Beruflich Dokumente
Kultur Dokumente
com
Scott Rankin
Monash University
Cordis
Cordis a division of Johnson and Johnson manufactures and sells medical
devices used for the treatment of cardiovascular disease. They have been
regarded as an innovator in the industry and have launched highly regarded
products over the past decade. They have manufacturing facilities around
the world including in the U.S. and Italy. They employ approximately 10,000
people and sell their products in most countries around the world.
They participate in the biggest individual product market, which is
coronary stents. This market is worth approximately U.S.$2.3 billion. In
2001 the Cordis market share of the coronary stent market would have been
approximately 15 percent, with the market leader Guidant commanding a 45
percent market share.
The Industry
The Business
Cordis participates in the business of supplying medical devices for the
treatment of coronary artery disease and peripheral vascular disease.
Cardiovascular disease (CVD) is a major health and economic burden
throughout the world, especially in developed counties. CVD was the leading
cause of death in Australia in 2000, ahead of all cancers and accounting for
49,741 deaths, or 39% of all deaths. (Source: Australian Institute of Health
and Welfare 2002). CVD refers to coronary heart disease, stroke and blood
vessel disease. The underlying cause of most CVD is a gradual ‘clogging’ of
the arteries with atherosclerosis (or plaque).
Coronary Artery Disease (CAD) accounts for 49% of all cardiovascular
diseases, and is the single largest cause of death in Australia. (Source:
Australian Institute of Health and Welfare 2002). It is estimated that coronary
heart disease will become the single leading public health problem for the
world by 2020. (Source: Australian Heart Foundation). In the United States
(U.S.) more than 5 million people are known to have CAD, which is the
leading cause of death for both men and women. Each year an estimated
1.1 million Americans will have a new or recurrent coronary attack (heart
attack) and more than 40 percent of the people experiencing these attacks
will die from them. (Source: www.cypher.com)
CAD restricts blood flow through the arteries, due to an increased build-up
of plaque. When this happens, the heart muscle may not receive enough
oxygen, and chest pain (angina) may result.
the patient needs a repeated procedure, but options start to become limited
as there is already a stent in place and to insert another stent increases the
risk of a third occlusion occurring.
The 2003 market for stents in Australia was approximately 30,000 stents
(Meridith 2003). The average price for stents is $900 a stent, thus the market
is worth approximately $27 million. The U.S. market for stents is worth
U.S.$2.6 billion. The worldwide markets in stents have seen double-digit
growth in sales for the past decade.
The Competitors
Boston Scientific
Boston Scientific Corporation is a developer, manufacturer and marketer
of less-invasive medical devices. The company's products are used in
interventional medical specialties, including interventional cardiology,
peripheral intervention, neurovascular, electrophysiology, vascular surgery,
gastroenterology, gynaecology, oncology and urology
(http.bostonscientific.com).
Boston Scientific was the second major competitor to launch a DES into
the Australian market. Their Taxus stent, which is coated with the drug
Paclitaxel, has similar clinical results to Cypher, as shown in the clinical trials
Taxus 1, 2 & 4. Many regard the Boston stent, the Express 2, as being a
superior stent in terms of deliverability and conformability, both regarded as
important features of any stent by Interventional Cardiologists.
Guidant
Guidant was the world leader in terms of market share; the design and the
development of coronary artery stents until DES were launched. Guidant
was incorporated in 1994, and since has grown to $3.2 billion in revenue and
more than 11,000 employees. Guidant’s two main divisions are Vascular
Intervention, which manufactures and sells products to treat CAD, and the
Cardiac Rhythm Management Division, which manufactures and sells
implantable pacemakers and defibrillators.
It was initially expected that Guidant would be the first manufacturer with a
DES product for the market, however clinical trials did not go to plan and they
are now expected to be the third or fourth manufacturer with a DES.
Other Competitors
Other manufacturers of stents include Medtronic (U.S. firm), Terumo
(Japanese firm) and Biotronik (German firm). Overall there are
approximately 20 different manufacturers of stents, however the bulk of the
business is shared between the main four firms of Boston Scientific, Cordis,
Guidant and Medtronic.
214 Scott Rankin
The Technology
Until recently the only options for the treatment of restenosis within a stent
were for another stent to be implanted, Coronary Artery By-pass Surgery,
Brachytherapy or management of the patient simply with medication.
