competitive industry analysis

7/31/2019 Competitive Industry Analysis

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Cialis Business Plan

Alexandra Heide12/4/2010


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Introduction

Eli Lilly and ICOS are faced with key decisions regarding the launch of their new erectiledysfunction (ED) treatment, Cialis. The rivalry currently consists of market pioneer Pfizer andupcoming entrant, Bayer, who is waiting patiently to anticipate Lillys market entry strategy whileconcurrently assessing the competitive landscape prior to entry. Lilly is faced with the dauntingtask of launching a product in a market that is currently controlled by Pfizers erectile dysfunctionmedication, Viagra, but with careful consideration of the competitive context and an understandingof consumer needs, Cialis has potential for a successful launch and a new blockbuster drug.

Competitive Industry Analysis

Pfizer

Pfizer is the top player and largest research-based company in the biopharmaceutical industry. Thecompany operates in the biopharmaceutical, consumer healthcare, animal health and nutritiondivisions, though the majority of the companys revenues are derived from its biopharmaceuticals

sector.1

In 1998, Pfizer was the first-mover in the ED treatment market with its launch of Viagra, adrug that reaps over $1 billion annually for the company. Pfizers resources include its brand,market leadership, sales force and capital. The company is driven by operations because it reducescosts (often through workforce minimization) and seeks productivity efficiencies by consolidatingits manufacturing real estate and creating flexible cost structures.2 Strategically, Pfizer plans topursue a differentiation strategy through diversification as evidenced via the companysacquisitions within emerging markets and future deals will be largely driven by the business units.The company also made a commitment to stand behind its medicines that have either already lostor will lose their patents.3

Launch of Viagra

Pfizers strategy for the launch of Viagra began with augmenting consumers problem recognition

by redefining impotence as erectile dysfunction since the former conveyed hopelessness,weakness and a sense of permanence.4 This change in terminology was initiated to make malesmore willing to discuss their condition to enable Pfizer to expand its market from 10 million menwith impotence to 30 million with erectile dysfunction. 5Pfizers target consumer in the UnitedStates is the ageless playboy male, around the age of 55 who is seeking to maintain hisyouthfulness and sexual activity.6Pfizers direct-to-consumer strategy consists of generatingawareness and educating consumers with regards to both ED and Viagra via television commercialsaired on sports networks and LifeDrive, a Viagra-sponsored magazine that offers relationshipadvice and talking points to help men discuss ED with their partners. Pfizer also uses celebrityspokesman Bob Dole in television advertisements to incite the Perception and Consultationphases of the Health Care Transaction Model. In addition to direct-to-consumer advertising, Pfizer

1 "Pfizer.com | Pfizer: the world's largest research-based pharmaceutical company."Pfizer.com | Pfizer: the world's largest research-based

pharmaceutical company. N.p., n.d. Web. 28 Oct. 2010. .

2 "2009 Annual Review."Pfizer.com. N.p., n.d. Web. 23 Nov. 2010

3 Tufts University E-News. "Tufts E-News: Tufts Graduate Named CEO of Pfizer." Tufts E-News: Daily News. Tufts University's official electronic

news source.. N.p., 14 Aug. 2006. Web. 28 Oct. 2010.


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targets doctors since they are key intermediaries. Pfizer funds the continual medical educationdoctors need to maintain their registration (which gives Pfizer greater influence on theirprescribing habits) advertises in medical journals and sends its sales force to persuade doctors toprescribe Viagra.7 When Lilly launches Cialis, Pfizer will likely advertise heavily to defend itsoriginator/market leader status (the company already spent over $303 million in direct-to-consumer advertising between 1999 and 20018) and utilize its 30,000-member sales force to

convince doctors of Viagras superiority.

