Culture as a Culprit of the Pharma R&D Crisis

Posted in Pharma industry

Everyone knows about the Pharma industry’s R&D productivity woes, but few seem to have solutions that work.

Part of treating the problem requires an accurate diagnosis, and this winter’s work in Nature Reviews Drug Discovery by Scannell et al from Sanford Bernstein (a must read) does a good job of explaining a number of possible drivers: the ‘better than the Beatles’ problem; the ‘cautious regulator’ problem; the ‘throw money at it’ tendency; and the ‘basic research–brute force’ bias.  Others covered the piece with additional superb commentary here, and here.

I’m sure all these contribute to some degree, though I must admit I’m a bit skeptical that the “industrialization” of R&D are real culprits (i.e., blaming high throughput screening, target-driven reductionism, and other technologic approaches).  Drug discovery is an information-rich world today in large part due to the impressive advances in robotics, screening, -omics technologies, and the like.  More information will help us if we learn to integrate it properly.  And phenotypic screening isn’t dead today, lots of companies still do it; regardless, it is certainly not a cure-all for what ails the industry.  Applied in a thoughtful way, I have trouble believing that all these “industrialized” approaches won’t add value in the long run.

However, Eroom’s law, as the authors call the productivity decline, is both impressive and scary and reversing it will be important to the industry’s survival.

I do think there are reasons to be optimistic.  In the startup world, I witness incredible examples of research productivity in a number of our innovative startups, as well as across the early stage ecosystem.  I’ve seen fully characterized Development Candidates come from creative drug discovery efforts for 5-10x less that what it costs in Big Pharma.  We’ve seen Fast-to-PoC approaches for novel targets on a fraction of the cost and time larger organizations would budget for; while not ubiquitous, there are plenty of examples.  So despite biotech’s historic legacy of unproven productivity advantages vs Pharma, I’m optimistic that the recent crop of startup companies over the past five years are going to change the picture through more capital efficient, distributed R&D models.  Many others share this perception that biotech is doing something right.

What could be driving this productivity advantage?  Is it that the people are smarter?  As a generality, I don’t think so.  The same academic labs generate PhDs and post-doc’s that are employed by Big Pharma and small biotech alike.  I’d argue that in most Big Pharma companies the Principal Scientists and Project Leaders are as good if not better than similar peers in small companies.  The big companies definitely offer better pay packages and far more lab resources to support their research aims.  So if it’s not the people, what is it?

Fundamentally, I think the bulk of the last decade’s productivity decline is attributable to a culture problem.  The Big Pharma culture has been homogenized, purified,  sterilized, whipped, stirred, filtered, etc and lost its ability to ferment the good stuff required to innovate.  This isn’t covered in most reviews of the productivity challenge facing our industry, because its nearly impossible to quantify, but it’s well known and a huge issue.

Here are three of the hallmark traits of the culture crisis facing Pharma from my vantage point:

