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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.

Sex is a good trick

But pharma companies - and payers - should stop incestuous ‘best practice’ behaviours and look for new ways of comparing options
Sex is a good trick

Recent industry news includes two stories of new products (Sanofi's Zaltrap and Bayer's Xofigo) struggling to get market access. Along with many similar stories, these are a reminder that even great companies, with clinically effective products, are struggling to adapt to a market environment in which the value definition of value has shifted fundamentally. The public pronouncements of industry leaders always cite this as the big issue – how can the cost of developing innovative medicines be reconciled with payers' focus on reducing costs? And since it's such a huge issue, let me suggest how my field – the evolutionary economics of the life sciences – might throw some practically useful light on the problem. 

Market access is a co-evolutionary problem. Payer systems and industry business models are tied together in a co-evolutionary process in which change in one is both restricted and encouraged by change in the other. If you need a biological parallel, think of hummingbirds and the flowers they pollinate. The problem is that both partners have to evolve together and, if one does so slower than the other, they can only co-evolve at the pace of the slowest. When I read recently a great presentation by Ansgar Hebborn, head of market access at Roche, about the challenges of demonstrating value to payers, it reminded me of those three-legged races at school, when the class athlete was frustrated by being tied to the class snail. 

So, if we're to solve the market access problem, we've got to get both innovative companies and payer organisations, like HTAs, evolving faster, which means acquiring new genes faster. And that's where my slightly provocative headline comes in. Daniel Dennett, the brilliant philosopher and scientist, describes sex as a “good evolutionary trick” because sexual reproduction is a great way to get new genes and so accelerate evolutionary adaptation. Forgive me if the link with pharma companies and payers isn't clear yet – I'm coming to that. 

Attracting new genes
The point about sexual reproduction is that it acquires genes from outside. Primitive societies often placed a value on brides from other tribes because it added to their gene pool, so increasing the chance that a new gene might be one that confers survival advantage. Now, in evolutionary economics, the analogue of genes are organisational routines and processes, so co-evolutionary theory suggests that the way for pharma companies and payers to co-evolve faster is to import such routines from outside their tribe (that is, their peers). But what do we observe when pharma companies try to develop market access capabilities? They go to the same consultants as everyone else and ask for “industry best practice”. This doesn't lead to new, vital capabilities. It is the economic equivalent of having sex with one's siblings And payers are little better, sharing HTA techniques within a pretty small gene pool. In short, we (the industry and the payers) are struggling to reconcile innovation and costs because it requires genes that don't exist in our tribe.

Market access is a co-evolutionary problem ... partners can only evolve at the pace of the slowest

We've been here before. Around the turn of the 19th to 20th century there was a similarly massive market shift; that time away from patent medicines and towards science-based therapies. Our embryonic industry didn't have the organisational routines to develop them and it needed to acquire new genes and capabilities. This environmental change led to the mass-extinction of many firms and a whole business model (the apothecary). The firms that inherited the market were those that acquired genes from outside. For example, animal testing processes from universities. 

Get to know strangers
And the promised practical implication of this story? Pharma companies and payers should stop incestuous 'best practice' behaviour and look outside for new ways of demonstrating value and comparing options. The IT sector provides great examples of demonstrable value from innovation. The aerospace industry is an exemplar at buying on value and not just on price, so encouraging innovation. To co-evolve, both pharma companies and payers need to learn to have sex, metaphorically at least, with strangers.

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 via email

22nd April 2014

From: Sales



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