KORN/FERRY INTERNATIONAL
Drug and Device Combinations - The Leadership Challenge by Dr. Richard M. Arons and Robert Ferguson
O
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.