By now, there is no question that innovation is a growth source for companies independent of size and industry. Some executives are going as far as seeing innovation as an essential way for companies to accelerate the pace of change in today’s global business environment.
With so much hype around innovation globally, BCG recently released the top 50 most innovative companies in the world in 2018. For an industry which, historically speaking, is closely connected to the idea of growth through innovation it comes as a big surprise to find that only one of the ten big pharma companies is in the top 20.
The current state of innovation in pharma becomes even more puzzling when next to BCG top, you put the Statista research of the companies with the highest R&D expenditure. In this second top, we can find 6 of the ten big pharma companies. After all, if a company is ranked higher on the R&D top than on innovation top, one can only conclude that the company has a dysfunctional system of growth/expenditure.
So a question starts looming: Is Innovation in ‘Pharma Broken’?
But before answering this question, we first need to make the distinction between R&D and innovation. Having an excellent R&D process and achieving market success with the technologies invented are two distinct things. Oversimplifying, R&D can be viewed as the process of converting financial resources into ideas and technologies, while innovation is the process of converting ideas and technologies back into money through business modelling and experimentation.
However, in Big Pharma’s defence, the process of bringing a pill or a medical device to market along with clinical trials and patient approval is costly, taking a heavy toll on R&D expenditure.
But Big Pharma needs to escape the gravitational pull of their past successes with the legacy business model of developing and selling drugs if they hope to stay relevant in the digital world of today and tomorrow. They need to step into the future with adaptive forms of revenue based on increased customer insight enabled by data and (software) technologies. Incremental improvements are essential, but if companies aren’t realistic about what constitutes a breakthrough innovation and what not, they run the risk of being disrupted.
The new technologies available in this day and age have a two-fold impact on the pharma industry. On the one hand, they enable new business models, such as pay-per-use or subscriptions. And unless the pharma corporations start acting on this – startups and big techs can come in and capitalize on these greenfield profit pools. Creating new profit pools in a legacy industry made up of slow acting players is something that big techs in particular and startups are known for as they have the mindset and drive.
The other impact that new technologies have on the industry comes from the end-consumers’ side. Technology is driving audience expectations. End-consumers are becoming more acquainted with the use of technology in their everyday lives. Hence, they are becoming more and more exigent and demanding of the products/services they’re interacting with. Data shows that brands which are seen as innovative, have a more positive engagement with audiences. And pharma’s track record of customer friendliness is far from ideal. Pharma was rated among the least customer-friendly industry in a 2011 Harris poll, down 43% from a similar survey conducted in 1997. Further research shows that, in the UK, only 39% of the participants in a different study saw the pharmaceutical industry as innovative.
However, it is not fair to say that ‘Big Pharma’ is staying still. There are some examples in the industry, of companies moving beyond the pill.
The multi-national pharmaceutical company ‘Novo Nordisk’ decided to sponsor an all-diabetes professional cycling team, Team Novo Nordisk, as a ‘beyond the pill’ initiative. The goal of the action isn’t to directly drive sales, but rather to inspire, educate, and empower people affected by diabetes. To measure success, Novo Nordisk focused on consumer engagement across social media channels. Team ‘Novo Nordisk’ is just one example of a beyond the pill program that is considered auspicious.
However, not every program’s success can be measured by social media engagement. Pharma companies must determine their metrics for success when considering beyond the pill efforts.
Another great example comes from Roche, in the shape of a software solution. Cobas® infinity is a highly flexible and scalable series of innovative digital products, designed to help health care professionals (HCPs) manage all the tasks and work processes in all of the different work areas. The tool collects all the data HCPs need and brings it together on one screen.
At the crossroad of ‘ Beyond the pill’-strategy and social impact lies, Johnson & Johnson’s collaborations aimed at transforming mental health care in impoverished areas of sub-Saharan Africa.
Portfolio of Strategies:
However, all of these examples seem to be exceptions of ‘Pharma Innovation’, not the norm. To make the practice of ‘beyond the pill’ more than just a sporadic exercise, pharma companies need to have a portfolio of strategies (and tactics).
Mass standardization in the pursuit of efficiency has pushed the pharma companies to have a one-size-fits-all approach to bringing anything new to the market. Using the processes, tools and mindset from the ‘world of the pill’ into the ‘world beyond the pill’ is proven very expensive for the pharma companies.
In the ‘world of the pill’, the strategies are created for a time horizon of 3 to 7 years due to the extensive research involved in bringing a new drug to market. But in the world ‘beyond the pill’ where development and feedback cycles are measured in mere weeks, the companies need to look at strategy cycles of no more than two years. Furthermore, in ‘Beyond the pill’ world where customer prefers are extremely volatile companies should consider an iterative approach to strategy.
The same goes for the tactics of bringing a product to market. Pharma companies need to learn to adapt their tactics to the risk and the speed of the market. The current process of thorough tests before market launch works well for products that pack a high degree of risk for the end consumer (patient). But for a mobile app, for example, that connects patients with health care professionals, a more agile approach can and should be taken.
The argument here is not that big techs, and startups are faster in identifying customers’ needs and serving them. They are. Everyone knows that. The case is not about Pharma companies being disrupted either. The argument is for a new race — a new competition for greenfield profit pools beyond the ‘world of the pill’. This is pinning two different types of companies against each other and sadly for ‘Big Pharma’ unless they sweep aside the old way of doing things when entering this new race they don’t stand a chance of becoming profitable. In the modern world, R&D expenditure is not the main innovation driver.
Therefore the question that needs to be answered is: ‘How can ‘Big Pharma’ reshuffle their strategies and tactics to cope with the peculiarities of a market emphasizing more on customer empathy over R&D thoroughness?’
Pharma companies are not the only ones needing to find an answer to this question. Any company in an industry with high barriers of entry, pursuing profits outside their core, need to deploy a portfolio of strategies & tactics to ensure success.