Pharma Starts a Feedback Loop

The pharmaceutical industry is, among many other things, really slow to change. It's been working with the same cognitive makeup since the Industrial Age, right around the time the first direct-to-consumer advertising campaign for a drug brand was launched in 1917.

That's not a typo.

The first real DTC ad to create demand for a drug wasn't from Schering-Plough in 1997 for Claritin. It was for Bayer Aspirin, when they began advertising directly to American consumers on February 19, 1917, just before the expiration of the aspirin patent.

The ad appeared in the New York Times, positioned on the idea that Bayer was the "One Real Aspirin" brand consumers should trust, primarily because its manufacturing process would ensure drug purity and protect them against dangerous, ineffective or impure counterfeits.

Here's the ad:

Direct-to-consumer promotion and manufacturing have been the dominant forms of thinking about value strategy and defense by drug companies since you could buy a Model T for $360. In other words, the pattern of energy in the system hasn't changed in more than a century.

The firing-and-wiring impacts of our psychic structure flows from the view of an industry that sees itself as being all about drug. (PwC was among the first to publish about the drug industry's need to engage in some serious soul searching about its identity. Here's a link to their thought leadership, which came out last year: Pharma's Identity Crisis)

There is a calcification that runs deep in the mental circuitry.

Despite the great supporting trunk of the industry's worldview being crosscut with amazing speed and efficiency, drug companies continue to take refuge in a remnant context. Here's a look at how well that market understanding has worked for dozens of drug brands trying to preserve revenue following patent loss from 2010 - 2014:

The totality of things brought to bear to solve the patent challenge were framed within the structure of a market defined as being in the business of promoting what the drug does, its feature/benefit story. The metrics in the system reinforce each other, creating a Pavlovian feedback loop perpetuating a predictable and scripted reality.

I'm not the first person to illuminate the patent cliff. My point is this: all of these drug brands were guided by a ritual of behavior, a set of strategic crutches and standardized approaches to problem solving, that clearly didn't work.

The drug industry is kinetically-trapped in a system of thought. So the results were (are) stupefyingly undifferentiated. The cycle repeats in 2014, with identical results:

Billions are on the table for those who can break out of the mind rubble.

Strategic (vs. Digital) Transformation

There are many ways to approach this whole business of transformation, to navigate the transition space to a different form of market strategy (see here for one framework, The Magic Leap to New Value). But the jumping-off point should be with thinking and ideas whose effects register at the self-foundation. Without rewiring our mental circuits as quickly and thoroughly as possible, it will become like driving in New Jersey: you can't get there from here.

The unprecedented in-rush of digitization -- along with innovations in communications media -- has created a shift that maps out as a stark rupture on the historical timeline. It calls for moving to a whole different orientation. Sven Birkerts, an American essayist, describes it this way:

"We are all looking to acclimate to signals, data, and networks, developing new habits, new reflexes."

Negotiating new assumptions and attitudes gets right to the core questions about societal transformation by all things digitally-enabled. Where we formerly could be said to interact with various systems separately (be they business, legal, political, regulatory or technological), now those systems are, in effect, merging into one.

The outward ripple dissolves boundaries. The unwieldy gargantuan unity is subsuming many into one, and it is happening right before our eyes. The strategic effect is that we have effectively killed off the independent sphere.

The Reaction Wheel

The latest chapter in the Sisyphean struggle the pharmaceutical industry has been having with the world comes in the form of new conflict about the "value of medicine" with two of its biggest customers: payers and PBMs. That it chose to take on both at the same time is a separate conversation. Here's a great summary of PhRMA's fusillade launched last week, written by Ned Pagliarulo at BioPharmaDivePhRMA takes shot at payers in drug pricing war.

The Pharmaceutical Care Management Association, the PBM trade group, counters with a big initiative of its own about the 'value of PBMs' in controlling drug costs.

