Download This Article

www.ElsevierBI.com JANUARY 2014 VOL. 32 / NO. 01 INSIDE 2013 IN  Biopharma Strategies MorphoSys: Accelerating The Long Transformation By Sten Stovall AND CHRISTOPHER MORRISON Review  Infection Control The key events Battling Infection: Hospitals Seek High-Tech Solutions of 2013, and By Anne Staylor how they’ll  Biopharma R&D What Can Biopharma shape the Learn From Apple? By Markus Thunecke and coming year. Mark Richmond

 Cardiovascular Devices SYMPLICITY Results Make Life Difficult For Renal Denervation Programs By Tom Salemi

Biopharma Dealmaking Regeneron And Geisinger Get Ambitious In Next-Gen Genomics By Wendy Diller

➧➧➧ by IN VIVO’s Biopharma, DIAGNOSTICS, and Medtech Teams Biopharma R&D

What Can Biopharma Learn From Apple? The restructuring of pharmaceutical R&D organizations has failed to address fundamental issues that afflict R&D across several industries. Most of this shortfall can be attributed to a dearth of effective leadership within the C-suites of the drug industry.

BY Markus Thunecke and Mark Richmond

mong the drivers of the pharmaceutical industry’s ■ Attempts to automate drug discov- present difficulties is an overreliance on acquisitions ery through the use of genomics to drive growth and alleviate poor R&D productivity. and other technologies have failed; Many surveys have demonstrated that M&A typically R&D is being refocused, reorganized, destroys more value, in all senses, than it creates or externalized at a frenetic pace with implications for shareholders, andA this effect is most pronounced in R&D (where dis-economies of patients, and health care systems. scale exist). This is in turn exacerbated by poor scientific and technical under- ■ The hands-on leadership model ex- standing by top management. When a pharmaceutical CEO and chief emplified by Steve Jobs and Apple or operating officer don’t come from the world of medical research, Larry Page and Google in high-tech they often fail to appreciate the potential of breakthrough scientific or by storied pharmaceutical execu- advances. For example, in the 1980s and ’90s, only a few visionary tives like Merck’s Roy Vagelos, Genen- CEOs foresaw the impact of the new recombinant protein engineer- tech’s Art Levinson, or Paul Janssen ing technologies that led to monoclonal antibodies and other major provides valuable lessons for today’s advances in drug therapy. Pharma is an industry in which proprietary struggling pharma companies. technologies play a large role in drug discovery and (thus) shareholder ■ Boards and executive management value creation. Companies that experiment with new technologies at with strong understanding of sci- just the right time can reap large benefits. ence and medicine are essential to A prevailing more-is-better approach, sometimes abetted by reinvigorating drug R&D, and can mergers, has led to a lack of focus in R&D activities. Pharma R&D de- be complemented by strategic and partments are often trapped in a vicious circle of chasing too many organizational principles including complex projects with too few resources. That compromises quality a more narrow focus and simple and increases failure rates. corporate structures. Indeed, many observers have become very skeptical of the future prospects for biomedical innovation per se – it has become common ■ Putting these principles into action to refer to the “broken” biopharmaceutical business model. As a con- will not be easy due to their boot- strapping nature – changes will not sequence, the most innovative part of the pharmaceutical industry, only have to be driven from the top namely discovery research, is under enormous pressure. Many com- but also will require a shift in leader- panies seek a remedy by cost-cutting and increasing externalization. ship’s attitude or sometimes even its The so called search and develop models, in which companies use composition. Learning from success- their insights to cherry-pick in-licensing or acquisition opportunities, ful models outside of the pharma- preferentially at risk-reduced later stages, are increasingly popular. ceutical space can be an important Much of this push-back can be viewed as a compensatory reaction catalyst in taking the first step. to the overpromising that occurred during the heyday of genomics in the early 2000s, when breakthrough therapies for all sorts of diseases Executive Summary >>85 seemed within reach. But the pendulum seems to us to have swung

2 | January 2014 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com Biopharma R&D

