The high-risk innovation for unmet needs targeted by the LifeSavers requires more costly R&D (up to 25 percent of sales) than
for Incrementalists (10 percent), Integrators (15 percent), and LifeStylists (20 percent). But life-saving innovations are
more likely to sell themselves once they are on the market, requiring only about 25 percent of revenues to be spent on sales,
general, and accounting (SG&A). LifeSavers garner additional advantages, including more receptive regulators and less reluctant
payers. Incrementalists face hurdles on every front: They pay up to 35 percent of revenues for SG&A, owing to the high-persistency
marketing needed to justify their positioning versus OTC and generic products. LifeStylists, who spend up to 40 percent of
revenues on SG&A, require an even greater investment in consumer awareness and physician education.
Bet Broad or Bet Narrow?
Second behind disease-area category is the question of focus: how a company deploys its capabilities. Even among our mid-cap
cohort, there are relatively divergent attitudes toward focus. Some companies have chosen a relatively tight focus on one
or two diseases or therapeutic areas, namely Biogen Idec, with more than 60 percent of its sales in immunology, and Novo Nordisk,
with nearly 70 percent of sales in central nervous system drugs. Others have spread their bets, maintaining a significant
presence in as many as four or more separate therapeutic areas.
"One of the challenges of focus is that, at some point, you need to broaden horizons again," says Howie Rosen, vice president
of commercial strategy for Gilead. "When you get there, how do you maintain discipline, and at the same time get comfortable
outside of the existing zone of expertise? Specifically for Gilead, we're good at drugs that are active against the virus,
not the host. As we move out from this core, there is fundamentally different biology, and a different risk profile."
Companies often cite as a motivation for breadth the desire to hold diverse options for future growth. But, a narrow focus
does not necessarily mean lower growth. In this mid-cap cohort, companies with fewer marketed franchises (one or two) have
grown faster over the past five years (26 vs. eight percent average), sustained higher profitability (17 vs. 10 percent net
margins), and launched twice as many products than companies with three or more franchises. Similarly, companies with fewer
research areas, like Genentech in oncology and immunology, are expected to grow faster (17 percent compound annual growth
rate through 2009) and launch more products than less-focused R&D companies, such as Taisho and Solvay (eight percent CAGR
Focus provides value in several ways. In the commercial realm, continuity in a franchise area drives faster uptake of new
products, creates barriers to entry for competitors, and improves appeal as a licensor. Valuable promotional assets are rarely
stranded. In R&D, focus provides for products with a richer understanding of the biology of disease areas and of unmet medical
needs. In clinical development, focus bolsters probabilities of success through increased knowledge of key pitfalls and disease
dynamics, and strong relationships with opinion leaders and regulators to assure rapid enrollment and agency review. Other
benefits include: cost synergies through common platforms, better leverage of historic brand positioning, and increased ability
to attract the top scientific and commercial talent in a particular disease area. "Establishing focus is one of the most important
things I do," says Joe McCracken, vice president of business development, Genentech. "Otherwise, you can spin your wheels
and waste a lot of time in competing for business development opportunities."
With all those benefits, why do some spread their bets? The truth is: Drugs are rare, and focus only increases their scarcity.
Customer and Channel Focus
The final element we examined involved the channel focus and choices about the relative emphasis in marketing to patients,
primary care physicians, or specialists. For some companies, disease-area and breadth-of-focus choices mean that only a narrow
set of doctors must be targeted, as with Genentech in oncology or Gilead in anti-virals. For other companies, the customer
and channel mix is much broader, as with Akzo Nobel (Organon), which targets a mix of patients, PCPs, and specialists.