The Global Bioeconomy

As savvy product managers know, the pharma industry is in the process of reinventing itself to compete in the new bioeconomy-a global economic framework that will introduce and apply technologies such as genomics and proteomics across multiple industries. Pharma companies that emerge as the winners will have succeeded in changing the way healthcare is delivered.

This article presents an overview of the changes, challenges, and opportunities for product managers as you enter the new global bioeconomy.

Law of Diminishing Returns

In the quest to meet shareholders needs, successful pharma companies have developed several common characteristics, many of which are based on the work of their PMs. Those companies:

• focus on prescription products

• secure the majority of their sales from a small number of aggressively marketed blockbuster products

• increase the sales of those products faster than their competitors

• have strong leadership in a few specific therapeutic areas and well defined market segments

• use external innovation sources through product licensing and early-stage alliances

• have large, effective sales and marketing forces that develop good relationships with key opinion leaders

• use effective direct-to-consumer promotion-particularly in the United States.

To reduce costs and time to market, many have worked to produce economies of scale and reduce their operational costs and critical mass through mergers and acquisitions, thereby integrating their operations and cultures as best they can. However, the law of diminishing returns mandates a limit to the rewards that productivity increases and cost reductions can deliver. At worst, the pharma supply chain will break under that kind of pressure.

The Big Picture

The bioeconomy will change the way the world thinks and lives. Not only will chemicals and materials be produced more cheaply, but people will

• live longer and be healthier

• be in greater control of our own well-being

• have cheaper, more abundant food.

The convergence of advances in biology-genomics, proteomics, bioinformatics, and informatics-as well as information technologies such as "sense and respond," rapid data transmission, and mobile commerce-is driving the bioeconomy's emergence. As most product managers already know, biological advances, especially in genomic and proteomic research, are making it possible for scientists to decode and understand the basis of life and of many diseases. With the ability to read the human genetic code, medical experts will eventually be able to predict a person's predisposition to a broad range of diseases and intervene appropriately, insert new genes to replace faulty ones, and tailor therapies to an individual's needs and profile.

Sophisticated technology will allow patients to search and manage their medical records, comparing them to current public health information based on individual genomic profiles. Intelligent marketing agents will aggregate patient information from a variety of sources to provide timely and relevant responses. Networks of distributed processing systems will offer new insights into data by mining all enterprise and public data sources. And supercomputing platforms and information management will enable the rigorous manipulation of genomic data.

Forward-looking product managers recognize that tomorrow's innovations will outstrip today's progress. Advances in remote sensing and artificial intelligence technologies have already created intelligent operating rooms with sensory control mechanisms and devices that transmit health information via telephones and personal digital assistants. Eventually, an assortment of biotechnologies, implants, artificial environments, and synthetic sensations will make the impossible possible:

• The industry can now develop programmable microchips for the subcutaneous delivery of precisely timed doses of drugs. Interactive chips with built-in sensors may mimic the body's own regulatory ability.

• Scientists are growing blood vessels on silicon chips. Eventually, lab-grown vessels will help doctors produce lab-grown organs for transplantation.

• Applications are being developed to replace damaged or low-functioning neurons, perhaps someday enabling paraplegics to walk again and improving the sight of patients with nerve damage.

• One day, physicians will heal severed spinal cords, returning sensory information and motor control to those patients.

Disruptive Factors

As the bioeconomy evolves, the industry faces an unprecedented era of opportunity and challenge. Pharma companies must deal with three new, disruptive factors converging on the business model. The ability to adapt will define the globally successful pharma company.

The first is the breakthrough in new science and technologies-human genome, bioinformatics, proteomics, and high-throughput screening. Those advances hold untapped potential for finding and developing new drug treatments.

The second factor-web technology and the e-economy will improve the flow of global information, eliminate barriers to information exchange, and lower entry costs for new competitors. It will also provide an environment for creating and hosting electronic networks and communities that can transform the pharma business model.

And third, patients are becoming highly educated, empowered consumers who take an increasingly active role in their health and demand safer, more tailored, and effective medicines. Buying decisions will become increasingly more complex, opening market opportunities for niche players.

