Where's the commercial innovation in pharma?


Across the economy, innovators are radically reinventing how we buy and sell goods and services – and yet, there is no biopharma heir to the crown of Amazon, PayPal, Uber, or Netflix. Of course, there's plenty of innovation in biopharma, too – at least in R&D. But step from the lab into the commercial team's conference room, and you’ll enter a time warp from 2014 back to 2004 … or maybe even 1994. Because when it comes to core commercial activities like pricing, sales, and marketing, drug companies today look more alike than different – and indistinguishable from their predecessors.

Even nimble biotechs, built on a bedrock of innovation, usually adopt standard, time-tested strategies when they commercialize drugs themselves. Except for the scale, it’s hard to argue that the recent biotech launches of Juxtapid (Aegerion), Vascepa (Amarin), and Qsymia (Vivus) are much different than they would have been if they'd been led by large pharma. Innovative drugs, yes, but innovative launches? Not so much.

This lack of commercial innovation in biopharma is both a missed opportunity and a more fundamental problem for the industry. Drug companies have complacently failed to adapt as the commercial environment has changed around them – a recipe for disruption if there ever was one. It’s only a matter of time before some young upstart asks why, in a world of store-less bookstores and paper-less newspapers, we are still bringing drugs to market essentially the same way as we did two decades ago.

But commercial innovation in pharma is also a matter of survival. Many companies’ “standard practices” in pricing, sales, and marketing have caused serious reputational harm to the industry that now threatens their ability to develop new drugs and bring them to market (see John LaMattina's comments here and here, for example).  And even activities widespread since the go-go 90s that haven’t come under ethical fire have been scrutinized economically for their high cost and low value. If the old commercial model isn't dead, then at the very least it's in the intensive care unit.

Lucky for the pharma industry, there are several opportunities for “commercial innovation” – with drug pricing being the most obvious and timely example. When the ground-breaking new hepatitis C drug, Sovaldi, was launched, Gilead presumably calculated the price based on pharmacoeconomic measures and a sense of “what the market could bear”. The ensuing backlash suggests payers are defining an upper, unsustainable limit of near-term cost, even in the face of outsized long-term health and economic benefits. Drugs that offer “cures” (not only Sovaldi and other infectious disease drugs, but also some gene therapy and immuno-oncology approaches) may be the perfect test cases for innovative pricing schemes (like one of my favorites, cost amortization – see here and here), which so far have been considered only in theoretical terms.

Pharma sales are also ripe for innovation. Office-based reps are a throwback to an earlier era, with little economic value and negative reputational impact (my prior views here). But with the exception of some ultra-orphan drugs, most companies still deploy sales forces roughly equivalent to the size of the prize – and disproportionately larger for primary care indications. If the impact of a sales force is negligible or negative, it may not be crazy to think that a company might not need one.

There’s a similar opportunity for innovation in drug marketing. While traditional media struggle to attract eyeballs and attention, pharma companies still spend heavily on these outlets, and merely dabble in digital channels. But as “hard copy” print readership and “real-time” video viewership decline, and the cozy, codependent relationship between traditional media and advertising is disrupted, it begs the philosophical question – if you publicize a drug in a venue that no-one sees, did you actually do any marketing at all?

To be fair, there have been isolated pockets of commercial innovation in biopharma, highlighted by journalists and bloggers (including by me) and celebrated at “Sales and Marketing 2.0”-style conferences. But most of these have been “pet projects” on the margins, driven by pharma VPs with "lean" (read: miniscule) teams and budgets, out of the P&L spotlight and, more importantly, holding little chance of more widespread adoption in the organization or the industry. Bona fide, “all-in” disruptive innovation in drug commercialization – applied to a pharma’s potential blockbuster, or a biotech’s first launch – does not appear to be on the near horizon.

But it is precisely that disconnect – between the recognized need and ability to commercialize drugs differently on the one hand, and the absence of any meaningful-scale innovation on the other – that creates an opportunity that will be too big to ignore for someone, somewhere. There is no doubt that transformative change is coming to drug commercialization – the only questions are when, and who will lead the way.