In Search Of A Golden Mean: Balancing Innovation And Execution In Biopharma

Guest post by Dr. David Shaywitz

As the biopharmaceutical industry looks to revitalize itself through innovation, a lot of companies have started to think deeply about what it means to be more innovative. In today’s WSJ, I review an interesting new book by Peter Sims called Little Bets that discusses the importance of deliberate experimentation in innovation and highlights the role of thoughtful improvisation in driving progress.

The difficulty, as I see it, isn’t that most people fail to appreciate the value of trying new things, and more generally, pursuing a portfolio of options. Rather, it’s that almost everyone wants to be the one doing the diversifying, and often wants the entities within their portfolio (companies, programs, people) to execute in a lean and focused fashion.

For example, growth investors generally want their companies to relentlessly pursue a specific thesis, often high risk/high reward; for these investors, each company in their portfolio is a small bet. But most companies prefer to diversify and hedge their risk – statistically safer for them, but not necessarily what their investors had in mind. The pattern extends down through project teams even to the level of an individual employee, who must balance pursuit of promised objectives with the ability to pivot if something changes. In each of these situations, everyone understands the value of small bets – the issue is that each person wants to be the one holding the cards.

From a management perspective, the dilemma is that in the short term, investing in game-changing “disruptive” innovations are a drag on the balance sheet. Organizations are always seeking ways to cut costs; this is especially true these days for pharma companies, as they anticipate patent expiries. Without a serious long-term commitment, and mandate, from senior management, pursuit of such so-called “non-core” activities face serious, even prohibitive, challenges. (See this thoughtful HBR piece by Clay Christensen and colleagues for an excellent discussion of how the financial value of disruptive innovation is systematically underestimated.)

It’s also critical to recognize the very real limitations of constant experimentation – the success of any innovation requires not just a promising idea, but also focused and determined execution. I imagine someone could write a parallel volume to “Little Bets” (and probably several exist already) arguing that it’s all about execution, and that in practice, the actual limitations on innovative success are the fortitude to stay with a difficult idea, grinding through the sweat and tears to ensure it becomes a reality.

Such perseverance is as vitally important in academia as it is in business – I can think of many graduate students who were brimming with potentially interesting ideas, but were never able to muster the focus needed to shepherd any individual idea through the necessary period of unglamorous, gritty exploration, and would instead constantly jump to something new.

By contrast, the most successful academics I know are relentless about following up promising ideas, ensuring they are adequately developed and successfully published. (I suspect there are actually far more academics whose career success results from the dogged pursuit of mediocre ideas than from the tepid pursuit of great thoughts.)

The obvious answer, of course, is that it’s all about balance – both exploration and execution are essential, and you need to know when to do each. But therein lies the rub. Consider this disturbing thought: perhaps it’s not really possible for anyone to know, for any particular situation, just what the right balance is. Arguably, “the right balance” is largely dependent upon randomness, externalities that are impossible to foresee despite one’s best guesses, and potentially out of one's control.

Nevertheless, the success stories will be captured in business books, case studies,and on the “analog” slides so popular among consultants and bankers; the wins will be attributed to brilliant thinking (and implicitly, to great advice), while the failures (though frequently the result of similar advice and a similar strategy) will quickly be forgotten. (See The Halo Effect by Phil Rosenzweig, or Fooled by Randomness by Nassim Taleb for a more complete discussion of these issues. Additional books recs can also be found here.)

I continue to believe -- strongly – that good management matters; while you may not always be able to make good decisions, you can certainly avoid making some very bad ones. In biopharma, specifically, I deeply believe in the value of--and absolute requirement for--effective execution, but I remain passionate about the primacy of good new ideas, the value of R&D, and the importance of innovation. I’ve witnessed the “innovation dissipation” that can occur in large corporate structures that kill new ideas not by fiat but through stultifying bureaucracy, onerous processes, and falsely precise spreadsheets and modeling, as previously discussed here.

It’s not surprising that some of the most innovative leaders carefully protect nascent ideas from institutional antibodies, especially those associated with productivity metrics. Sims writes that at Amazon, “when trying something new, Jeff Bezos and his senior team (known as the S Team) don’t try to develop elaborate financial projections or return on investment calculations.‘You can’t put into a spreadsheet how people are going to behave around a new project,’ Bezos will say.”