Bayer

Bayer is German and a conglomerate of 302 global companies with key product offerings thatinclude ethical pharmaceuticals, agricultural products and polymers, to name a few. Unlike Pfizerand Lilly who receive approximately 90% of sales from pharmaceuticals, Bayers pharmaceuticalsaccount for less than half of the companys sales.9Bayers CEO has a science background and isfocused on the production of chemical compounds, indicating that the company possesses anoperations focus. Bayers resources include its potential to penetrate European markets (Europeanconsumers are more familiar with the company) and its ability to foresee potential challenges. Thecompanys growth strategy for its pharmaceuticals sector includes the pursuit of joint ventures and

co-licensing agreements.

Launch of Levitra

Bayer is waiting to launch Levitra after it can analyze Pfizer and Lillys strategies. Compared toViagra, Levitra is more effective at lower dosages, even though its duration is comparable.Currently, Bayer is intending to pursue a niche strategy by focusing on diabetic men. However, as aEuropean company, Bayers marketing presence in the United States is relatively weak, so thecompany is attempting to improve this setback by entering into a copromotion agreement withGlaxoSmithKline. On a global scale, this may put Bayer at an advantage when the rivalry beginsseeking new markets to penetrate because the brand is more established amongst Europeanconsumers.

7 Bradfield, Owen, Caroline Parker, and Leonie Goodwin. "Sustaining performance: Learning from buyers' experience of Viagra." Journalof Medical Marketing 9.4 (2009): 343-353. Print.8 Bradfield, Owen, Caroline Parker, and Leonie Goodwin. "Sustaining performance: Learning from buyers' experience of Viagra." Journalof Medical Marketing 9.4 (2009): 343-353. Print.9 Clinton, Patrick, and Mark Mozeson. "Pharm Exec 50." Euro RSCG Life (2010). Web. 9 Nov. 2010.


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Aakers Competitive Analysis

The figure below represents how the rivalry and its erectile dysfunction medications meausure upagainst competitors and keyattributes. (Note that the white blocks represent indeterminablestatus.)

Pfizer

Eli

Lilly Bayer

Viagra Cialis Levitra

ASSETS & SKILLS

Keys for Success

Advertising/promotion skills

Brand Name Recognition

Distribution

End-user Satisfaction

Growth of Segments Served

Market Share

New Product Capability

Patent

Product Differentiation

Product Quality Reputation

R&D

Sales force

Treatment of ED

Longer Use

Treatment of High BloodPressure

No Diet Change Required

Minimal Side Effects

Short Onset Time

Key

Strong

Above Average

Average

Less than Average

Weak

Undetermined

Pfizer/Viagras Strengths Include:

Advertising/promotional skills Brand Name Recognition Growth of Segments Served Market Share R&D Investment Sales Force Treatment of EDEli Lilly/Cialis Strengths Include:

Growth of Segments Served Product Differentiation R&D Investment Treatment of ED Longer UseBayer/Levitras Strengths Include:

Growth of Segments Served Treatment of ED


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Cialis SWOT Analysis

Given the actions of Pfizer and Bayer and the conditions present in the external environment, theseare the considerations Lilly must address.

Launching Cialis

Mission Statement

To improve the lives and relationships of males suffering with ED by giving couples the power todecide when the time is right.

Goals

Capture 30% of the erectile dysfunction treatment market share by the end of the 2004fiscal year

Strengths

- Quicker onset time than Viagra (comparable

- Medication effectiveness is not affected by diet

- Longer half-life than Viagra or Levitra

- Less incidence of visual irregularities than Viagra(does not significantly inhibit other PDE enzymes)

- Less side effects compared to Viagra or Levitra

- Lesser dosage needed for effective treatmentcompared to Viagra

- Efficiency in working with ICOS (sped up the time

to market)

Weaknesses

- ICOS lacks marketing capabilities and experiencebringing a product to market (potential to slowpipeline)

- Profits split 50/50 between companies (couldcause issues and hinder Lilly's R&D investmentcapabilities)

- Unknown safety profile (consumers now aware ofViagra's safety after scare)

- GMSO is disjointed (potential for unclear messagesto consumers)

Opportunities

- Large "Baby Boomer" population is within EDprevelant age range

- Viagra's patent will expire before Cialis'

- Viagra dropouts seek features Cialis offers (onset,duration, etc.)

