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Darwin's Medicine blog

Professor Brian D Smith is an authority on the pharmaceutical industry and works at SDA Bocconi University and Hertfordshire Business School.

Nothing makes sense

Evolutionary theory helps us understand and adapt to the current deal-making frenzy
Evolution in business

It's been fun reading the financial press this month. The rash of deals – Lilly, Novartis and GSK asset swapping, Valeant chasing Allergan and, biggest of all, Pfizer in pursuit of AZ, has had the journos in a spin. One Financial Times comment piece lamented the cost-cutting strategy of Valeant as the death of innovation. Other, Cassandra-like pieces pointed out that deals won't save the industry from its woes. All good points in their way but all lacking the big picture. Where's all this taking us and what should my company do about it? 

The words that spring to mind are those of Theodosius Dobzhansky, who wrote an essay in 1973 called 'Nothing in Biology Makes Sense Except in the Light of Evolution'. The essay, which is a good read and you can look up on the web, is an argument against religious fundamentalists who believe, among other things, that the Sun orbits the Earth. So how does an old essay about religious fundamentalism help us to understand the blizzard of deal activity that we're seeing as I write? Stick with me while I explain and I promise I'll come back to some practical, down to earth points about what it might mean for you and your company. 

Biologists got there first
My field, studying the evolution of the life science industry, is based on the idea that industries, just like biological systems such as the Amazonian rain forest, are complex adaptive systems. From the point of view of a geeky management scientist like me, evolution isn't a biological theory at all; it's a generalised theory to explain the behaviour of any complex adaptive system. To quote Professor Stan Metcalfe: “Evolutionary theory is a manner of reasoning in its own right quite independently of the use made of it by biologists. They simply got there first.” So if you take the position, as I do, that evolution is a good way of explaining what's going on in the industry, it's perfectly reasonable and quite helpful to adapt Dobzhansky's idea and say that nothing in the life sciences industry makes sense except in the light of evolution.

… nothing in the life sciences industry makes sense except in the light of evolution

So what happens if we look at current industry event through the lens of evolutionary theory? I think three things leap out. Firstly, when I read about the drivers of such deals, for example Novartis building capabilities in oncology or Valeant building a relatively low-cost business model, my evolutionary lens sees these as adaptations to different selection pressures. One selection pressure in the life sciences environment favours innovation in technically difficult areas; another selection pressures favour low cost, low innovation in less demanding areas.

The second thing that stands out is fitness. To ask which model is best is like asking whether a man is better than a penguin. You can talk, do calculus and write poetry, but let's see you catch fish in Antarctic waters. In evolution, 'best' can only mean “best fit with the environment” and our market environment is fragmenting. So the third point that the evolutionary lens reveals is adaptive radiation, which is when organisms diversify into new forms when the environment changes. Darwin famously saw it in Galapagos finches and we're seeing it in the industry. The industry business model isn't just changing, it's splitting into several distinct forms.

Directing your own evolution
Back to my promise: What does this mean for your company? It means that you can, to a degree, manage your own evolution in four steps. First, understand how the market is fragmenting and the differing selection pressures in each of the market's new sub-habitats. Second, work out what “best fit with the environment” would look like in each of the sub-habitats. Third, choose the habitat in which your company is best able to compete. Finally, build the strategy, structures and capabilities to fit your chosen environment. Valeant, GSK, Novartis and others are all making their different choices and that's evolution in progress. What you can't do is try to be both a man and a penguin. That won't work.

Article by
Professor Brian D Smith

an authority on the pharmaceutical industry and works at SDA Bocconi University and Hertfordshire Business School. He welcomes comments and questions on this column at brian.smith@pragmedic.com

21st May 2014

From: Research, Sales

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