Navigating Through Disruption: A Pharma 50 View
Russell Reynolds Associates outlines the new leadership tactics and C-level specialty roles that Pharma 50 companies will need to steer the industry through the disruptive event on its horizon.
Waseem Noor, Saule Serikova
The PharmExec article, “Navigating Through Disruption: A Pharma 50 View,” co-written by Russell Reynolds Associates Consultant Waseem Noor and Global Knowledge Leader Saule Serikova showcases new, proprietary research that examines the new C-level positions across the top-50 pharma companies. The article is excerpted below.
The pharma business model is still largely a traditional model characterized by a simple formula: One product. One customer. One price. The model has been viable for decades and has brought high returns to the industry. Since the 2000s, however, the stakeholder map has become more complex, as purchasing power has been shifting from physicians to payers, regulatory bodies and, to some extent, patients. We believe this shift will eventually lead to a significant event in the industry that will disrupt how companies price their products and require a different type of leadership in the industry.
In Earth’s history, 66 million years ago, a meteoric disruption—known as the K-T event —led to the extinction of several large species. After the event, dinosaurs became extinct while more nimble and adaptive small reptiles, birds and mammals survived. Is a similar event coming for the pharma industry? We believe a P-E (pharmaco-economic) event will occur, where the US government institutes legislation requiring demonstrated product outcome and prices based on patient value. In this case, the concepts of product, customer, and price are redefined. In the post P-E event era, the industry will be governed by brand new rules, which will require pharma companies to adapt to avoid going the way of the dinosaur. The old model of single-pill solutions and lifecycle management to drive innovation will give way to more agile companies that are driving whole-patient, or “beyond-the-pill,” services and novel therapies.
This changed business environment will also require a new set of leaders that are patient-centric driven, have greater content and scientific expertise, and can understand insights from the vast amount of real-world data generated by products in the market. In order to navigate through this upcoming disruption, we believe pharma companies are already creating new roles and seeking new types of leaders to guide the transformation and adapt to the change.
In our proprietary research, Russell Reynolds Associates (RRA) has examined the new C-level positions (CxO) across the top-50 pharma companies for patterns and trends and developed an outlook for the near future. In this article, we offer a perspective on pharma leadership through two lenses:
Changes in pharma leadership to date. In reaction to stricter regulatory requirements, we observe the emergence of specialist roles and their elevation to the C-level.
The next horizon of pharma leadership. In preparation for a P-E event, we expect an emergence of new leaders, whose goal will be to guide the industry through continued disruption.
In our analysis, we considered the composition of executive management committees and extended senior management teams, including CEOs and their direct reports, for top-50 pharma companies. The research was conducted using publicly available information from May 2017, such as company websites, BoardEx, and LinkedIn, and was supported by RRA’s ongoing consulting to the pharma industry.
Traditional managers to C-suite specialists
In the 1990s, the executive committees of large pharma companies started to grow in size. Geographic expansion, regulatory complexity in established and emerging markets, and diversification of market portfolio and assets in the R&D pipeline are just some factors that led to the rise of specialists in certain therapeutic areas, geographies, R&D stages, and corporate functions—all with a seat at the C-table. The organizations grew into large and complex matrix organizations.
Today, the average size of the senior leadership team at top-50 pharma companies is 11-12 members, and the range varies widely from four to 28. Among top-50 organizations, 58% have business unit heads in their C-family, on average two to three, and a maximum of eight. Conversely, regional heads have started to disappear from leadership’s inner circle, and today only one out of three top-50 pharma firms has regional heads at the very top.
In the 2000s, with regulatory requirements becoming more stringent, a number of specialist position were elevated to the C-suite, replacing traditional managers. Specifically, we see three roles that have extended their remit significantly and have been elevated to the C-level in many pharma organizations.
Chief Medical Officer. Traditionally rooted in the R&D organization, the medical affairs function has evolved dramatically in recent years, driven by regulatory scrutiny and operational complexity. Today, medical affairs fulfills a strategic mandate to represent “the voice of the patient” internally vis-à-vis R&D, commercial, and other functions and to drive high value-add activities externally. In 28% of top-50 pharma companies, the Chief Medical Officer reports directly to the CEO and has a prominent external-facing role. For the purpose of this study, we analyzed the background of Chief Medical Officers in pharma C-suites in terms of education and previous professional experience. Our analysis suggests that scientific rigor and previous extensive experience in R&D, medical affairs, and/or regulatory affairs helps increase credibility, independence and authority internally as a patient advocate and externally as the primary medical representative of the company in the market. Additional experience in commercial or project-related activities complements the profile of a Chief Medical Officer and sharpens his/her strategic focus.
Chief Ethics and Compliance Officer. Recent challenges in the pharma market—sales and marketing malpractice, off-label sales, and data integrity, among others—have led to legal issues and shaped negative public opinion about pharma companies. Going forward, the pharma industry needs to (re-)position itself as a trusted partner in public health. To ensure regulatory and non-regulatory compliance and ethical behavior and find new ways to engage with prescribers, key opinion leaders, and other external stakeholders, pharma organizations are taking an integrated approach to compliance.
Twenty-six percent of top-50 pharma companies have elevated the Chief Ethics and Compliance Officer to a direct report to the CEO or the Board. To spot potential issues before they emerge, the Chief Ethics and Compliance Officer assesses the value chain for the possibility of behaviors that violate ethical or regulatory mandates. To set a course of right behavior from the start, the Chief Ethics and Compliance Officer also serves as a key advisor on the adoption of business models and the assessment of transformation risks.
A more detailed look at the profile of Chief Ethics and Compliance Officers leads to the conclusion that a solid legal background and an extensive track record in the pharma industry are prerequisites for the role. A high ratio of internal promotions from deputy General Counsel or divisional legal business partner within the same organization suggests that credibility and trust on the side of business leaders as well as internal connections are essential to get buy-in for this role.
Chief Quality Officer. Over the last decades, the pharma industry has grown tremendously in size and complexity and developed a highly sophisticated system to ensure that patients receive high-quality products. Most pharma companies have been undergoing the transformation process from baseline compliance and delivery on regulatory authority inspections to continuous improvement and a culture of quality, or speaking in their lingo, from quality control to quality assurance. To complete the organizational separation of quality from operations on a corporate level, 24% of companies have elevated the Chief Quality Officer to the level of direct report to the CEO.
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