A second stent implanted raises the likelihood of in-stent restenosis
occurring a second time, and the idea of creating a mesh of metal in a
coronary artery is something no cardiologist wants to do. By-pass surgery is
major surgery involving general anaesthesia and use of a heart-lung
machine. Length of stay in hospital is usually 6 days and the recovery time is
about 6-8 weeks. Such surgery comes with its own risks and is something
that should be avoided if there is a minimally invasive option. Brachytherapy
is where radiation is delivered internally to the artery via a catheter. The
radiation to the in-stent restenosis has shown to be a relatively effective way
of reopening the blocked vessel.
216 Scott Rankin
The Innovation
The Innovation:
groin) and manoeuvred around the aorta and is placed into the
entrance of the coronary artery.
Analysts predict that the worldwide DES market in 2003 was worth
approximately 2.5 billion U.S. dollars, and that by 2008 the market will have
grown to 6.3 billion U.S. dollars. It is predicted that the DES market will grow
at 24% compounded annually over the next 4-5 years. This growth will come
from new entrants into the market, increased reimbursement by third-party
payers and high adoption rates in the U.S. (Rosenberg 2004).
The launch of the Cordis Cypher Stent was highly anticipated. Cardiologists
had been hearing of the astonishing clinical results of the Cypher stent from a
series of clinical trials. These results were being presented at all major
cardiology meetings around the world. Clinical trials such as ‘First in Man’,
‘Ravel’ and ‘Sirius’, involved hospitals all around the world, and the principal
investigators were well respected and highly regarded cardiology
218 Scott Rankin
what they used. This allowed hospitals to have a compete range of stents on
consignment from three or four manufacturers – giving doctors greater
choices of treatment. It also meant that doctors could always treat patients
immediately because stock was always available.
Cordis decided that Cypher would not be consigned and that it had to be
purchased upfront by hospitals if they wanted to use the stent. This meant
that a typical hospital that required a range of 25 stents would need to spend
$121,250 to purchase Cypher upfront.
The other option for hospitals, would be to complete an angiogram on a
patient and estimate the size of the stent required, then order the Cypher
stent and rebook the patient in for an angioplasty the following day when the
correct sized Cypher stent had been delivered.
The Result
In June 2002 the Cypher Stent was approved for sale in Europe and
Australia. It was not approved by the Food & Drug Administration (FDA) for
sale in the US until April 2003. In Australia, Cordis’ market share of the
private hospital stent market grew from 5-10% (before Cypher), to 85%
market share by December 2002 (Meridith 2003). In European markets the
uptake of the Cypher stent was similar. In countries and individual hospitals
where private health insurance or public health services covered the cost of
the Cypher stent, Cordis quickly gained up to 90% market share.
In the U.S., Cordis’ stent sales rose by 600% to US$675 million in the
second quarter of 2002, sales in the first quarter were only $52 million.
(Rosenberg 2003).
Cordis had released a truly innovative product and they dominated the
‘private patient’ stent market. Many patients were aware of the product
Cypher and would ask their doctor to be treated with a Cypher stent – this
was the first time that patients actually new in advance the brand name of a
220 Scott Rankin
coronary stent and it was placing pressure on doctors to use Cypher for all
cases (even if the expense could not be economically justified in all cases).
In June 2003 Boston Scientific launched a DES called Taxus. Boston was
the second player into the markets of Europe and Australia. The FDA
approval for the sale of the Taxus stent in the U.S. only occurred on
Thursday, 4th of March 2004.
It is expected that the 3rd and 4th entrants into the DES market will be
Guidant and Medtronic. Both have DES products in trials at the moment, and
all going well both plan to launch products into the European and Australian
markets in the first quarter of 2005.
They offered a two-tiered pricing structure and lowered prices. Taxus was
priced at $3,600 for private patients and $2,400 for public patients. They
offered more flexible pricing by ‘bundling’ with other products such as
coronary balloons. They consigned Taxus to hospitals meaning customers
did not need to purchase them upfront. They offered an increased range in
diameters and lengths of stents. Boston advertised and promoted Taxus in a
similar way to Cordis’ promotion of Cypher.
The Result
Boston Scientific swept the private market by winning virtually overnight
70-85% of the business. Cordis was left with 15-30% of the private market
share, where they previously had 90-95% market dominance. Boston
Scientific expanded the market into the public sector, as hospitals now were
willing to pay $2,400 for a Taxus stent for a public patient who could really
benefit from a DES. Boston soon won 30-35% of the public sector market as
well (most State Health Authorities limited DES usage to 30-35% and to
Taxus stents only).
