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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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August 7, 2013

Reworking Big Pharma

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Posted by Derek

Bruce Booth (of Atlas Venture Capital) has a provocative post up at Forbes on what he would do if he were the R&D head of a big drug company. He runs up his flag pretty quickly:

I don’t believe that we will cure the Pharma industry of its productivity ills through smarter “operational excellence” approaches. Tweaking the stage gates, subtly changing attrition curves, prioritizing projects more effectively, reinvigorating phenotypic screens, doing more of X and less of Y – these are all fine and good, and important levers, but they don’t hit the key issue – which is the ossified, risk-avoiding, “analysis-paralysis” culture of the modern Pharma R&D organization.

He notes that the big companies have all been experimenting with ways to get more new thinking and innovation into their R&D (alliances with academia, moving people to the magic environs of Cambridge (US or UK), and so on). But he's pretty skeptical about any of this working, because all of this tends to take place out on the edges. And what's in the middle? The big corporate campus, which he says "has become necrotic in many companies". What to do with it? He has several suggestions, but here's a big one. Instead of spending five or ten per cent of the R&D budget on out-there collaborations, why not, he says, go for broke:

Taken further, bringing the periphery right into the core is worth considering. This is just a thought experiment, and certainly difficult to do in practice, but imagine turning a 5000-person R&D campus into a vibrant biotech park. Disaggregate the research portfolio to create a couple dozen therapeutically-focused “biotech” firms, with their own CEOs, responsible for a 3-5 year plan and with a budget that maps to that plan. Each could have its own Board and internal/external advisors, and flexibility to engage free market service providers outside the biotech park. Invite new venture-backed biotechs and CROs to move into the newly rebranded biotech park, incentivized with free lab space, discounted leases, access to subsidized research capabilities, or even unencumbered matching grants. Put some of the new spin-outs from their direct academic initiatives into the mix. But don’t put strings on those new externally-derived companies like the typical Pharma incubator; these will constrain the growth of these new companies. Focus this big initiative on one simple benefit: strategic proximity to a different culture.

His second big recommendation is "Get the rest of the company out of research's way". And by that, he especially means the commercial part of the organization:

One immediate solution would be to kick Commercial input out of decision-making in Research. Or, more practically, at least reduce it dramatically. Let them know that Research will hand them high quality post-PoC Phase 3-ready programs addressing important medical needs. Remove the market research gates and project NPV assessment models from critical decision-making points. Ignore the commercially-defined “in” vs “out” disease states that limit Research teams’ degrees of freedom. Let the science and medicine guide early program identification and progress. . .If you don’t trust the intellect of your Research leaders, then replace them. But second-guessing, micro-managing, and over-analyzing doesn’t aid in the exploration of innovation.

His last suggestion is to shake up the Board of Directors, and whatever Scientific Advisory Board the company has:

Too often Pharma defaults to not engaging the outside because “they know their programs best” or for fear of sharing confidential information that might leak to its competition. Reality is the latter is the least of their worries, and I’ve yet to hear this as being a source of profound competitive intelligence leakage. A far worse outcome is unchallenged “group think” about the merits (or demerits) of a program and its development strategy. Importantly, I’m not talking about specific Key Opinion Leader engagement on projects, as most Pharma companies do this effectively already. I’m referring to a senior, strategic, experienced advisory function from true practitioners in the field to help the R&D leadership team get a fresh perspective.

This is part of the "get some outside thinking" that is the thrust of his whole article. I can certainly see where he's coming from, and I think that this sort of thing might be exactly what some companies need. But what are the odds of (a) their realizing that and (b) anything substantial being done about it? I'm not all that optimistic - and, to be sure, Booth's article also mentions that some of these ideas might well be unworkable in practice.

I think that's because there's another effect that all of Bruce's recommendations have: they decrease the power and influence of upper management. Break up your R&D department, let in outside thinking, get your people to strike out pursuing their own ideas. . .all of those cut into the duties of Senior Executive Vice Presidents of Strategic Portfolio Planning, you know. Those are the sorts of people who will have to sign off on such changes, or who will have a chance to block them or slow their implementation. You'll have to sneak up on them, and there might not be enough time to do that in some of the more critical cases.