too far. Large organizations still perform a lot skills that fly in the face of accepted man- When drug candidates don’t progress of exciting science, but those advances have agement thinking and should therefore not the reasons are often hidden. Entire become buried in a flurry of reorganizations be held up as an appropriate role model. books can be written about the difficult and strategic shifts. The effect is often an ac- Without adding to that specific academic relationship between marketing and celeration of the underlying organizational debate, our view is that some elements of R&D. In many high-tech companies, pathology. A 2009 study published in Nature the high-tech leadership model exemplified and especially at Apple, marketing was Reviews Drug Discovery by Bernard Munos by Apple, Google Inc., and other companies responsible for selling but not for telling demonstrated that it is virtually impossible to provide lessons that are highly relevant to product development which products increase NME output to more than one per addressing the shortcomings of the current to develop next. There are lots of anec- year per company, irrespective of total spend- innovation-driven biopharmaceutical model. dotes about the sheer impossibility of ing. Fully unleashing the true innovation In addition, we have also reviewed these “seeing what is next” from a pure market potential of the biopharmaceutical industry lessons in the context of some of the best- perspective, but companies still invest requires stronger leadership, accountability performing R&D organizations in the history considerable effort to align the two. for results, less complicated management of the pharmaceutical industry: Genentech  Strategic perseverance – The success structures, and incentivizing true value Inc. until its 2009 acquisition by Roche, Merck of Apple and its CEO can also be seen creation. Success would both restore the & Co. Inc. in the 1980s and ’90s, and the as one of perseverance: sticking with tarnished reputation of the biopharmaceu- Paul Janssen Research Institute (now part of the task, even when the odds seem tical industry and have enormously positive Johnson & Johnson) in the 1960s to 1970s. slim and changing course or folding benefits for patients and health care systems. The most interesting aspects arising from this perspective can be summarized the program altogether seem like an Learning From as follows: easy way out. As the biopharmaceuti- Other Industries  Top leadership with a high degree cal industry has the longest innovation The biopharmaceutical industry is the most of technological understanding in cycles of all industries, it requires more research-driven of all industries. Probably for addition to general leadership skills strategic perseverance in its approach to that reason, there has been a reluctance to – This rare blend allows managers to R&D. In reality, one sees a very different look elsewhere for role models when it comes formulate an innovative and highly picture, as many companies are tied to examining R&D and its management. The effective strategic vision. It is essential up in cycles of restructuring and the argument usually goes that the scientific when coupled with the management frequent changing of strategic direction. complexity and intensity is so much higher of day-to-day operations.  Seeing the woods and the trees – in biopharma (because it is a science-driven,  A quest for great products and not Steve Jobs was famous for his strategic not engineering-driven industry) that it is a incremental advances – This is one of vision but also for his attention to detail. unique case. But we propose that the solution the most critical factors in Steve Jobs’ It is something the Japanese call genchi to the industry’s conundrum will not be found leadership model and at the core of genbutsu, or “go to the source and see by considering biopharma alone – the indus- Apple’s DNA. Putting great products for yourself.” The attitude requires that try must look outside itself, to other creativity- before profits, not vice versa. Deeply management go to the shop floor level led organizations and industries. The pace of embedding this into a company’s cul- to see and understand what is actually innovation and the importance of technology ture can inspire decision-making and going on as most value is created there. make the high-tech/computer and engineer- behavior in employees at all levels.  A healthy disrespect for the im- ing industries interesting comparators. possible – This principle stems from Some companies are held up as paragons  The courage to focus – There is a fa- Google’s Larry Page. A major driver in of innovation and creativity. None is more mous story about Jobs and how when companies like Google and Apple is to inextricably linked with innovation-driven he rejoined Apple as CEO he slashed an tackle problems that were thought too growth than Apple Inc. Over the past decade, overly complex portfolio to focus on just difficult by others. Steve Jobs had his its products have time and again broken three or four big product ideas for the often-cited “reality distortion field” that new ground, giving consumers “something entire organization. Great products and continuously led him to seek projects they didn’t even know they wanted” – first the courage to focus go hand in hand the iPod, then the iPhone, and then the iPad. – focus avoids dilution of effort and the with enormous challenges and poten- Consequently, Apple has risen to become weakening of critical capabilities. tially huge payoffs. the world’s most innovative and admired  Simple structures and clear account- company while spending only a few percent abilities – In the pharmaceutical in- Senior Leaders Must of sales on R&D; much of its success has been dustry, accountability for success (and Understand The Science attributed to its founder/CEO, Steve Jobs. failure) has often been lost in its highly A technical understanding of the discovery Whether Jobs as a leader should be viewed matrixed and global organizations. The and development of pharmaceuticals is one as a role model for other managers is a topic result is that people feel powerless be- of the most important factors in what is argu- of hot debate among academics. For some, cause of the numerous layers and com- ably the riskiest and most knowledge-intense he is viewed as an “outlier” who possessed mittees between them and decisions. industry. Perhaps surprisingly to some, there

