What does evolutionary theory predict for the future of the industry?

Hannah Blake interviews Professor Brian D Smith

Pragmedic

Professor Brian D Smith discusses how Darwin’s theory of evolution can be applied to the pharma industry. He also shares his advice for pharmaceutical executives on how they can use this theory in order to evolve their pharma companies for the better in the near future.

This month on pharmaphorum, we’ve invited top experts within the marketing sector to share their thoughts on what truly defines “marketing excellence”, comparing different strategies and providing advice on how to achieve marketing success.

Continuing with this theme, we speak with Professor Brian D Smith, who is a world-recognised authority on strategy in the pharmaceutical industry. Working at SDA Bocconi in Milan and the Open University in the UK, he is the author of over 250 publications on the subject, including his most recent book “The Future of Pharma”. In our interview, we asked him for his views on how the industry will change and its implications for pharma executives.

Interview summary

HB: Hello Brian, thanks for taking part in this interview. To start, could you please tell us how you became involved in the pharma industry?

BS: I’ve worked in pharma and medtech for over 30 years, as a research chemist, marketer and now academic.

HB: What made you think of applying Darwin’s theory of evolution to the industry?

BS: I’m a management scientist and all science starts with a theory – some potential explanation of the phenomenon being studied. I considered and discarded varies theories – industry life cycle for example – before I came across a very powerful body of work known as evolutionary economics, which uses Darwin’s idea to explain how industries evolve. It’s probably the leading edge of economic theory right now.

HB: So you used evolution as a metaphor?

BS: No, absolutely not as a metaphor, but as a direct explanation. Industries are complex, adaptive systems, just like a biological systems such your immune system or a rain forest. In industries, genes are capabilities, firms are organisms and, just as we call a define a species as a group of organisms that share the same genes, then we call a group of firms that share the same capabilities a business models. In industry evolution, capabilities vary, are selected for by the environment and lead to the emergence of new business models. It’s a simple, but extremely powerful, theory that explains the past of the industry and predicts its future.

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“Like everyone else who understands the sector well, I can see that it is at a turning point in its development.”

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HB: What led you to write “The Future of Pharma”?

BS: I’ve worked in the industry since 1978, when I began my career as a research chemist for Sterling Winthrop. I later worked in commercial management roles. As a result, I’m very aware of its huge importance, both socially and economically. Like everyone else who understands the sector well, I can see that it is at a turning point in its development. We’re all aware of patent cliffs, market access, R&amp,D productivity and so on. The aim of the book, and the years of research behind it, was to understand what all of these factors add up to and explain where the industry is headed.

HB: So what does evolutionary theory predict for the future of the industry?

BS: It predicts speciation. That is, the industry’s current business models will mutate into a larger number of very different models that will look very different from what we call pharma companies today. In the book, I detail what those new business models will look like, their capabilities and structures.

HB: What does that evolution of the industry imply for today’s pharma companies?

BS: Obviously, those that change stand a chance of surviving, and those that don’t, won’t. So for an executive leading a pharma company today, there are really only three questions to answer. Firstly, which of these new business models (i.e. species) do we want to evolve into? Secondly, what new capabilities (i.e. genes) do we need to acquire? Finally, how will we acquire and embed them? Of course, the challenge of managing the evolution of a pharma company is very complex. The book is 80,000 words and is based on about 300,000 words of interviews with industry leaders, plus millions of words of other research. But those are the three key things for executives to consider.

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“…the challenge of managing the evolution of a pharma company is very complex.”

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HB: Is there a single most important lesson from your research for pharmaceutical industry executives?

BS: I’m reluctant to reduce a very complex piece of work to a soundbite, but if I have to it would be to avoid incest. One of biology’s best tricks is sex, which allows us to acquire new genes efficiently. Companies evolve by acquiring new capabilities from other companies, universities etc, usually via business schools or consultants. But in pharma we have a nasty habit of thinking the best source of new capabilities is from within the industry, which we call “industry best practice”. It’s the business equivalent of having sex with your cousin, which is never a good idea. Success will come to those who absorb new genes from outside of the sector then use them in the specific context of our sector.

HB: So are you optimistic for the industry?

BS: Yes, very. New science and pressing medical and economic needs mean that there is a hospitable habitat for the industry. That doesn’t mean I’m optimistic for the old business models because they will become extinct. But the firms that will survive will thrive and make as great an economic and social contribution as their ancestors did in the 20th century.

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About the interviewee:

Professor Brian D Smith welcomes comments and questions at brian.smith@pragmedic.com. The Future of Pharma is available from Amazon or, as a signed copy, at www.pragmedic.com.

How can pharma executives achieve success in the industry?