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*How the forces of globalization, demography, and technology are reshaping the pharma market *

How the forces of globalization, demography, and technology are reshaping the pharma market

Ive just about completed the research interviews with CEOs of most of the sectors players for my book about the evolution of the pharmaceutical industry.

Im now grinding that data through a theoretical analysis based on evolutionary economics, which predicts how business models might speciate in response to environmental changes.

This analysis is pretty heavy stuff. Not even a strategy geek like me could find it exciting. Nevertheless, I am very excited. Why?

Central to evolutionary theory is the idea of a fitness landscape.

This is the way evolutionary scientists think about the environment and how well or otherwise species survive and thrive in it.

Im using these ideas to predict how the forces acting on the industryglobalization, demography, technology, and so onwill shape the market.

The theory predicts that these forces will expand and shape the fitness landscape of the pharmaceutical industry so that a number of new habitats will be created and, consequently, a number of new business models will evolve to fit these new habitats.

Equally, of course, existing business models will become extinct unless they are lucky enough or adaptive enough to fit the landscape.

My work on fitness landscapes and the way new business models speciate is what I find so exhilarating.

Future business models

Developing truly new ideas is, to use the clich, 99% perspiration and 1% inspiration.

One can never predict when the 1% will pop up.

Ive been working for months now on the 99%planning and executing the research.

As Ive done so, Ive developed a half-formed model of how the industry will speciate and, therefore, of what future business models will look like.

But it has been half-formed, lurking in the shadows between my conscious and unconscious minds, not ready to come out yet.

And then, in two episodes this week, it leapt out into the open.

The first episode was thanks to Starbucks and First Capital Connect, my local train company.

The train shook the latte inside me as I travelled to London to meet a client.

The combination of caffeine and jiggling inspired me to sketch out my ideas about the fitness landscape into a three-dimensional diagram, which predicted a number of habitats.

I was able to fit those habitats to a number of emerging business models that are not yet fully formed, but whose antecedents do exist.

The correlation between the theory and the research data was almost perfect.

Except there was a gap, part of the future market landscape to which none of the emerging business models seemed to fit, or didnt fit well anyway.

I got off the train feeling as much irritated by the gap as I was delighted by the otherwise perfect data fit.

Mind the gap

Later in the day, with the client meeting successfully closed, I went home via the gym.

The cross-trainer did its work; I finished feeling that nice adrenalin buzz and headed to the cafe for my customary cup of English Breakfast Tea.

Now, one of the many things I like about my gym, aside from the lovely tea and comfortable sofas, is that they get the Financial Times.

As I sat down to read it, that niggling gap in my fitness landscape map retreated to a corner of my mind, just like when I send my three-year-old to the naughty corner.

A headline caught my eye: Nestle to take on drugs industry with stand-alone drugs business.

The story was about the Swiss food groups move into what we loosely call nutraceuticals and the idea that clinically active foods could maintain health.

The story was interesting in itself, with Paul Bulcke, Nestles CEO, talking about the market between food and pharmaceuticals.

But what got me excited was the link between the news story, the diagram Id drawn on the train, and orchids and moths.

Darwin and pharma

The journey from esoteric management research to orchids and moths, via Starbucks, the train, and a cross-trainer, is pretty erratic, but bear with me.

The gap in my fitness landscape diagram meant one of two things: Either evolutionary theory was wrong (possible, but then a lot of people much brighter than myself were also wrong and that seems unlikely) or there was a business model that I hadnt found yet that fit the gap.

The same kind of thing happened to Charles Darwin.

In 1862, he wrote about an orchid from Madagascar that had tubular nectaries nearly 30 cm long.

Since these flowers are usually pollinated by moths, he predicted that there must be a moth, not yet discovered, that had a 30-cm proboscis.

That such a moth exists in Madagascar may be safely predicted and naturalists who visit the island should search for it with as much confidence as astronomers searched for planet Neptuneand they will be equally successful, he wrote.

Forty years later, naturalists found just such a moth.

Darwin used evolutionary theory to predict the existence of species that had not yet been discovered.

Im using exactly the same theory to predict pharmaceutical business models that have not yet been tried.

The discovery of the Madagascan moth vindicated Darwins theory; the decision by Nestle supports the rest of my predictions.

Thats not the same as proof, but its a step in that direction.

So thank you, Mr. Bulcke, for being my moth.

Dr. Brian D. Smith is an author, academic, and advisor in competitive strategy in medical markets. He is editor of the Journal of Medical Marketing, a research fellow in the marketing and strategy unit at the Open University Business School, and runs specialist strategy consultancy Pragmedic.

For more pieces from Brian D. Smiths future of pharma series, see Do you know what a value proposition is?, Managing complex markets and When it comes to strategy, one size does not fit all.