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A Q&A with Kristin Peck, the drugmaker's Executive Vice President, Worldwide Business Development and Innovation.
Innovation is the issue of the moment in Big Pharma, with a fierce debate raging about whether the capacity to "do it" is waning, as companies grow bigger and seek new opportunities around a platform of portfolio diversification. To obtain some answers, Pharm Exec Editor-in-Chief William Looney took this question up with the biggest of Big Pharma—Pfizer—in a wide ranging interview with Executive Vice President Kristin Peck, who holds a dual leadership portfolio focused on serving as the company's chief innovation officer as well as business development strategist. Peck outlines what Pfizer is doing to transform the "art of invention" into executable innovations, with new products and services that address the needs of a changing customer base. Her biggest challenge? Convincing both colleagues and the world outside that innovation is not something serendipitous and ad hoc but a deliberate process that is tightly managed, forward-looking, complex, partner-driven—and risky. True innovation poses a challenge to the organization, but it must be embraced without fear, because as traditional commercial boundaries fray, there is no alternative.
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William Looney: In addition to coordinating the business development function at Pfizer you are responsible for "innovative business model activities." This latter assignment is not a defined role in most other biopharmaceutical companies, at least at the executive-leadership level. What makes you different?
Kristin Peck: I occupy a position that is in some ways unique to the industry. On business development, we have deep roots in all of the Business Units (BUs) and work closely with their management to identify and assess opportunities around acquisitions, divestitures, and licensing, as well as leveraging the equity partnering capabilities of our in-house venture capital operation that is also part of my group. The innovation part is not an add-on but complements business development by creating new pathways in which these partnerships with external players can take root. We try to answer the question: "Where are the new or untapped opportunities for partnering that will put us in that 'blue ocean' position where we are out in front of the competition?"
In contrast to the BUs, we look at everything in the context of the entire company—the "Pfizer Inc." perspective, you might call it. But we are not the sole source and outlet for innovation initiatives. Each BU has a mandate to work here as well. Where we lead is in looking at truly disruptive innovation, which we define as substantial "game changers" that carry an impact on the whole company. This big-picture space has become more important as Pfizer has grown through some sizeable acquisitions. The rationale is that a BU might walk away from a disruptive idea because it might not be aligned with its strategy or hurt its quarterly returns. In contrast, our job is to say that is not a reason in itself to avoid working on a project. Instead, we try to champion ideas that cross BU lines and could benefit Pfizer Inc. Someone in an organization with more than 100,000 employees has to be thinking about that.
To do that and maintain trust with the BUs, we must collaborate. I also emphasize that I do not run a "skunk works" or serve as an ivory-towered think tank. We are firmly embedded in all key parts of the business. Much of my day is spent on teams geared to building trust. Trust is the currency of our goodwill account with the business. It's a transaction that has to work both ways.
WL:Innovation is a very broad term—so broad that it risks becoming a cliché. Why has Pfizer opted to dedicate resources and visibility to this function as a strategic driver in the company's long-term business plan?
KP: The simple fact is that innovation—involving both products and business processes—is the way companies in our sector compete. Today, innovation, more than price, is the most important source of competitive advantage in the pharmaceutical business. This automatically makes innovation a strategic factor in how we respond to the enormous transition taking place in how medicines are discovered, developed, and marketed around a more diverse customer base. Simply put, innovation is the mindset that allows us to keep pace with market change.
WL: How do you define that change?
KP: Fundamentally, it is the move from a world in which our regulatory-approved medicines were paid for routinely, without question, to one where our customers are insisting that we build therapies around a lower cost structure, are clinically differentiated from existing products, and add significant incremental value to the entire healthcare system. A business model based on the proposition, "You should just pay," is not sustainable for any player in healthcare, public or private. Responding to the revolution in payer expectations is a challenge to any healthcare provider, but it is particularly acute for our industry, because in most health systems medicines are a "siloed" resource, with scant information available on how appropriate use of medicines contribute to cost efficiencies in funding.
