Age & Reason
Time to Upgrade our Pharma Companies for a New Century
Thursday, April 24, 2014 - 3:30pm
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The pharmaceutical sector is still treading water in its search to find an operating model that will work in the 21st century. The shocking news of GlaxoSmithKline’s sale of its cancer-drug business to Novartis – and the many recent huge deals like it – are the most recent evidence.

It’s time to lump pharma in with music, television, energy, and banking as mega-industries in profound states of change. Pharmaceutical C-suites are struggling to break out of the whirlpool so they can start delivering the kinds of shareholder returns that everyone grew accustomed to in the last two decades of the 20th century.

That was then. And this… well, it’s a new kind of now. The industry used to be defined by great innovative discoveries that led physicians globally to write billions in scripts. Now, a set of external influences are weighing in heavily – much more so than internal R&D and marketing controls.

Most incredibly, there is the degree to which the industry has become politicized. It hit a cliff in 2000 when then-Presidential candidate Al Gore created the nefarious trifecta of Big Tobacco, Big Oil, and Big Pharma. This three-headed scapegoat became a core talking point that would propel him to win the popular vote. 

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The regulatory environment in the U.S. is also becoming increasingly burdensome as is that across the globe from Europe to Japan, the other two sources of pharmaceutical company revenue outside the U.S.

But, most of all, companies pricing models have come under crippling pressure. On one level, the aging of the population is driving up demand for health products and services. On another level, both public and private insurance plans are increasingly unable (and often unwilling) to pay for innovative medicines – medicines that were created through the “magic” of the sector’s R&D.

Both of these marketplace dynamics are exacerbated by the “information explosion” – in which more and more people are knowledgeable about treatment options and have come to demand they get it. But then they want it on the cheap – too cheap to continue to fund the innovation of the last century.

All of this prompts the question: Will these mega-deals just rearrange cubicles? Or will they prompt companies to implement the structural changes needed to operate – and thrive – in our 21st century healthcare marketplace?

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Time will tell. In the meantime, jittery leaders in pharma C-suites may want to adopt a 21st century strategic vision that challenges the received wisdom. 

1. Demography versus Geography: From a global point of view, the aging process makes us more alike than different. Healthcare growth in the years ahead isn’t regional – it’s not Europe or China or the U.S. It’s demographic: it’s keeping the billion-plus over-50 segment healthy and active. A demographic lens also shows where to invest. The obvious choices are Alzheimer’s, mental health, cardiovascular disease, and other non-communicable diseases that we get in fantastic amounts as we age. But there’s more to it than that.

Healthy, active, productive aging in the 21st century will demand that we learn to overcome the 20th century conditions of aging – deteriorating skin, loss of vision, hearing, and muscle mass. Solving these conditions will create markets worth trillions in the decades ahead. In the process, it will enhance humanity.

This is not just a health issue, or a question of corporate profits. Most fundamentally, this is a question of economic growth and national economic competitiveness. Dollars that go to healthy aging are not a cost, but an investment. The decision-makers – those who decide how to deploy resources to align the medicines with willingness to pay – need to get this memo.  

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In 1985, the sector relied on physicians and aligned its resources accordingly. In the 21st century, there are new sets of “stakeholders,” like caregivers, payers, nurses, and communication outlets.  Interesting that while there’s a lot of internal industry movement, one hasn’t seen much of buying outside the box – a Home Care company, a communications company, an economics unit. 

2. Data versus Development:  Drug development seems hopelessly stuck in the good old days, as one barely sees evidence of applying big data, search engine analytics, and global, instantaneous information capabilities to development, including the cumbersome and what should be 20th century clinical trial process. But to really understand these applications, including the truly profound regulatory changes that will have to be brought along, pharmaceutical companies would want not to acquire one another, but instead look to Silicon Valley.  A partnership with Google could lead to a GPS for clinical trial development.  

3. External versus Internal:  The most forward-thinking in the pharmaceutical sector have made the leap to bring the development phase of their innovative medicines into the commercial side, in some cases just after “proof of concept.” This is a good move, as it allows an early, expedited internal decision-process on whether the medicine is likely to make it in the marketplace. In years past, pharmaceutical companies could afford to spend billions on a promising candidate without knowing about its commerical liklihood or viability. No longer. 

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Even among the most progressive companies, there is still a timeworn approach about what constiututes the commercial side.  The basic components of change – population ging, politicization, greater degrees of regulation, consumerization through information – hint at what constitutes the current marketplace. These components are external, and they demand a different set of skills, knowledge, capabilities, and experiences inside the pharamaceutical company which will win in the 21st

So let the industry go ahead and keep merging and acquiring until it’s heart is content. But if the 20th strategic framework remains, these companies will never recapture the growth of its dream days.  More importantly, they will be less capable of innovating for tomorrow’s marketplace. 

If that’s the case, we all lose. 

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Executive director of the Global Coalition on Aging, Michael W. Hodin, Ph.D., is also managing partner at High Lantern Group and a fellow at Oxford University's Harris Manchester College.