KORN/FERRY INTERNATIONAL
Drug and Device Combinations - The Leadership Challenge by Dr. Richard M. Arons and Robert Ferguson
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ver a decade ago, many major medical device companies were divisions of broad life science companies having both pharmaceutical and medical device product offerings. To cite a few examples, Pfizer owned Valley Lab, Schneider and Howmedica. Eli Lilly's assets included ACS, Physiocontrol, IVAC, and Cardiac Pacemakers Inc. IMED and Reichert were part of Warner Lambert, and Squibb counted Edward Weck and Zimmer among its holdings. These medical device divisions, in general, operated autonomously. Little synergy or interaction with the parent company occurred, as the parent's business strategy primarily focused on the development of blockbuster drugs. Consequently, career opportunities for executives at medical device divisions were usually limited to those within the division. Talent within the pharmaceutical divisions pursued a track specific to the pharmaceutical industry. Segregation of the pharmaceutical and device entities eventually leant support to the conventional wisdom of the day: device companies were a drag on earnings and a distraction from the more lucrative pharmaceutical side of the business. Most pharmaceuticals sold their medical device divisions or spun them off into separate organizations like Guidant. Only a handful of diversified life science companies kept their device entities, the most notable being Johnson & Johnson. Current Strategy - Drug/Device Combinations Fast forward to 2003. Business strategies of select life sciences companies have shifted from an exclusive focus on creation of blockbuster drugs to development of products combining pharmaceuticals and devices. Why the shift now? The boom in the drug-coated stent market has drawn attention to drug infused medical devices and the tremendous growth potential for such products. Never before has there been such great interest in the synergies offered by combining pharmaceuticals and devices. Witness the unprecedented impact of a single type of product, J&J's drug-eluting Cypher stent and the soon-to-follow TAXUS stent from Boston Scientific. Combined revenue forecasts for these two products exceed a stunning $4 billion. This reception signifies not only the tremendous clinical importance of bundling active molecules and medical devices into a single product, but the market influence on organizational strategy and the need for effective execution.
Other combination products in various stages of development include orthopedics such as bone morphogenic growth factors coated onto implants and in spinal stabilization devices (i.e. Medtronic's BMP II); surgical devices for use in infection control, adhesion protection, and tissue growth; and "site-specific" drug delivery, including drugs delivered directly to the central nervous system and locally implanted chemotherapeutic drugs. The Human Capital Dimension of Strategic Execution How do life science companies with combination products position themselves to execute strategy effectively? In the face of unique market demands, the most critical factor to strategic success for these organizations is the collaboration and integration of key functional areas to drive execution. Ideally, the functions must possess the ability to excel in the dual realms of devices and pharmaceuticals. Examples of key functional areas include Regulatory Affairs, Quality Assurance, Research & Development and Manufacturing. With respect to drug and device products, these functions should have the specific knowledge, competencies and experience vital to business execution across the two dimensions of the organization. Especially imperative is Regulatory Affairs, where governmental and consumer pressure to authorize effective and new modalities of treatment is strongly felt. Regulators, however, are cautious to initiate new products particularly when drugs from reputable pharmaceutical companies fail in the market place. The drug-device combinations create new regulatory challenges, causing Regulators to align with R&D for assistance. The result is a great demand for senior regulatory professionals with the wisdom and experience to work in partnership with governmental bodies such as the FDA (Food and Drug Administration), EMEA (European Agency for the Evaluation of Medicinal Products), CDRH (Center for Devices and Radiological Health, CDER (Center for Drug Evaluation and Research), and CBER (Center for Biologics Evaluation and Research) to establish a proper regulatory framework. At an equal premium is the executive's ability to coordinate vastly different project groups. More often than not the head of the R&D group may come from device or drugs, but rarely have experience in both. For an R&D executive to effectively create a strategic research platform, they must understand what drugs are available to treat unmet needs in the market and also the devices available that can serve as the delivery method for these drugs. R&D is the combination of product development, business strategies and corporate alliances all unified in to one key role. In addition to their technical expertise, R&D executives also must possess superb project management and leadership skills in order to guide functions that may not have fallen under their management at traditional drug or device companies. Additional functions include device design, formulations, pharmacology, drug delivery, analytical chemistry, polymers, and materials to name a few.
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Talent Requirements for Drug/Device Strategy Execution
Availability
Finance
Sales
Tech.Service
Marketing Bus. Dev.
HR Mfr. CIO
Gen. Mgmt. Quality R&D/Clin./Med. Reg.
Criticality for Execution
The ability to function in both the device and pharmaceutical environments is less critical to other roles. Certain functions such as Legal, Information Technology and Human Resources can execute their general responsibilities without regard to the complexities imposed by a drug-device combination. While the knowledge to operate in the duality of drugs/devices is at a high premium, the talent that actually possesses this competency is in severely short supply. Today, few organizations have both drug and device businesses under one umbrella, and those that do often have each side operating disparately. The challenge to leadership is to bridge the gap between the cultures and knowledge requirements, to foster and secure individuals with both halves of the puzzle and to supply the talent necessary to drive strategy going forward. Meeting Leadership Challenges Companies dedicated to becoming major players in the drug-device market have several options for meeting leadership challenges. First, they can recruit experienced individuals from the limited number of organizations having successfully produced drug-device products. These organizations have already dealt with the specific issues of regulation, product development, and manufacturing in a mixed environment. Examples of such recruitment targets are drug delivery systems companies, or some of the leaders of this new trend in orthopedics, cardiology, or chemotherapy. A second strategy is to recruit individuals who have lived in both, albeit separate, worlds of pharmaceuticals and devices; people who have "crossed over" between drugs and devices. Such individuals are rare by virtue of the historic separation and decentralization of these entities.
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A third strategy is to create a dyad of leaders who share responsibility for specific project functions, such as the research or manufacturing organizations. Initially, this option may be viewed as a costly and inefficient overlap. However, companies choosing this approach find the solution to be pragmatic and expedient. Regardless of the option a company selects to meet the leadership challenges of developing, manufacturing and selling products that incorporate active chemical entities into therapeutic medical devices, one thing is indisputable. There will be unprecedented competition for the few people in the industry having the demonstrated competency that can unleash the full potential of drug-device products!
Dr. Richard M. Arons is Global Leader of the Medical Device Sector at Korn/Ferry International. Robert Ferguson is Global Leader of the Life Sciences Contract Services Sector.
About Korn/Ferry International Korn/Ferry International (NYSE:KFY), with over 70 offices in 36 countries, is the world’s leading provider of executive human capital solutions. Based in Los Angeles, the firm works closely with clients worldwide to deliver customized executive search, management assessment and mid-level search services, including the identification of CEOs, COOs, CFOs, board members and other senior-level executives; the formal evaluation of senior management teams; and the recruitment of middle managers through its Futurestep subsidiary. For more information, visit the Korn/Ferry International Web site at www.kornferry.com or the Futurestep Web site at www.futurestep.com
Š Copyright 2003 Korn/Ferry International
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