This result in Australia has been mirrored around the world, and in the
U.S. the biggest market, where Taxus has just been launched; analysts are
predicting the same impact. Boston expects to exit 2004 with a DES market
share in the U.S. of 70% (they expect to grab the market share in 70-100
days). (Rosenberg 2004).
Commentary
Cordis the innovator and first mover has failed to capitalise on their
opportunity. They have a great stent with clinical results to match their
competitors’ but they have nowhere near the 50% (or higher) market share
you may expect for a firm with the first mover advantage.
What makes things even worse is that this is not the first time that Cordis
had been in such a situation.
Déjà vu for Cordis
In 1994 Cordis introduced the ‘Palmaz-Schatz’ Balloon expandable stent
for coronary arteries. It was hailed by Cardiologists as a breakthrough for
CAD. In just 37 months after introducing this new stent Cordis had $1 billion
worth of stents and had captured more than 90 percent of the profitable stent
market. In early 1997 Guidant Corporation introduced a competing product –
the MultiLink stent. In just 45 days Guidant captured 70 percent of the
market. Other competitors also moved in and by the end of 1997 Cordis’
share had fallen to just 8 percent.
Phillip Kotler (2003) offers his insight into what went wrong for Cordis.
“For one thing Cordis were so focused on getting the product to market
that it devoted little time or resources to the next generation of the stent.
The other stumbling block was its refusal to budge on price or offer
discounts. At U.S.$1,595, the device was an expensive buy at a time
222 Scott Rankin
So Cordis had failed to learn from a very expensive lesson the first time
round. So what should they have done differently? Remembering that
they had no idea of the price Boston would launch Taxus at.
Cordis’ marketing strategies again seemed short-term focused. They
launched too early without having adequate supply of product, they were
forced to provide poor customer service by not consigning stock (they did not
have enough product to consign) and were often placing products on back
order – again letting customers down.
They set a price that was deemed too expensive by customers and Cordis
therefore excluded an entire segment of the market – public patients - by not
offering a two-tiered structure. Susan Hart and Nikolaos Tzokas (2000) offer
this warning for firms that have first mover advantages with product
advantage that adopt a premium pricing strategy: “The tendency towards
shorter life cycles and decreasing time lags between first movers and early
“me-too” products has caused a re-think in pricing strategy for new
products….there is an argument for employing penetration pricing, to hinder
competitive product launches and benefit from increasing economies of scale
as volume sales of products increase along with diffusion. This view
necessitates a longer term perspective of the recovery of development costs
which itself may be dependent upon the stage of the product market life
cycle.”
Cordis were viewed by their customers as being arrogant and greedy.
With premium and inflexible pricing they damaged the most important aspect
of their business – the customer relationship. As Bob Wayland states “the
paradigm has shifted. Products come and go. The unit of value today is the
customer relationship.” (Cited Kotler 1999, p.121).
Cordis is now on the back foot, they’ve completely missed the opportunity
of being defensive in their marketing strategies - they now have to try to fight
to hang onto 15% market share. Even if they match Boston’s pricing of
Taxus or better it, the market seems unwilling to reward Cordis now for such
strategies and customers have long memories.
So what can Cordis do? They must improve relationships, improve
service, develop new and innovative products, and differentiate. Guidant
Corporation set the example with their constant production of new and
innovative non-DES stents in the late 1990’s and early part of this century,
their strong sales and marketing divisions, and their strong customer
relationships. Whoever wants to win market share must be successful in all
of these factors.
The future challenge for the DES market is for firms to avoid the failure to
differentiate one DES from a competitor’s DES. As Ted Levitt stated in his
book ‘Thinking about Management’, “Differentiation is one of the most
important strategic and tactical activities in which companies must constantly
A Mini Case Study of Product Strategy 223
References
Internet Sites:
1. http://www.guidant.com
2. http://www.cordis.com
3. http://www.cypher.com
4. http://www.bostonscientific.com
5. http://www.ptca.org
Scott Rankin has always worked in the healthcare industry, and remains
committed to this area of industry because of its altruistic rewards. His
undergraduate qualifications are Nursing and a Bachelor of Applied Science
in Health Information Management, both of which were undertaken at La
Trobe University in Melbourne, Australia.
After university he worked for six years at the Royal Victorian Eye and Ear
224 Scott Rankin