Can Pharma Reinvent Itself?

Q: What is the state of the pharma industry right now?

I think the pharma industry, after 40 years of unprecedented expansion and success, has hit a few bumps in the road. Once again, it’s at the brink of difficulty, because the amount of money we’re spending on R&D is not generating enough new drugs that really make a difference. Although we’re investing heavily in new tools to discover more about the underlying mechanisms of disease— whether it’s genomics, or so called proteomics, which is all the different proteins in our body—that is merely expanding our libraries of knowledge. It doesn’t necessarily expand our ability to apply that knowledge to make patients better more efficiently.

Q: Is it possible that this is cyclical, and that there’s going be a new wave of drugs and then things will be great again for a while?

I think it’s not only possible, I think it’s probably true. The industry is very inventive. Right now, the new improved pharma, at least in terms of financial performance, has been the migration to orphan drugs, and the migration to small population solutions. Previously, we were tackling heart disease, hypertension, diabetes, and in oncology, we were attacking things like first-line breast cancer, first-line lung cancer. Today, much of the research we’re doing in those areas is a subset of a subset of a subset of those patients, in whom we’ve dissected a disease pathway where we can hit a particular enzyme and do quite well. But not in all of the population—only in certain, shall we say, biologically selected patients who have certain receptors. And in those, the game has been to go with smaller numbers of patients but at much higher prices.

That’s a reinvention that can continue for a while but it may not be ultimately sustainable. We’ll have to see.

Q: So what needs to change to make pharma sustainable over the long-term?

Well, in the long term, and it can’t happen overnight, pharma just needs to develop an ever-better understanding of how healthcare systems spend money. Now, the problem with that is that healthcare systems themselves don’t know. So then you have to work together to figure it out, and, because the pharma industry has been regarded as not a partner with healthcare, some of those interactions are deliberately cut off at the knees by the law. You’re not really supposed to know these things. So we may need some structural change to enable greater collaboration between payers and pharma companies—particularly government payers—whereby the guard can come down, and a little bit of vulnerability can be shown to one another, so we actually start to come up with some new ideas. So firstly, we may need some policy changes, but then beyond that, we certainly will need some behavioral changes. That’s going to take a little bit of long-term thinking on both sides, which is not always easy to come by.

Q: And what would be the outcome if that change was made?

I think most technologies are more valuable when the system that they fit in is properly organized. So, you have the dual problem of creating a good new technology, whether that’s a drug, a device, or a diagnostic, and at the same time, helping the customer organize their system to get the best out of it. Previously, that was “their problem.” Our problem was to sell the product.

By bringing those two things together, you probably can create more value. You probably end up with fairer pricing. You probably end up with larger markets. And you probably end up with a more sustainable business-to-business relationship, which ultimately is what pharma needs, because pharma can’t plan its future standing on the knife edge of uncertainty.

Both sides of the fence need to develop new competencies. For example, health systems need to have better data so they can figure out where things make a difference and where they don’t make a difference. They need to share those data with pharma companies. Pharma companies need to become more familiar with how customers deliver care.

Transparency is needed. Price transparency—it’s very hard for pharma to get to grips with that. It feels like regulation when you are completely transparent about what profit margins you’re making. There ought be an effort at making payer relationships consistent around the world if we can, because then you’d be able to manage your global plan better. But as long as there’s inconsistency between Europe, the U.S., Asia, Latin America, it’s actually very hard to write a good business plan, and invest in it.

Q: Is the model at The Medicines Company different than other pharma companies?

I think the struggle is different. I think models exist in your head.

What we’re trying to do is to engage customers in very different ways to maybe what we would’ve done 10 years ago. The first question is different. The first question is not, do you understand my product? The first question is, do you understand your process? Second question: are you willing to explain it to me? Can we work together to perfect it? What are the things you would like to maximize or minimize in that process? Do I have the technology or information or knowledge that would help you maximize or minimize something in that process?

This is what some have called outcome-driven innovation, as opposed to input-driven. So you’re not bringing a technology to a customer and saying, “I’ve got this great new gizmo; how can you use it?” I’m beginning the other way around by saying, “What is your process of care? What are you struggling with? What can we do to help you, and what are you willing to pay me for?”

Q: Does that mean you have to change your focus? With that kind of approach, does a particular company need to focus on a particular set of diseases or part of the body in order to have all of the knowledge available when they tell you their issues?

It requires a profound change in the kind of capabilities we may have. We’ve always been a company that restricted our activities to the hospital, and the hospital is a little easier to analyze, economically, than the whole healthcare system. Things go in one door—money, people, resources—and out another door, and what happens in the building can be measured. It’s a closed box system where you can do the economics relatively easily compared to diabetes care, for example, where the whole community is involved.

So we’ve had to develop new skills, helping customers analyze their economic process of care. That requires new statistical tools and techniques. It requires new datasets that we haven’t previously worked with. Then we need to train people to ask different questions. It means upscaling our teams to be able to solve problems that they haven’t seen before, which is a more consultative approach to working than just selling.

Discovering the opportunities, developing a new way for the hospital to work, and then introducing either behavioral change, or process change, or possibly bringing in new technology, or all three, demands something more than just selling. You need to be analytical, persuasive, resilient. You will get thrown out on your rear from time to time if you even broach the subject, because people say, “Well, you’re a drug company. Why do you think you can help?” And the short answer is, “We’re not sure, but would you help us by answering some questions?”

So, it does require a big shift in who we are as a company. But we’re not the only industry to have faced this. The information technology industry changed. Perhaps the most famous one is the change of IBM from a big box seller to a services seller. The way that Apple Computer changed the way we buy music is another example where business model innovation has been practiced successfully. Another one is Hilti, the big tool company, who rather than selling drills and big industrial equipment started leasing and renting it for specific jobs that needed to be done.

There are needs for and opportunities for disruptive business model innovation in healthcare, and the ones who get there first are going to win. So, although a lot of what we say at the moment sounds a little bit high-minded and even maybe even a little bit blue sky-ish, it comes out of a desire to be highly competitive. Obviously, we like to tell our mothers that we’re doing good things, but none of that would amount to much if the company wasn’t successful. So, this isn’t just inventing the future for the hell of it. It’s actually inventing the future so we can win.

Q: At the end of that process, you’re not exactly a drug company. How do you define the bounds of what it is that you give people?

I don’t know the answer to that. Did IBM know what they would become when they started their journey? Did Apple know what it would be like to no longer be a computer company, to become some kind of consumer hub? I think that’s an unanswerable question till you go down the road and try it. I think you only know what you become once you become it.

I do know that the fundamentals of what we want to become are very simple. I want to be paid, possibly handsomely, for saving lives, alleviating suffering, and improving the economic efficiency of leading hospitals. I happen to believe there’s an enormous amount of value to be created there, and that most, if not all, societies around the world are willing to pay for it. There’s a lot more value to be created, I think, than there is in just designing more drugs.

Interviewed and edited by Ben Mattison.