Clayton Christensen on the Future of Pharma

Posted under Blog, business model, change, Clayton Christensen, commercial model, Companies, conference, Diagnostics, Events, FDA, Funding, health analytics, healthcare, innovation, IP, leadership, Medical Devices, Medical Supply, Mitt Romney, People, Pharmaceuticals, Politics, Public Policy, R&D, Regulatory, Safety, SaS, Startups, Strategy, Technology, Uncategorized, Universities, Videos by Ben Comer

A keynote speaker at the 9^thAnnual SaS Health Care & Life Sciences Executive Conference on May 10, ‘disruptive’ author of The Innovator’s Dilemma and Harvard business professor Clayton Christensen sat down with PharmExec to discuss the future of the pharmaceutical industry, and what Mitt Romney could bring to the White House.

Ben Comer: Like tech companies a decade ago, many pharmaceutical companies are now outsourcing more and more of their core competencies in the name of efficiency, often short-term efficiency. Do they risk losing their core in the process?

Clayton Christensen: We absolutely worry that that’s exactly what is happening. I wrote a book called The Innovator’s Prescription, about the future of healthcare, and chapter nine is our view of where the pharmaceutical industry is headed. But the genesis is that, when we thought that diseases were defined by their symptoms rather than their causes, there were big blockbusters out there that were very attractive for [treatment]. And now we realize that a disease should not be defined by the symptom, but rather by the cause. It used to be that the FDA clinical trials process was like a final exam. If 30 to 35 percent of the patients responded to a drug, it was judged as a passing grade. And if your percentage was less than that, then you failed the test. But now we realize that if only 20 percent of the patients responded, then there must be something different about those 20 percent. They must have a different disease than all the rest. Rather than just project it, now we understand that managing clinical trials is an indispensable element of drug discovery. And so if you outsource that, then you’re outsourcing the activities that in the future will be the critical capabilities.

BC: How can big pharma companies foster a culture of innovation in the context of a large, lumbering bureaucracy?

CC: Rarely is the development or the absence of a product the problem in a company. Almost all companies are awash in ideas for new products. What they don’t do – and they could but they choose not to – is to create new business models that are tailor-made to the characteristics of the new product. You come up with this great idea, and you can’t do anything with it unless you get funded. To get funded, you have to, little by little, morph and shape and modify your business plan so that it fits the current business model. If it doesn’t fit the business model, they don’t perceive that it will be successful. So what comes out of the process is incremental innovation after me-too innovation. It’s not that the original idea wasn’t innovative, but in order to get it funded, you have to change your strategy so that it ultimately conforms to your company, rather than to the problem or unmet need in the market.

BC: Is it a viable strategy for pharma companies to spin out a separate entity, away from headquarters, to facilitate new kinds of development?

CC: It doesn’t have to be totally thrown outside of the corporation, but it needs to be a different business unit underneath the corporate umbrella. And you have to manage it at the level of the CEO, differently, than the mainstream. Almost never do you need to accomplish or accept lower profits when you set up this new business. But the formula by which you make acceptable money will be different.

BC: Is current US public policy harming or helping innovation in this country?

CC: I think that it facilitates a particular type of innovation. But I don’t think government is the core problem. I think finance and hedge funds and private equity funds are the big bad actors in the system. Investors like hedge funds and private equity funds and venture capitalists have a measure of performance called internal rate of return. And internal rate of return is a ratio; the way you get internal rate of return up is that you only invest in things that have a very short time horizon. If you just invest more and more for faster and faster quick wins, IRR goes way up. And you think that you’re innovating, because of the quick returns you’re getting. But what that means is that you can’t invest for the long term, because the truly disruptive business units don’t pay off for five to eight years. So then because the government says, ‘Well if you keep your money in the investment for 366 days, we’ll count it as long-term capital gain.’ There isn’t anything about 366 days that is long term. So the government should re-frame that, so that if you keep your money in for five years, there’s no tax, and if you keep it in for eight years, it’s a negative tax. All of these massive amounts of capital that are in private equity funds and so on, you re-purpose it through the tax code, and it would behave very differently, and invest in very different kinds of things.

BC: What is your message to the pharmaceutical industry, and is there a solution to the productivity gap?

CC: I think I know the right question, but I don’t know the answer. I would love to get together with deep thinkers in the industry to sort it through. As a general rule, when other industries are at this kind of an intersection, what has happened is that, at one stage in the value-adding stack in an industry, at one stage if it’s becoming commoditized and modular, you cannot make money at that level in the stack. But the whole industry doesn’t become unprofitable, rather its activities above and below that original [product or service], that’s where the money is made. And that has to be happening in the pharmaceutical industry, but I can’t see what it is yet. By example, the auto industry is becoming commoditized; cars are being assembled by sub-assemblies from tier-one suppliers. Anybody can get these modules and snap together a car. So it’s really hard to differentiate your car from anybody else’s car, so where the money is being made is in the subsystems that define the performance of the car, and by activities that sit on top of that, like OnStar. That’s where the money is made. Somehow, I have a sense that selling the pill, in the future, is not where the money will be made. It will be the attachments on top or underneath it. I haven’t heard anybody articulate what those look like, but I think they’re emerging, and we need to identify them.

