Marketing Decisions

The blog of LHL Partners, LLC. The blogger is (often) Rick Lightburn, Chief Knowledge Officer of LHL Partners, with his observations about marketing. Our main page is at http://www.lhlpartners.com

Tuesday, April 25, 2006

BIO 2006: Discovery, Diagnostics, Development/

Several sessions at BIO 2006 were interesting to me because they indicated the need for a marketing orientation, or at least a market orientation (as if there were a difference).

Discovery beyond blockbusters
A central focus in Biotech is on discovery: prototypically, this is drug discovery, but discovery has much the same importance in diagnostics or in genetic engineering. But the mistake that many bankers, scientists, or managers is to assume that, because it is the most important part, discovery of a molecule, marker, or gene is the ONLY part of biotechnology. When anyone recognizes that successful commercialization is important, they generally mean the scaling up to commercial quantities of the biochemical processes that produce and isolate the molecule, etc., not the building of a business.
An (unfortunate) consequence of this concentration on discovery is a focus on 'blockbusters:' in essence, a drug that would "sell itself." Since the blockbuster model makes sense in pharmaceuticals (slightly in agbio,) but not in diagnostics and devices, there is a limiting of attention to pharmaceuticals. But blockbusters, and the growth in R&D productivity they herald, have stalled recently.

One very interesting breakout session at BIO 2006 had the title "Successors to the Blockbuster Model: Reversing the Decline in R&D Productivity and Prescription Drug Revenue Growth, chaired by Robert Easton of Easton Associates. Mr. Easton, a longtime observer of the healthcare industry, felt that there were four reasons for thinking that dynamic growth would re-emerge:
  1. Demographic and Economic Trends
  2. Developments in Science and Technology
  3. Recent developments in payors and public policy
  4. New Marketing Strategies and Tactics
Since the other particiants in the panel were all distinguished scientists from the pharmaceutical sector, they all concentrated on the hope that developments in science could reignite blockbusters. But the other three factors are all market and customer factors. (One participant in the session DID discuss that there needed to be a focus on new therapeutic areas, and that increased patient compliance could produce substantial increases in revenue. To my thinking, these are also market or marketing issues, albeit addressed from a technical view.)

Diagnostic Value
Two sessions from the Devices and Diagnostics track are worth mentioning:
The session Venturing into Diagnostics: Realizing the Value of the New Diagnostics, the Value in question was the value to the investor in (or maybe the developer of) a new diagnostic. This overlooks the fact that it is the customer, and ONLY the customer, who creates value.
The session (previously mentioned) Who's Going to Pay for It?" (which got its own page here) did at least recognize that getting someone to pay is at least as important as the questions of "Is the Science there, can we manufacture it, and will the FDA approve it?" While it these latter questions that are considered first, to a marketing sensibility it is the prior question that ought to be considered. In practice, they are not. This has to lead to waste of time, energy and money.

This issue is very dynamic and reflects a trend outside of biotech. The spread of "evidence-based medicine" is altering how doctors are taught and how they practice. ("Six-Sigma" programs in manufacturing and service have a very similar orientation.) But EBM, and the accompanying Clinical Practice Guidelines, are controversial. As medicine begins to understand disease on the molecular level, medicine will become more personalized. This will require coordination between therapeutics and diagnostics, reverse the information flow between sales and discovery, and will further erode the 'blockbuster' model. It will require data-handling techniques that may challenge notions of privacy.

But these data-handling techniques, the intra-company coordination, and personalized medicine will all be more effective with a patient focus, that is, with a marketing focus.

Similarly, "cost-effectiveness" starts to come into view (although the FDA is, I believe, prohibited by law from using it in approving or disapproving a therapy or procedure.) Bringing cost-effectiveness into U.S. health care will require some policy decisions, and the introduction of a certain kind of economics into social morality. I don't know if we, as a country, are ready to go there.

Strategic Development
A session in the Emerging Company Issues track ultimately highlighted (to me, at least) that many of these emerging company issues are marketing issues, or at least market issues.
The session "Remaining on Strategy Against All Odds" had more than just an amusing title. In some way, it was a mirror-image of the session on blockbuster drugs: there the panelists (except for Easton) were all from emphatically the 'science' side of the business. In this session, on the other hand, the panelists were all from the 'business' side (or as it is sometimes called, "The Dark Side.") The chairman was a EVP in charge of therapeutic-area of a medium-sized international pharmaceutical manufacturer, and the panelists included the director of strategic marketing for another pharma, the CEO of a specialty pharmaceutical manufacturer, and the VP of commercial operations of another, and an influential consultant.