Among their proposals are shortened biologic exclusivity period (to seven compared to the current 12 years), stepped-up generic competition, and pushing to end requirements that insurance plans pay for all drugs in certain classes under Medicare, regardless of price. They're promising to save the U.S. healthcare system nearly $100 billion. Here's some context: PBMs Counter Pharma's Pricing Blame.

In other words, competition between the two has devolved into arguing that 'my value is better than your value.' Not included here are the billions at risk to drug companies from the rise in demand for performance guarantees by payers.

A billion here, a billion there; sooner or later, we're talking about real money.

Collaboration and coordination are elemental to value strategy. Healthcare is a nested market; it's not one thing that improves outcomes, it's many things simultaneously and interactively. The roadmap for strategic transformation to compete on outcomes runs through health system design and innovation. It is led by a new type of thinking that goes beyond individual objects, environments, and organizations to achieve impact at a system level.

"The dysfunction of our modern health care system isn’t about failure of intention, but rather pursuit of siloed and sometimes conflicting priorities" -- Stacy Chang, Health Care: A Final Frontier for Design 

Which begs the question: What if the elephant in the room is the room itself?

/ jgs

Quinn Understands the Problem

Homeland's Quinn has a conversation about 'strategy' with CIA management: "Tell me what your strategy is, and I'll tell you if it's working" (clip from Season 5, Episode 1; November 2015). Could be any conference room.

"Strategy is not technology. No one gains competitive advantage from letting technology lead strategic visioning. This is the short road to parity.

The ever-expanding universe of specialized technology applications makes possible almost any conceivable operational vision, but strategy is not forged from technological (or economic) power alone. Strategic understanding cannot be keyed to a specific technology application. When the same communication and knowledge acquisition technologies are accessible to everyone, and everyone works with the same set of ideas to deploy technology in the same way, there is competitive convergence.

Commoditized performance sets in because actors are copying one another using cut-and-paste methods. Advantage instead flows from getting ahead of the technology curve and using holistic thinking to guide the process of change. This is concept-driven innovation, a very different sort of framework than technology-driven innovation..."

From my piece, "What Strategy is Not" (MIT Sloan Management Review, Winter 2008)

We Have Effectively Killed Off The Independent Sphere

lego city collapse.jpg

From the essay 'How Our "Stuff" Has Redefined Our World' by Clifton Leaf, Deputy Editor of Fortune (published February 21, 2017)

Nature was once a "separate and wild province" from human civilization, as Bill McKibben wrote in his famous 1989 call-to-arms, The End of Nature: It was "a world apart from man to which he adapted and under whose rules he was born and died."

But, claimed McKibben, we have effectively killed off this independent sphere -- that wondrous, self-sustaining, life-generating realm which existed for eons before us.

"There's still something out there," he said, but "in the place of the old nature rears up a new 'nature' of our own devising" -- a construct where "each cubic yard of air, each square foot of soil is stamped indelibly with our crude imprint, our X."

Some now call this evolved world (or new layer of the planet) the "technosphere," a term coined by Duke University geologist Peter Haff. And it is filled to the brim with stuff. Indeed, there is so much of this human-made stuff -- machinery, skyscrapers, packaging, waste, Ikea furnishings -- that it's almost impossible to fathom, let alone measure. And yet -- gotta love science! -- that is precisely what a team of researchers has tried to do in a recent academic paper.

Their conclusion? Our stuff weighs approximately 30 trillion metric tons. (Yes, the authors used the word "approximately.") That works out to a mass of over 50 kilos per every square meter of earth's surface, and one that's an order of five magnitudes larger than that of the human beings who created it. Or so they estimate.

The diversity of stuff -- the manufactured flotsam and jetsam of our daily lives -- may even exceed the total diversity of biology throughout Earth's history, the same research team asserts. This endless assembly of things and devices, moreover, interacts and evolves in its own dynamic, emergent way: "In this sense," writes Haff (in another paper) "one might say that technology is the next biology." 

It's a thought-provoking thought.

