Most pharma giants look an awful like IBM of the late 80′s and early 90′s. If you remember IBM of that era, that's not a pretty picture. Unfortunately, too many pharma are following the path of the railroad industry early in the 20th century missing out on a huge opportunity (i.e., mistaking which business they were in). True leadership will be apparent in the pharma leaders that channel Lou Gerstner and take action before its too late. In one of the great turnarounds in business history, IBM demonstrated how it’s possible for a large company to shift from a product-centric culture to a customer and service centered company. The handwriting is on the wall for pharma: They will succeed or fail based not on how many drugs they sell, but on how well their offerings improve health outcomes.
The marketing myopia of the railroad industry is well documented in the world of business yet most organizations make the same mistake. Railroad businesses assumed they were in the “railroad” business, rather than the “transportation” business. Consequently, they missed out on countless opportunities to pursue growth in the auto industry. In contrast, IBM was able to use their near extinction that led them to bring in Lou Gerstner to reinvent IBM over a 10 year period. In some ways, Gerstner's predecessors acted more like Martin Shkreli than true business leaders -- they optimized for short-term profiteering over long-term success. IBM's turnaround put Lou Gerstner in the pantheon of turnaround CEOs: A 10x increase in IBM’s stock value. In contrast, most pharma companies aren’t spending enough time thinking like IBM.
If pharma leaders don't immediately see where they fit into the post-Copernican view of healthcare depicted below, they need to conduct a strategic look into the details of the post-Copernican, population health centered industry taxonomy.
Pharma's Guiding Principles for Future Success
Do pharma companies see themselves in a product business or the disease management business? Or, where possible, in the disease prevention/wellness business? These are the key questions that will determine whether they merely survive or thrive. Leonard Kish and I spent the last 18 months curating the perspectives from the individuals that we think have the clearest, practical vision what will drive success in the healthcare industry. In 10 Rules for Success in the Future Health Ecosystem, we narrowed down the 10 most relevant theses out of the 95 Theses for a New Health Ecosystem. The following individuals weighed in on the pharma-related theses:
- Eric Topol, MD, Professor of Genomics, The Scripps Research Institute; Cardiologist, Scripps Health; Chief Academic Officer, Scripps Health; Vice-Chairman West Wireless Health Institute
- Ben Heywood, Co-Founder, President PatientsLikeMe
- John Wilbanks is the Chief Commons Officer at Sage Bionetworks and a Senior Fellow at the Ewing Marion Kauffman Foundation and at FasterCures. He runs the Consent to Research Project.
- John M. Grohol, Psy.D. Founder & CEO, Psych Central.com
- Daniel Kraft, MD, Chair for Medicine at Singularity Univ & Founder & Chair, Exponential Medicine
For more on the broader view of the 95 Theses for a New Health Ecosystem, the following is an excerpt from the 10 Rules post:
The 95 Theses for the New Health Ecosystem provides the guiding principles for how winning organizations across the entire health ecosystem will approach the overhauled health ecosystem and deliver the components of the Health Rosetta. Contributors to the 95 Theses include household names such as Bill Gates while others are well-known industry figures such as Dr. Eric Topol, Susannah Fox, Jonathan Bush, and Esther Dyson. Others are not broadly known figures yet are doing extraordinary work in their fields. They include people such as Dr. Tom Delbanco, John Wilbanks, Lygeia Ricciardi, John Grohol, Jan Oldenburg, Shannon Brownlee, Dr. Bryan Vartabedian, Dr. Clay Johnston, Dr. Rushika Fernandopulle and many others whose thinking will shape the industry for years to come.
Many diseases lend themselves to be addressed by applications (mobile & web) or consumer biometric devices. This is going to drive a greatly expanded focus on non-traditional partnerships. An example of how a pharma company could transition from being product centric to being customer centric is doing something like providing ambulatory electrocardiographic and remote device monitoring services for cardiologists. It’s likely that some of these new offerings may come through a technology-enabled service that combines medical insights with software, devices and a care team member. Livongo is an example of a company like this that uses health coaches who are Certified Diabetes Educators.
Pharma companies already have deep relationships with cardiologists. Imagine them buying or partnering with a company to sell that service. This would provide a more complete offering where their heart-related drugs may or may not play a role, just as IBM products may or may not play a role in their services.
Lessons Learned from IBM
Most pharma companies are where computer makers were in the late 80′s: the handwriting on the wall is clear but they are still mainly focused on milking the cash cows just as DEC, Data General, Wang were in the 80′s. The “Massachusetts Miracle” became a modern day “Boston Massacre” with once-great companies becoming historical footnotes. It was only when IBM brought in Lou Gerstner having recognized the threat, were they able to make difficult changes. In the following decade, the stock price of this mature company grew nearly 10x — a stark contrast to how most pharma companies that have gone from growth stocks to dividend stocks.
