Why pharma should embrace multi-level competition

Aug 04, 2009
By Pharmaceutical Executive Editors

Have you ever wondered why consumer products companies sell multiple brands in the same product category or why many hotel companies offer a portfolio of different types of hotels? These and companies in other industries recognise the advantage of competing with multiple brands in a single consumer category. Their goal is not simply to have the single best-selling brand; they want to maximise their total sales by owning the product category. Such companies gain significant advantages by competing at multiple levels beyond their individual brand.

Like those companies, pharmaceutical companies are increasingly using multi-level competition (MLC), the process of commercialising similar or related products and associated offerings across the brand, franchise, portfolio, and/or corporate levels to gain market advantages and to optimise sales, shares and profitability for the company. The objective of MLC is to force your competitors to compete on the level or levels where your company has the advantage.

Pharma turns to MLC
Progressive pharmaceutical companies are increasingly using MLC to drive business beyond the brand level. This includes taking measures at the franchise, portfolio and corporate levels.

Franchise level (single therapeutic area or disease state).
As the world's leading producer of insulin by volume, Novo Nordisk's diabetes franchise covers the full range of insulin analogues, oral anti-diabetic drugs and the new GLP-1 compound Victoza. Novo complements its franchise with an industry-leading line of delivery pens and devices as well as diabetes education and support programs. By 2014, Novo is projected to have a 27% share of the anti-diabetic global market, the second highest share dominance of any major chronic care market.

This includes taking measures at the franchise, portfolio and corporate levels.

Abbott has recently started competing at the franchise level in the cholesterol market. Abbott has focused on creating the world's most extensive cholesterol franchise using various combinations of fibrate, niacin and statin products. According to John Thomas, Abbott vice president, "With TriCor, Niaspan, Simcor, ABT-335, and our combination [product] with Crestor, Abbott's growing cholesterol franchise has the potential to include at least five unique therapies by 2010."

Portfolio level (multiple disease states).
Roche completed the acquisition of Genentech to enhance the industry's strongest oncology portfolio, which now includes five innovative cancer products (Avastin, Herceptin, Xeloda, MabThera and Tarceva), adjuvant agents, various tumour markers and a range of molecular oncology tests. According to market research firm EvaluatePharma, by 2014 Roche will have the most dominant single portfolio in the pharmaceutical industry: sales of its oncology products are projected to reach $28.3 billion, representing a massive 38% of the $75 billion cancer market. Moreover, Roche's pipeline of 88 oncology-related products is nearly double the number of its competitors.

Already among the top three vaccine manufacturers, GlaxoSmithKline (GSK) is seeking to leapfrog its competitors by developing the world's broadest vaccine portfolio. The company currently markets 30 vaccines, and has 25 more in clinical development. In 2008, GSK distributed 1.1 billion doses of vaccines — that's 3 million doses per day around the world.

Corporate level (multiple disease/health segments).
Unlike more mature industries, none of the major pharmaceutical companies to date has truly applied MLC at the corporate level. Johnson & Johnson is perhaps best positioned to do so because of its strong corporate brand name and product diversity. J&J is the most diversified health care company in the world with more than 250 companies organised into three major business segments: pharmaceuticals, medical devices and diagnostics and consumer products.

Advantages of MLC
Product co-positioning and segmentation: Abbott will be positioning its five dyslipidemia agents for specific patient segments with different combinations of LDL, HDL and triglyceride abnormalities.

Unlike more mature industries, none of the major pharmaceutical companies to date has truly applied multi-level competition at the corporate level.

Combinations of products: Abbott has leveraged its dyslipidemia franchise by combining products into single pills, including the developmental combination of its fibrate TriLiplix with AstraZeneca's statin Crestor. Roche tries to maximize the use of its oncology portfolio products by demonstrating the benefits of a combined regimen in clinical trials. For example, in the recent ATLAS trial, Roche's Avastin combined with its cancer pill Tarceva extended the period without disease progression in patients with advanced lung cancer.

Reputation/brand: Armed with multiple cutting-edge, targeted therapies, Roche is able to leverage its growing reputation as the leading innovator in oncology with healthcare providers and other stakeholders.

Shelf space: Abbott will likely use its five cholesterol products to take up space in physicians' supply cabinets. GSK tries to capture the limited available space for vaccines in the pediatrician's office refrigerator, thereby minimising space for competitors.

Pricing/contracting: GSK encourages its vaccine payers to purchase from its extensive portfolio of vaccine products by offering volume incentives. Roche's extensive oncology portfolio provides it with substantial negotiating leverage with payers.

Sales/stakeholder relationships: Because of its long-term focus on the diabetes marketplace, Novo has a tremendous understanding of and relationships with its diabetes prescribers, thought leaders, professional societies, and other key stakeholders.

Cost/operating efficiencies: Novo has made its insulin pen-filling station more efficient by using similar parts for components of all pens. Roche and GSK gain manufacturing efficiencies by using their plants to produce multiple biologic and vaccine products, respectively.

Business development/licensing: The competition to license or acquire innovative pharmaceutical compounds is increasingly intense. Companies which focus on specific franchises or portfolios have a competitive advantage in attracting partners due to extensive market experience, long-standing customer relationships and established capabilities.

Winning with MLC
There are several ways for pharmaceutical companies to successfully implement multi-level competition. These are listed below.

1. Incorporate MLC into strategy and marketing plans. Every corporate, portfolio, franchise and brand plan should include sections on competing at all four levels. These sections should identify the levels where the company and competitors have relative advantages and describe how to leverage or offset those advantages. Ultimately, strategists and marketers need to operate on the level or levels that provide the greatest chance for success.

2. Build, buy, extend, and/or partner for enhanced levels. There are different ways to enhance the competitive value of a brand, franchise, portfolio or company. For example, Abbott initiated its cholesterol franchise with a single fibrate product, purchased Kos Pharmaceuticals to add niacin agents, created a second generation fibrate, and then partnered with AstraZeneca to develop a combination branded statin-fibrate product.

To augment its diabetes franchise, Novo Nordisk is developing novel insulin formulations and combinations as well as new GLP-1 class agents, and has formed external research alliances to develop insulin-producing stem cells. To better compete with Novo, Eli Lilly recently announced an alliance with device manufacturer Medtronic to combine their insulin products, insulin pump therapy, and continuous glucose monitoring capabilities.

3. Test the franchise management strategy. Increasingly, market-leading pharmaceutical companies are conducting not only brand but also franchise, portfolio, and corporate war games. The most progressive of these companies conduct 'competitive simulations,' an improved version of war games specifically designed to role-play, pressure-test, and validate a company's — and its competitors' — strategies and tactics, including multi-level competition, in a simulated market environment. Companies using MLC approaches generally demonstrate deeper customer knowledge, enhanced stakeholder relationships, improved efficiencies, better ROI, significant competitive advantages, and, ultimately, higher market shares and sales in their product categories Importantly, while many pharmaceutical companies have multi-brand franchises or portfolios and designated business leaders, relatively few companies fully leverage powerful multi-level competition strategies, techniques and tactics to win against companies relying on single brands.

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