Pharma’s Top Performers

anssen Pharmaceutica Inc. was probably the most productive recombinant technology that protects against hepatitis B infection. R&D organization in the history of the pharmaceutical industry, Roy Vagelos was one of the first to apply systematic targeting of Jas it was responsible for developing 70 drugs between 1955 and molecules (enzymes) selected for their biochemical role in disease 1993 (among them fentanyl for pain, haloperidol for schizophrenia, processes – thereby setting the standard for drug discovery for and many other breakthrough therapies within CNS). Although decades to come. acquired by Johnson & Johnson in 1961, its founder, Paul Janssen, Genentech is widely regarded as one of the most productive and was granted full autonomy for running his business. successful biopharmaceutical companies ever. Under scientist CEO Merck under CEO Roy Vagelos, MD, from 1985 to 1994 produced Art Levinson the company developed several breakthrough cancer many breakthrough therapies, among them Timoptic (timolol) for therapies such as Herceptin (trastuzumab) for breast cancer (the glaucoma, Vasotec (enalapril) and Prinivil (lisinopril) for the treat- first example of personalized medicine), Avastin (bevacizumab) for ment of hypertension and heart failure, Mevacor (lovastatin) and various solid tumors, and rituximab for various forms of lymphomas. Zocor (simvastatin) for the management of cholesterol, and Proscar In 2009 Genentech was fully acquired by Roche, but to protect its (finasteride) for the treatment of benign prostate enlargement. It outlier status, the research part of Genentech was not integrated also developed Recombivax, the first vaccine developed through into the Roche structure. is a stark contrast between founder-oriented that the top leadership needs to consist of grated). One of our hypotheses is that Genen- high-tech companies and biopharma with managers, not scientists, few would actu- tech’s stellar performance is closely related to respect to its top leadership’s understand- ally argue that science is not the key value its leadership team’s unique experience and ing of the complexity of the industry’s key driver of successful R&D and a prerequisite understanding of the complex challenges of value drivers. for developing a compelling strategic vision. drug discovery and development, especially Many senior leaders within the high-tech Yet few put this into practice. Larry Ellison, in oncology. Genentech’s former CEO, Art industry have an excellent technical back- Steve Jobs, Bill Gates, and others can all write Levinson, started out in 1980 as a bench-level ground and are able to formulate a vision of software code, yet how many biopharma scientist and rose through the ranks. When he where the industry is heading technologically CEOs actually understand the difficulties of became CEO he kept Genentech on its path and how their own company should be po- fundamental bench-level research? The anal- as a science-driven company and oversaw its sitioned. Steve Jobs, Bill Gates, Larry Ellison, ogy in biopharma to writing software code expansion from a pioneer in applying DNA Sergey Brin, Larry Page, and Eric Schmidt, PhD, would be to clone DNA or to synthesize a cloning techniques to an oncology and bio- are just a few leaders who understood their drug. How many CEOs can actually attempt manufacturing powerhouse. He saw much respective industries in detail and bottom-up. that? The mere idea of this being relevant more potential in monoclonal antibodies Interestingly the same characteristics can be would most likely cause amusement in the than a lot of less-tech-savvy CEOs of large observed in highly successful automotive industry. Even venture capitalists who have pharmaceutical companies, who by staying companies and in most companies of the funded tech-driven biotech start-ups often on the sidelines were forced to strike expen- technologically oriented German “Mittel- exchange the initial founder-scientist CEOs of sive licensing deals or acquisitions after firms stand.” Their senior leaders are often engineers their companies with lawyers, accountants, or like Genentech pioneered the technology. As who deeply comprehend the technological finance people. Scientists are usually highly CEO, he continued to be involved in project complexity of their products, their future qualified in the eyes of VCs only if they have team meetings and in R&D discussions as potential, as well as their markets. previously sold a company to Big Pharma. a peer-to-peer participant. Perhaps not by In stark contrast, many biopharmaceutical Naturally, there are examples of CEOs with coincidence, Art Levinson became a board companies are run by senior leaders whose pure business backgrounds who thrive and member of Apple and a friend of Steve Jobs. generic leadership skills fit excellently within are great leaders of biopharma companies. He is currently chairman of the Apple board. the general manager ideal but who are not However, these leaders do not shy away from Lest we be misunderstood, requiring lead- well grounded technologically. immersing themselves in complex techno- ers to fully comprehend the key value drivers As of January 2013, only three of the top 20 logical questions or teaming up with (and does not mean that essential business skills pharmaceutical companies were being led by listening to) a strong head of R&D. should be neglected. After all, a biopharma- CEOs with an educational background in the A company that many biopharma industry ceutical company is not a university. We point life sciences, and only one of those had had executives view as a role model and a posi- instead to that rare blend of scientific and true R&D experience in industry. The same is tive outlier in terms of innovation and R&D technological skill with strategic vision and true for many directors: only 25% of board productivity is Genentech, especially during organizational capabilities embodied in, for members at the same set of companies had the period up to 2009 when it was still an example, Levinson and Vagelos. Ideally, lead- a life science educational background, and independent company (it is now fully owned ers with similar profiles are needed to drive only 8% had had relevant R&D experience. by Roche, but to protect its R&D outlier status forward the biopharmas of the future. It is In spite of the almost universally held belief the research part has never been fully inte- exceptional for a single executive to possess