New Business Model

In the not-too-distant future, pharma companies will move from a fully integrated model-in which discovery, development, manufacturing, supply chain, marketing and sales, and the supporting infrastructure are all held in-house-to sharing their functions through outsourcing, collaboration, and alliances with smaller specialist companies. Pharma will outsource specific activities to industry utilities such as contract research organizations, that handle product development or to outside manufacturers. In that new business model, portions of the supporting infrastructure, such as human resources, will be electronically driven, and others, such as finance, will be handled by separate utilities. As those industry utilities grow, they will offer operational excellence in the product life cycle, from discovery and patient recruitment for clinical trials to manufacturing, marketing, and sales. Those changes will occur in three phases over the next five to ten years.

A gradual shift. For the next few years, the model of the integrated pharma company will remain largely the same, but cracks in the model-which are already appearing-will grow. Although the big players will continue to operate as they have been, they will begin to replace internal functions with service providers.

Companies wanting to move in that direction recognize that alliances are critical to their future and are now making make them integral to their overall strategy. Through alliances, they are accessing critical capabilities, experimenting with emerging technologies before bringing them in-house, actively supporting specific disease or therapeutic area strategies, and accessing strong platform solutions through an integrated solution. (See "Partner of Choice," PE December, 2001 and "P&G's Guide to Successful Partnerships," PE January, 2002.)

Focus on value. Subsequently, the trend toward service providers will accelerate, leading the advent of value-centric pharma companies. Such companies will clearly identify those areas in which they excel and those in which they do not. One company might have an exemplary research capability but a manufacturing function that is less than productive. Another might decide to expand its development operations and outsource its sales and marketing capabilities. Companies will determine which supply chain segments should remain in-house and will focus their business accordingly, sourcing the necessary capabilities from external suppliers. As a result, the number and types of service providers will grow, offering operational excellence throughout the industry.

To enable networks of companies to work together, new web technologies will match the needs and capabilities of different players. A virtual research organization could provide discovery technologies to a pharma company scientist, or a portal could provide scientists with links to a gene database, a proteomics database, or high-throughput screening capabilities, enabling fast and efficient access to information. In clinical development, a portal will recruit patients for a clinical trial, capture data about their responses, and create a database that assimilates all the data required for a regulatory submission. Web technologies will also help new industry entrants avoid having to build their own capabilities. New players will be able to focus their discovery efforts on developing new treatments or services and turn to an electronic marketplace to develop and sell them. A good network can assist companies in finding the best contract research organization that focuses on marketing. No matter what the need, web-enabled agents can link companies together.

The virtual company. As specialization continues, the industry will evolve to networked pharma companies with different specialist skills. Virtual pharma companies will discover, develop, and market pharmaceuticals. Service providers will satisfy increasingly broad capability requirements until all components of the supply chain can be sourced outside of the primary pharma company. Because of the complexity of communications and alliance portfolios and the high cost of transactions, capabilities marketplaces will be integral to the creation and operation of virtual pharma companies.

Product managers can see early indicators of that virtual future in

• the surge of industry alliances-especially in technology and research

• the development of specialist skill centers such as contract research organizations

• in contract sales forces, and contract manufacturing organizations

• the emergence of netsourced capability providers.

Technology as the Enabler

As pharma companies become more virtual, their current business models will become more fragmented. Such an environment offers both huge opportunities and risks for industry leaders. Those opportunities include

• the ability to maximize revenue potential through developing targeted, effective products to an informed patient population

• securing first-mover advantage in narrowly defined markets and disease states through superior patient insight and product portfolio management

• seeking smaller, more lucrative markets that are economically attractive because of reduced capital investment requirements

• reducing costs and overhead by outsourcing specific activities to industry utilities

• realizing new profit generation opportunities by offering leading internal capabilities to the broader industry through utility arrangements.

The risks in the networked environment will come from niche pharma players who are agile and formidable competitors. They are unburdened by high overhead and armed with superior product and disease knowledge in their chosen market segments. Biotechnology companies will develop and commercialize their own discovery targets and become less dependent on the security of partnerships with large companies. And, by using low cost industry utilities from nontraditional players, such as payors and drug store chains, they will capitalize on their superior knowledge of patients and consumers and enter the ethical pharma marketplace.

Revolution

In only ten years-approximately the time it takes to develop a new drug-the pharma industry will restructure itself. It's important that product managers keep the larger picture in mind: pharma companies' role in improving health worldwide will increase. Those that succeed in integrating the new technologies with improved management and informatics will have an enormous advantage. They will fulfill the industry's promise of revolutionizing healthcare and will reinforce their image as cost-effective partners that provide consumers with longer, healthier lives.