It's no secret that the pharmaceutical industry is struggling — R&D budgets are being slashed and companies are relying more on acquisitions than innovation to replenish their pipelines. In a Forbes column, Steve Denning says that if big pharma wants to survive, it has to retool. Companies like Apple and Amazon have proven that a mature industry needs imagination to grow, Denning says. When he compares those companies — whose share prices have risen over the past 10 years — with pharma mainstays like Merck and Pfizer — whose share prices have gone down — Denning says there are a couple of changes pharma can make to improve its business model. First, the companies should share research data, particularly from failed trials or control groups. Denning says this will help sustain the industry by allowing the companies to save time by not repeating the same trial. Second, Denning says, companies need to stop advertising their products to the consumer. This would save money on advertising and marketing, and may even help improve pharma's somewhat tarnished public image. The main problem, Denning says, is that management at these companies is still thinking traditionally, when they should be thinking radically, like Steve Jobs or Jeff Bezos. "So long as big pharma pursues the traditional management goal of making money for shareholders, exploiting the assets that the firm already owns and manufacturing demand by direct-to-consumer advertising will always seem to be the easy strategic option," Denning says. "Traditional management thinking typically misses the fact that those revenue streams are already being cannibalized by others, and the situation is only going to get worse as the blockbuster patents expire."
Jul 20, 2011