4 | January 2014 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com Biopharma R&D

that combination of rare skills. But it is entirely that a sense of purpose is a much stronger frame. This focuses effort purely on process, possible and desirable that a company’s se- motivational force than financial incentives. It rather than encouraging originality. The nior executive team and board should have is what Steve Jobs meant when he persuaded quest for great products as a mind-set thus sufficient complementary depth as a group. John Sculley to join Apple from PepsiCo requires very strong leaders who accept no In addition, a CEO or chairman with a pure Inc. by asking him whether he wanted to compromises when it comes to focusing business background must allow himself to sell sugar water for the rest of his life or help on true innovation, even if it implies throw- be influenced profoundly by technologically change the world. (The same John Sculley ing out those incentive systems that many savvy visionaries. was later responsible for Apple’s demise as senior executives have come to rely on in he shifted power from product development the absence of any other metrics for judging The Quest For Great Products to marketing and sales – a fatal mistake in short-term performance of R&D. To be fair, an This is one of the most critical factors and Steve Jobs’ view not only for Apple but for increasing number of senior R&D leaders have should be part of the DNA of any innovation- all companies in general.) realized this, examples include Marc Fishman, driven company. The best illustration is again The comparably long innovation cycles of MD, at Novartis AG and Moncef Slaoui, PhD provided by Steve Jobs’ mantra of always the biopharma industry compared with high- (and his predecessor Tachi Yamada, MD) at putting the quest for great products before tech raises barriers to finding great products GlaxoSmithKline PLC. They were the first to profits. The logic is simple and motivating for quickly. Successful innovation requires very implement science-driven models within Big most people: focus on generating truly great long-term vision and perseverance, but pri- Pharma, in which the quality of the science products and profits will follow. If you do it marily because of short-term pressures, most and the likelihood to address an unmet need the other way around, mediocrity is the most companies seek “quick fixes” to keep investors in a differentiated way were more important likely result. It is the same philosophy that can happy. While this is economically understand- than purely financial considerations, espe- still be found in many companies, large and able, the pendulum has swung too far. A cially in research and early development. small, particularly in Silicon Valley and even in the pharma industry, for example, during large proportion of the products that make Culture is an essential element in under- Vagelos’ Merck tenure. up biopharma pipelines today do not aim at standing why some companies are more With today’s double-digit price increases for specialty drugs, it may sound strange A large proportion of the products that make up that Merck once tied its prices to increases in the consumer prices index. Interestingly, biopharma pipelines today do not aim at major advances similar thinking also shines through in the famous “credo” of Johnson & Johnson, which by addressing unmet patient needs. Instead, they are dates back to 1943. Although J&J sometimes struggles to adhere to its own credo, it never- primarily directed toward retaining market position in theless serves as an essential glue that holds this highly diversified and decentralized established franchises. These products often come with health care conglomerate together. For biopharma, it should be simple to put little or only marginal differentiations and as a the quest for great products first since its primary raison d’être is the development of consequence require huge marketing efforts for their products that address unmet patient needs. Profits would then follow. Put into practice, commercial success. this would be a highly ethical, if not noble endeavor. Although the “look and feel” of web sites and corporate brochures of many major advances by addressing unmet patient hungry than others. This is ultimately what companies (especially in the US) reflect a needs. Instead, they are primarily directed to- turned Apple into the world’s most valuable focus on patient needs, dubious marketing ward retaining market position in established company. Steve Jobs alone would not have practices and profiteering often completely franchises. These products often come with been successful without building a culture undermine these sincere efforts. little or only marginal differentiations and as a of innovation at Apple. Changing culture Building a truly patient-focused organi- consequence require huge marketing efforts implies winning over the hearts and minds zation is a largely untapped opportunity for their commercial success. of the thousands of highly educated scien- (although Biogen Idec Inc. is one example A large part of the reason for this lies in the tists, clinicians, and other professionals who of a company that is aspiring to do so). The very systems that are supposed to evaluate make up a large R&D organization. Many benefits could be enormous: not only the res- and incentivize those responsible for creating such individuals in biopharma today have toration of the industry’s reputation but also the products. Typically, the main metric for been jaded by frequent restructuring and the unleashing of creative reserves within evaluating scientists and clinicians is based layoffs. But today’s biopharma capabilities large R&D organizations. Several studies in on counting the number of candidates and potential are more advanced than ever. behavioral psychology have demonstrated or studies generated within a given time To tap into this resource will require a step-