- Consumer push for "Lifestyle" drugs

- Consumer willingness to try a new ED medication

- Consumers are more open to discussing ED than inthe past

- Reductions on direct-to-consumer advertising

Threats

- Pfizer's 30,000-member sales force

- Pfizer's increased R&D expenditures

- Viagra has highest brand recognition in market

- Introduction of Levitra

- Male reluctance to seek erecticle dysfunctiontreatment

- Because it is a lifestyle drug, it can only bemarketed direct-to-consumer in the United Statesand New Zealand

- Viagra's patent expiration will introduce newcompetition for Cialis

Cialis


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Convert 75% of ex-Viagra users to Cialis users within two years after Cialis launch(measure via customer survey)

Get 75% of males diagnosed with ED to ask their doctor about Cialis within 6 months afterCialis launch (measure via customer survey and response from doctors)

Analysis of Company

Eli Lilly is a finance-driven organization because the company practices cost-cutting measures suchas lay-offs and price increases to offset lower sales volumes, stimulate financial growth andfacilitate reinvestment. To offset its patent losses and minimal acquisitions, Lilly plans to allocateapproximately one third of its pharmaceutical sales on R&D, the largest allotment of any of itsrivals. Lilly differs from the other rivalry members because the company has been creating newresearch centers rather than cutting costs, and while many large pharmaceutical companiesembrace a high-risk, high-return strategy, Lillys main focus is to generate innovative drugs thatare expected to top $500 million in sales. Although Lilly tends to avoid me-too productalternatives, its launch of fastfollower Cialis indicates that Lilly expects it to achieve best-in-classstatus (because the company perceives Cialis as a competitive product possessing distinctivebenefits) and high earnings. Because Cialis is a fast follower, it will need to observe Pfizers actionsand address issues consumers have with Viagra. One way Lilly is trying to do this is by unitingmarketing with product development through the formation of its Global Marketing SalesOrganization (GMSO), however the company needs to make sure that the GMSO is still fully-integrated with other key business areas (R&D investment, for example) so that decisions are beingmade from a holistic perspective.

Analysis of CustomersAccording to a 1999 study, the average ED treatment consumer is a male in his 50s and more than80% have a sexual partner. Erectile dysfunction is an embarrassing discussion topic, so althoughmany males perceive that they are suffering from the condition, fewer than half consult a doctor.

Additionally, some older males also believe that ED is a normal occurrence and therefore choosenot to seek treatment. When men do consult their doctors however, it can usually be attributed topartner influence. Approximately 150 million men suffer from ED worldwide and the growingdemand for lifestyle drugs and perception of erectile dysfunction as an endemic that impairsquality of life will increase that number.10 Customers are mainly concerned with product attributeslike onset time, safety, duration and time on market and over of the ED patients surveyed byBayer possess interest in trying a treatment other than Viagra because they are dissatisfied with theproducts performance on one or more of those attributes.

Analysis of Collaborators

The collaborators involved with Cialis include Lillys joint venture partner ICOS, doctors,

pharmacies and the FDA. ICOS developed an ED medication with potential and sought a partnershipwith Lilly so it could prepare for self-sufficiency by learning how to clinically develop andsuccessfully take a product to market. By teaming up with ICOS, Lilly gains access to a potentialblockbuster drug that could rob the best-in-class category title from Viagra. In addition, ICOSmedication complements Lillys pursuit of quality-of-life medicines so the partnership is viewedas mutually-beneficial. Lilly considers doctors key influencers in the success of Cialis because end

10 Bradfield, Owen, Caroline Parker, and Leonie Goodwin. "Sustaining performance: Learning from buyers' experience of Viagra." Journalof Medical Marketing 9.4 (2009): 343-353. Print.