  • Tyranny of the Committee.  Layers and layers of managers exist between the lead scientist and the head of R&D, and these layers govern by committee.  We see this all the time on the BD side: the scouting committee oks the initial discussion, the science committee does some diligence, the senior committee authorizes negotiation and diligence, the diligence team sends dozens in for corporate endoscopy, the negotiation committee etc…   But it goes beyond BD.  Getting approvals for key project decisions require several rounds of approval.  Taskforces are formed to evaluate the effectiveness of taskforces.  Timelines are set by when they can get on specific committee agendas.  It’s an endless fight to justify and rejustify decisions.  And the amount of time  (and money) wasted up and down the R&D organization by this tyranny is unquantifiably large.  Where’s the empowered individual in all this?
  • Stagnation through risk avoidance.  In big companies with large teams and big budgets, no one wants to rock the boat by doing killer experiments too quickly, especially when big discovery efforts are put against them; the fear of the “false negative” project termination is huge.  But lets face it, most lead candidates are false positives (through approval) so accepting more “false negative” risk early on is probably fine.  There’s also a tendency to do more work simply because they can: with big budgets, project teams in Pharma will often do a 6-10 pharmacology models to “prove” a project’s worth vs the 1-2 models that give you 90% confidence to move into Development.  This isn’t just about experiments; it’s about decision-making.  A cover-your-a** mentality around risk avoidance coupled with committee-driven communal decision-making has led to a very bad outcome.  Where are all the risk-takers in Pharma drug discovery today? Does anyone really put their neck on the line anymore? All great drugs were saved from termination by neck-exposed risk-takers.  Without enough risk-takers, progress and innovation have stagnated inside the walls of Pharma.
  • Organizational entropy’s negative impact.  For most of Big Pharma, at least a few mega-mergers and their integrations have happened in the past decade.  And for all of Big Pharma, there’s been the semi-annual reorganization around the latest fad in corporate design: matrix management, proliferating centers of excellence, end-to-end therapeutic area groups vs functional lines, disease area strategies rather than site strategies, etc… These cause constant organizational upheaval with levels of distraction that can’t be measured.  Resumes fly through cyberspace as soon as a deal is announced. Organizations are frozen as these changes happen, fear of the unknown paralyzes entire project teams, and closures/layoffs happen without much regard to upgrading the talent and weeding out the deadwood.   Drug R&D takes typically 10-15 years from start to approval; how can it stay on track with a cadence of change this fast?  As I noted last summer, most new drugs approved today were discovered in the 1990s.  Do you think those approvals would have happened faster if there weren’t so many mega-mergers and reorganizations in the meantime?

These are just a few of the cultural traits that destroy value and impair productivity.  I’m sure there are many others.  The solution is simple to say and hard to do: enable the full empowerment of drug hunters and their groups to do what they do without entropy and hold them accountable.  Two things are probably required for this, at minimum:

First, swallow the red pill (the painful reality one) and get layers of Matrixed management out of the way.  Don’t create centers and other corporate speak.=, and god forbid don’t establish a new committee to do it.  Create autonomous teams that don’t report into the organization, but instead report to the top.  Co-locate them on or off of the legacy campus, but in touch with the local biotech ecosystem.  Ask them to tackle important research goals geared around an RFP-like process.  If you want, create a Board of Directors for them.  Maybe even bring in outsiders (like greybearded veteran drug hunters) to help with governance.

Second, give these groups a five-year budget and then largely ignore them.  Allow for governance at the project team level without suffocating committees.  Tell Wall Street that you’re going to spend $X Billion over the next 5 years in R&D, lock it in and don’t keep changing the number, changing the headcount, changing the sites, changing the management.  Reduce the entropy so they can focus on drug discovery.  And if they don’t deliver valuable assets, revisit, learn, and consider moving on.  But do it over proper research timelines that allow programs to gestate.

These may not be the right answers, but I think it would be a great experiment to try.  And better than lots of the tinkering going on today.

It pains me to see the toll the unhealthy culture of Big Pharma R&D is having on innovation and our ecosystem.  There are a ton of great scientists inside of the walls of the big R&D organizations just waiting to be unleashed.  And if Pharma won’t unleash them, we’ll end up hiring them into our biotechs sooner rather than later.

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  • http://www.pharmadirections.com/Team--Richard-Soltero Richard Soltero

    Bruce,
    I couldn’t agree more with your thesis that innovation has been hurt in the large pharma companies because of their culture.   I think that for creativity to flourish, creative scientists need time and space unencumbered by extraneous requirements and duties.  Bureaucratic infrastructure has to be kept outside their realms so there are no limitations to their time and thoughts.  They must be free to let their minds roam and then put ideas into motion to see if they are realistic.  They must approach problems with the expectation that many solutions will fail before one will succeed. Their ability to create must be matched with their ability to allow others to process their discoveries into practical products.

