Hard Luck: Why Viagra Is About to Lose Its No.1 Status to Cialis

Last Updated Feb 8, 2011 7:42 PM EST

Pfizer (PFE) is losing the Viagra war to Eli Lilly (LLY)'s Cialis in a classic example of how being first-to-launch isn't always the best idea. Viagra sales slipped 9 percent to $499 million in Q4 2010 while Cialis gained 6 percent, to $465.9 million. The two brands are neck-and-neck -- another quarter at those rates and Cialis will be the No.1 erectile dysfunction brand, by dollar revenues, in the world.

Sales of Cialis doubled in China where Lilly has doubled is sales force, a company executive reported. Meanwhile, Pfizer closed the U.K. plant that makes Viagra.

How did the company that invented the category -- whose brand is so well-known it's virtually a generic term for the product like Xerox or Dumpster -- manage to let the top spot slip from its grasp? It's all about positioning and product formulation, something that brand managers in any industry ought to pay attention to.

The difference between Viagra and Cialis is that you take Viagra when you need it and then the effect wears off. With Cialis, one version lasts 36 hours -- "le weekender," the French call it -- and another is approved for daily use. Both versions of Cialis do something psychologically crucial for men: Divorce the problem from the solution. With Viagra, the pill reminds you of your failings every time you have sex. With Cialis, you take it like an allergy medication when you brush your teeth in the morning. Cialis is basically denial -- men's favorite sexual emotion! -- in pill form.

It gets worse for Pfizer: Viagra goes off patent next year (although Pfizer believes another patent covers it until 2019) and will likely face cheap generic competition for the first time. That will decimate Viagra's revenues. The company has been aggressively hiking the price of blue diamonds for years; now it appears to have reached the ceiling on patient demand.

Generic competition will cut into Cialis' revenues too, but Lilly is better placed to maintain higher prices than Pfizer because generics won't do what Cialis does in terms of the extended time effect. Cialis' patent lasts through 2017 -- it may be the case that Lilly eventually profits more from its me-too drug than Pfizer did by inventing the business.

Bonus points: If you spotted the dirty joke in Bayer (BAYRY)'s Q3 2010 earnings report regarding sales of third-place Levitra: "... our erectile dysfunction treatment Levitra (Fx adj. +9.4%) posted a gratifying improvement in the United States," the company said.

Related: Image by Flickr user The Gifted Photographer, CC.

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