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January 26, 2023

Innovation in Pharma: Friend or Foe? (Part 1)

Jeremy Sohn

The last piece of our three-part series centered around Digital Health 3.0 talks about Innovation in Pharma. We are publishing this blog in two parts. 

In part one, Jeremy Sohn, Managing Partner at P74 Ventures, explores the complexity of innovation in the pharmaceutical industry, why it sometimes experiences friction, and what factors have contributed to pharma embracing innovation.

Innovation in Pharma is Notoriously Difficult - But Why?

Traditionally, innovation in pharma has been centered on “science”, i.e., discovering and bringing novel drugs to market to address the needs of patients globally, and NOT on operations or business model transformations. After all, pharma’s core products are drugs. Given that most therapeutic areas (TAs) still have high unmet needs, with only a few (or in some cases, no) drugs that effectively treat many diseases, there have historically been unlimited opportunities to innovate at the drug level. 

This reality was further reinforced by the recognition that most TAs represent large markets, with low diagnostic rates and even lower prescribing rates. Consequently, the common belief was that innovation was comparatively less essential and impactful than adding more field force and focusing on broader marketing spends.

As a result, innovation within the core functions and operations of the pharmaceutical industry became a secondary priority. Although every pharmaceutical company in theory wanted to bring a drug to market “better-faster-cheaper”, the actual impetus to do so through innovation in the core operating model was frequently not there. Additionally, in many cases, the innovations were perceived as being too risky and would impact pharma’s rigid processes which are sacrosanct for many good reasons. 

As the old adage goes, “if it ain’t broke, don’t fix it.”

Commercial Innovation: What Explains the Historical Friction There?

Remember that for many years (and maybe still in some corners today) most pharma companies and commercial executives believed that “best-in-class” drugs sell themselves, i.e., show a clinician or patient irrefutable clinical efficacy data, and the decision to use the drug should be obvious. A fortiori, assuming you have a best-in-class drug, a marketeer or executive should simply invest in more boots on the ground and in marketing dollars and this should easily translate to growth.

Except, it isn’t that simple! 

The Decision-Making Conundrum

Every person’s interpretation or threshold for irrefutable clinical data is frequently different. 

And often, there are other friction points in the system like awareness, coverage, access, ease of use, timing, patient services, and support, as well as social determinants of health that likely interfere. 

So, the necessity for more commercial innovation seems logical, right? No. 

We need to consider the role of human nature and comfort with risk tolerance in executive-level decision-making.

For example, if strategy “A” has worked for you historically, then isn’t it inherently a lower-risk choice to reimplement “A” rather than to test “B”? And even if you might be willing to pilot or test commercial strategy “B” with a small percentage of your budget dollars, won’t the cost / benefits of that decision be equally challenging? 

What do I mean by that? Well, if you were to allocate 10% of your budget to an untested or potentially failed strategy, that’s 10% less impact than you could have easily achieved. That would be sub-optimal. And, oddly enough, even if strategy B were successful, given the limited investment made in that strategy, the overall positive impact it is likely to have is going to be de minimis and, thus, not worth the original risk taken. And so why try it in the first place?

This decision-making conundrum is exacerbated in times of intense pressure like performance, budget pressures, etc. In constrained environments, risk-taking is generally mitigated. However, it is in constrained situations when risk-taking is often the most prudent and least risky move, i.e., you have nothing to lose. 

Yet, despite all of the above, innovation has surprisingly forced its way into the hearts and minds of Pharma!

So Why Have Innovation Teams Popped up Within Pharma?

Over the last 5-7 years, nearly every major pharmaceutical company has begun to embrace innovation as a core component to their operating strategy and has hired a Chief Digital or Chief Innovation Officer. More often than not, these individuals sit on or report into the C-suite of Pharma - suggesting that Pharma is serious about its commitment. 

5 Factors that Contributed to Pharma Embracing Innovation

Tech FOMO 

Technology is transforming nearly every aspect of our lives - see Google, Apple, Amazon, Microsoft, Facebook, Tiktok, Tesla. It’s hard to ignore this impact and the multitude of possibilities partnering with a tech company could bring.

Increasingly Diversity and Tech Representation on Pharma Boards

Pharma boards earlier comprised leading scientists and/or executives from large, established, traditional (non-tech) corporations. But now, there are more leading tech-executives. As this experience infiltrates these boards, the voice of the agile, tech-forward, leader challenges executive teams to develop tech strategies and rethink their operating models. 

The Snowball Effect

Once the first pharma company hired a Chief Digital Officer to join the executive suite, it was only a matter of time before the others followed suit. 

Changing of the Guard and a Shifting Employee Demographic 

The last decade has seen a changing of the guard across nearly every major corporation, including pharma. The leadership from a decade or more ago started before technology was ubiquitous and mission critical. The current generation may not have been born with the internet, but technology has been pervasive for the majority of their lives. This changing of the guard has led to a silent, dare I say tec(h)tonic, shift in the culture and mindset of most pharma companies.

Recognition That Adoption of Technology is Critical to Future Competitive Advantage

Most individuals in large pharma companies sincerely believed that “data & digital” are critical to the future competitive advantage. For many, this recognition also came with an equally scary appreciation that the “how and where” technology would have its greatest impact were unknown or, at least, untested and unproven. Irrespective of whether you were the first or a fast follower, the threat of being left behind would be an even riskier proposition. 

Concluding thoughts

Over the last 5-7 years, the pharmaceutical industry has experienced a dramatic change in its embrace of technology and innovation. At the same time, the outcomes of this effort, may be best described as two steps forward and one step back. The latter is not a negative, although it sometimes feels that way (and feels very personal). On the contrary, the challenges that pharma companies have faced and the knowledge we’ve gained have put us on a stronger and accelerated path toward change. 

In part two of this blog, I will explain why that’s the case, and try to understand what went right and what went wrong. 

Stay tuned!

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