Disease is the Differentiator
Twenty-five years ago, most medicines we use today weren't discovered yet. But today, whole categories of medicine are well
served by safe, effective drugs, many of which are available over the counter or as low-cost generics. Different disease areas—some
more mature, others less—generate different business-model requirements. Two dimensions effectively segment disease states—the
criticality of need (life saving vs. lifestyle enhancing) is one axis, and the maturity of therapy in specific segments is
- Criticality of the need for treatment Diseases range from those that aren't gravely serious, like signs of aging or allergies, to those that are fatal.
- Maturity of treatment Therapies range from incremental improvements in treatment for already well-served markets, to highly innovative, unprecedented
therapies for intractable diseases.
Using those two dimensions, we broke up our sample set of 20 mid-tier companies into four cohorts based on the disease profile
that most reflects their discovery, development, and marketed product portfolios. We dub these cohorts "Incrementalists,"
"Integrators," "LifeStylists," and the "LifeSavers."
- Incrementalists play in the lower left quadrant of the matrix, and pursue well-served, less serious conditions. Here the formula for success
appears to be speed and efficiency in developing incremental improvement over existing therapies, managing competition from
over-the-counter and generic drugs, and maintaining relatively high cost-consciousness and low-cost and low-risk R&D. Tennessee-based
King Pharmaceuticals typifies this group.
- LifeStylists (upper left quadrant) engage in medicalization, targeting conditions not previously treated with drug therapy—addiction (smoking
and alcohol), sexual dysfunction, signs of aging, and weigh control. R&D costs are high for the novel targets. Once approved,
these products require significant investment in patient and physician promotion to develop markets that haven't existed previously.
While this high risk/high reward space belongs almost exclusively to the major pharmas, a few small players have distinguished
themselves as successful LifeStylists. Notable among them is Allergan.
- Integrators (lower right quadrant) focus on well-served but serious diseases. In this space, the challenge is to manage complexity, often
combining multiple therapies, pursuing clinic and caregiver channels, multiple R&D technologies, or significant manufacturing
scale. Typical of this cohort is MedImmune, whose products—Ethyol, for chemo toxicity; Cytogam, an antiviral used in transplantation—are
used typically in conjunction with other highly complex therapies or procedures.
- LifeSavers focus on high unmet need. They have both the most difficult and the easiest task. The difficulty lies in their focus on the
most intractable diseases—cancer, Parkinson's, stroke—that remain without effective treatment despite decades of intense research.
On the flip side, when successful, they don't face the kind of business-model pressures that exist for other cohorts. Companies
like Genzyme, Genentech, and Gilead operate in relatively immature, uncrowded markets.
We compared the financial performance of the 20 mid-cap companies and their respective cohort on a variety of dimensions:
growth, profitability, risk intensity, and efficiency. First, while most companies want both high growth and low risk, our
analysis shows a clear trade-off. LifeSavers are expected to grow at a compound rate of 26 percent through 2009—much faster
than other cohorts. But this is difficult terrain, as just 10 to 20 percent of drug candidates entering clinical development
in this space reach market. In contrast, the Incrementalists face much lower risk, with 20 to 30 percent of their candidates
reaching market. But growth is elusive: Incrementalists are expected to see an average decline of two percent in overall revenues