©2014 Informa Business Information, Inc., an Informa company | IN VIVO: The Business & Medicine Report | January 2014 | 5 Biopharma R&D change in leadership and direction setting, Achieving true focus takes courage, espe- The right leadership plays a strong role in not just a reliance on current scientific and cially in the risky biopharmaceutical industry, achieving such focus. At Biogen it took CEO technological progress. where many factors are beyond the control George Scangos, a PhD and former CEO of of management. These factors include poorly Exelixis Inc., to uncover the science-driven The Courage To Focus understood disease hypotheses and the enor- culture and portfolio discipline that made it Walter Isaacson’s recent biography of Steve mous clinical and technical risks that can result great in the first place. At Gilead, both CEO Jobs contains an anecdote that may serve in failure anywhere on a drug’s journey from John Martin and chief operating officer John as an illustration of what it really means to the laboratory to market. Because of this, many Milligan are PhDs with a strong track record focus on critical projects. At an annual off-site companies have shied away from focusing in virology as well as business. John Martin’s strategy meeting, Jobs’ group of managers too much, because in a risky world; creating tenure as CEO has been long enough (since struggled to create a list of Apple’s top 10 many “shots at goal” appears to be the best 1996) to at least partly attribute the current priorities. It was difficult to choose from the strategy. And there is always the fear that one success of Gilead to his leadership. In ad- various projects that were discussed. In the could have been wrong in stopping a project dition to these recent examples, when Art end, Jobs crossed out the bottom seven and too early. If resources and critical mass were Levinson first became CEO of Genentech announced that “we can only do three.” sufficient, having a diverse portfolio would he drastically reduced the size of its R&D Within biopharma, R&D portfolios are often clearly lower overall risk of failure, but the portfolio by 75%. too large to be fully understood by any one problem is that resources are often insufficient Increasing focus also greatly increases the person. While Genentech during its golden to develop all projects to the same extent and risk of catastrophic failure. Having a diverse age had a relatively small portfolio of projects with the same attention to detail. Couple this portfolio has many benefits, but too often this that could be fully grasped by the executive with aggressive process productivity goals argument is overstretched and used to dis- guise poor portfolio management. As most companies are already very diverse at many Our own analysis of R&D productivity shows that the sweet levels (disease areas, therapeutic modalities such as small molecules or antibodies, and spot seems to be an R&D budget between $1 billion and $2 scientific approaches), the main challenge is to define the appropriate selection criteria billion. It is a fact that even successful R&D organizations for choosing areas in which critical mass and deep capabilities can be established. don’t scale up well. The million dollar question is what kind of There are many benefits of a multi-factorial and fact-based approach when coupled to model will enable today’s outperformers like Biogen or Gilead strong decision-making. However, focus requires a team of strong leaders and an to grow without losing their creative and productive edge? equally strong clinical or technological vision. The problem with management structures in team, the typical Big Pharma portfolio today and one gets a dangerous mixture from which most R&D organizations is that they are overly may contain 100 or more development proj- many companies have suffered. Whereas R&D complex and contain too many redundant ects. It is therefore no wonder that there are people are usually aware of this unhealthy checks and balances. In some cases, it seems dis-economies of scale in R&D. Companies dynamic, it takes a very strong senior manager that alignment has become a self-serving have simply become too large to be man- to change the elements that were considered activity in which project information is usu- aged effectively – the recent trend to break best practice only a few years ago. ally aggregated over several levels until a few down into smaller, more agile units (“the Nevertheless, some companies have “politically correct” bullet points finally reach biotechization of Pharma”) is a step into the succeeded by only focusing on one or a the CEO or top management body. right direction, but ultimately these units few areas, and perhaps not by coincidence In our view, one empowered committee still operate within the bureaucratic gover- these have performed better than most. should be enough to steer R&D activities, nance system and culture of large parent Gilead Sciences Inc. focuses on virology, provided the size of the portfolio is manage- organizations. Celgene Corp. on oncology, Novo Nordisk able. Our own analysis of R&D productivity Maintaining the creative spark and entre- AS on diabetes, Biogen Idec on MS. All these shows that the sweet spot seems to be an preneurial mind-set is difficult within outsized companies have outperformed their less R&D budget between $1 billion and $2 R&D organizations. The common centralized focused Big Pharma counterparts in R&D pro- billion. It is a fact that even successful R&D or committee-driven decision-making usu- ductivity (based on a Catenion study of R&D organizations don’t scale up well. The million ally leads to a situation where people have productivity measured as value of pipeline dollar question is what kind of model will to decide about projects without a proper + products/cumulative R&D investment of enable today’s outperformers like Biogen or understanding of the details. Sometimes, the last 10 years, adjusted for cost of M&A). Gilead to grow without losing their creative the most polished PowerPoint presentation/ (See “Gilead, Celgene, Biogen Head List Of Most and productive edge? Pfizer Inc.’s strategic presenter wins, not necessarily the case for Productive Biopharmas” — “The Pink Sheet,” options can be viewed in the same context the greatest product. December 2, 2013.) – one could argue that it is a sheer impos-

