This article first appeared in Life Science Leader
Successful innovation is critical for life sciences companies. Competition is intense and technological advances frequently render slower-moving, less-adaptable companies obsolete. Others are driven to acquire more innovative companies, often at premium prices. Take, for example, Takeda Oncology’s recent acquisition of ARIAD pharmaceuticals for $5.2 billion, a 75 percent premium.
Older and more established companies are often more at risk of these fates. Of Fast Company’stop-ten most innovative biotech companies, only three were founded more than 20 years ago: Johnson & Johnson, Medtronic, and Abbott. As start-up competition increases and the stakes rise, how can more established life sciences companies keep up with the pace of innovation in the sector?
We’ve identified four critical steps for life science executives to consider in order to outperform the competition.
1. Redesign organizational structures toward patient outcomes. The traditional pharmaceutical company was structured to produce drugs. Look at any drug company’s org chart and you’ll see the spine of the drug development process. However, we’re seeing a fundamental shift in how people relate to products and companies. The most successful companies today are not those out to sell a product, but those that seek to address a customer’s need. This shift is called Customer 4.0. In the past, a company tried to entice customers to buy a product and invest in a brand. Now, with the evolution of technology, companies must fit into the customer’s universe, not vice versa.
So what could a Customer 4.0 approach look like for a pharma company? For inspiration, we might look to the cross-industry collaboration, TransCelerate. TransCelerate is like the Airbnb of pharmaceutical companies. Why? Just like Airbnb leverages private housing resources to deliver affordable and unique accommodations to travelers, TransCelerate leverages the resources and knowledge of its 18 member organizations to solve the most pressing problems for patients, “simplifying and accelerating the research and development of innovative new therapies.” Whereas traditional models of life sciences companies are structured to produce and sell drugs, TransCelerate is intentionally structured to deliver value and achieve the goals of the patients they serve.
Another example is Medtronic’s investment in achieving wellness outcomes for diabetes patients. Understanding the painful patient experience of finger pricking to test glucose levels, Medtronic moved beyond the traditional injectors for treating diabetes and created a new solution: an artificial pancreas. To create a more holistic approach, they also leveraged their digital capabilities to develop an app to help diabetes patients make good food decisions based on their glucose levels. They even have a Fitbit integration to promote exercise. Whereas a traditional life sciences company might focus their efforts on a device or a drug, this suite-solution focuses on patient outcomes and achieving customer wellness goals.
2. Streamline innovation around your purpose. We frequently see biopharma companies doing activities that are not adding value to their core competencies. Remember Novartis’ 2006 acquisition of the vaccines company Chiron Corporation for $7.5 billion? Chiron was a three-pronged company with biopharmaceuticals, vaccines, and diagnostics, but Novartis didn’t really have much experience in vaccines or diagnostics. And as Wharton’s Patricia Danzon notes, “manufacturing and marketing vaccines is … significantly different from manufacturing and marketing pharmaceuticals.” Novartis’ vaccines business struggled for several years after, including a $165 million operating loss in 2013, before being sold.
But let’s be honest, in a rapidly changing sector, it is easy to allow the sense of urgency to pull us away from our primary direction. In fact, PA Consulting Group’s Innovation Matters research shows that Novartis is not alone; 39 percent of organizations whose core purpose was growth said they were spending as much time and effort on innovation to reduce cost as they were on developing new revenue streams. A clear vision and understanding of purpose allows companies to be more agile, quickly making decisions in line with their core strategic goals and competencies.
And in fairness to Novartis, they have since righted the ship, selling off their vaccines portion to GSK and their diagnostics business to Grifols.
Abbott, another of Fast Company’s most innovative biotech companies, is also a great example of how to streamline innovation. In 2013, Abbott found itself pulled in two directions: medical device development and drug discovery. To address these competing interests, Abbott split its business into two: a medical device company (retaining the Abbott name) and a pharmaceutical company (AbbVie). By separating its interests into two different entities, Abbott streamlined its resources toward innovative medical devices and allowed AbbVie to focus on drug development. The result? An innovative new stent, Absorb, which dissolves in the body over three years rather than a more traditional stent that remains in the body for a lifetime.
3. Foster a culture of inspiration, not control. Innovation culture is far more complex than rearranging the tables in the office space or adding a ping-pong table. It requires building flat, diverse teams with empowering leaders. While there is no perfect formula for innovation, the best teams often have strong leaders who create protected spaces for experimentation so that their employees can be creative and innovative without fear of failure. Predicated on trust, these teams focus less on controlling their direct reports and more on inspiring them through a clear mission. Pharmaceutical companies are very good at creating this openness, and according to PA’s Innovation Matter’s report, 91 percent of pharmaceutical leaders say they are good at rewarding employees for innovation even if the project fails.
4. Cultivate networks of innovation. The previous three points highlight the difficult task of cultivating innovation internally for a large pharmaceutical company. For this reason, companies also need to invest in their networks and source innovation from outside. We found that 61 percent of innovation leaders have success when sourcing innovation from outside, yet only 34 percent of life science leaders have the same success.
For Johnson & Johnson, a solution to this problem is JLABS, their program that provides lab space and J&J mentorship to early-stage life science entrepreneurs at a reasonable price. JLABS’ no–strings-attached model means companies are not beholden to J&J and reflects J&J’s investment in building rapport, relationships, and trust. It’s not all altruistic, though. The pharmaceutical giant has seen real “returns on relationship,” with JLABS teams inspiring greater innovation amongst J&J employees and producing 33 new J&J collaborations thus far. This program highlights the growing importance of developing authentic relationships and inter-organizational trust building.
While our analysis found that these four critical steps are generally present in the most innovative organizations, the path toward innovation will be unique for each organization. The most successful companies are figuring out ways to utilize their unique culture as an asset to drive creativity. They are leveraging lean and agile techniques to learn from their failures and their successes. They are building innovation into the very fabric of their organization.
A company’s mixture of purpose, business design, company culture, and external partnerships will ultimately determine its innovation potential and how much change will be required to keep up with competitors. And the more successfully a company can integrate innovation, the further they can pull away from their competitors in this rapidly changing sector.
What steps is your company taking to be innovative?
Neil Saward and Steven Dry are life sciences experts at PA Consulting Group