The consultants all addressed the substantial challenge of staying on strategy. (Because Intellectual Property is so well structured in the pharmaceutical industry, licensing is a well established tactic in biotechnology. Try as some might, it will never become a strategy, since it isn't sustainable.) Firms are tempted to license whenever they are presented with a challenge: a big firm with not enough in the pipeline can always in-license some patent, and a small firm with not enough capital might be able to out-license its patents, or in-license an uncommericalized product and get it through testing and development. A small firm with a commercialized, approved product might use another firm to do its sales and marketing. The financial advantages of licensing can be substantial.

But each of these tactics has the potential of taking a firm 'off-strategy:' if they out-license, they risk losing control, and be dragged into new and different market segments; if they in-license, they have different control risks, and may need to grow unanticipated capabilities. Even NOT licencing has some dangers: you may have started as a simple drug discovery firm, but in order to capitalize on your discoveries, you end up developing testing and selling capabilities that are wrenching to your firm's original culture and strategy, and then market capabilities. Large firms and small firms address this challenge in different ways.

One consultant observed that only a few firms ever actually make it to the point of having these kind of problems: a firm should be so lucky as to get past the various tests and approvals.

So there are financial and cultural consequences to business development -- what's this got to do with marketing? Well, there's only a thin line between marketing and business development. In its weakest form, 'marketing' generates the materials that a business development function needs; with a customer focus that only strong marketing can provide, business development can be stronger.

== Rick Lightburn


To see the first part of my comments on BIO 2006, click here.

Thursday, April 20, 2006

April 2006 PDMA Chicago Meeting

On Tuesday, April 18th, I went to the April Meeting of the Chicago Chapter of the PDMA (Product Development and Management Association) which featured a presentation by Abbie Griffin who is at the University of Illinois' College of Business. Her presentation was entitled "Voices From the Field: How Exceptional Electronic Industrial Innovators Innovate."
Dr. Griffin presented a qualitative analysis of descriptions of the innovation experiences of several leading innovators within large, established organizations. It is important to look at successful innovators within large organizations since there can be tensions between innovative creativity and bureauocratic conformity. Several prior studies looked at innovation by entrepreneurs or innovation within an academic or research institution, private sector businesses can have different standard of success and different cultures. While creativity may have common features across all environments, the challenges of developing and implementing innovations may vary.
Successful new product development is related to several factors -- the use of a process, cross-functional teams, and qualitative marketing research, and a new product champion. While all of these are associated with successful new product development, none is necessary or sufficient. But prior to any process, there is a 'fuzzy front end' of new products, where they are 'hatched.'

Here's the key point of her research, as I understood it:
Exceptional innovators -- innovators who have had both commercial success and introduced big changes to their companies and industries -- not only have
exceptional technical knowledge and organizational and political skills but most importantly a focus on their customers and their needs, so much so that they do their own market research. If they distain marketing research, it is because the research that they need isn't produced or communicated by the marketing departments in their companies.

My thinking lately has been focussed on biotech (see my earlier post on BIO 2006), I reflected on how Dr. Griffin's finding would apply there.

== Rick Lightburn

Monday, April 17, 2006

BIO 2006: Exhibits, LHL Partners, Marketing, PR

Last week I attended the Biotechnology Industry Organization 2006 conference, in particular some breakout sessions and looked around the exhibit-hall floor. A major part of BIO are the many presentations by new firms to the investment community in the 'Business Forum.' I didn't see any of that.

The Exhibit-Hall Floor
I'm not a great schmoozer, so I may have a somewhat jaundiced view of the exhibit hall floor.

Overall, it reminded me and others of a goldrush. Many remember the boom that Information Technology saw in the 1990's -- Microsoft, Oracle, Sun, Intel, Dell, etc. -- and don't want to miss the next one which they believe will be biotechnology. So many U.S. states -- from Massachusetts to Hawai'i -- and countries -- from Sweden to Malyasia -- sponsored complexes on the exhibit floor, with the hope of getting the next big biotech firm. Companies all hope to be the next Genentech, while the governments at least hope to keep whatever companies or facilities that now reside within their borders. So many U.S. states envy California's Silicon Valley and the IT areas around Boston and Austin, that they want to snag the next one.