6 | January 2014 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com Biopharma R&D

sibility to re-instill the creative spark into its the potential loss of the campus-like atmo- like Avastin – but not having to fear a board R&D organization without a massive change sphere and direct communication paths revolt has surely helped them stay the course. (such as a breakup). would outweigh the benefits of a global The polar opposite of this approach can be footprint. At Boehringer, the company for observed in many contemporary biotech Simple Structures And Clear decades has followed a simple, functional companies whose investors are pushing for Accountabilities setup, with R&D clearly in the driver’s seat in a fast sale of the company or its assets. The As illustrated in Adam Lashinski’s 2012 book terms of portfolio decision-making. lack of strong leaders with compelling vision Inside Apple, at Apple, every senior manager has led investors to hire management teams is fully accountable for his function. Financial Strategic Perseverance whose main qualification is that they have decisions are taken by the finance group, The pace of progress, particularly in the sci- previously sold off a biotech company to a product development decisions are taken by entific areas relevant to drug discovery, is tre- large biopharma. These investors typically lack the development group, and so on. In stark mendous. Today’s common wisdom is often any real interest in helping companies develop contrast, in today’s biopharma world, the outdated in a year. This unique mixture in bio- great products – they first and foremost worry typical structure is a multidimensional matrix pharma of extremely long fundamental inno- about a quick and lucrative exit. It is quite the (e.g., functions, therapy areas, regions/sites). vation cycles and the explosion of scientific opposite of what a Steve Jobs would have Truly focused accountability rarely exists. knowledge leads to the specific requirement done. Of course, there are notable exceptions Over the last few years, the “big step for- to be both persistent and flexible at the same of companies with a long-term approach to ward” in many organizations has been the time. This is only contradictory on the surface. funding innovation, and the best VCs/PEs play early consideration of marketing – leading Persistency requires that a strategy is given an an important role in the biomedical innovation to market-driven target product profiles, appropriate time frame in which it can play system; firms such as Sofinnova, OrbiMed, or peak sales forecasts, or net present value out – typically the fundamental innovation MPM Capital come to mind. calculations for early-stage candidates. The cycle in pharma take 20 years or more from problem with too much marketing input first technological invention to full market Seeing The Woods into early R&D is that it is inherently difficult impact (as in the case of monoclonal antibod- And The Trees to predict the potential of emerging tech- ies). Under such circumstances, changing the One of the most critical capabilities, especially nologies or products – this sometimes leads strategic direction every three to five years, at the top management level, is to have both to marketing seeing little or no potential for in line with the average lifecycle of a CEO or the ability to see the big picture and to dig early R&D efforts. research and development chief, creates a deep into the key value drivers. The standard Of late, in some companies there has been situation in which strategies are never fully management textbook approach would be the trend either to remove marketing input implemented. But due to technological prog- that top management should delegate many from early stages or to integrate it into R&D. At ress one needs to continuously create access detailed tasks to specialists and focus on the Apple, based on Steve Jobs’ famous disregard to potentially relevant new technologies. The big strategic topics. Managers who don’t for market research and focus groups, prod- trick is to achieve that without going through follow that rule are often condemned for uct development has been responsible for major shifts in the fundamental direction and unhealthy micromanagement. On average coming up with new products and marketing organization of a company. Instead of mas- this may be true, but why is it then that most has been responsible for strategies for selling sive investments into emerging technologies great leaders and visionaries tend to have an – very “old school,” but effective. Injecting a (like Merck placing a huge bet on siRNA by obsessive attention to detail, usually when it dose of simplicity would do a world of good buying Sirna Therapeutics Inc.), companies comes to the key value drivers of their respec- in the biopharma industry. One does not can create small-scale investments to en- tive businesses? want a company full of functional silos – but it able access once a technology has matured In many cases, including Jobs’, this atten- is a misperception that clear accountabilities to a degree where a full integration makes tion to detail stems directly from a strong lead to silo mentalities. Ultimately, market- sense (an uptick in corporate venture capital intellectual curiosity and the fact that these ing depends on R&D to be successful; and and option-based dealmaking are recent individuals tend to really care deeply about R&D depends on marketing to sell products examples). what they are doing, and have the equipment and create positive cash flow for reinvesting Highly successful companies such as Boeh- to do it – the genchi genbutsu. into R&D. If the incentive system and culture ringer Ingelheim or Novo Nordisk are shielded How many biopharma R&D leaders, let capture the “one company” perspective and from too much short-termism because they alone CEOs, have recently visited a laboratory the top leaders re-enforce that, collaboration are family-owned (Boehringer) or trust-owned and talked to their bench-level scientists? becomes a necessity. (Novo). One could argue that Genentech’s Most likely, senior leaders interact with the Interestingly, Genentech and Boehringer success can also be attributed to a patient working level primarily during town hall Ingelheim GMBH, both highly successful, majority shareholder (Roche), which shielded meetings or when a scientist gets to present have had comparably simple structures, and the company in a similar way for many years to a committee. And how many CEOs are in the case of Genentech, the company even of perseverant investment into R&D. The com- capable of understanding what their bench- deliberately decided against expanding its pany was at several points during its history level scientists are actually doing? R&D footprint beyond South San Francisco. heavily criticized by Wall Street for spending Paul Janssen’s management style is de- Genentech’s leadership was concerned that either too much on R&D or on specific projects scribed in an excellent 2007 paper by Paul

