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Market share or market share: what pharmaceutical innovation has to do with the slice of the cake

Mabel Moreno

Mabel Moreno Viscaya
Economist, Esp Statistics, MSc Economics
Value-Based Healthcare Lead - Roche
Teacher - University Foundation of Health Sciences

The methodology behind the calculation of market share or market share it is widely disseminated. In the case of health technologies -such as drugs, for example- this market share is usually calculated based on the delimitation of the market to be analyzed.

For example, all dosage forms of a drug may not serve the same types of patients, creating different markets for different dosage forms. This clear market determination also makes it easier to answer the question of which competitors will be included in the analysis. It is also necessary to determine the unit of analysis: market share by sales, by units, or by number of patients.

 

Regarding the interpretation of a market share Based on these units of analysis, the results in terms of sales volume (measured in monetary units) can be contradictory when compared with a market share by volume of units sold.

This occurs because there are drugs that have a unit price so high compared to the price of their competitors, that they do not need to sell too many units to be in a leading position in sales in their market. So, over time, analyze the market share From the volume of sales it has become a good indicator of the success of the areas in charge of the strategy in an organization (1, 2).

 

The success of the strategy reflected through a high market share Sales may have multiple explanations, but pharmaceutical innovation does not seem to always be one of them. In a study published in 2015 (3) that aimed to quantify the relationship between market size and innovation in the pharmaceutical industry, the authors calculated the market size elasticity of innovation (measured by the number of new chemical entities that appear in the market for a certain health condition), and found positive elasticities with a point estimate of around 0.23. This means that for every 10 % of increase in the size of a potential market, the launch of innovative drugs increases less than proportionally: only 23 %. An elasticity below one could indicate the importance of competition in a market; as the market grows and more treatments come in, profit margins fall (3).

 

Marketing strategies have found a powerful tool to counteract the phenomenon of the inelasticity of innovation to the size of markets.

 

In order to incentivize the launch of new drugs, you can look for a drug to be a pioneer in entering your market, because that can lead you to be the leader of the market. market share in sales (4, 5). It is important to distinguish that here we are talking about the lasting advantages of being the first to launch a drug in a market, since they are advantages that positively stimulate the market share sales or profitability over a long and sustained period, and we are not talking about advantages that are short-lived. Although no advantage lasts forever, drugs that create lasting benefits by being the first to launch may tend to dominate their market categories for many years (5).

 

Some advantages of being the pioneer drug in a market - which would lead to sustaining a successful position in terms of market share- could be (4):

 

  • Establish medication as the standard of management for patients.
  • Being able to access customers first and make a strong impression, which can lead to long-term relationship recognition and loyalty.
  • You may be able to take advantage of available resources, such as leading the implementation of innovative bargaining agreements, or hiring the most talented employees in your context.
  • You can gain an advantage if there is a high transaction cost or in losses of therapeutic value, when changing patients' treatment before the arrival of new management alternatives.

 

So we can also wonder if the positioning in market share it should be consistent with the positioning in pharmaceutical innovation. The pharmaceutical innovation index (IIF) designed by IDEA Pharma - a consulting firm specialized in designing launch strategies for the pharmaceutical industry - seeks to answer the following question: «if two companies had the same molecule for a launch, who would have more success with it? »; thus classifying companies by their ability to bring products from their phase I / II trials to the market, and market them successfully (6). The IIF is calculated from a wide range of clinical, regulatory, commercial, and marketing variables. Next, Table 1 shows the results of the top 10 of the global IIF for the year 2020 and, in addition, the position in market share global sales for the same year of pharmaceutical companies in the corresponding top 10 (7):

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From the data observed in Table 1, it is not possible to affirm that the pharmaceutical laboratories with the highest IIF are those that are also in the Top 10 of global market share: only four pharmaceutical laboratories (Roche, AbbVie, Novartis and Merck & Co.) with a high rate of pharmaceutical innovation appear in the Top 10 of market share global pharmaceutical laboratories.

 

In accordance with the above, for the future it is worth going further, and asking ourselves how the market share (in its unit of analysis of the number of patients, for example) with the ability of the pharmaceutical industry to deliver value to society as a whole and to achieve better results for patients.

 


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* The writer of this post is participating as an expert guest, and her opinions do not represent the position of her employer

References

1. Market Share — a Key to Profitability. [Internet]. Harvard Business Review. 2018 [cited 2021 Sep 05]. Available at: https://hbr.org/1975/01/market-share-a-key-to-profitability

2. Market Share: The Most Important Metric for Business Success. [Internet]. Buxton Co. 2014 [cited 2021 Sep 05]. Available at: https://www.buxtonco.com/blog/market-share-the-most-important-metric-for-business-success

3. Dubois P, De Mouzon O, Scott-Morton F, Seabright P. Market size and pharmaceutical innovation. The RAND Journal of Economics. 2015; 46 (4): 844–871.

4. First Mover Advantage: The advantage gained by a company that first introduces a product or service to the market. [Internet]. Corporate Finance Institute. 2017 [cited 2021 Sep 05]. Available at: https://corporatefinanceinstitute.com/resources/knowledge/strategy/first-mover-advantage/

5. The Half-Truth of First-Mover Advantage. [Internet]. Harvard Business Review. 2005 [cited 2021 Sep 05]. Available at: https://hbr.org/2005/04/the-half-truth-of-first-mover-advantage

6. Pharmaceutical Innovation and Invention Index 2020. IDEA Pharma. 2020 [cited 2021 Sep 13]. Available at: https://www.ideapharma.com/pii

7. Top ten Pharma companies in 2020. Pharmaceutical Technology. 2020 [cited 2021 Sep 14]. Available at: https://www.pharmaceutical-technology.com/features/top-ten-pharma-companies-in-2020/

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