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users ultimately cannot purchase the medication without a prescription and they are trusted bytheir patients. Doctors are concerned with providing patients medications that are effective andsafe and are not very comfortable discussing their patients sexual problems. To influence thiscollaborator, Lilly will have to perform a balancing act between educating and influencing doctorsvia visits from sales representatives to promote Cialis and the funding ofdoctors continuingeducation programs to encourage them to prescribe Cialis.11 Although Pharmacies are a main

distributor, they have little influence on Cialis success because they are required to order and fillwhatever prescription they receive. The only thing Lilly should address with regards to thiscollaborator is how Cialis usage is communicated from pharmacist to end user. If the pharmacist

incorrectly explains the medications instructions and the patient has a negative experience with it,the problems could be attributed to Cialis rather than ill-informed instruction or improper use. TheFDA can be considered a collaborator because without its approval, Cialis could not enter the EDmarket. The FDAs concerns are similar to doctors in that its purpose is to protect its stakeholdersfrom harm (American consumers), but the FDA is less likely to be influenced by a pharmaceuticalcompany.

Analysis of Context

Porters 5 Forces

The rivalry under examination consists of Pfizer, Eli Lilly and Bayer. In the erectile dysfunction (ED)drug market, the Barriers to Entry are high because large amounts of capital, brand and humanresources with specific qualifications are necessary to be a competitive player in this industry. Inaddition, new entrants will be subjected to compliance with government regulations and a highamount of risk since the firms that dominate this industry are established and well-known. TheThreat of Substitutes is moderate because currently herbal supplements, ginseng, penile injections,testosterone supplements, unbranded nasal delivery treatments or no treatment at all constitutethe possible substitutes. Additionally, the extent of the threat depends on whether the drug iscurrently protected by a patent. Right now, all of the drugs are protected, but as they approach

patent expiration, the Threat of Substitutes will be higher, as generic brands quickly replicate theproduct and fight for market share. The Bargaining Power of Consumers differs amongintermediaries and end users. The intermediary consumers (doctors and pharmacies) have a highbargaining power because they can choose which ED drugs to carry and whether or not to discuss itwith patients. In addition, before a consumer can receive the treatment, they need to have aprescription. The bargaining power of end users is moderate because although there are limitedtreatment options available, ED treatments are within the lifestyle drug category. The BargainingPower of Suppliers is low because the industry is concentrated into large firms and the chemicalindustry is dependent upon the business of the pharmaceutical industry. In addition, chemical firmsare incentivized to maintain competitive prices because it augments the competitiveness of thepharmaceutical firms products in the market. In addition, the rivalry is moving towards verticalintegration, so suppliers will be at the mercy of pharmaceutical companies.

11 Bradfield, Owen, Caroline Parker, and Leonie Goodwin. "Sustaining performance: Learning from buyers' experience of Viagra." Journalof Medical Marketing 9.4 (2009): 343-353. Print.


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Environmental Scan

The following components constitute the environmental factors the firms in the ED industry needto be cognizant of:

Segmenting

Cialis has the opportunity to segment its users according to the problems they are seeking toalleviate or via specific demographic identifiers. In Rediscovering Market Segmentation, Yankelovichand Meer state that nondemographic traits like values, tastes, and preferences are more likely toinfluence consumers purchases than their demographic traits, so Eli Lilly should examine those

Socio-Cultural:- Males' reluctance to discus erectile dysfunction issues and seek treatment

- American consumers' growing demand for lifestyle drugs

- Heightened awareness of drug safety due to Viagra scare

- Increasing social pressure on older men to maintain busy lives and perfect bodies

- Greater consumer demand for quick and easy solutions

Legal/Regulatory:

- Drug safety regulations vary from market to market

- Advertising restrictions (e.g. Pharmaceutical companies can only advertise direct-to-consumerin the United States and New Zealand)

- Patent approval needs to be granted to protect drug earnings- Drugs may only be purchased with a prescription

Economic:

- ED drugs are lifestyle products, so it's suceptible to economic fluctuations (people don't needthe medication to survive)

- Declining economy could reduce health benefits companies offer employees which could hurtED treatment sales

Natural Environment:

- Consumer concerns with regards to hazardous waste and emissions from pharmaceuticalfacilities

Technological:

- Advances in technology could make current products obsolete regardless of patent protection

- Advances in technology could enable firms to forecast more accurately and keep bettercustomer records (e.g. CRM software)


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characteristics to find its most receptive segments.12 (Similarly, consumers price sensitivity is notthe most appropriate form of segmentation for Eli Lilly due to the luxury product status Cialispossesses.) We can think of Cialis potential segments as males and/or partners who are concernedwith the medications efficacy in treating ED, males with high blood pressure, males and/orpartners concerned with longer use, males concerned with dietary restrictions and males seekingfewer side effects than Viagra. The specific individuals concerned with these characteristics are

listed in the table below.

