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Today, long-term employment with one company is the exception rather than the rule. The forces of global competition, product proliferation, and consumer power have led companies to restructure their organizations to adapt to these new market forces. Securities analysts evaluate companies based on their potential to grow revenues and profitability.

The focus on the bottom line has led publicly traded firms to increase outsourcing of manufacturing and professional jobs, defined as contracting out tasks and functions deemed outside companies' core strengths. "Offshoring" is an extension of this trend. Corporate senior management takes this issue very seriously since their salary/bonus and ultimately their jobs are dependent upon stock price and market capitalization of the firm. In 2000 alone, 20% of the CEO's of the Fortune 200 were fired or forced to resign.1

Outsourcing is here to stay. It began in the 1980s when the U.S. automobile industry adopted their own form of the Toyota production system to maintain parity with the Japanese automobile manufacturers who reduced cost and increased the quality of their products.2 The gradual erosion of market share of U.S. automobile manufacturers led to the formation of "lean production" enterprise systems that are the new supply chains in many different industries (e.g., Boeing, Dell).3

These lessons have not been lost on the pharmaceutical industry. This shift was not catalyzed by a competitive threat but by the potential impact of the genomics/proteomics revolution on the drug discovery process. Leading pharmaceutical firms realized the implications of this technological shift: increasing numbers of new drug targets and the potential to develop therapeutic agents for diseases heretofore unassailable. Big pharma allied with emerging biotechnology firms who, in exchange for financial support, provided new technology and capacity to improve big pharma's drug discovery process.

Other factors accelerating change were the increasing cost of drug development and the rise of prescription drug costs that led to a stronger generic drug manufacturing industry. The "generic threat" has had a significant impact on the pharmaceutical industry, stimulating big pharma to narrow their focus on their core capabilities: building a robust drug pipeline, winning fast regulatory approval of drugs, and rapid commercialization in the worldwide marketplace. The increasing focus on these core skills has opened up opportunities for other specialized firms to participate in the U.S. pharmaceutical-biotechnology ecosystem (PBE).

Big pharma: Move from supply chains to ecosystems

The United States is the largest and most competitive pharmaceutical market in the world. It has the highest number of employees and firms that support this industry. Foreign drug manufacturers, like Novartis and others, are moving more of their research to the U.S. and are inserting themselves into this dynamic PBE whose focus is being set by big pharma to increase speed and productivity of the drug development process.

The ecosystem concept4 offers a richer context than established supply chain models because the PBE is a dynamic, growing environment. Members can use funding from big pharma to build business that potentially can compete against established companies. Millennium Pharmaceuticals epitomizes a company that is achieving this goal. In contrast, members of lean enterprise supply chains are reluctant to challenge the "assembler/integrator." This difference reflects the changes in flow within the system. For the automotive industry it is component parts/integrated assemblies, whereas in the PBE it is knowledge required for cost effective development of new therapeutic agents.

Big pharma is atop the ecosystem with capital and resources needed to commercialize new drugs. They are the integrators, orchestrating the drug development process with members of the ecosystem. Their goal is to enrich their drug development pipeline, leveraging their expertise in regulatory submission, reimbursement, and commercialization of product.

Feeding big pharma are networks of suppliers organized into tiers, much like the networks of suppliers in the automotive industry.5 The more direct the impact of the value of goods or services on the final product/service, the higher the tier (or lower the number of the tier) in the ecosystem.

-- Tier 1 suppliers provide big pharma with knowledge, material, or services that directly impact the value and productivity of the drug development process.

-- Tier 2 suppliers are the toolmakers who provide the reagents, instrumentation/integrated systems, or animals required for members of this network to efficiently perform the science required to develop new drugs.

Table 1 provides examples of firms in each tier of the network. Please note, firms in both tiers often expand their business models to provide additional products and services that benefit the PBE. This categorization is for illustrative purposes only and does not represent the breadth of products/services these firms offer the PBE.

Table 1. Tier 1 and 2 Suppliers in the PBE

Tier 1 suppliers

Knowledge, material, or services that directly impact the value and productivity of the drug development process

Types of companies

Combinatorial chemistry companies

Biotech firms for target identification

Biotech firms for target validation

High-throughput screening instruments

Contract research organizations

Examples

Pharmacopeia, PPD Discovery

deCODE Genetics, Incyte Genomics

Lexicon Genetics, Atugen AG

Aurora Instruments, Beckman-Coulter

Covance, Quintiles

Tier 2 suppliers

Toolmakers providing reagents, instrumentation/integrated systems or animals

Types of companies

Biochemical reagent suppliers

Instrument/system manufacturers

Animal suppliers

Examples

Invitrogen, Promega

Applied Biosystems, Beckman-Coulter

Charles River, Harlan Sprague Dawley

The position of the firms in the PBE can change over time based on the value they provide to big pharma. For example, in the mid-1990s, companies focused on combinatorial chemistry or technologies used to rapidly identify new drug targets were the darlings of the investor community. The rationale for this value was based on the belief that fusion of the output from both technologies in high-throughput screening procedures would lead to dramatic increase in potential drug targets.