Market change is also creating rich opportunities for companies alert enough to recognize them. One driver of change is the growth of the middle class in emerging countries, which means more discretionary income to meet the significant unmet demand for better healthcare. Innovation in how we relate to this new customer segment is vital, as the old business model focused on the most affluent top tier of patients is only going to deliver diminishing returns.
WL: In what ways is the Pfizer business model being recast to ensure the company is not left behind by market change?
KP: Over the years, Pfizer was regarded as the poster child for the blockbuster drug. Our focus was on medicines that served large, undifferentiated blocs of patients, mainly in primary care. We were enormously successful at that approach, in so far as our offerings delivered major public health gains in the struggle against chronic disease. Nevertheless, returns from this strategy have slowed due to the fact that off-patent generic medicines are now the standard of care for many chronic diseases. There is a general trend toward a loss of exclusivity for many of these blockbuster medicines; for Pfizer, the gap in revenue will be particularly acute over the next two years.
To fix that, our CEO Ian Read has a blueprint geared to preserving and building our "innovative core." It consists of three main elements: improving the cost efficiency of in-house R&D around new medicines that customers will want to pay for; restructuring of our eight Business Units to limit bureaucracy, build accountability, foster a proper balance between risk and reward, and allow for faster, better decisions on the ground; and becoming a better business partner to ensure we can seize the best new external opportunities, ahead of the competition.
On R&D, we are spending less and outsourcing more, building stronger ongoing relationships with the academic research community, and pursuing new approaches to the conduct of clinical trials. Our pipeline portfolio has been reshaped to emphasize potential-breakthrough, well-differentiated products like crizotinib for non-small-cell lung cancer (NSCLC) that can show real clinical benefit for patients with no alternatives against the current standard of treatment (see Pharm Exec, July 2011). Overall, the measure of success is in offering a solution relevant to the customer; whether that solution is in the traditional form of a product or a new process or application will depend on how well we can read the market, which is where my group plays a key role. It certainly demands a different approach, one that is sensitive to the desire to show a link to improved outcomes, not only for the individual patient, but for the healthcare system as a whole.
Is There a Constituency for In-house Innovation?
WL: Is it possible to retain the high margins Pfizer is used to by adhering to a "total health solutions" approach? Are you not taking on potentially costly responsibilities that go beyond that of simply selling a pill?
KP: There is little future for us in the healthcare system if we only focus on selling a drug like a commodity—health is not just about the kind of medicine you take. The emphasis we place is on being a good partner, and what that means is we have an ongoing obligation to ensure our medicines are safe as prescribed and promote adherence to therapy and ultimately to good health. That proposition justifies our margins—it does not undercut them—because providers will pay a premium for value. It's the partnering that drives new business and brings us together. In that sense, we position ourselves as part of the solution, but not the only solution.
WL: A key driver in innovation is the explosion of health information and data—not only has the breadth and volume of information increased, it is more accessible to outsiders. The challenge is making sense of this abundance and leveraging it to encourage the uptake of the best new medicines. How is Pfizer responding?
KP: Information is the pillar that allows participants in the healthcare system to show how a given treatment improves outcomes. So, building a coherent approach to managing the information flow is one of my most important priorities. Pfizer collects, evaluates, and stores an enormous backlog of data about our products, but equally there is much more information now available to our external stakeholders, including competitors, which can be used and interpreted in different ways. We have claims data from insurers, scrip data from pharmacists, hospital admissions and discharge data, clinical trials data, and adverse event reporting data—but none of this is really captured beyond the different silos they rest in. The challenge is establishing "connectivity"—where information is aggregated and applied to target our development and marketing efforts, [and] delivering more choice to the patient and informing actions throughout the healthcare system. Information alone is not sufficient to provide the integrated solutions we need; it must be transformed into knowledge. Knowledge, in turn, creates the evidence that is the basis for good decision-making. More important, the source of this information must come from a "real-world" rather than hypothetical setting. It's not going to have any practical value to payers unless it is.
