Healthy Skepticism Library item: 18256

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Electronic Source

Smith BD
The future of pharma
Eyeforpharma.com 2010 Jun 22
http://social.eyeforpharma.com/story/future-pharma

Abstract:

Brian Smith explores what the history of the pharma industry says about what’s to come.

Full text:

How much would you pay to see into the future?

As the pharmaceutical market faces the uncertainties of globalization, healthcare reform, and bio-technological revolution, even a blurred, imperfect glimpse into how our industry will evolve is worth a lot of money indeed.

It’s strange then that so few pharmaceutical strategists pay attention to what the history of our industry tells us.

Augmented by research into evolutionary economics, what emerges from pharmaceutical business history gives a remarkably strong indication of where we’re heading.

That’s a big claim, so let me justify it.

The evolution of pharma

In the late 19th century, our industry evolved out of the chemical and dyestuffs industry during what business historians call the second industrial revolution, the major features of which were new communications (telephones and steam power), technological advances (in, for example, organic chemistry) and geopolitical change (the development of the United States and the unification of Germany).

The coincidence of these and other factors changed the business environment and, just as in biological evolution, some firms adapted to thrive in this new ecology while others became extinct.

That’s what led to the rise of big German and Swiss pharma companies and the demise of many now-forgotten firms.

Now, it doesn’t take a lot of imagination to replace railways with the Web, organic chemistry with biotech, the development of Western markets with globalization, and to predict a new revolution for our industry.

The news announcements we see each day, from Pfizer’s job-cuts to China’s new cost-effectiveness criteria, suggest our world is changing around us.

The challenge for us is understand what happened in the past and what that implies for us today and tomorrow.

Adapt to survive

History, as Mark Twain famously said, doesn’t repeat itself but it rhymes, which is an eloquent description of evolutionary economics research.

This body of work explains the way our industry developed in terms of evolutionary adaptation, in which some species (firms) out-adapted others.

It’s a good metaphor, but to make sense it needs some analogue of DNA, something that actually changes to allow adaptation.

To management researchers like me, this DNA takes the form of organizational capabilities, those interlinked webs of processes that allow firms to do something better than the competition.

In the late 19th century, firms like Bayer and Hoechst mutated their capabilities to be better at inventing and making drugs than anyone else.

Later, when the post-war revolutions of antibiotics and social healthcare faded during the 1960s and ‘70s, Lilly, Merck, Pfizer and others developed sales and marketing capabilities that outclassed their rivals.

The lesson we draw from this is that if our environment is changing then so must we if we wish to survive.

And to evolve, we need to change the DNA of our organizational capabilities.

Developing organizational capabilities

But let’s get back to the future.

What might it look like and what might that imply for a strategist working in a pharmaceutical company?

Well, the first lesson is obvious: The firms that will survive will be those that develop some new, superior organizational capabilities.

More interesting are the secondary implications of new research, which are more subtle but likely to be more valuable to pharma industry leaders.

The first of these is about the burden of success.

Hoechst, Wellcome, and Wyeth were giants that emerged from that earlier age but are now footnotes in pharma industry history, while Pfizer and Merck were, relatively speaking, late followers to research-based pharma.

Why were the incumbents, with all the advantages of size and accumulated experience, overtaken by these upstarts?

The answer seems to lie in their “core rigidities”, habits of culture and strategy that prevented them from adapting as well or as quickly as the newcomers.

Present day executives should, therefore, think hard about what core rigidities might be hindering their adaptation and pushing them towards extinction.

Beyond R&D productivity

A second finding that is only just becoming visible concerns the nature of the adaptations that firms will need to make in the future.

The public pronouncements of the big pharma companies suggest they are focussing on increasing R&D productivity.

This will surely be necessary, but the rise of Teva and models like Fresenius from medical technology hint that super-charged R&D may not be the best or only answer.

Instead, the ability of pharma companies to understand and integrate into the whole healthcare value chain may be just as important.

Other candidates for future core competencies are the ability to extract insight from customer behavioral data and the capacity to work in virtual networks with other organizations.

To be sure, these ideas aren’t clear and proven yet, but they are certainly looking like the areas upon which pharma companies need to focus.

All of this suggests that our leading companies should think beyond R&D productivity and consider what new, non-R&D, capabilities they will have to learn if they wish to out-evolve their competitors.

Make history, don’t become it

And finally, the new research is pointing towards an industry future more fragmented that the present.

The research-based pharma firm evolved out of dyestuffs alongside its cousin, speciality chemicals.

In the same way, we might expect the relatively simple structure of our present day industry to speciate into several distinct types of company, each with different core capabilities and occupying different market ecologies within the healthcare market.

This implies that leadership vision should range more widely than just improving the current business model.

Instead, CEOs should imagine what sort of firm, in what sort or market ecology and with what sort of capabilities, they should be leading their company towards.

These early indications of the new research are all very interesting, but most fascinating of all is where the evolution metaphor breaks down.

Unlike the biological world, the pharmaceutical industry is not driven by random DNA mutation but by the deliberate, informed decisions of clever people in board rooms.

This deliberate, non-random, component of industry evolution means that, if our industry leaders learn the lessons of history, they will be much better placed to search out and develop the new capabilities that will ensure survival.

If they don’t, they will become history.