Allergan: How a Market Leader Becomes a Market Disruptor

We’ve come to see disruption as the realm of tech startups—entities like Airbnb and Uber that redefine their industry—but sometimes savvy market leaders can become the necessary disruption, when they are willing to take the leap.

That’s what happened recently when Allergan CEO Brent Saunders published the blog “Our Social Contract with Patients.” According to Saunders, there are four principles to that contract, including what he called “responsible pricing for branded therapeutics.” This might seem like an obvious approach, but in light of the recent uproar over the EpiPen price hike, the industry was definitely in need of some rehabilitative disruption.

The general public has gradually lost its trust in the pharmaceutical industry, particularly Big Pharma, over the last 20 years or so, because of the industry’s focus on profits and persuasive methods. Newer, smaller pharmaceutical companies, while having less impact on the industry as a whole, have also come under scrutiny for unscrupulous business practices, such as Martin Shkreli’s Turing Pharmaceuticals.

People don’t usually engage with the pharmaceutical industry by choice, which puts pharma in a unique trust position with its customers. As new medications are patented, pharma companies essentially lock customers into using only their brand for a certain number of years. With limited competition for each medication and an absolute demand from the patients who need them, it’s a model that can be easily exploited. When a drug went off patent, it used to fall in price. But the pharma industry has gotten so small that generics now, too, can go stratospheric in price (Turing’s Daraprim is just one example).

Saunders realized that to rebuild trust with patients he’d need to change how Allergan operates to be more responsive to the patients’ needs, while making a concerted effort to explain how and why prices would be raised. He promised that all price increases would be limited to once a year and be in the low-to-mid single-digit percentages, or slightly above the rate of inflation.

Refreshingly Saunders did not fall back on the tried-and-true fiduciary responsibility of shareholders or the demands of R&D answers as to why prices need to be so high, or only offer cosmetic changes to how Allergan conducts business, but Saunders decided to go in a different direction. He balanced the needs of Allergan’s customers in the decision-making, no doubt believing that that doing so will also prove responsible to shareholders.

This kind of industry disruption doesn’t require new tech to implement. There’s no special training involved, no hot-shot 20-something with a bold idea to send the industry. But it’s a disruptive movement all the same when an industry leader says, effectively, that the way the industry does business is wrong, ineffective, and needs to change – and that for the industry to regain the public’s trust they need to be as responsive to the health of the people they serve as to their shareholders.

Saunders’ disruption is more evidence that the old guard like Big Pharma is being forced to change because of a fundamental shift from a world of authority to a world of influence. Even the medium he used to announce it, a blog post and not a press release, shows that Allergan is no longer operating in the 20th century model, where the market dictates all the terms and the public must accept them. He has decided to bring some transparency into the process of Allergan’s decision-making and how pricing impacts its business.

This kind of shift is taking place in large and small ways in industries across the world today. Top-down management is recognizing that it can’t effectively compete in a world of influence. Saunders is cutting-edge in his remarks, in challenging an industry that hasn’t been shaken to its core by disruption—yet. I remain curious whether any of Allergan’s competitors will follow suit and match his transparency. Change movements often begin not with a grand announcement based on years of planning but when one person, group, or organization finally says, “We’re going to lead the change, not wait and react to it.”

This article first appeared on Keith’s Linkedin blog. To get the latest from Keith, follow him on Facebook, Twitter, and YouTube.

Keith Ferrazzi

Keith Ferrazzi

Chairman

New York Times best-selling author, speaker

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