The Invisible Hand Slaps Hard
Why "Vaccine Makers" Should Be Worried
Feedback loops power gravitational pull.
They are essential in nature, which is to say they are nature. Feedback loops are the Invisible Hand, the thing around which life, liberty and the pursuit of the next ‘hundred billion in growth’ flows.
Gregory Bateson (9 May 1904 – 4 July 1980) was an English anthropologist and social scientist. His writings included Steps to an Ecology of Mind (1972) and Mind and Nature (1979, two books that paved the way for The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems in 1997 by James Moore (Moore who used biology and ecology as a metaphor to make systems thinking less abstract, arguing that the best way to compete — to find ‘strategic fit’ to mushrooming chaos — was to approach strategy in a way that parallels the natural world. China is exceptional at this. The United States, not so much.)
Bateson believed that one of the greatest innovations in human history was the feedback loop. He frequently talked about the steam engine as an analogy for healthy human interactions, focusing on the controls in the engine that check the process and keep it running at a steady pace. When looking for similar feedback loops in human interactions, Bateson saw that they didn’t always exist, or operate in the way they should. As a result, he recognized that there were two kinds of systems: ones that relied on feedback to create stability, and others that tended to escalate and create runaway trends.
Bateson said the resolution of a runaway process often happens outside the process, because there are no obvious stopping points or checks within it. This is why you can’t “fix” an embedded economic system, like the $5 trillion system of healthcare markets in the United States, or the $400 billion a year UnitedHealthcare. (Feedback loops are also one of the management innovations Amazon uses to sustain itself as a self-generating market, an economic system in its own right, self-producing almost $600 billion in annual revenue).
Why is Bateson especially relevant today?
“An obvious answer is to point to the internet as the most extreme example you could imagine of a runaway system. The business plans of the companies that flourish on the web are always built on what entrepreneurs call the scalability of the internet, its amazing capacity to spread trends and processes everywhere in the world at lightning speed. In the old days, a company might spend decades developing production capacity and distribution networks in different parts of the globe, but nowadays the fastest-growing business models — whether an app or website or cloud-built service — can reach everywhere almost immediately. To describe this in Bateson’s terms, the digital age is built on the backs of runaway systems. And in an uncanny, disturbing way, even our day-to-day lives away from screens and digital interfaces seem to mimic this tendency, riding a wave of escalating trends with no feedback loop to keep them in check.”
— Why Gregory Bateson Matters, in the Los Angeles Review of Books
When you see these processes from Bateson’s perspective, you suddenly understand why this story of strategic collapse at Merck is not surprising; if anything, it’s to be expected. From Cheaper Chinese HPV Vaccines Turn Merck’s Gardasil From Boom to Bust, excellent journalism published yesterday by Damian Garde, Karoline Kan, and Amber Tong for Bloomberg:
Starting in 2022, Gardasil fueled double-digit growth for Merck. Wealthy Chinese who could afford the pricey shot to prevent cervical cancer scrambled for appointments, and a euphoric Davis promised Wall Street that Gardasil annual sales would soar nearly 60% to $11 billion by 2030.
But the US company has lost more than $80 billion in value as Chinese demand for its top-selling HPV vaccine has dried up. Merck placed the blame on China’s economic decline and the chilling effect of an anti-corruption crackdown. What the company hasn’t mentioned as a problem that could unseat Gardasil altogether: local competition.
That reversal of fortune has seeded doubts about Merck’s long-term strategy — and whether the company’s C-suite, which repeatedly struggled to forecast Gardasil’s future, can execute it.
“Instead of just ripping the Band-Aid off, it was this ‘We’ve got it,’ ‘We don’t have it’” said BMO’s Seigerman. “That’s where the problem really lies.”
Knowing they exist and self-produce helps understand “the process” beneath and behind all big system fails in any government + industrial complex: militarily in Afghanistan or economically with healthcare in the United States. Feedback loops are also the secret to sparking flywheels — the Holy Grail of Silicon Valley — and solve 'cold network' problems, the stuff of ecosystem genesis, the Amazon Way of managing itself as a self-generating market, where its positioning as a keystone (‘the keystone advantage’) gives Amazon its intellectual overmatch versus, say, strategically-collapsed Walgreens.
Merck is not alone on its journey, but only another ‘use case’ of a Big Economic System trying to navigate New Rules of Competition. From Nike and Estee Lauder to Samsung Electronics and Volkswagen, everyone is failing to position themselves in a way that “works” at a different level. There’s a reason WPP and Wipro and UnitedHealthcare are crashing: structural forces are everywhere today. People may complain about fake news, disinformation campaigns, political correctness, junk science, fabricated grassroots movements, spin, and dozens of other manifestations of the same structural phenomenon.
