Get Back in the Box!

PHARMA IS THE INSCRUTABLE INDUSTRY, one where crisis and complacency have peacefully coexisted for decades. Neither characteristic appears to have had the upper hand in shaping the changes that many observers—and most consultants—believe are essential to maintaining the high margins that investors expect. Fixed regulatory and legal boundaries and a predictable product lifecycle conferred through the patent system act as shock absorbers against that occasional random or aberrant thought within the ranks. Lately, however, the pendulum is swinging to a new consensus: companies must embrace a radical, innovatively "disruptive" mindset to avoid being declared irrelevant in a game-changing transfer of market power to clinicians and customers.

William Looney

Hence the growing interest in alternatives to the status quo business model, focused on such chestnuts as non-drug diversification; investment in rare diseases, large molecule biologics, and biosimilars; technology-based detailing; and tapping low-hanging fruit in the "pharmerging 17" countries to compensate for lower margins in the old market mainstays of the US and Europe.

As often happens when sentiments shift in the face of pervasive market uncertainty, prudence and restraint tend to be discarded as value drivers. If the safe bet is not an option, why hold yourself back? Yes, it's time to venture out of the box. Good idea, but the wise manager is one with a contrarian streak. In an era of market churn, he or she will always keep a corner of that box filled with a few enduring certainties—what the old language of diplomacy might call principles digestif. Here are a few to ponder:

The US is the vanguard market—the pace-setter for achieving global reach and scale. Despite the pervasive gloom portending its best days are behind it, most forecasts show the US will stay atop in industry revenues and profits for at least the next generation of products. As revealed indirectly in this month's feature on risk-based contracting, the US also remains the world's most challenging market to do business in. Rebating makes transactions opaque; multiple, diverse, and independent players intensify the level of competition; patient power is strong; and expectations about levels of scientific innovation are daunting. You can't fool this audience even part of the time.

Primary care—still primer inter pares. Analysts who anticipate further commoditization of the primary care market aren't looking closely at the new product pipeline. A new generation of potential blockbusters is on the way for chronic conditions such as stroke, heart disease, diabetes, and dementia. With fewer companies today willing to risk development deals on primary care products, now may be the time to step in. Governments and payers will love you for it, because primary care is emerging as a key driver of process innovation in using medicines wisely and at lower cost to the system overall.

Global identity is everything—and nothing. Operating as a global enterprise is now standard organizational practice in Big Pharma, enabling companies to wrest significant cost savings through out-sourcing and off-shoring of key in-house functions ranging from manufacturing to clinical trial management. However, efficiencies here must be balanced against the intangibles of "local identity" and reputation. This is particularly true in emerging markets. While Pfizer, in the aftermath of its decision to close its Sandwich, UK, R&D facility, struggled to explain to the UK government just where it called "home," GSK CEO Andrew Witty spun a direct contrast. "We are a UK-based and registered company and thus our commitment to the welfare of this country is very clear," he said. Global identity sounds good as a concept, but the world functions as a network of 195 independent nation-states, so the lesson is, Choose your birthright or be guaranteed a lonely adulthood.

People are priority. It's time to put the word human back in the HR function, which in recent years has been marginalized as an impersonal source of processed information. A strong HR group is even more vital now that the industry is shedding jobs at record levels, with the toll registered at more than 300,000 mostly high-pay and skilled workers since 2000. Investment needs to be redirected toward helping employees build transferable skills and to work productively in groups, instead of the current vogue of the "engagement survey," the dubious utility of which is summarized by the question, "Do you have a friend at work?" Not likely, when there are two people—or more—for every one job.

William Looney

Editor-in-Chief

wlooney@advanstar.com