Is pharma doing a good job of transforming?

So far, it seems the pressure to produce increased profits is winning in the battle to transform the industry. But I wonder if, with all the external pressures on large pharma, we might soon be reaching the breaking point.

Chris Anderson
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When friends and acquaintances learn that I'm the editor of a publication in the biotech and pharmaceutical industry, one of the first things I'm often asked is: "What do you think is wrong with the industry?" This question comes in many guises, from questions about why certain prescriptions drugs are so expensive, to why, in the past 10 years, have there been so many problems with approved drugs.
It's hard to answer directly, or succinctly, because quite frankly, there are not many direct or succinct answers to these questions. Sure, I can begin my explanations to these folks with the incredibly high cost of developing a single drug, the length of time it takes and how very short patent protections are by the time a drug comes to market. But by then, I'm often out of breath and the glazed eyes of the person I'm talking to tells me it's not sinking in.

By then, I am often accused of being a shill and cheerleader for the industry and then, I've lost them. When this happened again recently, I paused and thought to myself: "Why am I trying to do the work with this one person, that the major pharmaceutical companies should be doing all along?"

Roughly two years ago, I wrote about a study conducted by PricewaterhouseCoopers Health Research Institute titled Recapturing the Vision: Restoring trust in the pharmaceutical industry by translating expectations into actions. In it, the researchers noted that the reputation of the pharmaceutical industry among major industries was third from the bottom, scoring only ahead of major petroleum and tobacco companies.

Co-author of the study, Peter Claude, said the public's disregard for the industry had a number of factors, but chief among them was the continued inability of most major pharma companies to be "transparent" and communicate openly and honestly with the general public about the complexity and cost of the science involved. This was particularly true in cases where pharmaceutical companies had post-approval issues with major medications.

In short, the report concluded, the pharmaceutical companies needed to take immediate steps to regain the trust of the very folks to whom it expects to sell its products.

I remembered all this recently, as I was reading Ernst & Young's bi-annual global pharmaceutical report, Progressions, Executing for success: Powering new business models. In it, I found this little tidbit: when global pharmaceutical executives were polled about the top pressure points in the industry, the top concern, cited by 72 percent, was "driving product flow." This was followed by "producing and sustaining products of value" (47 percent) and "global regulatory pressures" (44 percent).

What was striking to me is it is not until the fourth pressure point that is there any mention of the industry's customers. The fourth pressure point "redefinition of customer" was cited by only slightly more than one in three (36 percent), "managing patient challenges" only registered with 25 percent of executives and finally, down at the bottom of the list, cited by only 11 percent of executives was "eroding industry reputation." Well, I guess one out of nine is at least a start when it comes to rebuilding the reputation with your customers.

Put another way, when pharma bosses were asked where their attention should lie, they answered: product, product, big, bad government regulators … Oh, yeah! Patients!

Perhaps this is a natural progression as pharma companies become increasingly worried over the almost stunning lack of new, first-in-class therapeutics gaining approval and coming to market. Yet at the same time, it begins to feel like pharmaceutical companies only want to continue moving the handle up and down on a pump that is reaching into an increasingly dry well.

And perhaps it is only this, the Ernst & Young report suggests: the industry is in the midst of struggling with how to redefine its mission and that it will take time for companies to move from blockbuster-driven marketing operations to companies that are more nimble and more like the small biotechs they are trying to emulate—companies that change quickly to adapt to the ever-evolving marketplace.

We've reported on companies that are involved in the ongoing restructuring of R&D operations to be smaller, more focused and more innovative. But as the Ernst & Young report points out, these structural changes are still in their early stages, and while pharma executives may see the need to adapt their businesses in this way, there remains the struggle of how does a company create and sustain a thriving entrepreneurial spirit while still finding a way to meet the quarterly profit demands of being a global pharmaceutical company.

One reason for the plodding pace of change, the report suggests, is that pharmaceutical companies are not advancing on what it calls "more radical" shifts in their business models. While other industries seem to continually push the envelope of expanding their core products (after all, 30 years ago, how many people would have thought you could one day buy prescription drugs at your local supermarket?), the pharmaceutical industry seems stuck in the tangible product model with little deviation. Further, while pharma companies may see the need to redefine multiple areas of the company from R&D to finance to sales and marketing, these activities may not be aggressive enough.

"It is our experience that transformational strategies require transformational execution," the report states. "And companies are not as far along as they should be in their transformational journey."

But how radically can we truly expect the global pharmaceutical companies to change? As public companies, they are forced to find ways to protect their patents from ever-aggressive challenges, move into new markets and understand their vagaries, in order to continually grow the bottom line. These are all activities that have nothing to do with either innovative thinking for how to transform a business, or the innovative thinking needed to discover and develop new drugs.

So far, it seems the pressure to produce increased profits is winning in the battle to transform the industry. But I wonder if, with all the external pressures on large pharma, we might soon be reaching the breaking point. DDN

Chris Anderson

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