Culture as a Culprit of the Pharma R&D Crisis

Posted April 19th, 2012 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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