Explaining Innovation

As Novartis CEO Dan Vasella notes in this month's cover story, pharma has more invested in public policy than any other industry. Not only are companies increasingly dependent on government as a payer for medicines, vaccines, and diagnostics, the cost to invent and commercialize these technologies has grown to the point where even the biggest players have to share the burden. Good partners are hard to find, and success is more likely through transparent regulation linked to incentives that allow for mitigation of risk.

William Looney

Medicines innovation is costly because it is unpredictable. Companies are trying to "rationalize" drug development, focusing on process changes that will harness and direct the creative spark while managing uncertainty.

Yet internal changes, while important, achieve little if there is no consistent effort to improve the conditions imposed on the industry through government, media, and academia. Here, pharma is uniquely exposed. It remains the largest industry where the cost to replicate and manufacture a technology is tiny compared to development costs. Wired editor Chris Anderson puts the dilemma this way: The more products are composed of ideas rather than tangible "stuff," the faster they can get to be "cheap."

So what to do?

One option is to look to the next generation of industry leaders. What actions can be taken today to ensure they have the tools to deliver the innovations of tomorrow? This burning question drove Pharm Exec's search for the most promising executives in the industry under age 45, who were profiled in our June issue. The 27 Emerging Pharma Leaders come from a cross-section of functions and geographies; their companies account for more than $250 billion in annual revenues—from giants like Pfizer to firms whose sales barely top $50 million.

From these leaders, we gained useful insights on what is necessary to keep the candle of innovation alight. Three themes stood out:

(1) Innovation is more about differentiating how you do business than developing new products. For example, the company that invents a new way to link therapies to the efficient delivery of primary care is going to control its fate better than the company whose offering is limited to what's listed on a patient package insert.

(2) Demonstrate how private sector innovation really works, and why incentives count. The innovation process is changing fast. Interactive global partnerships are replacing traditional in-house development, and more attention is being focused on R&D throughout the product life cycle. Governments and payers still don't see that innovation covers everything from invention to approval to building market share. Scant attention is paid to the critical "back end" of the innovation cycle, which covers return on investment and the incentives provided by adequate pricing all the way through patent expiration.

(3) Emphasize the "human" in the HR function. Skill in the "soft" tasks of personnel management are critical, and that has to be reflected in the characteristics of leadership. The paradox is that to command and, where necessary, "turn the battleship," tomorrow's CEO will have to emphasize a management style that is inclusive, diverse, flexible, open, and aware.

On October 13, Pharm Exec will expand on these themes with a roundtable discussion on innovation and a dinner with the 27 Emerging Leaders, hosted by our sponsor in this ongoing initiative, Cegedim Dendrite. It is a conversation vital to the future of this industry— and one we will continue to explore in future issues of Pharm Exec.

William Looney

Editor-in-chief

wlooney@advanstar.com