Targeting

Because Eli Lilly is an established pharmaceutical company in the United States and Pfizer has

already educated consumers regarding erectile dysfunction, the company should begin by targetingAmerican consumers.

Specifically, Cialis should be targeted towards partners, older males diagnosed with erectiledysfunction and ex-Viagra users due to the overlap of these users concerns and the favorableopportunities these groups present as segments that are currently un-served (i.e. partners) andunder-served (i.e. ex-Viagra users). Additionally, Lilly should focus on doctors due to the large rolethey play in consumers evaluations and decisions regarding ED treatment options.

Partners represent a significant segment for Cialis since the vast majority of men with ED reportedthat they are in a relationship and according to the Journal of Medical Marketing, women andpartners play a significant role in influencing the buying decision process, yet their perspective is

rarely considered in most marketing messages.13 In fact, a study conducted by Nurse Researcheronthe factors that determine when treatment is sought states that 43% of men seek help for erectiledysfunction as a result of partner pressure and getting men to the Consultation phase of theHealth Care Transaction Model is a significant barrier.

12 BNET - The CBS Interactive Business Network. "Rediscovering Market Segmentation | BNET." BNET - The CBS Interactive BusinessNetwork. N.p., n.d. Web. 22 Nov. 2010. .13

Bradfield, Owen, Caroline Parker, and Leonie Goodwin. "Sustaining performance: Learning from buyers' experience of Viagra."Journalof Medical Marketing 9.4 (2009): 343-353. Print.

DoctorsAges

20-40

Ages

40-60

Ages

60+Partners

Older

Males

withIllness

Older

Males

with

HighIncome

Recreational

UsersEx-Viagra Users

ED

Treatmentx x x x x x

High Blood

Pressure

x x

Longer Use x x x x x

No DietChange

x x x x

Fewer SideEffects than

Viagra

x x x x


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Ex-Viagra users also constitute a lucrative segment because they have already made it through theCompliance stage of the Health Care Transaction Model and are dissatisfied with Viagrasperformance.

Doctors should be targeted because they ultimately determine which medication to prescribe and

of the males who did seek treatment in the 1999 study mentioned in the case, most of them filledthe first prescription they received.

Positioning

Cialis should be positioned as couples safer and longer-lasting Viagra alternative. Thispositioning will enable Cialis to speak directly to males suffering with ED and their partners byhighlighting ED as a shared issue. Unlike Viagra which is positioned as a macho drug for playboys,Cialis positioning will acknowledge partners as key participants in the conversation by leveragingthe significance consumers place on their relationships. Similarly, those dissatisfied with Viagra will

be informed of a Viagra-like product that has enhanced attributes and fewer side effects.

Perceivethey havecondition

Consult theirdoctor about

their condition

Receive aprescription

Fill theprescription

Actually takethe

medication

Intend torefill

prescription

Perception Consultation Treatment Delivery Compliance Evaluation

Health Care Transaction Model

Allergic reactions

Chest pain

Cyanopsia

Dizziness

Dyspepsia (indigestion)

Fatigue

Facial Flushing

Headache

Impaired vision

Increased risk of hearing loss

Low blood pressure

Memory loss

Nasal congestion

Nausea

Numbness in the limbs

Photophobia

Priapism

Stuffy nose

Tinnitus

Unnatural and prolonged erections

Upset Stomach

Weakness

Back pain

Dyspepsia

(indigestion)Facial flushing

Headache

Myalgia (musclepain)

Nasal congestion

Pain in the arms orlegs

Accidental injury

Back pain

Dizziness

Dyspepsia (indigestion)

Facial FlushingFlu-like symptoms

Headache

Increased levels ofcreatine kinase

Nausea

Rhinitis (stuffy or runnynose)

Sinusitis (inflammationof the sinuses)


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Product

According to the Bass Diffusion Model based off of Viagras worldwide quarterly sales since its

introduction, Lilly should launch Cialis at a competitive price because it will follow a successful pathsimilar to Viagras and even beatthe products sales in 13th quarter.