Similarly, Mark Fishman, head of R&D at Novartis, has reportedly banished the use of sales forecasts from early research, and (in a stimulating 2008 HBR article by Amabile and Khaire) has derided Six Sigma as “one device that has destroyed more innovation than any other,” adding that efficiency-minded management “has no place in the discovery phase.”

Steve Jobs’s dictum, “People don’t know what they want if they haven’t seen it” seems especially relevant for drug development, as huge resources are spent trying to figure out what patients and physicians want, yet the ability of such market research to anticipate the value of a novel product is notoriously poor, as discussed in this JCI article by former pharma VP Jose Cuatrecasas. (I’ve yet to meet a senior pharma commercial executive who will acknowledge this limitation.)

Overconfidence in forecasting turns out to be a more general problem, as concisely summarized by noted University of Chicago behavioral economist Richard Thaler in this NYT piece.

Innovation continues to matter for Big Pharma. But, as Anthony Nicholls notes, simply restructuring themselves in the image of biotechs may not be the magic answer. It's worth noting there’s little evidence that biotechs are any more productive than big pharma. It’s just that they often evaporate when they fail, and their losses tend to be invisible, rather than accounted for on a balance sheet, as HBS professor Gary Pisano discusses in his book Science Business.

I’ve seen so many people within big pharma who were attracted by the opportunity to make important new medicines, and who still, despite everything (including the formidable internal challenges as well as the relentless attacks of the pharmascolds), maintain this worthy ambition.

The challenge for top pharma leaders -- a challenge that I’m not sure most big pharma execs either fully appreciate or deeply believe -- is to recognize this potential, engage these aspirations, and support and enable these latent innovators, before it is too late.

Dr. Shaywitz is a strategist at a biopharmaceutical company in San Francisco and an Adjunct Scholar at the American Enterprise Institute. He is a regulator contributor to Science Business at Forbes.

(Image courtesy of flickrer Digitalnative used with permission through a creative commons license.)

Seeking Value: How Lower Prices Can Make Sense

Angus Russell is CEO of Shire PLC. Shire is a global specialty biopharmaceutical company with 4300 employees in 28 countries. He will be the keynote speaker at the BIO-Windhover/Pharmaceutical Strategic Outlook Conference taking place March 30 to April 1 in New York.

The current issues faced by health care systems globally can be summed up in an excerpt from Michael Porter’s recent article in Harvard Business Review entitled “Creating Shared Value” --

“From society’s perspective, it does not matter what types of organizations created the value. What matters is that benefits are delivered by those organizations—or combinations of organizations—that are best positioned to achieve the most impact for the least cost.”

Nearly every health care system around the world is facing tight budgetary constraints, which is having an impact on what those economies are willing to pay for medical innovations. In particular, payors are demanding tangible value for the medicines that biopharma companies hope to bring to market. This message became crystal clear as I traveled in the past year to many of the 28 countries where Shire has a presence and met with the various stakeholders engaged in the drug development process.

Today, it is no longer sufficient to hit a clinical endpoint. As evidenced by the recent decision in the UK by the National Institute for Health and Clinical Excellence (NICE) to decline reimbursement of several clinically-proven drugs due to their perceived high cost and low value to the UK health care system, health care regulators are taking a much more critical look at the cost of a medicine and its implied value to society.

Given the changing landscape, what can companies do to increase the likelihood that their product will not only be approved by regulators, but also receive reimbursement that enables them to be appropriately compensated for their R&D investment? While the answer to this one billion dollar question – a figure some estimate as the average cost to bring a product to market – remains under debate, what has become abundantly clear is that life sciences companies must take into consideration the needs of a much broader group of stakeholders, and clearly demonstrate the value to society that can be realized through the development of innovative treatments for unmet health needs.

Historically, physicians were seen as the gatekeepers to the successful commercialization of a product. Nowadays, it's clear to most companies that patients, caregivers, advocacy groups, policymakers and payors – in addition to physicians – are all important influencers in what we at Shire refer to as the Circle of Value. It is essential that we engage with these stakeholders regularly to hear, and address, their unique needs and to gain insight into a host of factors that can have a very real and direct impact on the success of a drug candidate, ranging from clinical trial design, to meeting unmet medical needs in the marketplace and assessing prospects of obtaining product reimbursement.

