How the Game Changed Against Big Pharma – Creating New Opportunities

In 1985 there was universal agreement that investors should
be heavily in pharmaceuticals. 
Companies like Merck, Eli Lilly, Pfizer, Sanofi, Roche, Glaxo and Abbott
were touted as the surest route to high portfolio returns.

Today, not so much.

Merck, once a leader in antibiotics, is laying off 20% of
its staff
.  Half in R&D; the
lifeblood of future products and profits. 
 Lilly is undertaking
another round of 2013 cost cuts.  Over
the last year about 100,000 jobs have been eliminated in big pharma companies,
which have implemented spin-outs and split-ups as well as RIFs.

What happened? In the old days pharma companies had to demonstrate
their drug worked; called product efficacy.  It did not have to be better than existing drugs.  If the drug worked, without big safety
issues, the company could launch it.

Then the business folks took over with ads, distribution,
salespeople and convention booths, convincing doctors to prescribe and us to
buy.

Big pharma companies grew into large, masterful consumer
products companies. Leadership’s view of the market changed, as it was
perceived safer to invest in Pepsi vs. Coke marketing tactics and sales warfare
to dominate a blockbuster category than product development.  Think of the marketing cost in the
Celebrex vs. Vioxx war.  Or Viagra
vs. Cialis.

But the market shifted when the FDA decided new drugs had to
be not only efficacious, they had to enhance the standard of care.  New drugs actually had to prove better in clinical trials than existing
drugs.  And often safer, too.

Hurrumph. Big pharma’s enormous scale advantages in
marketing and communication weren’t enough to assure new product success.  It actually took new products.  But that meant bigger R&D investments,
perceived as more risky, than the new consumer-oriented pharma companies could
tolerate.  Shortly pipelines
thinned, generics emerged and much lower margins ensued.

In some disease areas, this evolution was disastrous for
patients.  In antibiotics,
development of new drugs had halted. 
Doctors repeatedly prescribed (some say overprescribed) the same antibiotics.  As the bacteria evolved, infections
became more difficult to treat.

With no new antibiotics on the market the risk of death from
bacterial infections grew, leading to a national public health crisis.  According to the Centers for Disease
Control (CDC)
there are over 2 million cases of antibiotic resistant infections
annually.  Today just one type of
resistant “staph infection,” known as MRSA, kills more people in the USA than
HIV/AIDs – killing more people every year than polio did at its peak. The most
difficult to treat pathogens (called ESKAPE) are the cause of 66% of hospital
infections.

And that led to an important market shift – via regulation
(Congress?!?!)

With help from the CDC and NIH, the Infectious Diseases
Society of America
pushed through the GAIN (Generating Antibiotic Incentives
Now) Act (H.R. 2182.)  This gave
creators of new antibiotics the opportunity for new, faster pathways through
clinical trials and review in order to expedite approvals and market launch.

Additionally new product market exclusivity was lengthened an additional 5
years
(beyond the normal 5 years) to enhance investor returns.

Which allowed new game changers like Melinta Therapeutics
into the game.

Melinta (formerly Rib-X) was once considered a “biopharma science
company” with Nobel Prize-winning technology, but little hope of commercial
product launch.  But now the large
unmet need is far clearer, the playing field has few to no large company
competitors, the commercialization process has been shortened and cheapened,
and the opportunity for extended returns is greater!

Venture firm Vatera Healthcare Partners, with a history of investing in game changers (especially transformational technology,) entered the picture as lead investor.  Vatera's founder Michael Jaharis quickly hired Mary Szela, the former head of U.S.
Pharmaceuticals for Abbott (now Abbvie) as CEO.  Her resume includes leading the growth of Humira, one of
the world’s largest pharma brands with multi-billion dollar annual sales.

Under her guidance Melinta has taken fast action to work
with the FDA on a much quicker clinical trials pathway of under 18 months for
commercializing delafloxacin.  In layman’s
language, early trials of delafloxacin appeared to provide better performance
for a broad spectrum of resistant bacteria in skin infections.  And as a one-dose oral (or IV)
application it could be a simpler, high quality solution for gonorrhea.

Melinta continues adding key management resources as it
seeks “breakthrough product” designation under GAIN from the FDA for its RX-04
product
.  RX-04 is an entirely
different scientific approach to infectious disease control, based on that previously
mentioned proprietary, Nobel-winning ribosome science.   It’s a potential product category
game changer that could open the door for a pipeline of follow-on products.