Lilly should start by selling Cialis in the 20mg tablet form it is preparing for the urology conference.After the drug has been in the marketplace, Lilly can assess whether or not different dosages shouldbe introduced like a smaller offering for weekend users or a heavier dosage for those who need

more of a boost.

Price

In order to capture 30% of Viagras ED treatment market share, Eli Lilly will need to price Cialis at$10 per pill to its end users. Lillys pricing strategy will be based off of the concept of value as

perceived by the customer because Cialis will communicate its superior product performance todoctors and end users. In addition, the article How Do You Know When the Price is Right?Dolanstates thatheavy users generally value a product more than light users,14 which indicates thatLilly has a solid rationalization for charging a competitive price because heavy users are malesdiagnosed with ED and couples. That being said, it does not make sense for Lilly to charge more

14 "How Do You Know When the Price is Right? - Harvard Business Review ." Harvard Business Review Case Studies, Articles, Books . N.p.,n.d. Web. 24 Nov. 2010. .


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than Viagra because ED medication is a lifestyle drug and therefore not covered by insurance plans,but rather paid for out-of-pocket by consumers.

Promotions

Lilly should utilize the same direct-to-consumer advertising channels as Pfizer (namely television

and print) with a few minor adjustments. Besides reaching males with erectile dysfunction viasports networks as Viagra does, Lilly should examine consumer data to determine which televisionprograms are most frequently viewed by couples or favored equally amongst older male and femaleviewers. To reach doctors, Lilly will need to compensate for its smaller sales force (relative toPfizers) by producing more educational pamphlets and investing more in doctors continualeducation programs.

Distribution Channels

Lillys distribution channels include pharmacies, wholesalers and hospitals which will receive amargin of Cialis sales. Because these channels act as intermediaries between Lilly and the endconsumer, it is imperative that they are commonly educated with regards to Cialis proper use and

key benefits.


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Bibliography

"2009 Annual Review."Pfizer.com. N.p., n.d. Web. 23 Nov. 2010

"Bayer HealthCare - Homepage." Bayer HealthCare. N.p., n.d. Web. 9 Nov. 2010..

BNET - The CBS Interactive Business Network. "Rediscovering Market Segmentation | BNET." BNET- The CBS Interactive Business Network. N.p., n.d. Web. 22 Nov. 2010..

Bradfield, Owen, Caroline Parker, and Leonie Goodwin. "Sustaining performance: Learning frombuyers' experience of Viagra." Journal of Medical Marketing 9.4 (2009): 343-353. Print.

Clinton, Patrick, and Mark Mozeson. "Pharm Exec 50." Euro RSCG Life (2010). Web. 9 Nov. 2010.

"Eli Lilly and Company."Eli Lilly and Company. N.p., n.d. Web. 9 Nov. 2010. .

"How Do You Know When the Price is Right? - Harvard Business Review ." Harvard Business ReviewCase Studies, Articles, Books . N.p., n.d. Web. 24 Nov. 2010. .

"Pfizer.com | Pfizer: the world's largest research-based pharmaceutical company."Pfizer.com |

Pfizer: the world's largest research-based pharmaceutical company. N.p., n.d. Web. 28 Oct.2010. .

"Pfizer.com | Pfizer: the world's largest research-based pharmaceutical company."Pfizer. N.p., n.d.Web. 9 Nov. 2010. .

Tufts University E-News. "Tufts E-News: Tufts Graduate Named CEO of Pfizer." Tufts E-News: DailyNews. Tufts University's official electronic news source.. N.p., 14 Aug. 2006. Web. 28 Oct.2010.

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