Another problem is what the investors would do if you tried some of the more radical ideas. As the last part of the post points out, we have a real problem in this business with our relationship with Wall Street. The sorts of people who want quarter-by-quarter earnings forecasts would absolutely freak if you told them that you were tearing the company up into a pile of biotechs. (And by that, I mean tearing it up for real, not created centers-of-innovation-excellence or whatever the latest re-org chart might call it). It's hard to think of a good way out of that one, too, for a large public company.

Now, there are people out there who have enough nerve and enough vision to try some things in this line, and once in a while you see it happen. But inertial forces are very strong indeed. With some organizations, it might be less work to just start over, rather than to spend all that effort tearing down the things you want to get rid of. For all I know, this is what (say) AstraZeneca has in mind with its shakeup and moving everyone to Cambridge. But what systems and attitudes are going to be packed up and moved over along with all the boxes of lab equipment?

Comments (39) + TrackBacks (0) | Category: Drug Industry History | Who Discovers and Why


1. petros on August 7, 2013 9:02 AM writes...

Weren't GSK's CEDDs an attempt to turn a megalithic R&D organisation into nimble biotechs?

And GSK has also been a keen advocate of outside influences (as many comments on here have highlighted)

The big problem is that size runs counter to enhancing innovation, it tends to vastly increase bureaucracy (and risk averseness) as all who've worked in big pharma have seen

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2. Anon on August 7, 2013 9:10 AM writes...

The very mention of breaking a company up into smaller biotech-like branches points to inefficiency with the larger company. My bet most readers of this blog and many VCs will agree that both these large companies are inefficient, and they'd likely be more efficient if segmented. Yet it seems the institutional investors haven't noticed this or are powerless.

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3. barry on August 7, 2013 9:23 AM writes...

"kick Commercial input out of decision-making in Research" maybe the hardest of them. Pharmaceutical research has contracted this last decade in part (largely?) because Big Pharma companies (and the VCs who fund Small Pharma) are also investment banks, who saw it was more profitable to play the derivatives market millisecond to millisecond than to invest in Research that takes a decade to pay out.

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4. Hap on August 7, 2013 9:25 AM writes...

On one hand, upper management should realize that if they continue in the way they have with their guidance, they won't have any substantive control over their company, because it won't exist. On the other hand, since when it goes out of business, they will probably get another lucrative job with another pharma looking to plow itself into the ground (and probably with friends and acquaintances in similar positions), perhaps that doesn't matter?

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5. Eric on August 7, 2013 9:59 AM writes...

Don't forget that the drug discovery successes of biotechs are amplified in people's minds by omission of their many failures. A lot of VC money has been flushed down the toilet looking for the next Genentech. On the net, I'm not sure biotech has a much better track record than big pharma, just less accountability.

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6. Anonymous on August 7, 2013 10:10 AM writes...

The biggest problem is that scientist after scientist will tell you that they know how to make a new drug but honestly they don't. Chemistry is never the problem. Whenever a rate determining target is identified, a new class of drug will follow. Time and luck are essential for finding rate determining targets but no one in the management level has the courage to admit it. It is a suicide mission for any drug industry leader to think that there is a way to guarantee finding a new drug every year.

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7. Pfinally on August 7, 2013 10:23 AM writes...

@3 - they saw it as more profitable - because it WAS/IS more profitable! Our failure rates in big pharma research are to blame for the shrinking budgets. We've been given over a decade to change it and one re-org after another new research head after another merger followed by another innovative re-org - we havent changed the failure rates one bit.

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8. Vaudaux on August 7, 2013 10:53 AM writes...

Sounds great, how do I apply for a job?

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9. NoDrugsNoJobs on August 7, 2013 11:06 AM writes...

In my mind, there is much merit to this approach. It would be good to verify the presumption by looking to what the actual vc biotech productivity rate is in terms of money spent versus drugs made.

Of course, you'd have to take a time point in the past in order to reflect what is on the market today. I wouldn't accept clinical candidates as a measure of success as small companies are highly motivated to get anything in the clinic and try to keep them there as their job is typically to license during development so a success for them is to get deals done whereas the ultimate arbiter of success is a drug on market and even better, a good seller.

