Tuesday, March 31, 2009

Crash Test: What Pharma Can Learn from Other Industries’ Problems

We attended last week in Miami one of our favorite meetings – the rEvolution Symposium for chief scientific officers, one of the few places we know where most of the senior R&D bosses of pharma mix more-or-less freely with their biotech counterparts. Each meeting generally features the usual binaries (who’s more innovative; who’s more endangered) and complaints about marketers (the guys who turned us into used car salesmen with DTC ads).

But this was the first rEvolution Symposium where CSOs worrying about the industry model’s long-term sustainability met face-to-face with counterparts in industries with even bigger problems: cars, newspapers and aircraft. Indeed, if there were a theme to the meeting it was nicely articulated by one Big Pharma head of R&D (we’ve constrained ourselves from using some names) who asked GM’s head of R&D, Alan Taub: “What do you wish now you hadn’t done? I want to know so that in ten years we’re not asking for a government bailout.”

So what can we learn? For one thing, IP ain’t as valuable as speed to market. Take aircraft, said Tim Gallagher, a McKinsey director who focuses on that industry. Where once a manufacturer kept key IP inside – like wing design – “now the point is to get as much technology onto a plane as quickly as possible – wherever it might come from. It was a huge cultural change.” That issue struck particularly close to home. One R&D boss noted it was time to stop holding science so close to the vest; better to cooperate there, he said, and focus IP energies on the final molecule. Steve Friend, Merck’s former head of oncology (who originally made his corporate name founding and selling Rosetta Inpharmatics for nearly $600 million) noted that he’d left Merck to create the Sage Bionetworks spinoff – a not-for-profit essentially devoted to getting pharmas to share science.

Another analogy: you’ll be blindsided by competitors, probably by competitors you don’t know. Newspapers, noted Rick Edmonds of media think-tank The Poynter Institute, competed with other newspapers -- the basis of competition being the quality and style of their coverage. Until Google and craigslist and a host of other sources for classified ads stole most of the load-bearing supports for their revenue model (the rest of the supports are now being kicked out by an advertising-sparse economy).

Meanwhile, GM had lots of hybrid technology, noted Alan Taub. Just didn’t think many customers would make what is in fact an illogical economic choice – saving less on gas than they paid for the engineering of a hybrid. Toyota, with its Prius, didn’t have the same problem. As these examples paraded in front of them, the rEvolution audience was considering the competitive disruptions of managed care (which pretty much single-handedly has turned therapeutic substitution of generics into a primary care nightmare), biotech – and the creation of biologics, and therapy-determining biomarkers sold independently of any specific therapies.

And then there’s the double-edged sword of government as your main customer (think health reform). Four of the Big Five aircraft companies are completely dependent on government contracts. Which is helpful in one sense, noted Gallagher: the government feels it needs to keep a variety of manufacturers alive. And miserable in another: when the government feels it’s padded one contract with too much profit, it takes profit out of the next one.

We know that no analogies are perfect. And the ones we’ve listed are easy enough to poke holes in. But the state of the industry doesn’t allow them to be ignored, either.

Image from flickr user chuckbiscuito used under a creative commons license.

1 comment:

Anonymous said...

Intereesting point about the IP vs speed to market. One could argue that it's well and good for big bio and pharma to have this position, but for the more innovative, smaller companies out there it is still viewed as the life-blood. Justifiably at this stage (how many small companies have the resources to take thier products all the way to market?).