BC: I read in The New Yorker that you’ve lived near the Romneys, and both you and Mitt are active in the Mormon church. Do you have any thoughts about a President Romney?

CC: He’s really a good man. He’s very smart, but it’s true that he was raised in a wealthy home, in a prominent home, and then accrued even more wealth, and his kids have been raised in an even more prominent family. And that’s actually about the toughest environment in the world to be raised in, and have your head be screwed on straight. It truly is. And so people think of that, that he’s not connected with the real world. But he has raised his family to create unbelievably good kids. But more important than that, in the Mormon church, we don’t pay professional ministers to teach us and to take care of us, but we help other people and teach each other the gospel of Jesus Christ. What that means is – because the members have to take care of one another – you meet everybody. And so Mitt was the bishop of our church, and bishop just means that he had responsibility for about 500 members of the church. And he had a family, he was trying to build Bain at the same time, and to be the bishop meant that he spent, on top of all that, 30 hours a week. And I don’t know if you ever saw the first Star Wars movie, but Luke Skywalker came in to meet Han Solo at some kind of a café, and the band that was playing, there was one of every conceivable form of life in the band, that’s what a Mormon church looks like; one of every conceivable type of person. If you’re the bishop, you’ve got to help all of those people. Under his leadership we built three significant new congregations in the inner city, in three different languages. So he really has seen a lot. I don’t think journalists have really realized, when he left [Bain & Company], the consulting firm, to create Bain Capital, that was going great. And the original owners of Bain & Company decided to sell their ownership stake to the next generation of partners. In order to pay the selling founders off, they had to take all of the profits the consulting activity made, and then some, to pay off [the owners]. And these people were just sitting at the side, rolling it in. As a result, Bain & Company would have gone bankrupt in two weeks. So they said, ‘Mr. Romney, could you please leave [Bain Capital] and come here and take presidency of Bain & Company, and somehow you have to prevent bankruptcy.’ So Mitt sat down with the six selling partners, and essentially convinced them to agree to take one-sixth of the amount of money that they thought they were owed, and got them to feel good about it. Just the way that he got these people, instead of knocking their heads together, he led them to agree on something that was very counterintuitive to all of them, and that is the idea that we are all best served if we try to help the other side win. I just think that someone with that instinct in the White House, in the climate of Washington, that would be a good skill.

Christensen’s new book – How Will You Measure Your Life? – takes his experience and thinking in business and applies it to personal decision-making. He has been the subject of lengthy profiles this month in both Bloomberg Businessweek and The New Yorker.

National Bioeconomy Blueprint

Posted under bioeconomy, biotechnology ind, Blog, Companies, Corporate, Diagnostics, economic growth, economy, Funding, innovation, Jim's Corner, Medical Devices, Medical Supply, Pharmaceuticals, President Obama, Public Policy, Startups, Universities, Videos by biotechnow@bio.org (Biotechnology Industry Organization)

Today, the White House released its National Bioeconomy Blueprint.  The Blueprint defines the bioeconomy as, “economic activity that is fueled by research and innovation in the biological sciences” and identifies the bioeconomy as a priority for the Obama Administration. BIO provided input and submitted ideas to the Administration after it announced the development of the Blueprint last Fall. While the Administration has largely been focused on advancing innovation in areas such as electronic devices, social media and solar energy, we’ve been ringing the bell saying, ‘Don’t forget us.’  The blueprint is a sign that the message has been received.

The Blueprint notes the tremendous potential of the bioeconomy for fostering economic growth as well as for providing critical societal benefits: “It can allow Americans to live longer, healthier lives, reduce our dependence on oil, address key environmental challenges, transform manu­facturing processes, and increase the productivity and scope of the agricultural sector while growing new jobs and industries.” Well said, indeed.

The report also notes that a growing U.S. population requires, “increased health services and more resources such as food, animal feed, fiber for clothing and housing, and sources of energy and chemicals for manufacturing. In short, it needs a new and more potent bioeconomy fueled by innovative ideas and practices that can help address these needs in new, more powerful ways.”

We appreciate the President’s recognition of the need to clear the path for American innovation and ingenuity and unleash the tremendous promise of biotechnology to help solve many of the biggest challenges facing our nation today and foster economic growth throughout the United States.

