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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.

The Midas Touch

Smart, but small, science can turn old ideas into gold

To a scientist, empirical evidence is everything. It is said that Darwin conceived of evolution by natural selection some 20 years before he published it but spent that time gathering evidence, just to make sure. And what is true for biologists is even more so for management scientists like me, whose evidence is harder to find and, even when found, is less ambiguous. So, it was with particular delight, and not a little smugness, that I read a report in the October issue of PME. As ever, allow me a brief diversion into the science before I return to the practical implications.

From the perspective of an evolutionary scientist, business models emerge from a myriad of management decisions, which are hugely varied in their nature but share the same desired outcome. Whether a company is investing or divesting, betting the shop or taking a punt, business leaders are making a choice with the aim of optimising the risk-adjusted rate of investment. Generally speaking, their choice is about how much money to risk, what return to aim for and at what level of probability of success. For example, Boehringer Ingelheim is making choices like this as the company continues its shopping spree in immuno-oncology with the takeover of Vira Therapeutics, a smallish bet with potentially high returns but a significant level of risk. Compare that with some of the industry consolidation moves we see, which involve big bucks, modest returns but only carefully controlled, known risks. We observe the same trade-off in nature when, for example, we humans bet on a few precious offspring while seahorses are impregnated with as many as 2,000 eggs. It’s the same goal – successful reproduction – but a different trade-off calculation.

Using this idea – that business-model innovation is all about optimising risk-adjusted return on investment – opens up a new way of thinking about how the industry is evolving. There are many ways a firm can graduate its risk level, from big investments at the frontiers of science to relatively tiny steps building on proven technology. Generally, it is the daring gambles that promise to transform the company that attract the most media attention, but the theory points to lots of different possibilities. Without boring you with the detail, it was an analysis of this concept that led to my work that predicted the emergence of 26 business models in the industry. If you’re not familiar with that work, send me an email and I’ll send you a suite of four articles published on this topic in earlier issues of PME.

Since publishing that work, it’s been encouraging to see the predictions I made come true. The splitting of companies into innovative and mature product divisions is part of this. So too is the push towards business models that create value beyond the pill, as we are beginning to see in chronic diseases like asthma and diabetes. The smugness I alluded to earlier is the result of seeing most of my predictions borne out by what companies are doing in practice. Most, but not all. At least not until recently. One of the models I predicted involved making relatively small but smart investments in an existing but underdeveloped science base that would lead to a significant impact on a large market. Because a success with this model would, in effect, turn a boring substance into gold I whimsically called it the Midas model, after the mythical Greek king. When I first observed the emergence of this model, however, there was a paucity of evidence. Some of the work in cannabis-based medicines seemed to fit that model, but the evidence was scant.

Then along comes Amarin. By investing in the isolation of a single compound from the soup that is fish-oil, they have developed a product called Vascepa. New trial data finds that Vascepa reduces major adverse CV events by 25%. That’s a big result, relevant to a huge market of people who currently take statins. And, as far as we can tell, this large return, when it comes, will be on a relatively small investment. I feel confident, at the least, in saying the investment was probably much less than that of Amgen in Repatha, which can make similar claims. Well done Amarin. The practical lesson of Amarin’s Vascepa for the rest of us is hidden in plain sight. All companies have the same goal of risk-adjusted ROI. There are many ways of achieving this goal in the life sciences industry (26, according to my research) but we tend to myopically focus on the big bet, big risk, big pay-off business models. This is understandable but not necessarily right. Small, smart money invested thoughtfully in the right place can make as good, or better, a return at low levels of risk - our business leaders shouldn’t default to big bets. King Midas met an unhappy end, starving because his food turned to gold. I shouldn’t think Amarin is worrying about that.

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

6th November 2018

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