Pharma and biotech are still struggling under their own weight. They can’t keep raising prices and they can’t keep productivity at the same level. As the problem worsens, some pharma or biotech companies may try to change. For those companies, external competition with new players with very different cost structures could also be an important catalyst.
S+B: As biotech matures, do you see an opportunity for new players, new kinds of businesses?
PISANO: There’s lots of room, and that’s what is exciting. In the science-based sector you’re never quite mature. The industry never quite reaches equilibrium, and that’s a good thing.
Are there firms that can truly play the role of integrator? Go back to the movie analogy. A movie is actually a company, its own economic entity. The producer gets the studio to fund it and pulls together all sorts of artists and technicians to make the movie. Everybody gets paid; some people are paid a wage, some are paid a residual. The company is an accounting entity that just hands out checks. And then after production, marketing, and distribution are over, the company goes away. That model assumes that there is a standardized way to do the business. It tends to work with many of the same players over time, and there’s a lot of trust that forms because the networks are small.
Similarly, you can imagine a company whose specialty is putting together the pieces for developing drugs. As with the movies, the company calls on players with deep expertise with whom it’s worked before — for clinical development, say, it would be the biostatisticians, trial designers, systems analysts, statisticians, and medical doctors, among others. The company is an integrator with a network of ongoing relationships. It gets funding from a variety of sources — private equity, established drug companies — and perhaps it puts in its own money. It taps its network for the best players and it orchestrates the process. No matter whether the effort fails, or succeeds and a drug hits the market, the project disappears when its work is done. The integrator has to be able to pull the plug on an effort if it’s not working. There must be an understanding among all the participants that the project can end at any time. And since the risks for the participants are much higher, the incentives for success have to be much higher. You can see how that structure could be very powerful and do much to move the industry closer to its potential as a vital and efficient business that supports — rather than impedes — the progress of science.
Reprint No. 07210
Amy Bernstein (email@example.com) is deputy editor of strategy+business.