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 the other.

• 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.