Pharma industry facing three major challenges, says Schering-Plough ceo

The global, research-based pharmaceutical industry is facing an 'unprecedented' confluence of difficult challenges, according to Fred Hassan, chairman and ceo of Schering-Plough Corporation - the challenge of intensifying complexity; the challenge of sustaining product flow; and the challenge of earning stakeholder trust.

In a keynote speech to The Pharma, Biotech and Device Colloquium held recently at Princeton University in the US, he said the pharmaceutical industry has long been one of the world's most complex, 'but today that complexity is accelerating at a spectacular rate'. The internal complexity of organisations, systems and processes has increased because of the need to increase the number of collaborations within and between research and development, the commercial organisation and the supply chain, to maximise the speed and quality of the flow of new products from the laboratory to the market.

'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, including the licensing of enabling technologies, drug targets, early and late-stage compounds, and agreements for joint product sales and marketing further adds to the industry's complexity. But this activity requires greater co-ordination between internal units and external partners, which may come with different cultures and operating systems, he warned.

And the complexity continues to increase as global pharmaceutical companies merge. 'An increase in size brings disproportionately greater management challenges in this industry,' Hassan added. Paradoxically, he pointed out, these extremely large organisations depend on high-innovation work and intensive small group collaboration. '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 organisation.'

The spread of price controls in Europe and the emergence of US pre-eminence in the biosciences has resulted in the increasing importance of the US pharmaceutical market over the past two decades. The result is greater earnings volatility when major products fail or lose their exclusivity in the US 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, he said, one of the greatest hurdles 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.

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 achieving steady product flow. The first is to place an intensive focus on what he called science excellence. '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.

Finally, Hassan addressed the challenge of earning stakeholder trust while sustaining an innovation-friendly environment. 'We know from 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.'

He believes that the pharmaceutical industry needs to respond in a more effective way to this challenge and urged it to continue working to build common ground with its diverse stakeholders. 'We 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.'

Hassan added that '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 centre 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,' he said. '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 who may not see the great new health innovations that our industry could create, for want of an innovation climate.'

He concluded by saying that to respond effectively to these three major challenges the pharmaceutical industry must work intensively to reinvent itself. 'If we can do that, I believe we can and will surmount these challenges - and play our part in delivering better health to future generations.'