_________________________

Healthcare is really one 'nested market' -- it is big business comprised of an ever-expanding zoo of market segments and micro-services, an endless parade of bright and shiny digital objects, all with data that demonstrate promise to improve our health and well being. The reproductive cycle of stuff is an additive process, rather than subtractive. The old media forms endure; the new are layered on top of them (for evidence: the fax machine is still the predominant means of communications by the lion's share of physicians). Our world is not multi-channel, it is infinite channel.

There are islands of features everywhere. The challenge is pulling it all together in a way that a whole system is born and becomes focused on generative value.

Or to put it another way, competing on outcomes means solving for fragmentation and continuous consumer engagement, at scale. This is about harnessing a wide-open space to make things out of ceaseless change, where the next growth curve is based on dissolving boundaries, harnessing flow and connecting the adjacent possible.

Sir Martin Sorrell, Chief Executive Officer of WPP, calls this 'horizontality'.

Paul Romer, an economist at New York University who specializes in the theory of economic growth, says real sustainable economic growth does not come from new resources, but from existing resources that are rearranged to make them more valuable.

"Recombination is really the only source of innovation. Economic growth occurs whenever people take resources and rearrange them in new ways." -- Paul Romer

More succinctly, new growth comes from remixing pieces and parts into novel combinations.

Last week marked the latest failed trial of an experimental Alzheimer's drug when Merck announced results for verubecestat. Eli Lilly's solanezumab flunked a clinical trial last November, the third failed late-stage trial for the drug. But these are just the latest failures in a long-running trend: nearly all of the 400 Alzheimer's 'drug' trials in the last decade have failed. Not one of these, however, looked at outcomes when you combine drug + music + meditation as a new ecosystem, even though there is lots of data on the benefits of both in Alzheimer's (e.g., improving cognition, reducing agitation).

For a 'drug' company to see opportunity from this adjacency, however, means looking with a lens well beyond 'drug.' A new species is needed.

The bigger context, though, is the emerging market transition to outcomes-based competition. Essentially everyone in healthcare -- payers, providers, pharmaceutical and medical device companies -- is groping their way through the white space.

And if you buy into the logic that it's not just one thing that improves outcomes, but many things simultaneously and interactively, then advantage goes to those who are best at creating and managing unique systems of health engagement. The data that flows from this system, and then refined into specialized cognition, is the thing that generates new business value, supports population health and guarantees performance (see: "Big Pharma's Offer to Trump: Discounts When Drugs Don't Work"). Population health is an emerging form of market strategy.

Outcomes-based competition is a strategic transformation. It is not a rigid creed. Rather, it is a spectrum of attitudes, techniques, and tools that promote collaboration, sharing, coordination and unique aggregations. This is a new frontier for design, and a particularly fertile space for innovation.

This is a race with machines, not against them. More like freestyle chess, where the partnership is between man and machine. For better perspective on creating and competing in the cognitive age, here's Ginni Rometty, CEO of IBM, yesterday at HIMSS17:

The Magic Leap to New Value

The transformation train is leaving. Powered by the promise of technology and design thinking, companies worldwide are scrambling to find a seat before disruption disrupts; across industries, somewhere around $2 trillion is going to be invested in “digital transformation” before the end of 2019 (here’s the data point). Two years, $2 trillion…that’s roughly the size of India’s GDP. That’s a very big spend.

Structural change has occurred. It is not a “happening” so much as it is a “now.” Deep, inevitable forces have re-configured how the world thinks, interacts, creates, communicates…and in what they value.

The bleeding-edge of the next generation expectation — Amazon, Tesla, Uber, Netflix, Zappos, AirBnB, Alibaba, Google — understand how to shape the future because they understand how to harness these new forces within organizational culture and business strategy. These companies are hybrids guided by a new type of thinking — part human, part machine — embedded in an engine of constant flux. Legacy industries, including (but certainly not limited to) the global healthcare system, are struggling to adapt. Said better by William Gibson in 2003, “the future is already here; it’s just not evenly distributed.”

