A recent article from research firm McKinsey & Company focuses on the long-running debate in the pharma sector regarding the importance of being first to market. Pharma and biotech firms today spend billions trying to increase their odds of beating the competition to market. In the high-stakes duel for a head start in a novel drug class, most companies believe that every month of lead time ahead of a competitor is a big deal.
According to McKinsey & Co., however, it’s not quite that simple. They undertook an in-depth analysis of several hundred pharma launches, and the results did confirm a weak first-to-market advantage on average, but with significant variation based on market context. There were a number of instances where there was really no first-mover advantage, such as when the head start is short or when the first mover is a smaller company.
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Pharma sector first-to market advantage
The McKinsey & Company analysts examined 492 drug launches in 131 classes from 1986–2012. The methodology was to filter for drugs that produced more than $100 million in annual sales and had one or more competitors during its patent life. In order to assess the significance of order of entry on a new drug class, we analyzed market share by sales for each drug in the tenth year following the launch of the initial drug.
The results showed that first-in-class players do enjoy a greater-than-fair market share on average, defined as 100% market share divided by number of entrants. On an overall basis, first-to-market players enjoy a 6% market-share advantage over latecomers, but they achieve market-share leadership less than half the time. The relative disadvantage of later competitors is in the same ballpark, meaning that its really not much worse to be fifth to market than second to market.
The results also show, however, that the first-to-market advantage is greartly dependent on specific market contexts.
Pharma sector: Important market contexts for first-to-market advantage
Prescriber characteristics — First-mover advantage is more pronounced in specialty areas with small numbers of prescribers and patients and less pronounced in primary care.
Route of administration — Injectable drugs tend to have significantly first-mover effects than oral drugs, as one might expect given the specialty/primary-care dynamic described above.
Competitive dynamics — With just two competitors, the first mover has a major advantage over the late entrant. In crowded markets with more than five competitors, however, the first-mover advantage is much less, as the multiple late entrants can all take market share from the first player.
Capabilities — A first mover that is a large pharma company has a significant advantage; when the first mover is not a large pharma company, the first mover actually usually performs worse than fair share of the market. Experience also matters. Pharma firms with prior experience in a therapeutic area have nearly double first-to-market advantage compared to firms with no experience.
Lead time — Not surprisingly, the longer a first-in-class drug has before competition emerges, the greater the market-share edge. A lead time of three years or more offers a fairly sizable advantage, but a gap between first and second entrant of 12 months or less yields no advantage.
Product label — A first mover that expands indications faster tends to enjoy a significantly greater first-to market advantage.