But it’s not a question of lies anymore, or if any one organization has smart and creative people (“We're all smart, Jeremy”, quoting James Gandolfini in Zero Dark Thirty), but rather strategy and strategic understanding — a mode of seeing and thinking — that has to be approached differently, almost like a crab (for more Blue Spoon thinking on this, see Modern Strategy Moves Like a Crab).
Don’t Worry, Be Happy
There’s a lot of anger out there now, but what it all is going to accomplish is unclear. Bateson could have predicted that. Until the structures that impose the Standard Model of Linear Thought are altered, a new reality isn’t likely to happen — or when it happens, it’s only by pure coincidence. As a result, feedback loops won’t work, and checks and balances will neither check nor balance. And in a fast-as-lightning internet age, susceptible to the runaway forces that Bateson himself outlined, those are matters of mission-critical importance.
Large and mid-cap vaccine makers are, as of now, unworried about their 2025 pipelines in the face of research funding declines by the Trump administration and a drop in biotech funding. That’s the summary from Anjalee Khemlani yesterday for Yahoo Finance (Why Vaccine Makers Aren't Worried About Trump Administration Cuts), reporting from the World Vaccine Congress in Washington, D.C.
These executives believe there will be no impact from the funding cuts and policies coming down from the Trump administration, while others view it as a four-year storm they will just have to weather before being able to carry on as usual afterward.
The view from executives at Pfizer, Moderna, GSK, Sanofi, and Merck?
They'll be fine in the long run. Each company has between a dozen and two dozen vaccine candidates actively being developed and tested in its pipeline. Despite recent announcements of cuts and key leadership departures at the FDA, the companies have not experienced any disruptions in communicating with the FDA about the progress of these vaccines.
Which is why the group collectively waved off any threats from the Trump administration's moves.
Yesterday, Merck, announced sales for Gardasil plummeted again, dropping 41% in the first quarter. This 'boom-to-bust cycle' has nothing to do with the Killer Mayhem caused by tariffs; better, I think, to see Gardasil as a canary, a signal of strategic collapse (from the Western point of view) in China as a drug market for Standard Model PhRMA (Question: Does Africa now have more upside than China?). Merck also said sales of Proquad, its MMR vaccine, dropped 5 percent. Which is notable given that also yesterday, JAMA published a simulation model that found the United States (if not the world) is "on the precipice of disaster" if measles vaccine uptake stays low (Question: How should "the market" lead on the 'production of public health'?). And Gilead Sciences today is shedding shareholder value, as “slumping COVID-19, cancer drug sales hit revenue”.
Meanwhile, the Pan American Health Organization said (also yesterday) that it is seeking collaboration with neighboring countries "to fight vaccine hesitancy for yellow fever and measles in the region” (Question: What's the Big Business Potential for a drug market + a tech market combining as a new system of markets, 'interspecies collaboration' to construct, and then sell, new care and service infrastructures in Latin America?).
And several states are considering bills to limit or ban the use of mRNA vaccines -- Republicans in states such as Florida, Idaho and Texas are proposing roadblocks to the vaccines based on a mix of medical freedom rhetoric and incorrect assertions of how they work in the body. They range from outright mRNA vaccine bans in Texas to a prohibition on their use in children in Kentucky to a requirement that vaccinators in South Carolina tell patients that the long-term safety of one of the shots is “unknown” despite years of safety data tracked by federal regulators (Question: How much 'narrative value' is there in promoting how you're "Harnessing the Potential of mRNA" (per Pfizer’s website)?).
The single biggest breakthrough in market innovation will come from inculcating organizations with a culture that fosters a sense of larger connectedness. If we exclude our surrounding habitat from our projects, the larger systems we have ignored will eventually degrade and fail to support us. In the case of the pharmaceutical industry, it’s not about ‘drug’, but about drug positioning in the context of everything else. (For more Blue Spoon thinking on this, see Whatever Happened to Eisai’s Dementia Ecosystem?).
There's a ridiculous misread underfoot in the market roughly defined as "vaccines captured in Khemiani’s latest story from the World Vaccine Congress.
"It comes down to 'Don't worry about the money. If you make something that has value, people are going to value it,’” Merck associate vice president of vaccines Jeffrey Roberts Roberts told Khemlani from Yahoo Finance.
I wouldn't bet an industry on it -- Don't Worry, Be Happy is one of the ways ruins get made.
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/ jgs
John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. Blue Spoon specializes in constructing new industry ecosystems.