Make It New - Pharmaceutical Executive

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Make It New
To fix pharma's business model, nothing less than big, bold, and risky fits the bill. Two radical new visions focus on getting back to the roots of innovation—and letting a thousand flowers bloom.


Pharmaceutical Executive


Another reason Chane is skeptical about the therapeutic-area trend is that it smacks of tactical opportunism at the expense of long-term strategy—a holdover from the blockbuster model. Some companies are lining up to crow about their new oncology franchises when in reality all they have is a single viable product. "What I want to ask is: Is it a real therapeutic area or a virtual one?" Chane says. "If you want to be a player in a market, you need to say what kind of products you are bringing—what novel approaches, what technical innovations, what targets, what your goals are over many years. This becomes the umbrella that informs all decisions and processes."

The good news is that pharma's discovery engine is pumping out promising targets. The bad news is that the escalating economic squeeze makes it even more essential to stake a claim in a therapeutic area of choice. And that will tempt researchers to speed compounds through Phase I and II—garnering the minimum amount of data—to get to Phase III as fast as possible. Chane says that's backward. "Because there are so many potential targets, because the commercial picture is so complex, and because the price of late failure is so high," he says, "companies should be putting a lot more time and effort into Phase II."

He argues that "by running more early trials, such as dosing, therapeutic mechanisms, and multiple proofs of concept"—and knowing as much as possible about the compound—"companies will be able not only to control risk better but, more important, to build differentiation into the product and its value." A drug that comes to market with data to answer real-world cost-effectiveness questions should require much less sales muscle. "Phase III will become almost mechanical, with a higher bar for success but fewer surprises because so much data has already been generated."

Chane acknowledges that scientists have a deep-rooted—and well-founded—resistance to commercial influence. What the R&Ders understandably object to is the imposition of marketing tactics on the scientific method. For Chane's early-commercialization model to work, it requires a whole new breed of marketer for R&D to partner with. "You don't want sales reps or brand managers who have been promoted out of the field to be doing this work," he says. "The right people are MDs and maybe RNs—people from the medical affairs department who know both the science of the drug and the standards of care around the disease."

OPEN (AND OUT) SOURCE: A model to tap global expertise

What if today's spiraling costs and plummeting productivity are symptoms of a breakdown beyond the business model? What if the problem lies not in pharma's value chain but in its values? Could the industry's instinct for self-protection and secrecy have resulted in practices and mind-sets that are no longer functional? Could its obsession with competition have closed down its capacity to compete effectively?

"Everyone agrees that when you introduce competition, quality goes up, costs go down, and customer satisfaction rises," says Bernard Munos, an advisor in corporate strategy at Eli Lilly. "And nothing places you in competition with the skills and capabilities that exist in the rest of the world like the open source model. Pharma might counter that, with each big company managing hundreds of alliances, its R&D process is already open to external innovation. This is true—yet what goes on inside is visible to the company at the center, but out-of-bounds to everyone else. Open-source changes that radically."

According to Munos, business models, like people, are not forever. They are born, they prosper, and they pass away, and the symptoms of decay tend to be similar from industry to industry: sales growth flattens, product lifecycles shorten, fierce competition causes periods of exclusivity to collapse along with prices. True innovation, demanding too dear an investment of time and money, ends. And when innovation dies, the industry goes with it.


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