Pharma Strategy Blog

Thank you every one for the incredible response to the recent post about the strategic direction of the Pharma industry, I enjoyed all of the emails and debates that followed on from that.  I'm glad it stimulated many of you to think about the environment we work in.

Several interesting questions and ideas have evolved from those discussions, which I will lay out here for further debate.

Firstly, a number of you wanted to know what I thought about consolidation (the Pfizer-Wyeth merger in particular) and secondly, several asked about the future of biotech.

Many of you know that I'm not a big fan of huge behemoths because they encourage bureaucracy, CYA and lack of innovation.  It was interesting listening to the interviews the Pfizer CEO Jeff Kindler did yesterday after their 3Q earnings call to the analysts.  He seemed to be hedging his bets a little arguing that on one hand you need economies of scale in order to compete and grow in new, emerging markets such as China yet on the other, you need smaller business units in R&D to try and foster innovation.

It made me wonder if Pfizer have been listening to too many big management consultants and doing those grand (and very expensive) corporate organisation reviews, yet people forget that the consultants who do the project work are often kids out of college with plenty of business school theory and little industry knowledge.

Bigger does not always mean better. The Pfizer story reminded me of interviews with GSK's Andrew Witty a year or so ago arguing with reporters that they needed to get smaller in R&D to foster and encourage innovation.  Hmmmm, sounds like management consultancy redux – if you persuade enough companies to try it, it justifies the huge costs (not).

The problem with this approach is that just downsizing or rearranging the constituent parts into smaller groups doesn't minimise the bureaucracy because Pharma likes control so they still have hundreds of VP's managing these units, all competing for capital and fiefdoms.  If anything, the approach increases the bureaucracy and power fighting. That's not innovation, it's torpor.

Take a look at this quick and useful video from my SCIP buddy August Jackson.  It's short, pithy, humourous and to the point (hat tip to Eric Garland for bringing it to my attention).  While August has a background in Telecoms, his perspective on bureaucracy is also remarkably apt for big Pharma:

So, no I'm not a big fan of merger and acquisition consolidation, especially when they involve biotechnology, such as the recent Roche – Genentech merger.  Will the Roche big Pharma bureaucracy stifle the entrepreneurial spirit at Genentech? What about Medarex now that BMS has acquired them?

In the long run, yes it will, especially as many of the top key people have left at Genentech.   In the short to medium term, however, Roche will reap the benefits of a massive pipeline of over a 100 compounds in development, mostly through creative licensing deals with even smaller biotechnology companies.  BMS will ride the Medarex pipeline for all it's worth and then what? Time to look for another 'strategic' acquisition probably.  Still, these deals beg the question – why kill the golden goose?  Why not keep them as separately run business units or companies as J&J tend to do and continue to keep the scientists creating new compounds for the future in a small lean operation?  Perhaps the fear of losing out is over-ridden by the drive to have it all now.  Whether that is a viable long term strategy remains to be seen.

Real innovation in the future will most likely continue to come from baby biotechs taking risks on one or two products they passionately believe in and get a whole organisation focused behind it with the ability to think and act fast.  They're largely free from the big management consultants who tend to complicate things.  A small nimble biotech is full of scientists and entrepreneurs and not too many managers.  Big pharma is full of managers who outnumber the scientists and entrepreneurs are few and far between.  In fact, they are probably most unwelcome as they tend to upset the applecart a bit.

Of course, the other big trend yet to emerge is whether some of the pharma companies will start spinning off chunks of their business, as they struggle to cut costs and maintain margins in these recessionary times.  But hey, that's a whole different ballgame.

Thoughts and comments?