Survival: The “fittest” or the “best fit”?

Despite being predominantly comprised of mortar, stone, and metal, companies are effectively living organisms: taking in nutrients (supplies, intellectual property, utilities) that are processed by enzymes in organs (personnel in departments) and spitting out (by)products, with the ultimate goal of growing larger and proliferating. And like living organisms, all companies will eventually end up dead and defunct. For those of us living year-by-year, the question is simply when and how.

For years, I understood the basic concept of Darwinism to be that in the fight for survival, it is the fittest who will win out. What I didn't really see until recently, however, was that I was working from the wrong definition of "fittest". To me, the "fittest" guy was the one who spent all day at the gym and who had the gift for the gab, allowing him to become the biggest and best. Industry has largely seen things in the same light.

To be a successful company, you had to be the biggest baddest thing on Wall Street. Produce more, faster, better, and cheaper, and you win the race. To accomplish this goal, however, requires eliminating the competition by driving them under or swallowing them whole. The former can be a challenge because they too are fighting to eliminate the competition (you) and the latter often results in indigestion.

For the pharmaceutical industry, this death match-amalgamation attitude in the 1980s and '90s reduced the playing field from dozens of companies fighting for marketspace to a handful of giants. Many of these same giants, however, we now see limping along with serious battle scars or suffering the after-effects of their bloated period as they fought gamely to get back into shape, focusing their efforts inward as opposed to keeping an eye forward.

With a few exceptions, the current state of the pharmaceutical industry exemplifies where I went wrong in my thoughts on Darwinism. Rather than looking upon muscle and sinew as a sign of fitness, I should have been looking at how well an organism fit within and adapted to changes in its environment.

The arrival of a large comet or meteor 65 million years ago wasn't too good for the dinosaurs, but it proved to be quite a boon to the little mammals scurrying along the ground. It's all in how well you respond to change. By comparison, pharmaceutical companies are faced with constricting pipelines, changing social and regulatory landscapes, and territorial encroachment by generics and biotechs.

Ironically, even technology is working against the bigger companies, as the same advances that allow the big players to achieve benefits of scale and cost-cutting are also allowing the small players to tap into markets that are "too small to be viable". To paraphrase: "Opportunity, opportunity, everywhere, but not a drop to drink."

Seeing the signs ahead, many companies have started to rapidly in-license or acquire technologies and pipeline in the hopes of bolstering their own efforts and staving off elimination for just a little bit longer. Following the tried-and-true (?) methods that got them to their giant status in the first place.

Others, however, seem to be opting for a new plan; something that is vaguely familiar, an echo from yesteryear, when they were trim and eager: adaptation. These companies are looking at their brave new world and looking for new approaches or markets that will allow them not only to survive, but also to flourish even as the behemoths around them lumber along slowly.

Given these diametrically opposed approaches, the next few years should prove an interesting test of economic Darwinism.