While I have worked in big and little vc pharma and tend to agree that the little vc pharma works much more leanly and is much better at maximizing the value of their little portfolios and use much more aggressive development strategies and so on. However, thats just anecdotal so it would be good to get a little more objective and granular.

Cool post, thanks!

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10. MiddleTier on August 7, 2013 11:07 AM writes...

# petros,
The CEDDs were superseded by the DPUs. In fact, some, I stress some, of the Forbes article appears eerily reminiscent of much current thinking @GSK and possibly at other companies too. Patrick Vallance has certainly been trying to nudge the company in the general direction of more open innovation and agility with respect to translational research and resource allocation. interesting times indeed!

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11. Anonymous on August 7, 2013 11:14 AM writes...

Breaking up a company into smaller units always sounds good, but you have to be very careful not to create "Battlin' Business Units" fighting for limited resources. This leads to lack of collaboration, and redundant activities as groups view each other as the enemy for the attention of the higher ups. Finding a way to encourage collaboration while allowing autonomy is a tricky thing.

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12. Hap on August 7, 2013 11:19 AM writes...

@7: Eating the seed corn is always profitable if you don't plan on being around next winter.

If they had wanted to improve productivity, cutting resources and micromanagement generally aren't good ideas, but they look good, and achieve the real goal of allowing management to cash out everyone's else money. It's much easier to get what you can and leave the pieces behind, again, if you don't plan on being around long enough to need any drugs.

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13. ScientistSailor on August 7, 2013 11:29 AM writes...

Sounds like he's been reading Clayton Christensen. It's not just Pharma, any company that gets too big will have similar troubles and should be broken up. Look at Gore Industries (Goretex, etc), never more than a few hundered people working together.

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14. Electrochemist on August 7, 2013 12:33 PM writes...

@11 is spot on.

Shell Oil went through a break-up into different R&D units in the late 1990's and early 2000's. Then, they reformed the larger functionally aligned organizations later in the decade to eliminate redundancy.

From a 2010 article in "Oil and Gas Journal:"

"Under the old organization each of these groups had its own research and development, projects, contracting and purchasing, and safety and environment units. A head of research managed each of the old R&D units but in the restructured organization, Shell now has only one R&D group headed by one executive chief technology officer and therefore has become effectively leaner."

Bottom line: the organizational structure is irrelevant when fools are in charge.

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15. Biotech Chemist on August 7, 2013 12:36 PM writes...

I think one thing that is overlooked it the payoff for the scientist in Big Pharma and the type of scientist drawn to a stable salary.

By giving a relatively large stake in a company, with high risk for failure but a large payout for success; biotech draws the types of personalities that are inherently creative risk takers with a lot of energy and ideas.

If Big Pharma setup a type of ancillary private stock options/reward system for new projects like a biotech, they would most certainly draw in the type of scientists necessary for innovation.

Just go to a successful biotech and ask a founding RA when they are ready to retire.

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16. a. nonymaus on August 7, 2013 12:46 PM writes...

Re: 15
A stable salary is not usually associated with the term "Big Pharma Chemist", unless you mean the stable $0 post-layoff salary. Were career stability on offer, big pharma could be very innovative as people could then feel free to take risks as opposed to wondering if they can make mortgage payments next year.

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17. Doug Steinman on August 7, 2013 12:48 PM writes...

One thing that has not been mentioned is the influence that HR and performance metrics would have on the success of such a high risk environment. How do you evaluate the people who worked on a project that was a great idea but failed to yield a useful result? During my career in big pharma it was a regular occurrence to see people who worked on "safe" projects get rewarded while those who worked on the high risk / high reward projects were among those who were shown the door.

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18. Cellbio on August 7, 2013 12:50 PM writes...

Funny, I was just running this thought experiment through my own head this week. I even presented the idea to management when part of a big company years ago. Obviously the idea of limiting senior management scope and power did not go over well.

One issue that rises is the benefit of scale and flexibility to shift around resources that comes with centralized departments like HTS and chemistry. Spitting these into "start-ups" diminishes the strengths of such departments, and indeed, managing access to these key resources could create the battling business unit issue, but probably a low order risk worth taking.