Already, biotechnology is enabling patients living with debilitating diseases such as cancer, diabetes and Parkinson’s – and all American families – to have a higher quality of life, in a healthy and safe environment. As the new report notes, ‘The U.S. bioeconomy is all around us: new drugs and diagnostics for improved human health, higher-yielding food crops, advanced biofuels to reduce dependency on oil, and biobased chemical intermediates.’

The report’s high-level goals are consistent with many of BIO’s primary goals, including supporting translational research, reducing regulatory barriers for biotech products and emerging technologies, improving coordination across federal agencies, reforming the U.S. Food and Drug Administration, and expanding the bioeconomy workforce.

We look forward to hearing more about specific proposals for accomplishing these goals. And we will challenge the Administration when its policies are inconsistent with this Blueprint.

What do you think about the Blueprint? What is missing that will help drive continued biotech innovation?

The Real Reason Why Salk Refused to Patent the Polio Vaccine

Posted under biomedical innovation, Biotech Patenting, Blog, Companies, Diagnostics, drug development, Funding, healtcare innovation, innovation, Medical Devices, Medical Supply, patent, Patently BIOtech, Pharmaceuticals, polio, Public Policy, Startups, Universities, vaccines, Videos by biotechnow@bio.org (Biotechnology Industry Organization)

A guest writer in a recent article in the Wall Street Journal repeated the oft quoted Jonas Salk statement about his Polio vaccine: “There is no patent.  Could you patent the sun?”  Many use this statement as the moral impetus for refusing patents on medically important innovations (see Michael Moore’s Capitalism: A Love Story).  Unfortunately, Jonas Salk created a myth that day by leaving out several crucial details.

As pointed out by Robert Cook-Deegan at Duke University, “When Jonas Salk asked rhetorically “Would you patent the sun?” during his famous television interview with Edward R. Murrow, he did not mention that the lawyers from the National Foundation for Infantile Paralysis had looked into patenting the Salk Vaccine and concluded that it could not be patented because of prior art – that it would not be considered a patentable invention by standards of the day. Salk implied that the decision was a moral one, but Jane Smith, in her history of the Salk Vaccine, Patenting the Sun, notes that whether or not Salk himself believed what he said to Murrow, the idea of patenting the vaccine had been directly analyzed and the decision was made not to apply for a patent mainly because it would not result in one. We will never know whether the National Foundation on Infantile Paralysis or the University of Pittsburgh would have patented the vaccine if they could, but the simple moral interpretation often applied to this case is simply wrong.”

While the debate on whether patents are the best way to incentivize medical innovation and commercialization continues, that debate should proceed without reliance on this myth regarding the history of the Polio vaccine.

Experts jab over drug patent reform and the best approach to innovation

Posted under Blog, Companies, comparative effectiveness, Diagnostics, Funding, innovation, Medical Devices, Medical Supply, patents, Pharmaceuticals, Startups, Universities, Videos by John Carroll

One of the most persistent arguments in the biopharma business these days is focused squarely on the length of patent protection a new treatment has when it goes on the market. The industry has always wanted more, basing its argument on the idea that shorter periods of market protection reduce the earnings it can expect and undercut the ability to innovate. Patient advocates typically cry out for less, maintaining greedy pharma companies just want more money and longer patents don't translate into innovation anyway.

The Wall Street Journal has produced one of its pro/con segments, with two experts taking opposite corners in the battle over which approach is right.

Josh Bloom, director of chemical and pharmaceutical sciences at the American Council on Science and Health, paints a woeful picture of Big Pharma today. With regulatory demands rising, it takes much longer to gain an approval. Costs have soared while the length of patent protection has dwindled. Drug companies are turning to line extensions, usually simple tweaks to meds that can be used to extend patent protection. Furthermore, a weakened pharma industry overall has been shedding hundreds of thousands of jobs.

Interestingly, Bloom believes those line-extension patent periods should be cut, thereby allowing pharma to stay focused on true innovation of important new treatments. And he wants a longer period of patent protections on the new meds to reward the companies' true innovators.

Els Torreele, director of the Access to Essential Medicines Initiative of the Open Society Foundation's Public Health Program, counters that pharma companies stopped innovating a long time ago. Real breakthrough drugs took the back seat to anything that could earn cash. And they don't have to prove that a treatment is superior to existing drugs--a comparative effectiveness approach.

Torreele calls on the agency to start applying the new comparative effectiveness metric before companies can earn patent protection. And she rejects the argument over the R&D costs at pharma, noting that the companies typically earn many times what they invested in their top earners. Extending patents might make companies more profitable, but it would do nothing to improve innnovation.

There's something in these arguments for everyone in the industry to chew on. But there's also little indication that a divided Congress has any ability to reach consensus on just how drug patents might be reformed in the near-term.

- here's the WSJ article

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