Melinta is using GAIN to do something big pharma, with its
shrinking R&D and commercial staff, is unable to accomplish. Melinta is helping
redefine the rules for approving antibiotics, in order to push through new,
life-saving products.

The best news is that this game change is great for investors.
 Those companies who understand the
trend (in this case, the urgent need for new antibiotics) and how the market
has shifted (GAIN,) are putting in place teams to leverage newly invented drugs
working with the FDA.  Investment timelines and dollars are looking
far more manageable – and less risky.

Twenty-five years ago pharma looked like a big-company-only
market with little competition and huge returns for a handful of companies.  But things changed.  Now companies (like Melinta) with new
solutions have the opportunity to move much faster to prove efficacy and safety
– and save lives.  They are the
game changers, and the ones more likely to provide not only solutions to the
market but high investor returns.

Leading Google – Larry Page Needs More White Space


Summary:

  • Google is locking-in on what it made successful
  • But as technologies, and markets, change Google could be at risk of not keeping up
  • Internal processes are limiting Google’s ability to adapt quickly
  • Google needs to be better at creating and launching new projects that can expand its technology and market footprint in order to maintain long-term growth

Google has been a wild success.  From nowhere Google has emerged as one of the biggest business winners at leveraging the internet.  With that great success comes risk, and opportunity, as Larry Page resumes the CEO position this year. 

Investors hope Google keeps finding new opportunities to grow, somewhat like Apple has done by moving into new markets with new solutions.  Where Apple has built strong revenue streams from its device and app sales in multiple markets, Google hasn’t yet demonstrated that success. Despite the spectacular ramp-up in Android smartphone sales, Google hasn’t yet successfully monetized that platform – or any other.  Something like 90% of revenues and profits still come from search and its related ad sales. 

Investors have reason to fear Google might be a “one-trick pony,” similar to Dell.  Dell was wildly successful as the “supply chain management king” during the spectacular growth of PC sales.  But as PC sales growth slowed competitors matched much of Dell’s capability, and Dell stumbled trying to lower cost with such decisions as offshoring customer service.  Dell’s revenue and profit growth slowed.  Now Dell’s future growth prospects are unclear, and its value has waned, as the market has shifted toward products not offered by Dell. 

Will Google be the “search king” that didn’t move on?

When companies are successful they tend to lock-in on what made them successful.  To keep growing they have to overcome those lock-ins to do new things.  The risk is that Google can’t overcome it’s lock-ins; that internal status quo police enforce them to the point of keeping new things from flourishing into new growth markets.  That the company becomes stale as it avoids investing effectively in new technologies or solutions.

At Slacy.com (“What Larry Page Really Needs to Do to Return Google to its Start-up Roots“) we read from a former Google employee that there are some serious lock-ins to worry about within Google: 

  1. The launch coordination process sets up a status quo protection team that keeps things from moving forward.  When an internal expert gains this kind of power, they maintain their power by saying “no.”  The more they say no, the more power they wield.  Larry Page needs to be sure the launch team is saying “here’s how we can help you launch fast and easy” rather than “you can’t launch unless…”
  2. Hiring is managed by a group of internal recruiters.  When the people who actually manage the work don’t do recruiting, and hiring, then the recruits become filtered by staffers who have biases about what makes for a good worker.  Everything from resume screening to background reviews to appearances become filters for who gets interviewed by engineers and managers.  In the worst case staffers develop a “Google model employee” profile they expect all hires to fit.  This process systematically narrows the candidates, leading to homogeneity in hiring, a reduction in new approaches and new ways of thinking, and a less valuable, dynamic employee population.
  3. Increasingly engineers are forced to use a limited set of Google tools for development.  External, open source, tools are increasingly considered inferior – and access to resources are limited unless engineers utilize the narrow tool set which initially made Google successful. The natural outcome is “not invented here” syndrome, where externally created products and ideas are overlooked – ignored – for all the wrong reasons.  When you’re the best it’s easy to develop “NIH,” but it’s also really risky in fast moving markets like technology where someone really can have a better idea, and implement, from outside the halls of the early leader. 