Lewi and Adam Smith titled “Successful above. Classic management theory clearly detrimental side effect of this experience is Pharmaceutical Discovery: Paul Janssen’s emphasizes this skill for top management the high degree of risk aversion (pessimists Concept of Drug Research.” Janssen knew over “attention to detail,” but we are arguing call it realism) that we observe today in large about all the projects that were on-going in that the two are really complementary and companies (and also among many biotech the company and also frequently went into equally important. Highly creative individuals investors). Technologies that may actually the laboratories to ask his scientists, “What’s can see both the “woods and the trees.” These lead to breakthroughs in the long term, such new?” He strongly believed that continuous traits have also been described as a T-shaped as gene therapy, stem cell-based therapies, critical questioning from the top was a key profile by Tim Brown, the CEO of IDEO – a therapeutic vaccination, or “systems biology,” to success. The result of such behavior, when leading design consulting firm: “to know often play an insufficient role in the discovery displayed by somebody who is respected everything about a little thing, and to know work of large R&D organizations. It has to be by the organization for his fundamental un- a little bit about everything.” Many break- accepted that such advances may take a long derstanding, is twofold: it demonstrates that throughs are based on the recombination time to reach fruition in the form of novel top leadership values the level at which most of pre-existing elements across boundaries, products with market potential. innovation is actually created and it instills a and in the biopharmaceutical industry there In spite of all the technological advances, sense of urgency and quality control, because are numerous stories of serendipity leading the prevailing paradigm of drug discovery nobody wants to “look bad” in front of a Steve to the development of major drugs. In spite today can be traced back to the “key-lock” Jobs or a Paul Janssen. of this, many companies have done their best principle of Emil Fischer (1852–1919) and the receptor theory of Paul Ehrlich (1854–1915). Of course, there has been much progress Let’s assume you had some personal money to invest in since then, but in essence most organizations follow a very similar approach to drug dis- solving a large pharmaceutical problem, such a finding a truly covery. At its heart is the belief that diseases can best be treated by blocking, activating, effective intervention for Alzheimer’s disease. Would you give or modulating individual drug targets with highly specific molecules. Of course there your money to one of the experienced and established are other approaches, such as enzyme re- placement therapy or phenotypic screening biopharma players in the field, or would you bet on a new (where Paul Janssen was a master), but especially the latter is an exception in an otherwise approach like Google/X-Labs? highly reductionist paradigm. There is hope, however, as some softening at the edges “Management by walking around” can be to systematically eliminate serendipity in their of this paradigm can be observed as more traced back to Abraham Lincoln checking monolithic “Center of Excellence” structures. combination therapies and bivalent or even his troops in the Civil War. Although a use- trivalent antibodies are being developed ful management practice, it captures only a A Healthy Disrespect (Jack Scannell’s 2012 article in Nature Reviews part of what is needed. The main difference For The Impossible Drug Discovery, “Diagnosing The Decline in is that Steve Jobs or Paul Janssen knew a A frequent criticism of the pharmaceutical in- Pharmaceutical R&D Efficiency,” contains an lot about the objects of their inquiry. They dustry is that it is shying away from the really excellent discussion of the topic). were respected not only for their position big and difficult problems. It mostly stands We would argue that a significant advance but also because of their vision and insight. on the sidelines waiting for “technological in treating the complex, multi-causal chronic Interestingly, leaders who fit such a profile validation” before joining the playing field. diseases that plague patients and exhaust the are not necessarily anti-hierarchical. Quite To be fair, companies have become cau- funding capabilities of health care systems the contrary, as they do not shy away from tious for good reasons, as billions have been requires a different approach and strong vi- using their authority to make decisions. But spent on technologies with great promise sionaries to make it succeed. Steve Jobs’ “real- these decisions are deeply grounded in what that have never delivered. At the end of ity distortion field” is much needed in today’s is actually going on in projects at the work- the 1990s, it was a common belief that biopharmaceutical industry. Interestingly, ing level, and do not rely on highly polished genomics would deliver new drug targets, Google’s Larry Page, who came up with the PowerPoint presentations. And for that, they causally linked to chronic diseases, and that “healthy disrespect for the impossible” slogan, are often better. these drug targets could then easily be is putting this into practice by rejuvenating Too much specialization and attention to exploited with high-throughput screening an old approach to R&D pioneered by Xerox detail, without the ability to synthesize and and advances in medicinal chemistry. These Corp.’s PARC. Google calls it X-Labs and it is recombine across epistemological and orga- advances, it was thought, would revolution- tackling the really big problems. Page has nizational boundaries, only creates incremen- ize biopharmaceutical R&D, creating more set the expectations very high, aiming for tal advances. Assembling different pieces predictable “drug discovery engines.” exponential improvements, thereby ensuring across disciplines is most powerful if applied This reductionist approach has obviously that the solution will only be found outside of in combination with the traits discussed not delivered its promised breakthroughs. A the beaten path. While many of the programs

