive our markets. Scrap your order-of-entry models unless they take those aspects into account.

Brand Equity
I know that I am stomping on toes here; brand equity is the Holy Grail, the topic of books and conferences, and the factor everybody attempts to measure. The problem is, pharmaceuticals aren’t like other products. A good brand name is almost worthless once generics hit the market. The greatest measure of brand equity for any product is the amount of business it maintains once close competitors enter the market. We know that a pharmaceutical brand can expect to lose half its sales in the first month of generic competition and 90% by the end of six months. So much for brand equity!

Price Sensitivity
A long-standing misperception among pharma marketers is the idea that because cash payers are less price sensitive than are insurers, we can have high prices for the cash market and give discounts to managed-market customers. This is wrong on every count! Both segments are price sensitive, but the cash-paying segment exhibits significantly more price elasticity (they take action) than do payers. This means that both complain about prices, but that cash payers are more likely to act on it. Because we don’t have legions of “Cash Account Managers” regularly dealing with uninsured patients, we don’t hear their voices, so we assume that they will pay up—which is absolutely not true. Because we have account managers listening to insurers (whose job description begins with “complain about price”), we are convinced that without discounts they won’t cover our products—which is also not true (in most cases). Because the cash-paying segment is shrinking, this mistake is less costly than it once was—aside from the fact that too many discounts are given to payers.

Low Prices and Success
This myth is also based on applying consumer market rules to pharmaceuticals. In my experience, the most pervasive low-price myths in the industry involve Pfizer products: Zithromax and Lipitor. I am fairly comfortable estimating that half the pricing discussions I have with industry personnel evoke one of these two cases. Zithromax, we are told, succeeded only after Pfizer cut the price by 35%, and Lipitor came to market dominance because it was priced at a discount to Zocor. Let’s put these fables to rest.

Zithromax was the third nonerythromycin macrolide to come to the market, but it was the first once-a-day macrolide. Abbott’s Biaxin was the market leader (a second entrant, by the way), and it was dosed twice daily. Abbott had dominated the macrolide market for more than 50 years, developing and launching well over half the various forms of erythromycin. Its experience in the market, together with its head start, allowed it to take an early lead. Zithromax’s slower-than-expected start was due to Abbott’s overwhelming presence and experience, and the fact that most patients had never before seen a drug that cost $8 a tablet. Sticker shock caused price complaints (price sensitivity, not elasticity), and Pfizer apparently decided the price was the “problem,” when in fact it seems to have ignored the market power of Abbott. Several months after Zithromax’s launch, after the sales force had wailed itself hoarse, Pfizer cut the price by 35%, and Zithromax went on to dominate that market. Thus it was concluded that the price change fixed everything—but there is much more to this story.

Sales of Zithromax actually grew substantially two months before the price cut, but so did sales of Biaxin. Zithromax’s share of oral antibiotics grew, but so did Biaxin’s—and they grew at the same rate for nearly a year. Did the market anticipate the price cut? Did Zithromax use increase because it was known the price would come down? Did Biaxin sales increase because Zithromax was no longer more expensive? No. The market for macrolides expanded, which caused the sales of both drugs to increase. Zithromax’s once-a-day dosing and short course of therapy eventually helped it to dominate its market, but the price cut cannot be given credit for that.

I have often been told that Lipitor took off like a rocket because it was cheaper than Zocor. But then Lescol (which was much cheaper) should have been the market leader. And pricing in that market is so complex (in terms of dosing differentials), nearly everyone could claim to be the cheapest. Lipitor was a superior drug by any measure, and Pfizer did a masterful job of taking advantage of the molecule. The price had little, if anything, to do with that. Pfizer appears to have set the price of Lipitor a little low to avoid any pushback due to cost. A study done one year after launch showed that over 85% of the high-volume prescribers of Lipitor believed it was the highest-cost statin in the market because it was clearly better than the others. The price may have given Pfizer’s sales force a little more confidence in the drug (after all, Lipitor was the fifth entrant into the market, and everybody knows how bad that is), but in terms of increasing demand, the price had no effect.

High Prices and Problems
The two products that seem to be the poster children for high prices causing problems are FluMist and BiDil. FluMist, a noninjectable flu vaccine, came to the market with great expectations because “everybody knows” patients will do anything to avoid a needle (another myth—think about Exubera). FluMist was bound to take over the entire market—but it didn’t. People decided the $25 price, high relative to the flu shot, must be the reason. But let’s look at the product: FluMist contained a live virus and, as such, was contraindicated for young children and people over 50—the main market for flu vaccines. Because it was a live virus, patients using FluMist were to avoid contact with “high risk” populations (children and people over 50) for several days. Moreover, unlike a flu shot, which most people can get at the local drugstore or health department, FluMist required an office visit and a prescription, which usually required a trip to the pharmacy. That’s a lot of downside! But did high price hurt it as well? No. Remember the vaccine shortage, when the price of a flu shot went over $50? At that time, FluMist cost half what the injectible vaccine cost, and sales barely budged. It was a product issue, not pricing. Newer versions of FluMist have solved many of the original problems, and its sales have grown, but it still requires a prescription and an office visit, something price still can’t fix.

Perhaps the biggest myth in pricing is that BiDil failed because it cost too much. BiDil is a fixed combination of two older drugs, both of which are available generically. Because of the generic availability, many concluded BiDil’s poor performance must be due to price, but let’s look at the product. Both components require a significant amount of titration to get to the proper dose, and it is unlikely the precise dose combination offered with BiDil will be the dose that patients require. Switching the few patients who get the specific combination of doses (but not others) would require an inordinate amount of work for a busy physician. BiDil simply didn’t solve any significant problems for prescribers or patients. And the price couldn’t fix that either.

Rather than accepting myths as fact, product managers should seek to understand the issues surrounding market successes and failures. There are no easy answers, but there are many clear ones.