    One of the consequences of the tremendous success of pharmaceuticals is that large pharmaceutical companies have become behemoths.  These large companies propagate the belief that they can only stay competitive by consolidation and growth.  Companies that have full pipelines are bought out or merged with companies that have cash, but insufficient products to develop.  This is not bad.  The special expertise these companies have is the development of global products that require huge investments or people and money to run international clinical trials.  Their over-sized bureaucracy is necessary to keep multiple large programs in motion.

    However, virtual biotech companies can avoid the traps of bureaucracy and risk aversion.  These small companies have a better opportunity to be the source of inventions that will continue the growth of our industry.  These companies are typically nimble, flexible and able to allow their scientist the freedom to create.  Often their creative thinkers are their founders so they propensity to invent is even more intense.  This environment allows the freedom for creativity without the restrictions that large pharmaceuticals companies are likely to impose.

    There is a more complete article on this topic entitled “Unbridled Creativity Abounds in Biotechs” at http://www.pharmadirections.com/white-papers.

  • Igor R

    Sounds like you are advocating for multiple small biotech startups within large pharma…

  • http://twitter.com/liftstream Liftstream

    Another very interesting article. What is interesting is that many of the large pharma have tested some of these concepts by keeping acquired entities outside their businesses and supposedly focused on innovation. There is no particular evidence that this has worked either yet, although many of them have only been given probationary periods before finally being integrated into the larger culture. True innovation is a very difficult culture to breed in larger companies and new players with great discoveries can often disrupt the markets and out-innovate the big players. I guess we’re seeing evidence of this in other sectors too, like technology. Flatter organisations, quicker decisions and risk taking are all elements of what these companies have to accomplish, the only problem is their cultures are so strong they take time to break down and re-build. Therefore, it falls to great leadership to quickly change the culture and give people real responsibility for taking risk and innovating.

  • http://thenextelement.wordpress.com/ scientre

    A couple of caveats before commenting:

    1) I would also separate the culture of private and public
    biotech companies, with the public companies often leaning more towards pharma
    because of public market pressures, such as quarterly reporting. *

    2) For the sake of discussion, we’re painting with a broad
    brush. Not all that is biotech (companies, products, culture) is good, etc.

     

    When I think of how the culture in biotechnology may help
    nurture risk taking activity, two words come to mind.

    1) Urgency – While working in a private biotech company
    involves a lot of unknown, there are a couple of constants: the amount of money
    in the bank only goes up with investment and that to bring in more cash investors
    must be convinced that you have created value (reached milestones). This
    knowledge generally creates a sense of urgency that can be capitalized to keep
    focus on the goal of producing a product that helps patients. On the down side
    of the model, fundraising is resource intensive and there is a risk for
    employees that urgency turns to distraction. There is likely a sweet spot to
    balance these factors, but private biotech companies don’t raise money for
    three months or for five years.

     

    2) Tension – Often tension has a
    negative connotation but I think the word appropriately captures the relationship
    between the science and business on the way to better therapies for patients.
    Success is nearly impossible without both pieces and yet both likely think they
    are the more important. In practice, the balance, negotiation, cooperation –
    the tension – between the two charts the path for the company. Here’s a brief
    example, sticking with the investment theme. From the business side, setting
    fundraising goals (dollars and timelines) incorporates internal projections as
    well as accounting for external realities such as the investment climate or the
    company’s last valuation. On the science side, there are often multiple
    available options to test a hypothesis. The example of the Yugo and the
    Cadillac both getting you there comes to mind. So here is where tension comes
    in – the discussion, tradeoffs and agreement on what science gets done within
    the business framework.

