The Future of Pharma

Evolutionary Threats and Opportunities

Professor Brian D Smith

(C) Pragmedic 2012

Questions to answer • How should we think about the

pharmaceutical industry? – What robust science can we use instead of

speculation?

• How does that theory help us? – How does it explain the past and predict the

future?

• How should we prepare for the future? – What are the important decisions to make?

HOW SHOULD WE THINK ABOUT THE

PHARMACEUTICAL INDUSTRY?

By thinking of the industry as a complex adaptive system and using the knowledge base of

evolutionary economics

Our industry is a CAS • Complex adaptive systems (CAS) are systems that

have a large number of components, often called agents, that interact and adapt or learn. They have properties of:

– Self similarity

– Rich interaction

– Non-linearity

– Openess

– Emergence

– Path dependence

– Self-organisation

“Evolutionary theory is a manner of reasoning in its own right, quite independent of the use made of it

by biologists. They simply got there first.

-J. Stanley Metcalfe.

A population of replicators

(e.g. Genes)

Variation of replicators within

the population

Variation in traits of the interactors (e.g. Organisms)

Selection of organisms by

the environment

Amplification of successful phenotypes

Emergence of new species

better fitted to the environment

The mechanism of

biological evolution

A population of replicators

(e.g. Practices or “organisational

routines”)

Variation of practices within the population

Variation in traits of the interactors (e.g. Firms’ strategies,

structures and capabilities)

Selection of firms by the environment

Amplification of successful strategies,

structures and capabilities

Emergence of new business models better fitted to the

environment

The mechanism of

industry evolution

Our industry is co-evolving Social technology

environment of

regulation, economics,

politics, healthcare

systems etc Physical technology

environment of basic

and applied physical

and natural sciences

Business models of

firms’ strategies,

structures and

capabilities

HOW DOES EVOLUTIONARY THEORY

HELP US UNDERSTAND OUR

INDUSTRY?

By explaining and predicting how changes to the environment lead to changes in business

models

(C) Professor Brian D Smith 2011 10

Pharma circa 1870

Pharma circa 1930

Pharma circa 1990

Forces shaping the landscape

Social forces

• The shift to comparative value

• A bigger, more granular market

• The stratification of provision

• The ‘may contain nuts’ society

• Proactive, empowered patients

• Demanding investors

• A shift to prophylaxis

Technological forces

• Biology 2.0

• A smart, connected world

• New R&D technologies

• New operational technologies

• New channels to market

A polarisation in how value is

defined and by whom A polarisation in how

value is created

A transformed pharmaceutical

industry

“Disenchantment” & mass

healthcare

European and US expansion

Germ theory & organic chemistry

Steam engines, telegrams and

telephones

The second industrial revolution

1870-1914

The early 21st century

2003-2030

A transformed pharmaceutical

industry

“Death of deference” and the value shift

The shift east Biology 2.0 &

nanotechnology

The ICT revolution

New habitat New species of business model

Core state provision and limited choice The monster imitator - Adequate therapies sold extremely cheaply

Lazarus & Narcissus, pressured state and advance

state provision

The genii – Fantastic, very expensive, relatively small volume

therapies

Get well, stay well The trust manager –Trustworthy, non-innovative branded therapies

sold to the masses

Chronic cost containment The disease manager -Chronic conditions managed efficiently

Mass prophylaxis The lifestyle manager- Prevention and maintenance for the

masses

Wealthy well The health concierge – Wellness and treatment for the wealthy

Value pockets The value picker – Value-added reformulation of old ideas

HOW SHOULD WE PREPARE FOR THE

FUTURE?

By carefully choosing the direction in which our business model evolves and

deliberately acquiring the “genes” we need

How to adapt and

survive?

Which habitat(s)

What new “genes”?

What structure?

Where do I get these

genes from?

Three kinds of “gene”

Core capabilities

(those needed merely to operate in the market but

will not create any competitive advantage)

Distinctive capabilities

(those needed to thrive by creating sustainable

competitive advantage)

Dynamic capabilities

(those needed to enable change within the

organisation)

Core capabilities of

the future

Manage more complex regulatory and market access

systems

Maintain the trust of a more sceptical public and media

Understand and manage more

heterogeneous, 3D markets

Operate frugally along the entire

value chain

Monster imitator

Patent busting

Ultra-efficient operations

Strategic account

management

The Genii

Discovery and development

IPR defence

Value proposition

development

The Trust Manager

Market creation

Channel management

Brand management

The Disease Manager

Actuarial management

Service design

Service execution

The Lifestyle Manager

Value integration

Customer retention

The Health Concierge

Value aggregation

Mass customisation

Aspirational brand

management

Customer experience

management

The Value Picker

Niche opening

Agile development

Asymmetric marketing

Dynamic capabilities of

the future

Translate data into true

market insight

Create and strongly

differentiated strategies

Adapt the organisation to enable strategy

execution

Sustain organisational

learning

Manage value-creating networks

Environmental pressures

Recognise proximate

needs

Succumb to mimetic pressure

Import “best practice” from

peers

Fail to adapt adequately

Environmental pressures

Understand fitness criteria

Resist mimetic pressure

Absorb practice from any relevant

source

Successful adaptation to environment

“Industry best

practice” loop

Organisational

learning loop