63-Market Share at the Low End of the Market

I was struck by a recent article about statins. A recent study has found that these cholesterol lowering drugs reduce the heart risk in even healthy patients. That fact was not what struck me, though. What jumped out at me was the size of the market share for generic statins. The generics in the statin market make up 49% of total prescriptions. The well-known Lipitor is the leading branded statin, at 27%, followed by Crestor at 9%, Vytorin at 7%, and Zetia at 6%. But the generics dominate all of those branded drugs. (See “Low-end products are gaining share of market” in the Symptoms and Implications on StrategyStreet.com.)  Generic drugmakers are Price Leaders

Price Leader competitors distinguish themselves from the industry-leading Standard Leader products on the basis of offering different benefits to either, or both, of the buyer of the product and the user of the product. The buyer and the user may, in fact, be the same person, but their respective needs differ in each activity. (See “Turmoil Below: Confronting Low-End Competition” in the Perspectives on StrategyStreet.com.) In our study of several hundred Price Leader products, those at the low end of a market, we found that there were two basic types of Price Leader competitors.

The first type of Price Leader we call a Predator. Predator products offer the user the same benefits as the industry-leading Standard Leader product but offer fewer benefits for the buyer. For example, the product may have the same ingredients but have a lesser-known brand name or be more difficult to find in the stores. Private label suppliers, PC clone makers, Advanced Micro Devices’ semiconductors and Drypers disposable diapers are examples of Predator competitors.

The second type of Price Leader product is a Stripper. This low-end competitor reduces benefits for both the buyer and the user. These companies reduce the Functions  available to the user. They offer the buyer less well-known brand names, low marketing budgets and often inconvenient locations for purchase. Jet Blue Airways, Motel 6 and Costco Wholesale Corp are examples of Stripper competitors.

It is rare for these low-end competitors to garner more than 15% of a market’s unit sales. It does happen, but not often. When it does happen, it is most likely to be a Predator competitor who will do it.

Generic statins are Predator products, but their market share is astonishing. It serves as eloquent witness to the power of institutional buyers over corporate marketing. The big buyers of statin drugs, corporations and insurance companies, have forced the growth of the generic drugs. The drug companies’ marketing programs have ceded market share to the generics in order to hold the branded product’s prices high. My guess is that the calculus behind this decision by the drug companies is a good one, though the trade-off between a high market share and lower price, compared to a higher price and much lower market share, is probably pretty close.

Posted 12/1/08

Update:

The branded statin industry had a few more good years ahead of it.  The industry continued to keep branded prices high to enjoy a as many years of high profits as possible. That is mostly over in 2022.  The industry continued to keep branded prices high to enjoy as many years of high profits as possible.  Once the period of exclusivity had ended, 90% of the prescriptions for branded statins shifted to generics. This saved the institutions and individuals relying on statins a great deal of money.

The common practice in the pharmaceutical industry has been to allow a branded drug to reach the limit of its patent protection and then surrender the market to generic manufacturers. The branded manufacturer retains a small percentage of its former revenues but the vast majority of the market belongs to generic manufacturers.

Pfizer turned this traditional approach on its head with Lipitor when its patent expired in 2011. It created several programs that allowed a patient to receive the branded drug at the same price as, or lower than, the generic alternative.  First, it provided rebates to insurance companies and pharmacy benefit managers who would pay only for Lipitor rather than its generic alternative. These payments reduced the cost of Lipitor to that of the generic alternative, atorvastatin.  Second, it created an enrollment program named “Lipitor For You” that reduced the cost of Lipitor to that of atorvastatin by paying up to $50 to make up the difference between the patient’s four dollar minimum co-pay and the usual co-pay for the preferred brand-name drug. Third, the company set up a mail-order pharmacy to sell Lipitor at generic prices to patients with health insurance and then also paid pharmacies to provide counseling services about Lipitor and its benefits. These programs allowed Pfizer to hold a substantial share of the market for Lipitor. In 2022, Lipitor continues to generate more than $2 billion a year in sales for Pfizer.

Pfizer changed the nature of competition with generic manufacturers by creating a new Price Point, a Price Leader product, out of its old Standard Leader product. Go HERE and HERE for more perspective on this kind of decision.

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