Elsewhere in this issue, Harvard business professor Clay Christensen and a pair of his colleagues from Innosight, his consulting
business, discuss what pharma companies need to do to become innovative. Those who have followed Christensen's career will
find some familiar concepts—for example, the idea that companies tend to lock into a standard of value that may or may not
have anything to do with what customers actually want, or that a "lower-value" product can sometimes push aside an established
competitor that on the face of things is "better."
Christensen has pursued this sort of analysis for more than a decade, and he's especially strong in showing how mismatches
in companies' perceptions of value—for themselves and for customers—can lead to major disruptions of industries. The classic
example, described in his 2002 book The Innovator's Dilemma, is the disk-drive industry. At a crucial moment in the 1970s, manufacturers of high-price, high-margin drives for mainframe
computers couldn't understand why they should develop lower-capacity, lower-margin drives aimed at the then nonexistent personal-computer
market. It's not that they didn't listen to their customers. They did listen—and their best customers said forget it.
Wrong move. Within 20 years, the "lower quality" disk drives ruled the marketplace. Of the 17 companies that had manufactured
drives in 1976, 16 were gone, and with them, more than 100 companies that entered the market later, not to mention a few of
the computer customers they used to sell to.
The lesson of Christensen's research: The fiercest competitors attack from below. They make crap. They accept ridiculous margins.
They ignore the important customers. But they bet right on where the world is going next, and they use their bad business
as a platform to build a better one.
It's tough to predict where this sort of "disruptive innovation" will come from—that's what makes them disruptive. The trick
is to look for the places where you're vulnerable because you don't perceive value. Where is that? In the case of pharma,
I'd suggest that we start paying attention to the growing market for unapproved medicines.
Think of it: Over the past decade, we've started to develop a pretty open pharmaceutical marketplace. Customers who want drugs
can get them, often from abroad, often with no prescription. In some cases they're aided or encouraged by local governments
eager for cost savings. For many patients today, FDA approval is a kind of bonus, not a prerequisite. Companies have to value
it—but patients don't.
Already, patients are traveling abroad to be treated with Gendicine, the Chinese-approved gene therapy for cancer. The drug
currently couldn't be approved in the States—but is apparently attractive enough to get patients to travel thousands of miles
and shell out $20,000 or so for two months of therapy. As an exception to the rule, that's not bad. But if we hit a point—as
we could—where the most advanced drugs in the world all go gray-market, we'll have truly lost.
This isn't much of an issue yet, but it will be, and perhaps soon. The answer isn't clear. FDA shouldn't roll over just because
some patients are willing to take large risks to use unapproved drugs. On the other hand, we really don't want to see key
drugs successfully opt out of approval. As we battle over drug safety in the coming months, both sides need to keep that in
mind. Some innovations do no one any good.