For years we have followed the logical progression of products through clinical trials and into launch and commercialization. The approval of an NDA is also known as “marketing approval” and is usually followed quickly by launch—also known as commercialization. Launches are usually treated as an event, often signaled by a “launch meeting” in which we fire up the troops, provide some high-level training, and rally ‘round the flag. Lately, however, the launch process for many products seems to have sputtered, with the excitement inside the launching company unmatched in the marketplace. Many sales teams feel rejected when the market doesn’t jump to embrace the product, and these same salespeople often feel let down by their company and their colleagues in marketing. True, there have always been failures in pharmaceutical markets, but why is it becoming so much more common? The simple answer is that the market has changed.
Over the past several years three forces have aligned to make the successful commercialization of new pharmaceuticals more difficult: the crowding of therapeutic categories by more new (and not so new) products, the rise of third-party payers, and some spectacular product failures. These forces are not independent: they interact and each, in fact, magnifies the power of the other.
Whether we blame “me-too” drugs, the lack of innovation and inspiration, or whatever, there is no denying that most therapeutic categories are becoming more crowded. This is not new; in fact I wrote a paper about it in 1995.1 At that time, though, new competitors were often likely to offer real improvements, either in efficacy or tolerability, and were readily accepted by the market. What is new now is that we have more products that do not offer substantial new benefits; they simply provide more options. The value of Zantac over Tagamet was fairly easy to establish (I know this is ancient history to many but the point is important), and the value of Lipitor over Zocor was enough (at that time) to convince more doctors to prescribe the newer drug. But as we look to our crowded categories today, it is often much more difficult to identify the meaningful differences among products—certainly, product teams and their agencies will attempt to point out any differences, but in most cases the market does not appear to appreciate them.
I’ve often talked about understanding market opportunity in terms of “receptor sites,” as in, “Are there enough open receptor sites in the market for your product, or are they already occupied firmly by another product?” We can see in the listing of NDA approvals that there are more “repurposed” and reformulated drugs and fewer priority reviews (other than in oncology), which means that fewer truly innovative medicines are coming to the market. This isn’t a criticism of pharma R&D, just an acknowledgement that it is less common—and perhaps more difficult—to discover and develop truly innovative and needed new drugs. Although your new ADHD product (or antihypertensive or other category) may be special to you, if the market doesn’t see the product fitting a specific unmet need it is unlikely that there will be much use. In many categories, it appears that new products are not offering new value, but often only offering another choice. That offering of another choice—without new value—shifts power from the marketer to the customer, which brings us to the next force.
THE RISE OF THE PAYER
For more than 20 years, I have heard people talking about how powerful payers are becoming, and for close to 20 years my response has been: “Oh yeah, when?” I now have an answer to that question: “Right about now, depending on the category.” Payers are using their muscle and influence in markets as never before, but they really couldn’t do this until they were provided with more products that allow them to play one against the other without denying physicians the ability to treat patients effectively. The inevitable result of a crowded category without substantial and meaningful differentiation is price competition, and payers know this and use it to their advantage.
The first stage of management is, in fact, non-management. At launch, virtually all new products will either be placed on third tier, a co-insurance tier, or be not covered. In over 99% of cases, this is a policy decision that has nothing to do with the product or its price. This allows the payers to evaluate the product and its use before making a formulary decision—but it also acts to slow the adoption of the product. Medicare Part D requires a “review” within 90 days of commercialization, but that “review” can be as simple as a decision to keep the product on a high co-pay tier for another year before making any other decisions. If you are fortunate enough to be launching a new product that meets a gaping unmet need in a critical area, your product may be reviewed fully and more quickly, but that’s the exception not the rule.
In my conversations with payers, which occur at least once per week, the one constant theme in the “rule of management” is that when there are four or more agents in a category, it is a target for management, and when there is at least one generic in the mix, it becomes a very attractive target. “Management,” in this case, may range from simply placing some products on higher or lower co-pay tiers to the imposition of prior authorizations or step therapy (also called “generics first”). Many categories (such as contraceptives) are “managed” in this manner: some call it a “first and third” approach, with all generics on first tier and all brands on third. Whatever the form of management, what makes it possible is the presence of similar competitors—payers love “me-too” drugs because they help them do their job! Payers, in general, are feeling and acting more powerful because so many categories have so many therapeutic choices. In a category with several similar agents, physicians are unlikely to fight for one product over another, and this phenomenon builds on itself because the more “power” physicians give up, in terms of product choice, the more they tend to be willing to give up in the future, as long as patients aren’t harmed.
Thus more choices for the physician has resulted in less autonomy for the physician and more choices being made for them by payers—regardless of the effect on your product and your plans, you must at least appreciate the irony!
There is at least one more reason for physicians to be slow in adopting new drugs. Without going into detail, in recent years several major products have been associated with potentially dangerous sideeffects, and many have been withdrawn from the market. We’ve noticed an increased reluctance among primary care physicians to try many new chemical entities (NCEs), because they were unfamiliar with them and chose to let others gain experience before taking a chance on new drugs. This, too, has helped payers to gain more confidence: they determine their need to cover a drug, in part, by assessing physician demand, and have justified their delays in reviewing new products by their need to assess physician uptake. With many physicians unwilling to risk an early adoption of NCEs, payers either deny coverage for many new drugs or place them on their highest co-pay tier—both actions reduce the value of a drug to the physician because they result in higher patient costs. With the availability of so many good—or at least adequate— therapeutic choices for so many disorders (e.g. fewer “receptor sites” in the market), there is less urgency within the market to adopt new drugs. Not that this is true in every case, but for most new drugs there is little urgency within the market to adopt new therapies because there are so many good options.
THE SOFT LAUNCH
NDA approval, also called “marketing approval,” once marked the beginning of the formal launch of a product, its “birth” if you will. Today “marketing approval” is fine, but unless the new product is a significant breakthrough that will find a ready market just waiting for it, your new offering will likely require “market approval,” by way of formulary coverage decisions and some level of trial and approval by practicing physicians, before it can truly be considered launched. Think of this as an “incubation period.” NDA approval, rather than signifying the end of the pre-launch process, now may signify the beginning of a new final stage of the pre-launch process, the “soft launch.” During this stage, you fine-tune your approaches to the various market participants, help them understand your product and have them help you understand the way they see it, and then finalize your actual marketing plans. This will affect forecasts, budgets, and virtually every aspect of marketing planning, and those who don’t build these new forces into their plans are headed for some big disappointments in the near future.
1. Kolassa EM, Growing Competition in the Pharmaceutical Industry, University of Mississippi White Paper, PMM95001, January, 1995.