Thus Shire has expanded the teams that engage with patients, policymakers and payors, which has allowed us to listen more effectively to the needs of these groups and adapt our approach to drug development and commercialization activities. As an example, Shire conducted a number of focus groups with physicians around potential pricing prior to the launch of our Gaucher treatment Vpriv. The feedback indicated that it would be beneficial to all involved if Shire priced Vpriv lower than the other approved product on the market.

Shire's management ultimately secured a price for Vpriv that is at a 15% discount compared with the only other commercially-available product for this rare disease, even though the market conditions suggested Shire could potentially have secured a premium price. In addition, as part of our patient assistance program, Shire instituted a co-pay funding plan specific to Vpriv for eligible patients in the US.

Of course, the resources a company has at its disposal to serve these stakeholders can only be effective when there truly is a need in the marketplace for a specific medicine or device. Thus Shire's approach to drug development first identifies an unmet need in the marketplace and what a new product’s value proposition needs to be in order to be considered a success. Shire conducts comparative effectiveness research, including the standard-of-care for that condition, early in the clinical development process. By doing so, we seek to demonstrate the tangible value associated with a product candidate; if we cannot do so, our process allows us to make a decision to discontinue a program earlier — and with potentially several hundreds of millions dollars still in-hand.

Delivering true value to the health care system through a market-driven, multi-stakeholder approach is critical in today’s times. The better drug companies can demonstrate and deliver value, the more likely they are to receive the reimbursement needed to meet the high costs of developing their medicines, and thus to generate revenues to reinvest in R&D – all of which helps patients and their caregivers, and contributes to the health of society overall.

Guest Post: Advice for the New PhRMA President

Ian Spatz, the former VP-global health policy at Merck, is a contributing editor to The RPM Report. Ian is the founder of the Rock Creek Policy Group and a senior advisor to Mannatt Health Solutions. Interested in guest blogging for In Vivo? Drop us a line here.

The announcement that John Castellani, current head of the Business Roundtable, will succeed Billy Tauzin as the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) on September 1 ends the speculation on who will lead one of D.C.’s most influential and most talked about trade associations.

As a small gift to the new PhRMA chief, here is a modest to do list to get things started:

• Reputation:

There is absolutely no other goal as important for Castellani than addressing industry reputation. Everything flows from success in improving the industry’s low standing among policy makers and the public.

To his credit, Tauzin understood this and took some positive steps on reputation including substantially improving member companies’ joint efforts to provide free medicines to those who can’t afford them. Castellani needs to encourage his Board to consider more and do more.

• Medical and Scientific Relations:

The foundation of member company success is access to the hearts and minds of scientists and physicians.

Companies need scientists to be willing to work for them – directly and indirectly through clinical trial participation. Companies need clinicians to accept them into their offices and to respect their information.

PhRMA has lagged in attention to this area but can’t any longer. Castellani is not from this community so will need to quickly identify leadership within PhRMA and from its member companies to make this a priority.

• Congressional Relations:

It’s a dicey time in PhRMA’s relations with the Hill. Republicans are still smarting over the industry’s correct decision to do business with President Obama and Senate Finance Committee chairman Max Baucus (D-MT) on health reform.

Democrats still don’t like PhRMA and many only held off on doing a job on it because the industry was playing ball on health reform.

However, that train has left the station. Castellani brings a record of Congressional work but needs to invest the time in developing or expanding relationships with key health committee members of Congress by honestly asking for ideas and help and then listening carefully to the answers.

• Transparency:

What people can’t see, they can’t trust.

Obviously, Castellani is not going to open up PhRMA Board meetings to the public. However, he can try to invite more key stakeholders to participate in such meeting and other PhRMA forums. He can also create a PhRMA annual meeting, unlike the current one, that attracts many others from outside the industry. BIO has already pointed the way with its annual meeting that is a meeting place for public officials, the media, and the industry.

• Media Relations:

The media love PhRMA but for the wrong reason.

When they need an easy quote to make the industry look bad or convince an editor that they sought balance, they can count on PhRMA to deliver. Other than that, most reporters find PhRMA difficult to deal with and hardly forthcoming.