The two elements that I thought best addressed with splitting into small entities are the one Bruce hits on, his analysis-paralysis culture and the dominance of HR. I would characterize the risk aversion as a culture that springs out of the fail fast mentality. In large companies that get portfolio managed, any clinical candidate with large dollars attached to the next bet being placed often gets hammered on all fronts, with biochemists sure the next compound will have better affinity/selectivity, PKists saying the prediction of once/day is not certain, and on and on until conviction is sapped. In that environment, why not turn back to compound X where ignorance of these issues appears to create blue sky? After all, the goals tied to bonus payments are compounds screened or metrics like clinical candidates brought to a certain team level designated by an acronym (PDT, SAC). This manner of operation across a broad pipeline can go on for years. On the flip side, small companies have to make bets within the time frame of their lifespan with imperfect information. While this can drive silliness, no system is perfect, it also creates opportunities for success.

The HR issue is not one to be discounted, IMO. Performance reviews, calibrating ratings, metering out bonuses... all of this is a huge part of contributing to the decline of entrepreneurial environments. In those small companies Bruce envisions, I'd suggest there be no personal goal writing tied to bonus. One team, one set of goals. Performance is reviewed daily, weekly by engaged and committed managers AND peers. No HR department. In a start-up, you are all in one boat, with an opportunity for greatness, but your boat starts to sink on day one. You can row (create value by moving the technology forward) or improve buoyancy (get more funding), but you must tie your career growth to the overall experience. Small companies can't afford to "grow careers" as part of the business. Accomplish something, and off you go, fail, and try again....dynamic, exhilarating, but not for everyone, especially big company types who grow accustomed to growing their careers.

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19. Biotech Chemist on August 7, 2013 1:08 PM writes...


I think the review issue is a really good point. In a start up there isn't anytime for a review and if there is it's done in about 10 minutes. There isn't much of a point because everyone is just trying to survive and get as much done as fast as they can.

Whatsmore early on there aren't many meetings because you talk with the director everyday because he or she is on the bench!

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20. anon1 on August 7, 2013 1:12 PM writes...

Would everyone who's never worked in the pharma industry please do us a favor and take a hike? It seems to be a prerequisite for telling us how to do drug discovery. Having worked in enough companies for long enough to have seen these trends come around a few times, this article is just so naive. @11 is right: just because biotech-like units can do what they like quickly without any oversight or scrutiny by people who might have more experience doesn't make it more likely they'll do the right thing. I've seen the loss of synergy, destruction of centres of excellence, and greater fragmentation of experience that this kind of ideology brings in. In return you get leaders who are only really interested in self-promotion, hiring their friends, losing their best researchers & fighting with their rivals, before taking off to the next high-flying job leaving the poor researchers to deal with their mess. I can't believe anyone can take this drivel seriously.

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21. really on August 7, 2013 1:27 PM writes...

A very very large % of R&D is for late stage clinical studies, the types which almost no biotechs ever fund and obviously are needed before a drug actually produces revenue.

Looking at Pharma R&D expense and simply thinking it can be broken up into smaller biotech like units is pretty naive.

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22. Shanedorf on August 7, 2013 1:27 PM writes...

The fundamental problem as I see it is that we just don't know enough about human medicine yet.

So we fail.

All of these re-orgs, new paradigms, new structures etc are done without ever really acknowledging the fact that we just don't know enough yet not to fail.
No other industry is faced with this level of uncertainty and unknowns so maybe Pharma needs a slightly different strategy

We still live in a "fail fast and move on" world; we're a long ways away from even a 50% success rate in the clinic. And rather than ignoring that issue, maybe its time to embrace it and make it work for us.

Build Pharma companies that are not based on "success" as defined by other industries, build companies that are very very good at "failing" quickly and cheaply.

Perhaps finding more success in drug development is not tied to any new corporate structures, but rather its tied to embracing "failure" and getting more efficient at it - although that's a pretty tough sell on Wall Street and on Main Street.

Drug development failures in and of themselves aren't the big problem; its the very expensive, time consuming nature of these failures that hurt this industry deeply.

Imagine how different the balance sheets would look if we could consistently kill a drug for $ 2 million instead of $200 - $400 million...

Instead of trying desperately to increase the success rate marginally, maybe we just need to acknowledge the inherent difficulty of drug development and try to really reduce the cost of the unavoidable failures.

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23. really on August 7, 2013 1:32 PM writes...

