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Big Pharma could learn a few lessons from Hogwarts about the dangers of relying too heavily on a blockbuster product. (KEVIN KOLCZYNSKI/REUTERS/KEVIN KOLCZYNSKI/REUTERS)
Big Pharma could learn a few lessons from Hogwarts about the dangers of relying too heavily on a blockbuster product. (KEVIN KOLCZYNSKI/REUTERS/KEVIN KOLCZYNSKI/REUTERS)

Management

Big Pharma should get some schooling from Hogwarts Add to ...

Harry Potter and Viagra have more in common than you may imagine. They came to market within a year of each other in the late-1990s; they enjoyed enormous success; and what was a boon for the companies that produced and sold them could turn into a bane as their popularity fades and rivals emerge.

Publishers dream of discovering a new megaseller; pharmaceuticals companies yearn for more blockbuster drugs. But when these gift horses come trotting by, how many companies think beyond the proverbial advice not to attempt a full dental examination?

More from Andrew Hill

Nigel Newton, founder and chief executive officer of Bloomsbury, which published JK Rowling’s seven-book series, says he was well aware from pre-Potter days that unexpected hits were “as likely to destabilize the company as to propel further success.” Even so, when the company issued a profit warning in 2006, providing, in the words of one analyst, “a glimpse of life after Harry Potter,” the shares tumbled. They have yet to revisit their previous peaks.

Mark Smith, co-founder of Quercus, which bought the English-language rights to Stieg Larsson’s Millennium detective novels in 2007, says their popularity did not surprise him (they were already selling well in Sweden and across continental Europe). But he admits the group allowed “some complacency to seep into the business” when it assumed high sales would last for years.

Similar complacency has blighted the pharmaceuticals sector, despite the intermittent and occasionally fluky nature of some of its successes. The underlying compound in Viagra was intended to treat high blood pressure and angina, until its startling side effect became apparent. Pfizer, whose scientists synthesized the drug, may justify its discovery as a product of intense and well-managed research and development. But manufacturing such lightning strikes is as hard as convincing an author’s muse to keep regular hours.

Pfizer has just closed the British research centre where the compound was discovered and is moving away from what it now considers high-risk areas of research. AstraZeneca, a British rival, last week announced plans to cut 7,300 jobs as its pipeline stutters and its big-selling drugs face up to the loss of patent protection.

Whereas publishers have long acknowledged the potential volatility of their flagship products, Big Pharma marketed itself as an exemplar of strategic nous and straight-line growth. Companies created large and costly sales forces for their lumbering superdrugs, in the expectation that they could extend their string of hits. Now they are having to wind down the infrastructure in the face of competition from generic rivals, stricter regulation and fiercer negotiation by cheese-paring purchasers. “The environment we work in is more challenging in terms of regulators, insurers, [and]government than it ever has been,” one CEO told me two years ago. It has only got worse since.

I think pharma companies flouted some basic rules that publishers of bestsellers – or any company that finds itself with a hit on its hands – must follow to survive. Rule One, according to Bloomsbury’s Mr. Newton: “Don’t believe your own propaganda.” Rule Two, from Quercus’s Mr Smith: “Don’t take your success for granted.” Instead, use it to attract the staff who will help you observe Rule Three: Diversify your portfolio so when the fuss dies down, the series ends, or the patent protection expires, the rest of your business can thrive.

Publishers have some advantages over drug companies. For instance, no regulator can force them to pulp a potential bestseller by ruling that tales of schoolboy sorcery or Nordic neo-Nazism could have damaging side effects for readers. But their competitive situation is hardly easier in a world of tight e-book pricing, disputed digital rights and failing booksellers.

Jim Collins and Morten Hansen write in Great by Choice that all companies have good and bad luck, but the ones that succeed are wary about “overestimating their own skill and leaving themselves exposed when good luck runs dry”.

Coincidentally, Mr. Newton’s neighbour is a scientist who develops new molecules for drug companies. Of every seven he works on, two will stick, says Mr. Newton – roughly the strike rate publishing houses aim for. In managing blockbusters, Big Pharma’s titans should have taken a leaf out of the publishers’ book.

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