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The Future of Pharma
Evolutionary Threats and Opportunities
Professor Brian D Smith
(C) Pragmedic 2012
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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?
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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
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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.
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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
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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
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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
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HOW DOES EVOLUTIONARY THEORY
HELP US UNDERSTAND OUR
INDUSTRY?
By explaining and predicting how changes to the environment lead to changes in business
models
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(C) Professor Brian D Smith 2011 10
Pharma circa 1870
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Pharma circa 1930
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Pharma circa 1990
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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
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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
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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
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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
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How to adapt and
survive?
Which habitat(s)
What new “genes”?
What structure?
Where do I get these
genes from?
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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)
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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
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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
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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
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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
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