The regulatory community understands this and is insisting on a higher standard of disclosure from our industry, particularly once a new medicine is on the market. But are we ready yet to engage? One of our priorities is that Pfizer has a seat at the table when regulators pose fundamental questions about clinical benefit, access, and cost for a new drug. Getting to the right answer requires the ability to amass a fully integrated data set, rather than bits and pieces. My fear is that no one is operating with that full data set to really know what the right answer is. Practically, it means that insurers only know what the lowest cost should be for reimbursing a new drug; there is no capacity to extend this to how much the healthcare system might save by providing access.
Pfizer is taking an industry leadership role to increase the "connectivity" around information. My Executive Leadership Team (ELT) colleague and Chief Medical Officer Freda Lewis-Hall sits on the board of the new Patient-Centered Outcomes Research Institute (PCORI), which is a step in the right direction, for Pfizer and the industry. We are also working with Pfizer board members like Dennis Ausiello of Harvard Medical School to explore ways to collaborate with hospitals and other outside players in building that fuller data set. Finally, we are making the point to regulators of the need for flexibility in incorporating real-world observational data in the decision-making process. At present, the industry is barred from promoting its products on the basis of anything other than the standard randomized clinical trials we submit for registration. Insurance companies and other payers are under no such limit, which is why we think it's important to get them to acknowledge that good information must strike a balance between the cost of the drug itself against the total cost of the therapy in managing an episode of disease.
WL: What is the ultimate objective of the internal effort you are leading to integrate the information flow to deliver more value to the customer? Will you seek to engage other companies around a shared platform? I am frequently told by insurers that they desire cooperative efforts with multiple drug companies rather than just one.
KP: Pfizer believes this serious issue requires an equally serious commitment. The objective is to build more connectivity around the separate streams of data that govern behavior of all parts of the healthcare system. That is why we are reaching out to groups and constituencies—not just insurers, but the physicians and pharmacists who prescribe and dispense our products, or the hospital chains that purchase drugs in bulk. We want data that is able to "speak" to a diverse group. This involves agreeing on what kinds of data should be tracked and assessed and then building the technology applications to allow it to be shared. We have a number of promising initiatives around this joint approach, with Keas and Quest Diagnostics, for example, to help us relate more directly to the patient and his or her primary care physician, through new communication tools to help provide for timely information about their condition.
WL: Are there other examples of where Pfizer is working to accommodate new business models based on a health solutions approach?
KP: As I noted, the manner in which health services are delivered is changing; boundaries are falling fast due to the impact of information technologies and an empowered customer base. To get ahead of these changes, Pfizer is exploring a direct-to-patient marketing strategy that would allow us to provide medicines to patients who need them, with less reliance on the traditional intermediaries. Innovations we are exploring to "operationalize" this goal include ATM-like drug dispensing machines; live, interactive Web portals for targeted patients with chronic disease; and a virtual Internet pharmacy operation that allows men with erectile dysfunction to obtain Viagra without visiting a pharmacy in person.
We are also looking carefully at how our marketing expertise in the over-the-counter (OTC) business we acquired from Wyeth can be applied to soften the blow from loss of exclusivity. A prime example is seeking OTC or "behind-the-counter" status for our cholesterol-lowering franchise. The idea is, a consumer can go to his pharmacist, get a quick check for blood lipids, and then purchase one of our off-patent statins directly from the pharmacist—no doctor visit or prescription required. We have a number of products where this basic strategy could work, saving healthcare systems a great deal of money. There are real opportunities for this in emerging markets.
WL:Is it difficult to incorporate a strong commitment to finding and funding innovation in an organization as big and unwieldy as Pfizer?
KP: It depends on the kind of innovation you are talking about. Making incremental improvements to adjust to payer expectations is actually something that large organizations do quite well because it is ongoing and requires scale. But truly disruptive innovation is hard to accept in any institution, of any size. That kind of innovation poses a direct challenge to the business model—it's a signal blow to the status quo. Seeing it coming often requires you act on the basis of gut instinct rather than facts. Without the standard metrics, it is often harder to move a "game-changing" initiative forward through the organization.