Networking capabilities have not only changed the economics of information, they have also changed the way people and organizations relate to one another. So besides a significantly more complex environment, the nature of self is more complex. This means that the boundaries between customer, competitor and collaborator are basically meaningless.

If this is true, then the conventional definitions of industry and market are similarly fluid. Which is the essence of our time. “Digital” enables; it dissolves boundaries; it removes friction. It is more a philosophy than it is a thing. These are the forces that Amazon and Uber understand so well, and are able to harness to deliver in a consumer-grade experience. These are also the same forces that are leading to many an industry’s identity crisis, including and especially pharmaceuticals.

It’s no secret drug companies are in an era of transition — they have been for quite some time. Seismic shifts are taking hold across the span of competitive, economic, political, regulatory, and social systems the industry operates in. The hot debates about drug pricing and value and industry survival at the JP Morgan Healthcare Conference this past week — and President-elect Donald Trump’s comment today that he would force the industry to bid for government business (Drug Stocks Plunge as Trump Threatens to Force Price Bidding) — are only the latest manifestation of a very long simmer.

“I’ve been in postwar Japan, pre-revolutionary Iraq, worked in China during the Cultural Revolution, and I’ve never seen a period of such uncertainty” — Pfizer CEO Hank McKinnell in 2001.

That was 16 years ago.

Outcomes-based pharma is not a happening. It is a now. Two charts reveal the accelerating shift in what the market values from what-was-formerly-known-as the industry who made drugs. This is from reporting by Modern Healthcare:

And from Tracy Staton at FiercePharma:

A value strategy flows from a new mindset. This has less to do with using technology to personalize promotion and push the feature-benefit story of a “drug” (or drug branding, depending on your perspective), than it does positioning a drug within a unique system of health. Outcomes are based on how the new system performs. The center-of-gravity for competition shifts to the system level.

Collaboration across sectors is key to this new narrative. Competing on outcomes means designing a new health experience that links and satisfies three perspectives simultaneously: the payer + the provider + the consumer. In other words, the unmet need in healthcare is ‘big design’ that solves for fragmentation and continuous consumer engagement, at scale. Sutter Health collaborating with AstraZeneca to develop a new approach for chronic conditions is a great example. But it’s an outlier. More of these collaborative business models are needed.

Against this backdrop of an infinite, accelerating cascade of change is another, even bigger shift that is a now: consumerism is the only real disruption in healthcare. This implies thinking well beyond “patient” and what happens in the clinical setting. In other words, all those technologies and solutions to improve “patient engagement” are under-conceptualized and doomed to perpetual pilot status (pilotitis [pahy-luht-ahy-tis] is the inability to break out of pilot stage).

Nick Vennaro, co-founder of Capto Consulting, writes

“Consumerism in healthcare is not yet at tsunami-level force, but it clearly represents an imminent and undeniable disruption in healthcare’s traditional business models. It is only natural that this trend is putting tremendous pressure on heads of marketing. It is also challenging CIOs to bring their expertise to bear, and to clearly articulate the role IT can play as healthcare organizations seek to transform the way they engage with their customers.”

Spot on.

“Digital” transformation is an operational construct. The basic idea is that you have all of these clunky old computers and technological processes that need to somehow become digitized and moved to the cloud. If you don't make this change, you risk becoming irrelevant and extinct. But a dinosaur in a fur coat is not a mammal. The pharmaceutical industry, like many other industries and governments throughout the world, are failing because they have not adapted to the breakdown of Industrial Age ideas.

A strategic transformation works with different assumptions about value, identity and boundaries. It blends both the CIO and the CMO agendas in a new market vision. For the “drug” companies to navigate the transition space they now face, this means thinking with a completely different sense of self.

In other words, before jumping into the deep end of desperately-seeking-digital-disruption, a bigger question to answer is this: transformation from what to what?

Initial conditions matter. Billions are at stake in getting the first step right.