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Thursday Night Keynote Address: Israel Makov, Chairman, Given Imaging, and Former President and CEO, Teva Pharmaceutical Industries, Ltd
Presentation Title: Knowledge Synergies – the new paradigm of Innovation
Will this crisis transform our lives? Every economy and industry undergoes a transition. This happens through a disruptive event that can come from various sources- economic, political, an introduction of new technologies… There are losers and winners from the transformation process. The losers are late to recognize the opportunities and threats that a transformative moment brings. The winners are those that foresee the transformation and are the first to envision the scope of new opportunities. The winners will be the first to move and develop new opportunities connected to transformation. They excel in maximizing the opportunity of transformation.
Teva developed this idea into a model:
Path to leadership – model at Teva
In 1995 Teva foresaw the consolidation of the generic industry. The company identified the scope of opportunity that the consolidation process would offer to the generic industry. Teva differentiated itself by economies of scale and scope. As a generic company, it couldn’t differentiate on product, but could do so on the scope of the product offering. Therefore, Teva adopted an M&A strategy that made the company the market leader.
The results of this decision were 30% CAGR in net income and a net profit that increased by more than 30%. The bottom line grew at a faster rate than top line, which meant that all of the acquisitions were successful and accretive to earnings.
Teva led transformation to a Global scope
Teva was proactive by challenging patents that were not valid. Teva was successful in these challenges and brought generic versions of products to market earlier, saving hundreds of millions of dollars to the Health Care industry. This trend impacted the industry and the lifecycle of a branded drug was permanently changed.
Pharmaceutical and Health Care Industry are on verge of new transformation process
Large pharmaceutical companies are struggling to find winning strategies. All of the latest sales strategies do not address the fundamental problem in the industry –lack of innovation.
Challenges for the pharmaceutical industry are at an all-time high:
- Generic competition
- Pricing pressures
- Sales and marketing challenges
- Manufacturing challenges
- Tighter FDA regulations
- Historically low R&D productivity
- $120b in global branded sales are losing patent protection.
How will big Pharma break the siege?
- Increase M&A product acquisitions
- Diversify offerings
- Focus on biopharmaceuticals
- Reduce costs across the value chain
- Extend prod lifestyles
- Enter generics
These strategies, however, will not address the fundamental challenges noted above and are not sustainable. The competitive arena of health care encompasses: patients, providers, payers, regulators and companies - each with its own objectives.
There is much unproductive expenditure in the current health care system. The total unproductive “waste” in the system in 2007 was $2.3 trillion; it is projected to grow to $13 trillion by 2050. As an example, only 25% of cancer treatments are effective. This success rate would not be acceptable in any other industry. The system needs to change and increase productivity and output of the system.
Knowledge Synergies: A new paradigm of innovation for industry
Today, these activities are performed in silos. There are new companies building separate solutions for disease. Imagine breaking the silos to enable researchers to interact with other researchers from different knowledge centers to gain insights and knowledge, share and solve challenges, all under one roof. This process would change the stimulation of creativity and innovation.
This paradigm can be achieved in Pharma by merging this knowledge around therapeutic areas and removing the walls from the silos.
Realistic?
A simple example of such a company can be drawn from nine existing companies working on innovations in ischemic stroke – a leading cause of death and disability in the US - in late and early stage development.
Companies include:
- Molecular diagnostics
- Devices
- Innovative compound therapies
- Biologic therapies
Following this new model and merging these companies to arrange their specialties in terms of knowledge synergies would provide the largest knowledge base on ischemic stroke in the world. This would be one of the most powerful and innovative companies.
How can one merge these companies? Funding is necessary. This represents the big opportunity for Pharma, which has traditionally excelled in accumulating cash. This new company illustrated above needs a few million to accomplish integration with future investment at later stages. There would be opportunity to spin off a second company and build syndicates.
This model increases innovation by many folds and develops a comprehensive approach to disease.
This model is not theoretical; it can be done with effective leadership. This new leadership will need to follow the theme – catalyze change. Be the first to imagine a different structure for the industry.
This model returns the focus to care impacts, and patients will benefit most – because companies can increase effectiveness of therapies from 25 % - 65% - 85% and ultimately to 100%.
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