WL: How do you create a management culture that promotes and encourages in-house innovation?
KP: Pfizer has a history of leadership in product innovation—it is written in our DNA. The struggle for any large enterprise like Pfizer occurs where innovation is perceived as disruptive, challenging the status quo in some fundamental way. Overcoming that and embracing change requires significant persuasive efforts from top management. This includes laying forth a clear vision of why change is necessary so everyone understands that their future depends on acknowledging it. At Pfizer, we've done that by having CEO Ian Read and all top management reinforce three fundamental truths: company R&D structure and investment flows will not be the same in five years as it is today; the commercial "go-to-market" model will need to adapt to a much more stringent environment, dominated by price-sensitive payers; and that the bottom line depends on furnishing evidence that our products improve clinical outcomes for the patient and support objectives in public health. Ian Read has been deliberately explicit about this.
The second element is providing employees with the tools that enable them to suggest and then execute a good idea. A good example is the Innovative Communities initiative we launched in cooperation with Microsoft in September 2010 (see sidebar). It allows a colleague to put a proposal together, solicit the support of other colleagues, and create a community—a constituency—to declare, "We think there is an opportunity here." The group then drafts a business plan and is required to obtain the endorsement of a member of the ELT, who becomes the initiative's champion and agrees to fund it. You might see this as a bit process-oriented, and I concede it is. But people forget that innovation requires discipline as well as creativity. A good idea is nothing unless you can execute to produce a result.
WL: Your experience suggests that an innovation platform must be grounded on the ability for sponsors to build internal coalitions for change that will attract the support of senior management. A program built around the colleague "suggestion box" is doomed to failure.
KP: Yes, this is a critical point. We had an earlier program called Pfizerideas.com that gave colleagues the opportunity to suggest changes in process and pitch ideas, to which others could react to in real time. This did not really work because there was no mechanism for follow-through; it became a bin for the collection of best practices but nothing more. It actually made innovation seem like a diversion from business fundamentals and fostered an impression among many colleagues that the company was not serious about embracing change. It is frustrating to come up with a good idea, invest in the background work, and then discover there is no channel to take it forward. The Innovative Communities project is designed to rectify this imbalance.
Another criterion for a strong innovation culture is distinguishing between a genuine innovation—the game-changer—and something that is more incremental: what we call "continuous improvement." For example, we might hear from colleagues who want to eliminate unnecessary forms or requirements for approvals. This we would refer to our Six Sigma teams under the rubric of what I call the "just do it" category. Winning support and then implementing a real innovation—one that might pose a painful adjustment for some part of the business—is a far more complex task.
WL:How do you define success in your role on the Executive Leadership Team? What do you expect to have accomplished in the next two to three years?
KP: We are all about strategy—defining the themes and building the platforms that bring us to the next stage of growth. In that regard, our first priority is fixing what Ian Read calls our "innovative core." That means finding creative ways to develop first-in-class drugs, tap our existing therapeutic portfolio to address unmet medical needs, and ensure all patients across geographies and incomes obtain access to our products. So we have to innovate around things like cooperation with academia to generate new drugs and complementary technologies like diagnostics; to build new approaches to reimbursement based on an integrated evidence base responsive to demands from payers for more clinical differentiation; and to invent new delivery and distribution systems that inform clinicians and patients and speed access to the patient, at lower cost.
In addition, we have to strengthen our awareness of how we interact with other parts of the health system, particularly once our medicines are out on the market. In what ways do our medicines shape the patient experience? Is partnering the best way to stay relevant here? Answering these questions well will be the basis for our success, particularly if we can continue to find and execute good deals with other companies.
Internally, it's a function of keeping our BU leaders and chief science officers happy while not relinquishing the role of advocate for the best interests of the full organization. It's a careful balancing act. And today is a great time to be a leader because change is irrevocable in this industry. It has to be embraced as a positive. Showing fear and sowing pessimism is not a management skill that is going to work in the years ahead.