How well is the pharma industry prepared for rapidly approaching industry upheavals? Not very, according to a 2002 global survey on corporate early warning systems conducted by the Fuld-Gilad-Herring Academy of Competitive Intelligence. More than 100 managers responded, most of whom work in their companies' strategy, product management, or intelligence departments.
Although 77 percent say their companies anticipate an increased level of business risk in the next two or three years, only 2.6 percent claim to have a formal early warning process in place. The majority (56.4 percent), say their companies have only some components in place, and more than 37 percent report they have no systematic process.
The survey, modest as it is, exposes a large gap in competitive preparedness. Nearly every manager sees one or more looming threats just over the horizon, yet only a small fraction have done anything to see around the corner. This article describes how pharma companies can implement an early warning system that will help them prepare for the future, no matter how it unfolds.
Company Blindness At the company level, competitive blindness is the biggest reason managers fail to prepare for dramatic change. The blindness is mostly self-induced. That is, managers are often unable to see the long-term threat or opportunity because of the way they categorize it in their minds. An example of that competitive blindness expressed itself during a consultation with a US-based biotech.
This particular company has had a successful run with two of its treatments but is now encountering competition for the first time. Suddenly, it is dealing with problems such as me-too products on the market, alternative treatments, generics, and pricing pressure from managed care insurers.
When the product managers and marketers were asked, "How do you know when you need to learn about long-term threats (or opportunities) or what those threats might be?" they weren't sure. So they were asked to examine and rate only two factors:
They were given a list of six events that might occur over the next few years and asked to apply the two criteria. Following are three of the scenarios and how they rated the impact and certainty of those events.
They quickly realized that they were dealing with two very different sets of problems. When an issue has both high impact and high certainty, it means the problem or the opportunity is already here and needs to be dealt with. It is a tactical issue that needs to be tracked with all of the company's resources—databases, heard-on-the-street information from salespeople, news sources, etc. Price controls are one prominent example of a "high impact, high certainty, here now" problem.
When a coming event has high impact on the business but a great deal of uncertainty surrounding it, then it is a true long-term threat or opportunity and is a prime candidate for early warning. Genomics, for example, hits this mark. Its role in drug discovery and development has the potential to affect the entire pharma food chain. Yet, the uncertainty of where and when genomics will have that impact makes it a perfect topic for early warning.
What makes an early warning process valuable is its ability to help a company avoid driving itself toward one specific outcome, which increases its chances of being wrong. That's risk. Taking the time to sketch three or four outcomes—and plan strategies that account for each outcome—gives companies a safety net.
Control Your Destiny How will pharma executives deal with major upheavals when they arrive? Based on other industries that have recently experienced tsunamis, the answer is that some companies will thrive on the changes, while others will end up fighting for survival. Unfortunately, there are many examples of pharma firms waking up too late to do anything but to try to plug the dike.
The biotech tsunami—now over 20 years in its formation—has caught a number of traditional pharmas by surprise. Pfizer is one example. By the late '90s, the company's pipeline had thinned, and Pfizer needed to fill it—at any cost. Instead of recognizing the potentially long-term but less expensive biotech approach to developing future blockbusters, the company ignored the tsunami and found itself up against a wall. So it paid dearly to acquire the blockbuster Lipitor (atorvastatin).
The war game difference. A few years ago, a large European-based pharmaceutical company that faced a competitive shock decided to run a war game. Its blockbuster's patent would expire within the next 24 months, and having lived off the product for so long, the company kept trying to find ways of extending its lifecycle through various formulations and patent-extending approaches.
Management began the exercise with the belief that they should acquire a new pipeline with the cash hoard from the blockbuster product. They ended the exercise with a realization that the future would not be theirs to control. Even when the management split into two isolated groups, the two teams independently came to the same general conclusion: A Big Pharma would either detour around them by buying or developing the new products the company wanted to develop or would simply acquire the company directly.