However, a recent front-page article in the Wall Street Journal has shown that this approach has been ineffective in generating new drugs.6 It has been estimated that only one new drug has been developed from combinatorial chemistry libraries. The value in Tier 1 has migrated to biotech companies who have early-stage drug candidates.7 The reason for migration in value is clear--developing new drug candidates is aligned with big pharma's need to have a robust pipeline of products.

Eli Lilly has taken an interesting approach to tackling this problem by forming alliances with other members of the ecosystem. Lilly determines the success of the alliance not necessarily by the value Lilly alone derives, but rather by how the alliance overall is managed.8,9 There are likely to be situations where the immediate goal of the alliance was not attained. However, by designing the alliance to achieve results in the best interests for both parties, Lilly is strengthening the relationships with other members of the PBE and thus increasing the odds of getting the best technologies and drugs into their firm.

Preparing for a career in the pharmaceutical-biotech ecosystem

What does the above mean for college graduates who desire a fulfilling career with companies in the U.S. PBE? As future employees in this industry, graduates must take the lessons of the ecosystem to heart.

First, increase the value of your skills so it can benefit yourself and your employer. For new graduates this means going to graduate school and training in laboratories with intellectually stimulating environments. If this course is not for you, start off working as a technician in a university research laboratory with the same challenging environment. In either case, learn all you can with the time you have. You alone will benefit from this effort.

Second, understand the dynamics of value shifts in the PBE. This is critical not only for building skills that are needed in the ecosystem but also increases your awareness of companies who fit your goals and aspirations. The best way to improve your grasp of these shifts is to begin to develop an interest in technology management. New concepts such as disruptive technology10,11 and open innovation12 are changing the way established companies are developing new products.

Third, engage in dialogue with others who are more experienced than you in this field. It has been estimated that 40 different states have significant biotechnology initiatives. Find out how you can interact with technology-savvy scientists and businesspeople in this group. If you are lucky to be in the nine metropolitan areas who are biotech kingpins--Boston, San Francisco Bay Area, San Diego, Raleigh-Durham-Chapel Hill, Seattle-Tacoma-Bremerton, New York-Northern New Jersey, Philadelphia-Wilmington, Los Angeles, and Washington-Baltimore--then you are more likely to find an informal/formal organization that will meet your needs.

And lastly, remain a lifelong student. The waves of change from the genomics/proteomics revolution are just beginning. The opportunities for technology-astute scientists and businesspeople are likely to abound in the future.

References

  • L. Bossidy and R. Charan, Execution, the Discipline of Getting Things Done (Crown Business, New York, 2002).

  • J. P. Womack, D. T. Jones, and D. Roos, The Machine that Changed the World (Harper Perennial, New York, 1990).

  • J. P. Womack and D. T. Jones, Lean Thinking, Banish Waste and Create Wealth in Your Corporation (Free Press, New York, 2003).

  • J. F. Moore, The Death of Competition, Leadership and Strategy in the Age of Business Ecosytems (Harper Business, New York, 1996).

  • R. C., McCarthy, "Linking technological change to business needs," Research Technology Management 46, 47 (2003).

  • P. Landers, "Drug industries big push into technology falls short," Wall Street Journal Eastern Edition, 24 February 2004, p. A1.

  • T. Agres, "Alliances eye early-stage drug deals," Drug Discovery and Development 6, 17 (2003).

  • D. E. Thompson, "Get big enough (but not too big) to source innovation," Research Technology Management 44, 22 (2001).

  • D. Futrel, M. Slugay, C. H. Stephens, "Becoming a premier partner: measuring, managing and changing partnering capabilities at Eli Lilly and Company," J Commercial Biotechnology 8, 5 (2001).

  • C. M. Christensen, The Innovator's Dilemma, When New Technologies Cause Great Firms to Fail (Harvard Business School Press, Boston, 1997).

  • C. M. Christensen and M. E. Raynor, The Innovator's Solution, Creating and Sustaining Successful Growth (Harvard Business School Press, Boston, 2003).

  • H. Chesbrough, Open Innovation, the New Imperative for Creating and Profiting from Technology (Harvard Business School Press, Boston, 2003).

  • Robert C. McCarthy, Ph.D., is head of Foresight Catalyst L.L.C., a consulting company in Carmel, Indiana, providing services for companies seeking to improve technology management and integration into new products/services for the biotechnology and health care industries.