Shanedorf - this really is what biotech and pharma do all the time. We kill programs right and left or at least send them back to the library for more study b/c the side effect profile or biology underpinning are not robust enough to support preclin tox or Phase I or Phase II.

$2m won't even get you a compound to "fail" once you consider how much it costs to study a pathway and then come up with a viable candidate that can be put to the initial tests.

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24. JMS on August 7, 2013 2:40 PM writes...

We actually saw something like this in a patent:
"Jim- Did we even make these compounds???"
It was years ago and still brings a smile to my face.

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25. Bruce Booth on August 7, 2013 3:23 PM writes...

Thanks Derek for posting a link to my blog post. Appreciate the thoughtfulness of your commenters points.

@5, @9 - I don't think the macro, aggregate metrics for small companies ("biotech") are any better than Pharma, but that's because it includes 100s of shitty companies that are inefficiently funded and staffed with inexperienced folks. The well-run biotechs led by seasoned drug R&D leaders in our portfolio and elsewhere in the industry actually have impressive productivity. So the devil of these analyses is always in the details.

@18 - Spot on wrt HR and its impact. Most of the team in our startups have one short set of goals around moving the programs forward (rowing as you say) or attracting less dilutive funding over time (buoyancy, nicely said). We certainly don't have a bunch of paper being pushed about scoring an employee's skillsets etc...

@20 - you seem overly negative, and not sure what's so naive about the article. It was a thought experiment and much may not be practical, as I noted in the post. But the points are still valid: its clear that Commercial folks with their market research gospel and spreadsheet have cut the legs out of Research's ability to do lots of things. Its clear governance is an issue, and that the Boards of Pharma are unable to engage on the critical issues facing a science-led business. Its also clear that the R&D Mega-Campus has been remarkably unproductive in the past couple decades under the weight of ever increasing bureaucracy. The best thing to do is give good scientists, experienced veterans more rope to do what they think is right to bring great drugs forward (and they may hang themselves, but at least they had the freedom to do it). Most credible biotechs are led by CSOs or Heads of Research that do come out of years of training in larger drug R&D organizations. That's the gist of the "breakup the R&D bureaucracy" point. The good drug hunter often suffocates today in a Pharma environment and can be liberated from lots of distractions in a smaller more nimble biotech to focus on real discovery. Smaller is beautiful in that regard. I've been called naive before, and my writing drivel, but, given the aggressive tone of your comment, my guess is the number of times that's happened is probably fewer than number of times you've been called far worse. But fair enough, appreciate you sharing your perspective.

@21 - agree on the scale and late stage bias of R&D spend. And frankly only big organizations can do late stage full development given the costs. Biotechs should focus on the R side of the story - bringing drugs to credible PoC and finding the best partner to help finish development, register and commercialize them. But even on the R-side of the budge alone, these peripheral innovation initiatives are minor compared to the aggregate R spend in big pharma.

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26. Morten G on August 7, 2013 3:55 PM writes...

Meanwhile academia is going in the opposite direction with more and more services. Mass spec service, NMR service, crystallography service etc.

Give researchers more freedom to choose projects to work on and use that to guide which projects to kill. Only have R&D bonuses tied to NCE and NBE approval and split bonuses between all R&D and those that worked on the project. Award bonuses even to people who no longer work for you. Think of bonuses as a premium pension for rather than salary. Your salary should be your salary.

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27. Nick K on August 7, 2013 4:20 PM writes...

A more pessimistic analysis for everyone's consideration: perhaps we are witnessing the Law of Diminishing Returns in action. The number of successful drugs per billion USD spent (I can't bring myself to say "invested") is declining inexorably year on year and there's absolutely nothing anyone can do about it.

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28. Sisyphus on August 7, 2013 5:34 PM writes...

BB should talk to the employees of Eli Wexler's company:

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29. Roger Rabbit on August 7, 2013 9:29 PM writes...

As mentioned by others, the biotech productivity is not not better than big pharma when you take into account approved NDAs/dollars spent.

The failure is often because it was a bad idea in the first place.

Furthermore, academia has not really created a plethora of wonderful drug targets either. Since we are not able to reproduce 2/3 of published data it is no wonder that these ideas fail in Ph2.