It ought to be cautionary to many players in the industry to recall that the best way of making money in a gold rush is to sell pick-axes to the miners. While California has many illustious names and fortunes that date back to its Gold Rush days of 1849, most of those fortunes weren't made in the gold fields: they were made in banking, transportation or retail. Superiority of product -- the quest for the next big thing -- may not be the thing: Bill Gates made his fortune at Microsoft with products that many claim aren't very good.

One panel member at a session (my recollection is weak: either a journalist from the Chicago Tribune or a former journalist now a PR agent) remarked that for all the gold-rush mentality, only venture capitalists had made money in biotech. Also, for all the bicoastal emphasis on drugs, agbio had a substantial presence in the Midwest, and agbio HAD made money. Agbio and industrial biotech may not have the glossy shine that therapeutics or even diagnostics have, but they at least are making money.

What was in it for LHL Partners
Overall, much of the Biotech Industry isn't ready for customer marketing, or at least they don't thing they are. It is much more important -- at least in their minds -- to get money from investors, to manage 'Intellectual Property,' to get governmental approval of its products, or to establish the right kind of partner relationships with the right partners. (I continue to be impressed with the pervasiveness of strategic partnering in the pharmaceutical and health-care industries. Such relationships are alien in spirit to my hypercompetitive background, but actually a very good thing.)

Some of the industry knows it needs to think about marketing and sales -- typically the larger and more structured players. There is a deep distrust between the 'scientific' and 'business' sides; the business side is of course known as the 'dark side' (possibly because everyone in the industry is a 'Star Wars' nerd); and marketing has to be the darkest of the dark side. So there is an easy confusion between 'marketing' and 'bureaucracy.' (If you ask me, such confusion is completely wrong.)

But even when they might not own up to it, there were a lot of 'marketing' issues, beyond say the manufacturing and discovery issues. One session in the Devices and Diagnostics track was entitled "Who's Going to Pay for It?" -- which certainly seems like a marketing issue to me; not too suprisingly, therefore, one of the participants in that session identified herself as a 'marketing researcher.' (Advanced diagnostics have challenges getting insurance or Medicare to pay for them, as opposed to therapeutics. They're not insurmountable, but they're tricky.)

Marketing
There actually was a session devoted to marketing, but the connections between what was presented and the rest of the conference were, to my tastes, kind of thin.

A marketing professor from a top business school gave a presentation on an analysis of the response to physician detailing, using data from the introduction of an ED drug. His results ranged from the profoundly obvious -- that detailing by the sales force has an effect, that some physicians are more responsive to detailing than others, and that pharmaceutical firms are effective in determining who are which -- to the scientifically uninformed -- supposedly distinguishing between an 'informational' effect versus a 'marketing' effect (marketing uses the communication of information; anything that is communicated is ipso facto information.) He then discussed an 'optimization' of the timing and amount of sales force effort that ignored the fact that the sales force is (at least in the short run) fixed in size and capabilities: you can't just shift detailing calls from one time to another.

The operations manager of US marketing for a large pharmaceutical firm gave a presentation of how his firm developed and executed a strategy for the introduction of a lifestyle drug. As this drug had both a direct-to-consumer and a physician component, it faced the challenge of coordinating the message between the several communications channels. His firm addressed this challenge with intelligence, and yet also learned from their mistakes, and even owned up to them.

A marketing strategy and research consultant from Chicago whom I've known for many years gave a rather general presentation on innovation, drawing equally from the work of Everett Rogers (that some consumers adopt innovations earlier than others) to some work by Larry Kiely of the Doblin Group (that there are ten types of innovations). I pretty much agree with these ideas about innovation, and think that they can be pretty useful. But it isn't clear to me how they could be applied to Biotechnology, and the consultant didn't make any effort to do so.

Media Relations
The session "Biotechnology Innovation and the Media: Assessing the Cost of 'Hyping' Expectations" included the health and wellness journalist from the Chicago Tribune, a VP from the PR firm Hill & Knowlton and the VP of Partnerships and Technology from a large Midwestern university. They made the standard points about press relations, which was summarized by Abraham Lincoln many years ago: You can fool some of the people all of the time, and all of the people some of the time, but you can fool all the people all the time. Journalists are quick learners and possibly are smart to begin with, so you can't fool them more than once, if even that. They also have strong demands on their time and energy, so if you can't get your story out quickly and directly, then you've no story.

But the session never went beyond press relations and how to get a story out through it. It wasn't even clear that a consensus on 'hype' emerged -- some of the panelists seemed to doubt its existence. So assessing the cost of hype was well outside of scope.