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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.

Back to the future

GSK’s choice of CEO is telling

Every industry thinks it's unique but the life science sector, with its combination of advanced technology, social responsibility and regulation, has more claim than most to that epithet. That's one of the reasons why its leaders are usually veterans of the sector.

It used to be thought essential to spend decades in the industry to lead one of our leading companies. So Emma Walmsley's appointment to replace Andrew Witty at GSK is, if not a total surprise, an example of what evolutionary scientists might call a 'weak signal' of our future. As usual with this column, allow me to explore the theory a little before coming back to the practical implications.

Our industry, like most others, is a complex adaptive system: a multitude of different entities that interact with each other and change as they do so. An important characteristic of such systems is that they can't be predicted in the traditional sense of extrapolating from past trends. The best one can do is to look for emerging properties of the system, such as shifts in the industry environment and new business models. Obviously, it is useful to spot such emergent phenomena as early as possible. One way of doing so is to look for weak signals: individual events that, combined with others, indicate that something new is about to happen. Weak signal spotting is a not a reliable science and there's an entire industry of people who are making fools of themselves by reading too much into single signs. That said, the assiduous detection of such signals and the reading of their context is the best way we have of anticipating change in industries.

How does Emma Walmsley fit into that? Well, the appointment of a consumer marketer is unusual but it fits with the context of Andrew Witty's strategy of maintaining consumer healthcare as a leg of the business. Other firms have made both similar and opposite choices. And the wider context of our industry frames those choices in a fascinating way. Consider for a moment how the growth of healthcare spending by governments and state-subsidised private insurers is growing. It's hard to be exact but GDP growth, politics and other factors limit this to about 3-5% per annum across the globe. Then consider how much it could grow without these economic limits. Patient demands, new technology and demographics mean that, if the money was there, spending could easily grow at 15-25% per annum, perhaps more. Finally, plot those two growth lines on the same chart and, obviously, a gap opens over time. This gap shows all the healthcare that is possible but that governments can't afford.  Inevitably, fast-growing middle classes and the affluent want this healthcare and so emerges the patient-payer habitat: a large, growing market for advanced healthcare where the patient makes the choice of products. Of course, this habitat is not totally new. It has existed to a degree for ever but for the past 70 years or so the focus of research-based life science companies has been on its more lucrative neighbour, the government payer market.

GSK's thinking about the future of the industry sees both governments and patients paying for advanced products

Back to GSK's new leader. The important thing about patient payer markets is that firms wishing to exploit them require different capabilities from those firms focused on government payers. For example, market access and KOL management are secondary to channel management and branding. Although research-based life science companies talk a good game about such things, compared to global brand leaders like L'Oreal  (Ms Walmsley's training ground), our industry is relatively amateurish. If they wish to dominate the patient payer market for advanced healthcare products, GSK and other companies will need to acquire a whole new set of consumer market capabilities. For companies steeped in a tradition of professional relations with doctors, this is quite a cultural change and effective cultural change starts at the top. So it looks as if this weak signal indicates GSK's thinking about the future of the industry. They see both governments and patients paying for advanced products and have asked themselves whether it is easier to teach an industry insider consumer marketing or a consumer marketer traditional industry methods. Emma Walmsley's appointment suggests the GSK board thinks the latter is a better move, although of course her other attributes as a CEO will have also been critically important.

Other companies needn't copy GSK but nor should they ignore the signals that this change represents. Our industry was born in a period when consumers bought medicines and devices, as indeed they still do outside Europe. Only later did government payers become dominant. All the signs are that even advanced products will soon be sold to patient payer as well as government payer markets. In that sense, Emma Walmsley is a signal that we're heading back to the future.

9th November 2016

From: Sales



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