Innovation Lessons from Big Pharma

In a recent Op/Ed in the Wall Street Journal, Dr. Scott Gottlieb of the American Enterprise Institute identifies three lessons learned by the leading pharmaceutical companies in their R&D efforts. These findings are applicable to other industries as well and can be of benefit to practitioners of innovation.

Dr. Gottlieb’s first observation is that pharmaceutical companies’ legacy approaches to drug discovery have diminished in effectiveness. Previous major breakthroughs had emanated from a process of screening millions of random chemical compounds against certain targets. This, for instance, led to the discovery of Lipitor, a successful drug that lowers cholesterol. Dr. Gottlieb notes that companies assumed that expanding these same screening programs would lead to better and better results. In other words, if 5X is good, then 10X the amount of research spending is better. Unfortunately, the results didn’t pan out and companies realized they were not achieving enough of a return on their investments. Pharmaceutical companies have subsequently transformed their R&D efforts into a more targeted and precision-oriented effort. Dr. Gottlieb terms this a “rational discovery process,” where size is less important than precision.

Secondly, Dr. Gottlieb observes that the large bureaucratic organizations that pervaded these companies provided antithetical to the type of innovative and entrepreneurial environment needed to be successful at drug research. Smaller, more precision-oriented teams proved more successful, Dr. Gottlieb states, than larger, industrialized organizations.

Finally, Dr. Gottlieb notes that the target for pharmaceutical research has evolved from a focus on primary-care medicine (lowering cholesterol) to solving more serious medical conditions such as cancer. This is due both to the market premium afforded successful drugs in the latter space as well as the relative lack of good drugs targeting these serious conditions. Incremental improvements in the primary-care space, Dr. Gottlieb argues, are less attractive than a breakthrough drug addressing a serious illness.

Practitioners of innovation can learn several broader lessons from Dr. Gottlieb’s assessment of Big Pharma:

1. What worked in the past will not necessarily work in the future. Innovators within a company with a breakthrough product in the past may fall victim to a mindset where they try to emulate the conditions that surrounded that past breakthrough, whether in terms of the structure of the team working on new ideas, the scope or focus area of their work, or even the individuals involved in the R&D work. Such an approach may set boundaries around the innovation team that could inhibit precisely the type of creative thinking that is needed to find the next breakthrough innovation.

2. Innovation does not always scale. If 10 innovators working for a year develop 2 blockbuster innovations, then it is not necessarily true that 100 innovators working for a year will create 20 blockbuster innovations. In other words, innovation is not a linear process.

3. Innovation requires a balance between depth and breadth. The question of focus for innovation efforts is a troubling one because there is a constant battle between the desire to focus discovery efforts around a specific target area versus allowing for a broader scope with out of the box thinking that could result in an unanticipated breakthrough. Some balance is needed so that innovation efforts stay focused on specific objectives while still establishing the type of environment that fosters creativity and free-thinking.

4. Bureaucracy inhibits innovation. As has been argued by various authors on InnovationExcellence.com, team size is of critical importance and although there is debate concerning the precise “right size” of a team working on innovation, one clear lesson is that extremely large groups suffer from bureaucratic inertia that can inhibit productivity and stifle creativity. This is one of the dangers of the notion that innovation is scalable.

5. Innovators must think about their target markets, not just the value of the innovation itself. The Blue Ocean Strategy of W. Chan Kim and Renee Mauborgne is a well-known statement of the principle that says that a company can benefit from moving beyond a crowded competitive landscape and strike out into a new, “blue ocean” space where the competition is less relevant. Innovators caught in highly-saturated markets where incremental improvements are less valued can benefit from this type of strategy, as is the case with Big Pharma moving into drugs that address more serious illnesses.

Although some of these findings seem intuitive, they nevertheless serve to remind us of some of the pitfalls to avoid as we craft our innovation strategies. After all, if multi-billion dollar pharmaceutical companies have stumbled in these areas, then all of us stand to learn from those mistakes as well.

Sources: Scott Gottlieb, “Big Pharma’s New Business Model,” Wall Street Journal, December 27, 2011, page A13. & Blue Ocean Strategy

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Scott Bowden works on Innovation Programs for IBM Global Services.