Innovation: Why is Pharma Scared to Death?

It's a disturbing irony: In an industry whose entire economic value is founded on its ability to discover, develop, and market molecules that are—by definition and by regulation—innovative, there is so much discomfort with the risk required for innovation.

Bill Drummy

As I have articulated earlier in these pages, we are living in an age of revolution—specifically of digital revolution, in which the continuous doubling of computer power, tripling of bandwidth, and the algorithmic spiraling of network effects are transforming all industries where information is a fundamental ingredient.

While the end products of the pharma industry are not (yet) 'information' per se, the dexterous application of knowledge affects every phase of the business—from drug discovery and design, to clinical trials, to FDA submissions, to the delivery and marketing of those (finally) approved products.

And yet despite the fact that pharma cannot continue to flourish without knowledge-based innovation, it has been measurably among the worst industries in applying the new power of knowledge dexterity to its innovation business. Indeed, rather than being energized by the possibilities and promise of Speed of Change, the industry seems to have been paralyzed by it.

The proof: According to a new report published by Deloitte, the 12 largest pharma companies saw their ROI drop by 29 percent in the last year. The average internal rate of return for R&D dropped to 8.4 percent from 11.8 percent a year ago. "We continue to see a level of late-stage drug failures," says study author Julian Remnant. "That's something that should not be happening to the extent it still is."

Make no mistake: Drug discovery and development is difficult work, made more difficult by an obdurate FDA and increasingly elusive science (the easy molecules have all been taken). But there's something else involved, too.

The Bigger They Are ...

Over the last decade or so, with toes dangling over patent cliffs, companies choose to strap themselves together, in the hope that sheer size would cushion the fall.

Consolidation has made pharma slower, more risk averse, less innovative. John Lechleiter, CEO of Eli Lilly (one of the few companies that hasn't gone on an acquisition binge, by the way) put it like this in a November 2011 Wall Street Journal interview: "The wave of consolidation leaves only about a dozen multinational pharma companies that have global reach." And that's actually slowed the pace of innovation. "There's an innovation ecosystem," says Lechleiter, "and like any ecosystem, it can get out of balance."

It's not that size necessarily hampers innovation; certainly Apple has maintained its breathtaking pace despite its $100 billion size. But in the pharma industry, size seems to have obscured (or trampled) ways of thinking and being that are the true drivers of innovation.

For those who say that innovation in high science can't be rushed, consider this: Why were Craig Venter and Celera Genomics able to sequence the human genome at a fraction of the time and cost of Francis Collins and his team at NIH? We're not talking about a matter of months faster, but years faster. And not marginally cheaper, but an order of magnitude cheaper. Why?

Because Venter understood the dynamics of Speed of Change, and applied them boldly in his 'shotgun' sequencing approach.

It's Not the Size of the Wave ...

If you consider DNA mapping too much of a sublime example, consider the ridiculous: Why has the insurance industry been far more innovative in marketing and advertising than pharma? (It's true!)

Who cared about 'supplemental medical insurance' before the Aflac duck? Who remembered a car insurance ad before the Geico Gecko? These were companies bordering on complete irrelevance, facing existential challenges, that responded in unpredictable ways to change the core perception of their brands.

The commonality between what Venter did in science, and what Aflac did in marketing, is what's missing as pharma confronts its own existential crisis, enflamed by the accelerant of Speed of Change.

The missing ingredient is courage. (And no, it's not because the FDA won't let companies be courageous. Being a regulated industry selling serious products means you can't make funny ads, but you can still do great marketing.)

Ultimately, lack of courage is a cultural constraint, and, thus, the responsibility of senior management, and particularly of the CEO. An organization cannot possibly be innovative if it does not encourage nor reward risk-taking. Simply put: Companies that are not innovative cannot thrive in the Speed of Change era.

And so, I have a message to direct specifically to the CEOs in the room: Some of you are indeed taking innovation seriously, and making the fundamental changes required to see that it is more than just happy talk in the halls. But if your organization is falling behind your innovation goals, if your pipeline is dry, your products ordinary, and your marketing tedious, here's some questions to ask yourself:

» Is it because you have not made it a job requirement of every employee to take calculated risks, nor have you rewarded them for intelligent bets, even if—no, especially if—they don't pay off?

» Is it because you have allowed your company to be run by your attorneys, who are trained and paid to tell you to avoid risks?

» Is it because you give speeches about the importance of innovation, and then allow people to be fired or exiled for making reasonable mistakes in good faith?

True story: I attended a presentation given by the chairman of a Big Pharma company on a particular Tuesday some months ago. He said with great passion that innovation was the lifeblood of the company and every employee should take risks. On Wednesday, I had a meeting with a brand director from the same company and discussed a number of innovative marketing approaches for his brand.

Him: "Oh, I won't do anything like that."

Me: "Why not? It makes sense for the brand, and none of your competitors has cracked this nut."

Him: "Because the last guy who tried something like that got fired."

In a Speed of Change world, fear kills.

The Case for Courage

Imagine the CEO who heard the Aflac duck idea and had the courage to say, Let's do it.

Imagine the researcher who had the courage to defend the potential of atorvastatin. And then imagine the CEO who didn't kill the molecule's development despite the risk. That's the inspiring true-life story of Lipitor.

Imagine what would happen if, in your company, instead of fearing to take a risk, your people aspired to make an impact?

Food for Thought

As I conclude my Speed of Change series, I have a final question for you. My intention at the outset was to illuminate the many ways in which the technology revolution is presenting the pharma industry both chilling threats and thrilling opportunities. I worry, though, whether in the end I have broken through. Whether you are ready, now, to set down this magazine or turn away from this website and take up the nearly limitless possibilities before you, before the possibilities pass you by?

Bill Drummy is the CEO of Heartbeat Ideas. He can be reached at billd@heartbeatideas.com