The Slow Dance Toward Obsolescence - Pharmaceutical Executive

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The Slow Dance Toward Obsolescence


Pharmaceutical Executive


Happy Birthday

Our story begins in California in the mid-1960s. No not that California—the one of Jerry Garcia and Grace Slick and Ronald Reagan. I'm talking about the California of what hadn't yet been named Silicon Valley, where Gordon Moore, one of the founders of Intel, made a clever observation. He noticed that the density (and thus power) of the microprocessors his company produced was doubling at a prodigious and predictable rate. What came to be known as Moore's Law posited that chip density would continue to increase into the foreseeable future at double its rate every two years.

That back-of-the-envelope calculation has proved true for the last 50 years.

The implications of this—50 percent annual, compounding power of microprocessors at a stable cost—would be revolutionary in its own right. But combine this microcosmic phenomenon with two other 'laws,' and you really have something. Gilder's Law, named after technology gadfly George Gilder, predicts that bandwidth will triple every year, driven by advances in cable technology and, most potently, fiber optics. Metcalfe's Law, honoring Ethernet inventor and 3COM founder Bob Metcalfe, states that the value of a network increases at the square of the number of nodes on the network. In other words, one fax machine by its lonesome is worthless. Two fax machines have a limited value. But when everyone has a fax machine, communication changes fundamentally.

Put these three laws together—transistors doubling, bandwidth tripling, network effects squaring—and you have change on a scale never before seen in human history. To put it in very social terms, what we're talking about is basically Facebook emerging from a college dorm and reaching 500 million users in five years.

And you have the potential to remake every industry for which information and knowledge-sharing is a fundamental component in value creation. Which would seem to apply to the pharmaceutical industry.

The Complacency Crux

We've seen industry after industry transformed by the Speed of Change. Remember Borders bookstore? Closing. Tower Records? Tumbled. Blockbuster Video? Bricks-and-mortar stores nearly gone. Travel agencies? Grounded. BlackBerries? Rotting.

But as regards pharma, people act as though it can't happen to this industry.

And yet the Speed of Change is all around us, making the current 'model' of the industry, in the best case, inefficient and irrelevant or, in the worst case, fatally uncompetitive.

Here's what I mean: Over the last decade we've seen consolidation creep up like a virus through the industry, with the promise of greater cost savings and increased output of novel breakthrough drugs from the labs. But according to IMS, while the overall revenue growth rate for pharma in the US for 2011 is projected to be 2.7 percent, the rate for the top 10 pharma companies is 0.9 percent. In fact, if it weren't for large pharma acquiring and licensing from smaller pharma and biotech companies over the last few years, the growth rate of the biggest companies would likely be negative.

Which means that size does not equal speed; on the contrary, size impedes innovation with the drag of bureaucratic parachutes. And in the era of Speed of Change, anything that slows you down lets sleeker competitors streak by.

Outside the labs, it's the same story: In marketing and sales, the Speed of Change is one of the critical factors that has caused consumers to become more powerful, healthcare practitioners to become more elusive, and payers to become more nimble.


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