Drug-eluting Stent Market 5 Billion Turning On A Dime

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Thinking about Life Sciences http://blog.aesisgroup.com Monday, July 24, 2006 Drug-Eluting Stent Market: $5 Billion Turning on a Dime

It is both a law of physics as well as a matter of common sense that the bigger something is the harder it is to move and change. For a given force, Newton’s first law tells us that the more massive the entity the less acceleration it experiences. Rapid Change in the DES market Big companies, big markets and big money also seem to follow the same concept. The drug-eluting stent (DES) market, which is estimated now at $5 billion in the U.S. alone, would seem to defy these laws as we’ve seen billions of dollars shifted from markets and between companies within a matter of months.

Market leadership in this field has shifted several times over the past decade. In 1995, Johnson & Johnson held nearly 95 percent market share with its original Palmaz bare-metal stent. By 1998, this market share was almost down to below 10 percent as Guidant (and Medtronic to a lesser extent) took the lead with more doctor-friendly versions of the stent. Johnson & Johnson’s introduction of its CYPHER DES in 2003 catapulted its market share back to 60 percent of the total stent market. The firm indeed had 100 percent of the DES market at that point. By 2005, its market share of the total stent market was back down to around 30 percent on a combination of capacity problems and with the approval of the new Boston Scientific TAXUS stent.

11/17/2008 12:53 AM

Thinking about Life Sciences: Drug-Eluting Stent Market: $5 Billion Turni... http://blog.aesisgroup.com//2006/07/24/drugeluting-stent-market-5-billion...

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Factors behind rapid market change That’s what I mean by $5 billion turning on a dime. While it would seem that there are huge barriers to entry – massive clinical development costs, large sales force requirements, etc. – there are also powerful industry factors that make rapid market changes possible. These include: 1. Demand homogeneity: This is critical. Physicians, patients and payers are looking for the best product and the measures of quality are fairly simple (namely the level of restenosis reduction). Unlike the car industry where some may seek fuel economy and others may want engine power, such heterogeneity of demand doesn’t exist in the DES market. While there are some niche players (for example, aiming at complex lesions, ostial lesions and so forth), these aren’t yet significant. 2.

Flattening learning curve: As more and more companies begin to gain expertise in the high-precision manufacturing required, this will eliminate one of the major barriers to entry to this market. We may expect to see even more rapid shifts as manufacturing know-how is more widely disseminated.

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Relative lack of economies of scale: While there clearly are economies of scale as with any manufacturing process, these matter less in the relatively high-margin DES market.

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No switching costs: A stent is a stent and a cardiologist trained to implant one stent can just as readily work with another. Changing one’s car insurance may very well be more difficult than a cardiologist working with another stent.

DES market forecast to change markedly in the coming year As mentioned in a previous column, I held the view that there will be significant turmoil in the DES market over the coming year. In the MidwestBusiness.com poll attached to that column, more than half of you also agreed that safety issues would become big over the next few months. We may very well see another huge market shift by the end of next year. Other huge markets – some with even longer product cycles – have seen similar rapid shifts in market share. Three years ago, Boeing in Chicago was on the ropes and was being pummeled by Airbus. Now the situation seems to have been completely reversed. Flexible strategies rule By the way, being on the ropes may not be a bad thing. Muhammad Ali used his famous “rope-a-dope strategy” in the historic 1974 “rumble in the jungle” bout with George Foreman in Zaire. A much younger and stronger fighter, Foreman went into the fight expecting to do what he had always done to an opposing fighter: blow him out of the ring with his prodigious strength. What he wasn’t expecting was for Ali to use that strength and aggressiveness against him. The strategy worked as Foreman tired himself out with only marginally effective blows. What is especially fascinating is that Ali apparently changed to this strategy after the first round. He basically innovated in the middle of the fight while Foreman stuck with his original strategy. Innovation is an important lesson for stent manufacturers to keep in mind as they duke it out. Ogan Gurel, MD MPhil [email protected] http://blog.aesisgroup.com/ Safety Medtronic drug-eluting stents Guidant Boston Scientific Johnson and Johnson Aesis Research Group Ogan Gurel MD

11/17/2008 12:53 AM