These risks are very real.  Yet, in a company of Google’s size to some extent it is necessary to manage launches systematically, and to have staffers doing things like recruiting and screening.  Additionally, when you’ve developed a set of tools that create success on an enormous scale it makes sense to use them.  So the important thing for Mr. Page to do is manage these items in such a way that lock-in doesn’t keep Google from moving forward into the next new, and possibly big, market.

Google needs to be sure it is not over-managing the creation of new things.  The famous “20% rule” at Google isn’t effective as applied today.  Nobody can spend 80% of their job conforming to norms, and then expect to spend 20% “outside the box.”  Our minds don’t work that way.  Inertia takes over when we’re at 80%, and keeps us focused on doing our #1 job.  And we never find the time to really get started on the other 20%.  And it’s unrealistic to try dedicating an entire day a week to doing something different, because the “regular job” is demanding every single day.  Likewise, nobody can dedicate a week out of the month for the same reason.  As a result, even when people are encouraged to spend time on new and different things it really doesn’t happen.

Instead, Google needs a really good method for having ideas surface, and then creating dedicated teams to explore those ideas in an unbounded way.  Teams that have as their only job the requirement for exploring market needs, product opportunities, and developing solutions that generate profitable new revenue.  Five people totally dedicated to a new opportunity, especially if their success is important to their career ambitions, will make vastly more headway than 25 people working on a project when they can “find the time.”  The bigger team may have more capabilities and more specialties, but they simply don’t have the zeal, motivation or commitment to creating a success.  Failing on something that’s tertiary to your job is a lot more acceptable, especially if your primary work is going well, than failing on something to which your wholly dedicated.  Plus, when you are asked to support a project part-time you do so by reinforcing past strengths, not exploring something new.

Especially worrisome is Inc magazine’s article “Facebook Poaches Inc’s Creative Director.”  This is the fellow that created, and managed, the new opportunity labs at Google.  What will happen to those now?

These teams also must have permission to explore the solution using any and all technology, approaches and processes.  Not just the ones that made Google successful thus far.  By utilizing new technologies, which may appear less robust, less scalable and even initially less powerful, Google will have people who are testing the limits of what’s new – and identifying the technologies, products and processes that not only threaten existing Google strengths but can launch Google into the next new, big thing.  Supporting their needs to explore new solutions is critical to evolving Google and aiding its growth in very dynamic technologies and markets.

The major airlines all launched discount divisions to compete with Southwest.  Remember Song and Ted?  But these failed largely because they weren’t given permission to do whatever was necessary to win as a discount airline.  Instead they had to use existing company resources and processes – including in-place reservation systems, labor union standards, existing airports and gates – and honor existing customer loyalty programs.  With so many parameters pre-set, they had no hope of succeeding.  They lacked permission to do what was necessary because the airlines bounded what they could do.  Lock-in to what already existed killed them.

The concern is that Google today doesn’t appear to have a strong process for creating these teams that can operate in white space to develop new solutions.  Google lacks a way to get the ideas on the agenda for management discussion, rapidly create a team dedicated to the tasks, resource the teams with money and other necessary tools, and then monitor performance while simultaneously encouraging behaviors that are outside the Google norms.  Nobody appears to have the job of making sure good ideas stay inside Google, and are developed, rather than slipping outside for another company to exploit (can you say Facebook – for example?)

I’m a fan of Google, and a fan of the management approaches Larry Page and Google have openly discussed, and appear to have implemented.  Yet, success has a way of breeding the seeds of eventual failure.  Largely through the process of building strong sacred cows – such as in technology and processes for all kinds of activities that end up limiting the organization’s ability to recognize market shifts and implement changes.  Success has a way of creating staff functions that see themselves as status quo cops, dedicated to re-implementing the past rather than scouting for future requirements.  The list of technology giants that fell to market shifts are legendary – Cray, DEC, Wang, Lanier, Sybase, Netscape, Silicon Graphics and Sun Microsystems are just a few. 

It’s good to be the market leader.  But Larry Page has a tough job.  He has to manage the things that made Google the great company it is now – the things that middle management often locks in place and won’t alter – so they don’t limit Google’s future.  And he needs to make sure Google is constantly, consistently and rapidly implementing and managing teams to explore white space in order to find the next growth opportunities that keep Google vibrant for customers, employees, suppliers and investors.

View a short video on Lock-in and why businesses must evolve http://on.fb.me/i2dekj