While IBM’s transition looks smart and without pain in hindsight, that was far from the case. At the time it was extremely controversial. Most business magazines characterized IBM as a soon-to-be-extinct dinosaur. At the same time, conventional wisdom was that Gerstner needed to break up IBM to drive shareholder value, not a massive transformation. Turning over half of their workforce added additional pressure on Gerstner. However, in the end, IBM came away much stronger in contrast to their now-extinct competitors such as DEC.
Gerstner's fresh perspective helped him understand that their cash cows were getting commodotized. At the same time, IBM provided services that were highly valued by their customers. Previously, IBM hadn't looked at its services business as its bread and butter even though that was a big part of the value that their customer bought their hardware for. In light of regulatory issues, it may require pharma to setup separate businesses that can deliver the complete consumer experience. My simplistic analogy is that much of healthcare delivers the equivalent of the pre-Ipod music experience where it was a pain to cobble together MP3 players, music download sites, etc. Apple showed how providing an end-to-end experience provided a much more compelling consumer experience and profitable business for Apple (as compared to the weak MP3 player businesses).
Once pharma companies redefine themselves in the condition management/prevention business, they will recognize that they are far behind the market leaders. While they wait for the future to be defined by others, non-traditional competitors are taking action. Pharma companies may wake up and realize they are late to the party and the most interesting companies have already found their dance partner.
Pharma Strengths to Build Upon
As IBM had a number of strengths it could leverage into its reinvention process, pharma companies too have strengths such as:
- Provider Relationships: Through its Sales and Medical Affairs organizations, pharma companies have many relationships and a keen understanding of the healthcare landscape (though provider access has been dramatically curtailed). They know proper ways to work with healthcare professionals for research as well as the reimbursement environment for particular conditions.
- Clinical Trials Management: Pharma companies have a critical competence in managing clinical trials with an array of patients and the necessary requirements to have research findings that can pass muster with the FDA and/or health plans. These skills could be scaled down to simpler studies on mobile apps, for example.
- Long-term view: In the past, pharma companies haven’t been afraid to make long-term bets utilizing its deep pockets. Fortunately, most technology bets require dramatically less resource than what they are used to.
With ever-increasing requirements to run healthcare more efficiently and providers who often don’t possess the skills to address new reimbursement outcomes requirements, technology-enabled services are going to become more common. Purveyors of technology-enabled services don’t sell technology. Instead, they are selling an outcome. The COPD Crowdshaped workshop that was jointly run by Novartis and the COPD Foundation is the kind of approach that will create breakthrough product/service offerings.
In 10 Rules for Success in the Future Health Ecosystem, I also outlined that it's important for pharma to understand that the ripple effects of changes in healthcare purchaser behavior will be profound
Health Rosetta is the blueprint for what wise healthcare purchasers should follow to maximize the benefit to their constituents. Whether it's a public entity in the UK or private companies in the U.S., healthcare's $1 trillion disruption is well underway as they are becoming wiser healthcare purchasers.
As I've met with CEOs and senior executives at some of the largest pharma companies in the world, it appears most are focused on the orgy of financial engineering that was apparent at the recent JP Morgan healthcare conference rather than a true reinvention. Despite recognizing the threat to their business, remarkably, only a couple have taken any meaningful action. Funding an “app challenge” doesn’t qualify as “meaningful” -- that's call "innovation theater". One would have to have their head in the sand to not see that the future is arriving faster than many acknowledge. Already next-generation provider organizations have sold for billions (e.g., CareMore, HealthCare Partners). World-class entrepreneurs such as Vivek Garipelli (Clover Health) and John Kao (Alignment Healthcare) received more than $100 million of funding each and have shared with me their extraordinary growth. I've seen this movie before with both mini-computer makers and newspapers. Many of healthcare incumbents (not just pharma) are acting exactly like those doomed industries.
Among the lessons that can be learned from IBM that can be applied here is how IBM became much more open to partnering with third parties. So much so that there were times that IBM’s own divisions didn’t make the finalist list on vendor selections that IBM consultants led. This demonstrated their commitment to the best outcome for their customers, rather than simply the best outcome for IBM. Of course, what was best for IBM's customer was in IBM's long-term best interest.
While IBM took decisive (and painful) action, the minicomputer companies that had once threatened IBM became tombstones. At one time, they were having roughly the same success as pharma companies. Today they are interesting historical footnotes long since forgotten and it took the Boston economy decades to recover from their demise. The executives leading those organizations at the time aren’t remembered for their otherwise impressive careers. Rather, they were the Joseph Hazelwoods of their industry, drunk on profits and unable to keep their ship from barreling into a reef.
Hopefully a Lou Gerstner-like figure will appear in pharma. Until then, for most people the Martin Shkreli spectacle will be their association with pharma rather than a true leader such as Lou Gerstner driving a sector forward.
This article also appeared in Forbes
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