Welcome to the Business Journal Archives
Search for articles below, or continue to the all new BusinessJournalDaily.com now.
Search
Schering-Plough CEO Outlines Pharmaceutical Industry Challenges
PRINCETON, N.J. -- Fred Hassan, chairman and chief executive officer of Schering-Plough Corp, outlined the confluence of difficult challenges facing the global pharmaceutical industry and their implications for the future at a recent colloquiuim at Princeton University.Calling the current industry environment "unprecedented," Hassan identified three of the most important challenges confronting the global, research-based pharmaceutical industry: the challenge of intensifying complexity; the challenge of sustaining product flow; and the challenge of earning stakeholder trust -- "in a fashion that will nurture the innovation- friendly environment that is required to discover new medicines for the future."The pharmaceutical industry has long been one of the world's most complex, said Hassan, "but today that complexity is accelerating at a spectacular rate."He cited several facets of this challenge, beginning with the increase in internal complexity of organizations, systems and processes. This is occurring within companies because of the need to increase the number of collaborations within and between research and development, the commercial organization and the supply chain, all of which are designed to maximize the speed and quality of the flow of new products from the laboratory to the physician and patient. "This collaborative, interactive approach is the right way to do a better job. But it creates intense levels of complexity in the interactions within the functional and business units -- and between them," Hassan said.The rapidly growing role of business partnerships further adds to the industry's complexity. "Today, success increasingly depends on an ability to create and sustain savvy partnerships in almost every area of our work," Hassan said, including the licensing of enabling technologies, drug targets, early and late-stage compounds, and agreements for joint product sales and marketing. But this activity requires greater coordination between internal units and external partners, which may come with different cultures and operating systems.The complexity continues to increase, often geometrically, as global pharmaceutical companies merge. "An increase in size also brings disproportionately greater management challenges in this industry," Hassan noted. "Paradoxically, these extremely large organizations depend in many dimensions on high-innovation work and intensive small group collaboration."Observing that science innovation occurs best in "small, entrepreneurial environments," Hassan said, "A very serious and growing challenge for our industry is to see whether we can create a small company environment in a very big company organization."A further dimension of industry complexity stems from the increasing importance of the U.S. pharmaceutical market over the past two decades. Hassan pointed to two factors: the spread of price controls in Europe, and the emergence of U.S. preeminence in the biosciences. The result is greater earnings volatility when major products fail or lose their exclusivity in the U.S. market.The second major challenge for global pharmaceutical companies involves sustaining product flow, said Hassan. With the "lower-hanging fruit" for medical discovery now largely harvested, "One of the greatest hurdles our industry faces is the difficulty and cost of identifying innovative new drug targets and new lead compounds, and bringing them to the market as fully developed drugs."Areas of greatest medical need -- such as cancer and Alzheimer's disease -- are proving very difficult to understand and target. Hassan believes these tough diseases will become better understood and new medicines to treat them will be created, but added that "The time it will take to achieve the breakthroughs and the cost will be substantial."Added to this are more demanding requirements on the regulatory side for conducting clinical studies and submitting product applications. On the manufacturing side, requirements for quality and process integrity have also become more demanding.Hassan offered two suggestions for companies dealing with the difficult goal of achieving steady product flow. The first is to place an intensive focus on "science excellence," which means respecting the science and placing high value on scientific accomplishment. "We mean that we apply science knowledge at every step of product flow, right through to life cycle management -- and the possible switch of a compound to over-the-counter status."The second is to adopt an "intensive, cross-functional and collaborative approach to building a product-flow process." At Schering- Plough, for instance, the Customer-Centered Product Flow system involves close collaboration between the various units within R&D, marketing and manufacturing.Finally, Hassan addressed the challenge of earning stakeholder trust while sustaining an innovation-friendly environment. "We know from history and experience that the best way to bring new medicines to life is in a free market, entrepreneurial environment -- an environment that nurtures innovation and rewards it," he said. "But this reality comes into collision with emotional and social forces that demand health advances at little or no cost, and that often rebel against the concept that health innovation is costly, and that it also must be encouraged by reward for the innovators."The pharmaceutical industry as a whole needs to respond in a more effective way to this challenge, Hassan maintained. "We are often distressed by the fact that the social value we deliver in the form of better lives, and longer lives, is not appreciated as much as it should be. We are also distressed that attacks on the price of pharmaceuticals threaten our ability to invest in R&D and other long-term investments -- the investments that are essential for creating important new treatments."Hassan urged the industry to continue working to build common ground with its diverse stakeholders. "We do need to acknowledge that we are a special industry because of our critical role in creating health solutions," he said. "We also need to educate and inform stakeholders about the importance of appropriate pricing of pharmaceuticals, so that we can develop new innovations for the future. We cannot get this innovation for free.""Positive engagement" is also needed from one critical group: the policy makers who in many ways define the business environment and have powerful influence over public opinion. "It is unfortunate that Europe, which used to be the center of the pharmaceutical industry, has now lost that position through the widespread imposition of price controls and other actions that have inhibited innovation and driven away pharmaceutical investment. It is also unfortunate that so many political figures in the United States have chosen to attack the free market environment for pharmaceuticals and advocated price control actions -- all for short-term political gain. These actions, of course, are harmful to our industry. But the deepest harm will be to citizens of the future -- our children and their children -- who may not see the great new health innovations that our industry could create, for want of an innovation climate."One of the industry's greatest challenges is to identify ways to encourage positive, responsible engagement in health care innovation by elected officials and those who drive policy in this country and elsewhere, he said.Schering-Plough is a global science-based health care company with leading prescription, consumer and animal health products.Visit Schering-Plough Corp.: www.schering-plough.com"