Some people dislike or even fear tight spaces, like crowded elevators. But for payers, there are several reasons to love crowded markets with multiple branded products and — better yet — multiple generics or biosimilars.
Lower costs
Crowded markets tend to be competitive markets, and competition can bring costs down, or at least slow cost increases. Ultimately, crowded markets yield multiple generic options, raising the potential of much lower costs to the payer. Similarly, biosimilars may also lower costs, although it is too soon to say whether payers will achieve savings by a step through one or more less-expensive biosimilars or through more competitive rebates from manufacturers.
Competitive rebates
Payers often help successful brands succeed, as a rebate is more valuable for products with greater market share. And a crowded market will pressure the leading brands to offer competitive rebates.
Product differentiation
For products to stand out in crowded markets, product differentiation is important. The need to stand out can spawn better products with enhancements that resonate with payers, like mechanisms of action that are generally more effective or more effective in specific subpopulations. Manufacturers may also invest in comparative effectiveness research to bolster the argument that their product is superior to others, although payers will care only if this superiority is clinically significant and the comparator is the standard of care or market leader. Alternatively, manufacturers may improve the clarity, believability, and impact of payer communications that highlight how their products are different.
Over time, crowded markets create conditions that discourage the late and poorly differentiated entrants — thereby slowing and ultimately stopping the introduction of me-toos. From a payer perspective, that’s a good thing. Though a few me-toos may yield benefits associated with a competitive market, too many me-toos may be inflationary as manufacturers turn to less-desirable, profit-maximizing tactics like direct-to-consumer advertising or copay cards. Unfortunately, crowded markets create barriers to entry that discourage manufacturers from bringing new products with smaller yet meaningful advancements to market. For example, even when a new product has real advantages, there is a risk that these advantages may not be demonstrated in a head-to-head trial. Sometimes, probability works against manufacturers.
Real-world evidence
Crowded markets allow trial of, and switches between, products. With experience over time, real-world evidence — what payers really, really want — emerges whether collected by manufacturers, payers, or registries sponsored by NIH grants or patient advocacy organizations. This evidence can be reflected in guidelines and be used by payers as support for their formulary management decisions.
Collaboration
In response to competitive market pressures, manufacturers may begin to act in ways that payers appreciate, such as working with makers of complementary products (e.g., companion diagnostics or devices that improve administration or monitoring) in ways that yield medical-cost offsets, and offering valued, value-based contracts.
Innovation
Perhaps the most exciting manufacturer response to crowded markets is a “blue ocean strategy” to enter new uncontested market spaces, like rare diseases and other serious conditions with little to no competition. Such a strategy may help to address unmet needs, though it also can increase a payer’s pharmacy spend and trend. A niche play that targets unmet needs of a particular subpopulation, backed by comparative evidence research demonstrating superior efficacy or safety within that subpopulation, is an effective strategy in crowded markets. Time will tell whether these manufacturers can successfully achieve and sustain competitive advantages through lower costs to payers and patients, product differentiation, a niche play, or a combination of these strategies.
However, some manufacturers in crowded markets will likely turn to less-innovative, incremental improvements. These include “convenience” benefits associated with dosing administration or frequency, minor decreases in side-effect profiles, or relatively inexpensive “value-added” programs that, from a payer’s perspective, do not add value. And some will try to do an end run around payers’ cost-management strategies by using copay cards when a product generally has nonpreferred status. Further, a crowded market may make it increasingly difficult for manufacturers to enroll patients in clinical trials, especially for rare conditions, thereby delaying the emergence of new evidence.
Preferences and restrictions
When there are no options, there can be no preferences — but when payers have options, differences in product features, cost, market share, and evidence shape their preferences. As the number of therapeutic options increases, resistance to restrictions, such as step-therapy requirements, decreases. Crowded markets then typically create conditions that permit payers to manage access and, as a result, impact utilization. Whereas competing manufacturers often view a new entrant as a threat, payers often view it as an opportunity.
Like a crowded elevator that has exceeded its maximum weight capacity, when a crowded market gets too crowded, payers’ real or perceived costs may exceed their real or perceived benefits. That said, payers generally love some crowding and the associated benefits.
Manufacturers should anticipate and plan for more aggressive management by payers under these market conditions and find ways to flourish under them. A manufacturer should be mindful that short-term tactics to maximize profits or market share can hurt long-term payer relations.
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