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30. annon on August 7, 2013 11:14 PM writes...

Much of this was being was tried with the CEDDs at GSK. Was this an advertisement written by a Sr GSK VP? Indeed, that model was showing promise for increased productivity, as several drugs now coming toward registration came from the CEDDs. The CEDD experiment had issues, though, including the ability to get more funds during the course of each funding cycle, and interference by some senior people and a busy-body consultant that made things more difficult than needed for research teams; essentially it was an ego game that really got in the way. Also, in my opinion, if the CEDDs would have stayed fund-restricted, then decisions would have had to be made to cut uneeded and excessive studies, as well as silly projects.

But, then, when new upper management took over (Witty and Valence) they had to make changes to the CEDDs, leading to the DPUs, which now are overly criticized, micro overseen, excessively reviewed, where senior VPs all have to have a say, no matter how little they really know about the area.

In other words, management at Big Pharma simply can't keep their hands out of the programs & projects. There are too many Sr VPs with too little to do, and too many with only academic backgrounds that always know more, are obviously wiser. And then, of course, is still the presence of the same interfering advisor.....

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31. Alex S on August 8, 2013 1:39 AM writes...

I'll throw in my two cents about a fundamental problem specific to Pharma R&D that I don't see mentioned much. Pharma research has two really brutal attributes: 1) High project failure rates and 2) An extremely long lag time between actions and outcomes -- seven years or more from when a project is started to when the new drug successfully hits the market. For even the best scientists and managers the feedback loop on their efforts is long and not at all direct. The result? It's awfully hard to know if the strategy or the organizational scheme you used were any better or worse than any other alternative. The behavior of dynamic systems predicts that with variable processes and delayed feedback loops a system has the potential to oscillate wildly. Throw in a management team too impatient to wait for complete outcomes before making another change, and a company trying to Change Things will flail. Which is exactly what we're seeing across the industry -- continual shifting strategies and restructuring efforts. Without substantial improvement.

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32. JustANewGuy on August 8, 2013 2:46 AM writes...

I see the Pharma world thru a different lens (ex-Big Oil guy in Big Pharma for seven months) than most of the people who visit this (fantastic) site.

The consultants that propose these re-orgs get paid to suggest change. Not many firms get called back if they say "Hey, just keep doing what you're doing!". I was in Big Oil long enough to see the waves of change-back-to-what-we-changed-from ideas. Management styles are like fashion: Wait long enough and what was old is new again.

What I see plaguing Big Pharma is a three pronged problem: 1) day traders wanting instant gratification vs a ten year development timeline, 2) drug approvers constantly moving the goalpoasts on what constitutes "success" and 3) governments trying to control their healthcare costs while Pharma finances their >90% failures with their

And the VPs take it out on the R&D departments everytime because they are the fount that produces the value creating streams.

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33. Kelvin on August 8, 2013 6:20 AM writes...

Great article, and great thoughts and comments on this very important topic, and challenge: How to improve pharma innovation and R&D productivity, in order to keep the industry sustainable.

For those interested in this topic, please feel free to visit or join our LinkedIn group, Big Ideas in Pharma R&D Productivity and PPM, which I have established as a community to identify and address the fundamental underlying issues in pharma innovation and R&D productivity:

We discuss everything from culture, leadership and entrepreneurial mindset, to organization, processes, metrics, portfolio selection, value, risk, and anything else you can think of...


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34. pharma professional on August 8, 2013 12:12 PM writes...

Generally agree with #30 - a few other thoughts. Nothing really profound, but thought I'd say :

Decentralization has basically created a 'warring tribes' culture, and from what I've seen is less productive at 'filling' the pipeline with new medicines (i.e. before phase II).

You can't shrink your way to greatness.

Technologies/platforms, etc don't make drugs - people make drugs.

A heavy R&D presence in Asia is NOT the panacea for what ails the industry (GSK is finding out that China isn't so great after all)

The 'buisness' types who make these decisions were likely not the top 10 (or 30) percent of their class - rememeber that. I've heard folks at the VP level display shock that we do tests on animals (!).

It's better to be lucky than smart. Big pharma is very good at outsmarting itself.

Thanks for reading.

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35. Anonymous on August 8, 2013 12:30 PM writes...

