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Finding the correct coordinates for big Pharma's endless cycle of re-positioning is just as important as a winning scientific hand, writes William Looney.
THIS MONTH'S TOP FEATURE is our annual review of who tops the league in industry sales—a standard benchmark of success that has remained surprisingly static since we began ranking the 50 largest players back in our April 2000 issue. Over these 14 years, just three companies—Merck (in 2000), Pfizer (from 2001 to 2013), and Novartis (this year) —have snagged the No. 1 position. Much of the real action has taken place well below the top, particularly among those middle-ranked companies which have achieved the scale to compete globally but where size has not yet proved a distraction against the bottom line.
As befits a publication with deep roots, Pharm Exec's Top 50 has been around enough to reveal the importance of leading with a unique business model and then sticking with it, for the long-term. Two obscure entries on that first April 2000 list were Genentech (at No. 42) and Teva (at 43). By 2007, at the halfway point in the history of our survey, both companies had risen to a position in the top 20, paced by their achievements in securing dominant positions in the innovative cancer and generic segments, respectively. Teva—now twelfth in this year's list—will likely strike the top 10 next year, while the absorption of Genentech by Roche in 2009 has had much to do with its parent's own rapid rise from eighth place that year, to third.
What we are seeing now is a similarly decisive distinction favoring companies that made an early commitment to focus on specialty biologics for hard-to-treat conditions affecting small target populations. It's only a matter of time before these outliers—like Celgene (at 26 this year), Biogen Idec (27) and Shire (32)—breach that top 20 barrier, too.
Still, it is pertinent to ask whether such rankings remain the best way to document true leadership in the industry. Pharm Exec is a media enterprise and like everyone we face pressures to communicate in short, easy information bits; lists do serve a purpose in distilling complexity into a stimulating, commemorative tonic. But their shelf life is brief. In fact, the strategy dialogue within biopharmaceuticals today has shifted from celebrating bigness and scale—organizational attributes deemed critical to finding that "blue ocean space" beyond the reach of competitors—to embracing the concept of "fleetness," where the ability to make rapid, turn-on-a-dime decisions is essential to keeping pace with a business environment in perpetual motion.
According to Columbia Business School Professor Rita McGrath, "If you think of competitive advantage today as something temporary or transient, you'll organize your company in a very different way. And you will re-do it often." In other words, in this world, size can be a drag. Foresight is a lot harder when you are at the top, looking down, not out. And few executives want to confront the trade-offs from being aware that the biggest threats to the business might be in adjacent industries and sectors: that is, beyond the Pharma 50, not within it.
The dismembering of competitive advantage is so dramatic that the notion of a single industry-specific ranking strikes the fleetness/flexibility advocates as an archaically misleading indicator; from a performance point of view, it's not your traditional competitor that matters but who else is in the "arena" with you, engaging and competing for the same customers but often with a different selling orientation.
It is equally wishful thinking to presume that the barriers to entry to biopharmaceuticals remain high enough to discourage would-be competitors attracted by the high margins and market exclusivity conferred by patents. If the industry's traded currency is now not the pill itself but the information that evidences outcomes, which in turn sets the condition for payment, then can it not be said that Google is also a drug company? How do we define our products in an era when a nerve signal generated by an artificial electrical impulse can produce the same physiological and therapeutic effect as a chemical drug?
Posing such basic questions illustrates how fundamentally the competitive set for big Pharma has changed. Finding the correct coordinates for this endless cycle of re-positioning is just as important as a winning scientific hand. Strategy experts like McGrath describe the necessary strategic response as "continuous morphing," and there is no Excel spreadsheet to furnish management with that traditional salve of certainty. All of this draws me to conclude that, assuming the series survives, our Pharma 50 of 2025 will test our current boundaries of comprehension. Yet, I am confident that this is still the one business I can say will help me live to see it.
William Looney, Editor-in-Chief firstname.lastname@example.org Follow Bill on Twitter: @BillPharmExec