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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.

Gradually, then suddenly

Company extinction is the result of cognitive shortcomings

One of the pleasures of my work is to be invited to in-house think tanks, meetings of senior executives who are trying to think their way through a knotty strategic issue to which I am invited to add some grit to the oyster of their deliberations.

My research on how our changing industry environment is driving the evolution of pharma and medtech business models always seems to create enough cognitive dissonance in the group to break the logjam in their thinking. Sometimes, it’s hard to pin down exactly what it was I said that hit home but at my most recent meeting you could see the moment it happened. It was a period of about three minutes when I answered a very good question from a VP of R&D. As usual, let me digress briefly into the detail before I return to the value it might offer you, dear reader.

I love questions from dyed-in-the-wool scientists, probably because I am one. Their questions drip with the scepticism that drives scientific enquiry and this question was a classic of its kind. “How is it,” he asked, “given your work on the evolution of the industry is well- known, that companies still become extinct?” It was a pertinent and perfectly structured question and it deserved a germane and substantial answer. My short answer showed my training: I began with a point, followed by an explanation followed by examples. Always have PEE in your answers, my teachers used to tell me!

My point came, unusually for me, straight from literature. In The Sun Also Rises, Ernest Hemingway described how people became bankrupt: “Gradually, then suddenly.” And that’s how life sciences business models become ‘unfit’, in the evolutionary sense of not fitting their environment and so succumbing to competition. Think of any example of failure and you can usually trace its origins back many years before its sudden collapse.

Next came my explanation, which concerned the cognitive strengths and weaknesses of life sciences companies. I asked the group some simple questions – the growth rate of an important therapy area, the number of rivals’ products in the pipeline – and I received quick, unequivocal answers. Then I asked a couple more: How will the decision-making process change in the future? What indirect competitive pressures will you face? The answers then were much slower and the group did not share a common view. That contrast, I explained, said a lot about the cognitive processes of the typical pharma or medtech company: great at the near term, quantifiable and simple, much weaker at the medium term, qualitative and complex. Companies, I argued, are often like pandas. They are great at seeing a nice, juicy piece of nearby food but pretty useless at realising their habitat is being destroyed one hectare at a time.

For examples, I began with the now hackneyed examples from outside our industry. Nokia, who thought that phones were for making phone calls. Yahoo, who thought the internet would always need an intermediate. Kodak, who never foresaw the time we’d all photograph our dinner and send it across the world. But my audience was restless for industry-specific examples, so we discussed a few cases of failure. I won’t name the guilty here, but in each case the audience (not me) was able to attribute their demise to a long- term trend that they ignored. The first example kept on making me-toos when it was obvious that payers wanted either valuable innovation or cheap generics. The second kept on looking for whole-disease area blockbusters long after companion diagnostics had fractured its market. A third kept on with a sales-rep led model when doctors preferred Google. By the end of that phase of the discussion, my point was made and accepted but, unsurprisingly, a supplementary question came up: “What important factor do you think we’re currently missing?”

It didn’t take me too long to think of an answer. I was in the room because I’d previously worked with the chief marketing officer and had reviewed most of the brand plans. As is currently fashionable, the phrase patient- centricity dripped from every page but, I told the audience, the plans said very little about the patients beyond their disease status. They didn’t talk about how these patients were incredibly varied along every dimension other than the clinical. Some patients, we know, are very tech savvy, others are technophobes. Others are deferent to their doctors, others treat prescribers as an inconvenient barrier to treatment. Some can and will pay for more convenient treatment, others can’t or won’t. A generation ago, it might have been reasonable to assume that patients all behaved similarly. Today and tomorrow, that assumption is becoming negligent.

So there’s your practical takeaway. What cognitive gaps and biases does your company have that threaten gradual then sudden extinction? And if you can’t think what your cognitive shortcomings are, then that is probably your answer, isn’t it?

Professor Brian D Smith is a world-recognised authority on the evolution of the life sciences industry. He welcomes comments and questions at brian.smith@pragmedic.com

10th January 2019

From: Healthcare

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