     

    *Andrew Goodwin (@BioDueDiligence) reminded me this week
    of  “market” cap corollary and “Zebra’s
    law” phenomenon and they seem like they fit here. http://www.biotechduediligence.com/1/post/2012/04/file-under-what-we-already-knew-about-phase-2-development.html

  • Cpgguy

    Bruce, great post, as always, thanks!  One more point I think is key in understanding the different scientific environments in pharma and biotech.  Having been on both sides, the repeated head count reductions in pharma have created a lot of discouragement among the bench scientists, who know the only positive effect they can have on the share price of their company is to be fired (since R&D cuts are a common way to boost this).  There are also frequent changes in direction and organizational structure due to strategic decisions made at high levels.  In marked contrast, scientists in a small biotech know that their own efforts will critically influence their chance for success, and they have the persistent focus to follow-through on their great ideas.  The difference in moral is breathtaking, and I think this too can carry over into productivity benefits.   

  • John

    As an ex-big pharma senior executive and startup pharma senior exec I would say that all of Bruce’s points are valid and important issues. I would add that the best summary of the actual “working stiff’s” point of view is in a short commentary by Raymond A. Firestone in Nature Reviews Drug Discovery, 2011. doi:10.1038/nrd.2961 -cl.

    A little discussed issue he points out is the negative effect that the trend of hiring “Academic Geniuses” to run basic research has had on the industry. Over the past 20 years each of the major pharma have suffered from this phenomenon for a short period of time. Some died, some got acquired, some moved on. Two told me directly that “I did not know what I was doing.” Now the startup/vc world focuses on academics to do drug discovery and the result, some years off, is already predictable.

    Finally, the “biotech” world does not have an unblemished record. It may only now be just reaching breakeven for the amount of money invested over the decades.

    The best approach still seems to be to find a good idea and pursue it in a flat organization where decisions can be taken in “real time.” The committee of committees approach is death to creativity.

  • http://twitter.com/kevintoshio Kevin Chow

    Interesting article, and good points. A few comments here. 

    Didn’t GSK try something along the lines of what you are suggesting with their DPU concept a few years ago (that was somewhat revised again in 2012)? Of course, that arrangement did not eliminate the layers of committees and oversight from the mother ship. But through the DPUs they can claim they are promoting entrepreneurism and biotech-like innovation. I wonder how this is working out for them.

    Secondly, in support and as an extension of your second bullet point, fear of R&D leadership and a “keep your head down and feet moving” culture is destructive. For example, individuals or project teams who have good ideas for truly meaningful experiments or call out the fact that the emperor has no clothes, but do not challenge the direction of an initiative “because that is not something [name of R&D senior executive]  believes in or wants to hear, that’s not his/her way of doing it, and you would be crazy to suggest that”. Or worse, the generic “that is not the [company name] way”. This phenomenon is compounded multiple fold in the age of massive large pharma R&D layoffs and fear of keeping one’s job. 

    On the other hand with regards to your last statement, would many of these poor, mistreated, muzzled, and leashed up scientists be hired into VC-backed newcos? I’m not so sure given the trend towards single asset startups funded by VCs seeking incremental value creation and virtual formats. Let’s not sow false hope here.

  • http://twitter.com/Clarksearch Ellen Clark

    Thank you for this thought-provoking article

  • Andrew Marshall

    Great post. Also builds on some points made by Mark Kessel in Nature Biotech (29, 27–33,  2011; doi:10.1038/nbt.1748) last year (shameless plug).  One of the issues Mark made in relation to the tyranny of the committee is the problem of turnover. Because it takes so much time to get a decision in one of these companies, you can find yourself back to square one if your key internal champion (who has the task of  ‘socializing’ your opportunity across multiple departments and getting buy-in) gets pushed up, down or out the door.  

  • LJStewartTweet

    Bruce.  Its great to see you picked the Scannell et al article to blog on !!   

    There is one other issues that I think is worth considering.   Drug hunters often don’t actually ever visit the Patients and caregivers that they are trying to come up with treatment for.   I’m starting to think that we would all benefit tremendously from having our teams in drug discovery volunteer to spend two weeks volunteering time in doctors offices, ICUs, and rehab centers.  Its a wake up call.  If nothing else, it might give people more courage to stick with programs and not give up so easy.