8 | January 2014 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com Biopharma R&D

that X-Labs tackle fall into traditional high- maceutical R&D, exemplified by companies take place, driven from the top by supervisory tech domains, interestingly they have also such as Genentech, Janssen Pharmaceutica, boards, investors, and key shareholders, and started projects in health care, beginning with and Merck. This, of course, is of utmost impor- driven from the bottom by those professionals molecular diagnostics. tance to shareholders of pharma companies. who are already in the biopharma industry For the sake of argument, let’s assume you More important, it is critical to health care first and foremost because they want to had some personal money to invest in solving systems, especially in countries that will be develop great drugs that really help people. a large pharmaceutical problem, such a find- hit the hardest by the medical infirmities of A#2014800006 IV ing a truly effective intervention for Alzheim- their aging populations. er’s disease. Would you give your money to Unquestionably, the most difficult aspect Markus Thunecke, PhD (markus.thunecke@ one of the experienced and established bio- of effecting these changes is the “boot- catenion.com), is a senior partner of Catenion, pharma players in the field, or would you bet strapping” nature of what is required. These a boutique life sciences management consult- on a new approach like Google/X-Labs? The principles go to the very heart of company’s ing firm. Sir Mark Richmond, PhD, is an advisor question may have sounded far-fetched a few leadership models – affecting the composi- to Catenion, a former member of Genentech’s months ago, but reality is catching up with us tion of the board and executive management board of directors, and a retired R&D executive; faster than anticipated: in September 2013, teams. Putting in place the right leadership most recently he was head of global research Google hired Art Levinson as CEO of Calico, a team is the starting point. The leadership at Glaxo Wellcome. The authors would like to new company it is funding that is focused on profiles and characteristics are in contrast to thank Arthur D. Levinson, Franz Humer, Ma- diseases of aging. Calico recently announced a the reality at a lot of companies. As a result, safumi Nogimori, Fred Hassan, Melanie Lee, handful of senior hires, including Hal Barron as implementation will have to start with a good Wolfgang Plischke, Vincent Aurentz, Annalisa its head of research and development. Barron dose of self-reflection if not soul-searching Jenkins, Philip Brown, and the members of joins Calico from Genentech/Roche, where he at the top. The other critical element is the the Catenion team for invaluable feedback was chief medical officer and head of global realization that pharma can benefit from tak- feedback on the manuscript. product development. ing an outside-in approach to solving its R&D problems. Elements that have enabled other Moving Forward Amid highly creative companies such as Apple or The Resistance RELATED READING Google can have a profound impact within “Gilead, Celgene, Biogen Head List Of Most Pro- We have seen these principles and ideas, pharma, if approached with an open mind. ductive Biopharmas” — “The Pink Sheet,” adopted from some of most innovative and vi- There is no doubt therefore that the process Dec. 2, 2013 [A#00131202012] sionary high-tech companies, fundamentally will take time and involve unsettling steps. But Access these articles at our online store change the performance dynamics of phar- a change in mind-set and culture needs to www.ElsevierBI.com

No part of this article may be reproduced in any form or incorporated into any information retrieval system without the written permission of the copyright owner.