I recently attended the Elsevier Business Intelligence Conference in New York City which gathered a group of industry thought leadership from large pharma, biotechnology, medical device, venture companies, consultants, payors, etc. to discuss Strategic Alliances and the challenges which face the industry. I really enjoyed the content, and some of the panel discussion surfaced many items around the challenges facing these groups. The industry stands to lose approximately $120 billion in patent-protected revenue over the next 2 years (which could mean the loss of 400,000 jobs within the top 12 pharma companies alone) - based on the panelists suggestions, there is not much to replace them in the market.
The underlying theme of the conference had been around creativity and innovation - trying new approaches, taking risks, becoming more creative in the alliances with smaller companies and those generating novel medicines, and engaging the payor community sooner to really target the problems which exist with today's therapies for a subset of patients.
Then, this news appeared:
GSK bets that hungry spinouts can upstage fat pharma (FierceBiotech, October 5, 2010)
"Big pharma is looking at productivity," Clive Dix, who helms the startup dubbed Convergence, tells the Financial Times. "It sees smaller companies as more fleet of foot. We are more focused and will be very hungry because the only thing we think about is these drugs."
For those who reside in the Northeast area of the USA, it was estimated that approximately 80,000 people lost their jobs due to mergers, downsizing, etc. A move like this one from major pharma companies suggest that the internal staff, processes and silo challenges inhibit the ability to move drug development quickly, reach and make decisions more expeditiously, and validate the money being spent is better served with smaller teams and fewer layers for approvals. Through partnerships with biotech companies, where the smaller entity is able to maintain the development of the product, this same sort of movement is possible. At the conference, it was noted that many of the alliances were structured to allow the autonomy of the smaller entity to continue on its path and fund their efforts. For those employed by larger entities, this movement is sending a clear message for sure.
This had me also thinking about the service delivery of our industry. Why are companies still leaning on the full service Contract Research Organization (CRO) structures and outsourcing in the traditional methods given this new sense of urgency around drug development? Many years ago, the CRO industry was born and grew around "mirroring" the larger pharma companies for which they served, and thus grew in their likeness. As indicated by the poor productivity referenced in the GSK example and the many years of very low New Chemical Entity output by the top companies, the full service CRO model provides the same layers and challenges within their models that challenge the larger pharma institutions. And many smaller companies find it challenging to stay a priority within these organizations when they are supporting tens and hundreds of larger pharma company trials.
Why is it that people today do not carry their creativity and innovation to their outsourcing strategy and their vendors? It seems almost self-defeating by creating and operating a small, virtual drug development organization who is nimble, quick and cost effective, only to hand the entire program back to a model which has shown by industry to be unproductive and costly? The extent of change orders and layers of overhead/management create difficulty to become intimate partners, and maximize the investments made by venture capitalists and others to provide an end product of high quality, delivered on time and within budget.
There are models being promoted, explored and created to foster the benefits of virtual service delivery using Functional Service Providers (FSPs). In these models and companies, you will find highly experienced artisans who focus on their particular niche, and are generally selected based upon their contribution to the team and study, not selected because they are employed by a company. FSPs assist the pharma industry with more cost effective drug development programs by companies who exhibit the same sense of urgency with their business practices as the forward thinking entities who employ them.
The move by GSK should cause concern for anyone operating in these larger models, especially those who support the services of these therapeutic teams. It will be challenging to compete against smaller teams built on years of experience and commitment to clients' deliverables.
Moving away from the perceived "safe" choice is challenging - many times, you are forced to change (which many claim is for the better). I cite my own personal experience when flying for business - our company was strained financially and was asked to drive the 8 hours to our office for meetings. Flights on a known commercial airline from Philadelphia were $900-1,000, even with a few months advance purchase. Then I noticed this airline - Southwest - which offered low fares, had clean planes, seemed to be full of energy; however, my perception was that they were for younger people and vacationing families - they had no first class (and I had all of these points and preferred statuses) - all of the "important reasons". Tired of driving and seeing them move into Philadelphia, the cost point was low enough that I was granted the purchase of a ticket on that airline. My first experience was Wow! - we boarded the plane at 6:05 am for a 6:20 departure. The stewardess came on board and, since we had everyone seated, asked if we would mind leaving early. WHAT? Leave early? We arrived 20 minutes ahead of schedule. I certainly have more "success" stories being a passenger on Southwest Airlines - they are now my first choice whenever I fly.
I was forced into this position, and it turned out immensely successful for me (obviously Southwest has done well despite the challenges facing the airline industry and those of their competition). Based on the tremendous lost amount of existing revenues and the lack of replacement compounds for larger pharma, and the limited financial support being provided to industry at present, the pharma industry is being forced to find alternative ways to accomplish their objectives. Being more creative and leveraging the services and technologies of Functional Service Providers, and groups who form their business models around FSPs, should be considered as one solution to provide the creative, innovative support required by industry's forward-thinkers.
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