#152 How to win the race when you’re second
Launches of pharmaceuticals are tricky. Companies often have to face the fact that after a decade or more of expensive development, an initially promising new drug falls short of expectations in terms of sales. Bain & company estimated that about 50% of all pharmaceutical launches underperform and that more than 25% of all launches do not even reach 50% of the forecasted revenue (Natanek et al., 2017). What makes these product launches so challenging? First, pharmaceutical pricing is very delicate and the consumers’ price sensitivity is difficult to predict upfront as it depends on, e.g., the type of disease, its symptoms and the actual location of treatment (hospital versus home-based). Second, product launches are often accompanied by (sometimes unanticipated) competitive counter-launches. Third, improved efficacy and safety do not always translate into a higher rate of prescriptions. An example that illustrates these challenges is Janssen’s anticoagulant drug Xarelto. Janssen Pharmaceuticals, part of Johnson & Johnson, licensed Xarelto (Rivaroxaban) from Bayer as a blood thinner that treats and prevents blood clots. Among others, Bayer, Johnson & Johnson and Boehringer Ingelheim all raced to capture market share from the leading drug in this space, Warfarin. Initially, Xarelto was only second to market after Boehringer Ingelheim’s rival drug Pradaxa (Dabigatran). More importantly, many stakeholders considered Pradaxa as their medication of choice. However, Janssen managed to turn the game and became first in class after all. Their 2018 Xarelto sales totaled $2.47B and also Bayer reported a revenue of $4.07B from the drug (Dyer, 2019). How did Janssen accomplish this Herculean task? In addition to other factors, Janssen differentiated Xarelto from Pradaxa through its simpler treatment regimen. Whereas Boehringer Ingelheim’s competing drug has to be taken twice a day, Janssen’s drug follows a once-per-day dosing. This simple product adaptation significantly influenced consumers’ perceptions. Janssen had understood the American culture of convenience that reaches across all product categories. In the U.S., an alarmingly 50% of the medications for chronic diseases are not taken as prescribed, in part non-compliance by patients (e.g., Viswanathan et al., 2012). American patients have even been shown to be willing to pay more each month for a medication with a lower number of pills (Stewart et al., 2016). Reducing the number of doses, therefore was appealing to patients in the US. Besides, the US is also a culture that values choice, which often results in low brand loyalty and the willingness to with to a product with a better value proposition. In the end, Janssen was able to successfully launch a drug that neither represented a major clinical breakthrough nor was superior to the competing drugs. By a deep understanding of the market, a simple adaptation of the product and effective launch marketing Xarelto became the novel No. 1 oral anticoagulant in the U.S.
(This blog post was co-written with Thomas H., graduate student at California Lutheran University)
April 28, 2019 @ 6:43 am
This was a very interesting and refreshing read. After reading the title I had anticipated a very different article since pharmaceutical companies haven’t had the best reputation as of late. That being said, the makers of Xarelto took their time to get to know the American culture and the values of American people and formulated their drug to meet these values. I think this is just super cool!! I really appreciate businesses who take their time to carefully research people and potential consumers. It may seem like such a basic task but knowing the target market is so important and often not done well enough… and companies wonder when they fail 🙂
April 28, 2019 @ 6:27 pm
I am not well-versed in the pharmaceutical industry, so I found it interesting to read how a company from Belgium successfully launched the #1 anticoagulant drug in the United States. While founded in Belgium, Janssen Pharmaceuticals became a subsidiary of Johnson & Johnson as a result of an acquisition in the early 1960s. Johnson & Johnson in based in the U.S. and invests heavily in research and development, which are two factors that may have contributed to the success of Janssen’s Xarelto in the United States. The case outlined in this post also underscores the importance of analyzing competitors and identifying a unique selling proposition, which are keys to any successful marketing launch. As a result of the market research conducted leading up to the product launch, Janssen was able to understand how existing consumers felt about the drugs on the market and where there were opportunities for product innovation.
May 8, 2019 @ 7:08 am
An interesting article as well as a further good example of why a deeper understanding of customers needs is crucial for doing successful business.
May 19, 2019 @ 3:43 pm
It’s interesting to note that in case of Xarelto the drug itself can be sold without major or possibly even any adaptations itself around the world. However, the strategy on how to convince the customers to actually buy the product might differ to a certain extent. For instance, while customers in the US might put a strong focus on convenience when choosing their drugs, customers in Europe or Asia might be attracted to different factors such as drug effectiveness or associated risks. However, as you also stated in your post Gerhard, there is no information available that would indicate that Xarelto and its main competitor Pradaxa would perform differently with regards to the mentioned factors. Hence, the question arises for Janssen if customers are willing to pay a premium for Xarelto’s higher convenience, how much is it and does it differ in other markets (e.g. Europe).
When talking about pricing strategy, it needs to be also considered that the regulatory framework for drug pricing is by no means homogeneous on a global scale. While in the US prices are formed by market competition for instance, in Europe they are negotiated with government agencies, which restricts the manufacturers’ strategic leeway.