A couple of comments on the ideas proposed in this article. First, the risk aversion has a basis in the endless litigation focused on Pharma, with its perceived deep pockets. This is not likely to change no matter what the structure of the research organization. Second, the problem of productivity is one of recognizing the good ideas, and killing off the bad ones. Despite their very high opinions of themselves, senior R&D execs are not very good at this. So the structure isn't going to fix this problem, you actually need to get rid of the execs. Biotech is not more productive, but sometimes (actually disturbingly often) they can sell a bad idea to Pharma. So overall ROI can look better in Biotech, but without products at the end. The assumption that “outside” thinking is better than inside thinking is actually one of the diseases of big Pharma, not one of the solutions. There is a lack of really good ideas, internally, externally, around the world and only time and more information will fix this problem. Interesting and thoughtful article though, thanks.

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36. Kaleberg on August 10, 2013 11:00 PM writes...

I can see rising management types just loving the idea of splitting R&D into lots of independent research companies. They'd each have a nice little fiefdom, independence and a fallback position when the project fails and they lay off all the technical types and reabsorb the managers. Sorry, I'm an awful cynic.

Pharma is a lot like the movie business with low development (e.g. scriptwriting / initial screening) costs but high production (e.g. filming & marketing / late stage trial) costs. No wonder there is so much emphasis on me-too projects and sequels in both businesses.

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37. Deep Lurker on August 12, 2013 5:39 PM writes...

Another parallel between Pharma and the movie business is that "Nobody knows anything."

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38. Peter B on August 14, 2013 10:17 PM writes...

Lots of good ideas here, but please read the entire original article by Bruce; Derek has caught some of the highlights, but there are a lot of other good ideas. In fact start with the title "If I were head of R&D". Often the new head of R&D is from outside the company and comes in with a mandate to "improve productivity". He (rarely she) looks at the convoluted organization comes up with solutions and sets about instituting the changes. This takes about 2 yrs to have full effect and buy in. All of this disrupts productivity and mediocre projects survive, because they are always the easiest to defend. With luck, by which I mean no big failures and the company meets the expectations of Wall Street (see original article for more about this problem), there may even be reasonable stability for a few years. But a few years is relatively meaningless in an industry where it takes 7-10 yrs to get a drug to market and a few more to know if it is a commercial success. Inevitably, the R&D head is replaced or even if not a decision is made to "change the model". And the cycle starts all over again. So who knows if any of the schemes to improve productivity are successful? And who know if an R&D head is good, because there successes and failures often depend on the decisions of their predecessor.
Hence the appeal of the "all in" model of small companies for all the hard working scientists who get frustrated with the constant reorganizations and changes in priorities. However, as pointed out by others, if there science is wrong, they fail, similarly as big pharma.
A few other comments: (1) Ban consultants like McKinsey to tell management how to improve. They waste millions to tell you what they tell every other pharma company, namely that you need x lead compounds to get y INDs to get z NDAs. That is always a recipe to play it safe and manage to the numbers and not reward risk and innovation. (2) Think about how to improve the D side of R&D. If this is where the bulk of the money is spent and most drugs die, maybe they are doing something wrong. I am convinced that many drugs "failed" because the clinical trials were poorly run or didn't select patients correctly for the mechanism.

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39. srp on August 16, 2013 8:37 PM writes...

Fascinating thread. Some of the comments here lean toward favoring a "United Artists" model where the "studio" is run by the "talent" instead of the "suits." That would be an interesting experiment at a large corporation (as opposed to a start-up where it's pretty common).

Also interesting is the point that lag times and uncertainty conspire to cause excessive churn in structures and processes. It's like twiddling with machine setups without knowing about statistical process control, only on a grand organizational scale. One counterpoint is that cyclic fads might--I emphasize might--enable an organization to balance out excesses of each particular approach over time, the way a bicycle is kept upright by twitching the front wheel from side to side.

Finally, I do wonder, as usual, if the big problems holding back discovery are not organizational but rather institutional pre-suppositions about single-pathway "rational" drug design combined with excessive FDA requirements (e.g. having to beat the current treatment rather than placebo even though a lot of drugs used to find valuable niches as alternatives that worked better for some patients in clinical use due to individual variations unknown ex ante).

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