Castellani must, as with Congress, get out there and get to know the folks who cover the industry in the main stream media and trade press. A little time and care will go a long way to improving the coverage of the industry and its companies.

• Drug Safety:

Castellani was named on the same day that an FDA advisory committee is meeting to consider the future of Avandia, GSK’s controversial diabetes drug that faces serious safety challenges.

Drug safety is the most important policy issue facing Castellani as he enters the building. With the Prescription Drug User Fee (PDUFA) program up for renewal, Congress will have an opportunity to weigh in on FDA’s safety efforts including how it is organized to address safety issues. Castellani and PhRMA should seize the opportunity to avoid playing defense and come up with some ideas on their own that will give concerned members of Congress something to support.

• Drug Marketing and Promotion:

Under Tauzin’s leadership, PhRMA took major positive steps to improve its internal codes on drug marketing and DTC advertising. Despite these efforts, physicians and medical centers are still not happy and are designing tough new rules that are limiting access to physicians. Castellani can and should continue Tauzin’s efforts to get the industry to better police itself and support the efforts of others.

That’s just a start. My best to Mr. Castellani. The nation’s pharmaceutical companies need some extraordinary leadership right now.--Ian Spatz

When Innovation Isn't Enough

There is always a self-congratulatory flavor to bio’s annual meeting. Which is as it should be: it’s the lobbying group’s best venue for justifying its membership dues.

And I think they have – with exhibit 1 being their clever R&D tax credit, a $1 billion piece of reform money to provide a few hundred biotechs with non-dilutive cash most can’t get anywhere else.

And yet I still can’t shake the feeling that, by and large, BIO’s leaders – or maybe bio’s members – are fighting the last war, over innovation, when the new fight is all about value.

Even a political idiot like me can get why Jim Greenwood reads gushing letters from patients about drugs that have saved their lives. And given just how few important biotech medicines have gotten approved lately, I understand why Dendreon’s Provenge gets a prominent mention. And I also get why Greenwood didn’t mention its cost ($93K for a full course of therapy). He would then have had to explain just how Dendreon calculated that Provenge will be cheaper than Taxotere per-month-of-life-saved (on theoretical average, Provenge gives you an extra three). Which would have been kind of boring.

But why wasn’t the Provenge price front and center in the more purely business speeches about cancer products (or frankly any biological therapy)? Given just how often people gave passing nods to the needs of payers (e.g., in Steve Burrill’s theories-of-everything talk), you’d figure that the Provenge price might be a relevant topic. Pricing is at least passingly important to a product’s commercial prospects and so apparently exceptional pricing might indeed be worth a chat, whether you think that price bodes well or ill for the industry (e.g., the Provenge price will be a) the straw that breaks the camel’s back or b) another gold nugget that shows just how strong the camel’s back still is or c) a meaningless topic because Dendreon, supply constrained, is only going to sell a few thousand therapies so total costs for any one payer won’t rise to a meaningful level). But I heard nothing about it.

Or let me put this another way. Greenwood said that "the recent recession and policy hurdles” hadn’t “diminished our passion to innovate.” First, I don’t think most investors or, frankly, executives would agree. For most VCs I know, passion for pharmaceutical innovation has turned into a massive case of indigestion (to continue the gastro-intestinal metaphor: VC portfolios are clotted with innovative companies).

But more importantly have Greenwood’s “recession and policy hurdles” increased our willingness to prove value – which isn’t the same thing as novelty and which Greewood’s r&ph will certainly require?

I don’t get the sense that drug companies have done much to show that they see the difference. (Full disclosure here: I’m now so interested in this subject that I’m part of a group exploring a new company focused on it.)

Innovation, by and large, can be judged pretty objectively. A new mechanism is innovative. A new compound too. But value is subjective – what’s valuable to you may be burdensome to me. Yet the industry’s main arbiter of value, clinical trials, too often proves value to only one audience: regulators.

That audience is certainly crucial. But everything we’ve learned over the last year says that a regulatory audience is hardly predictive of what other equally crucial audiences want: Lilly’s Effient, Bristol/AZ’s Onglyza and J&J’s Simponi and Ultram ER all provide customers with – well, given their commercial performance, very little they’re willing to pay the price for.

This isn’t to say that these drugs’ suppliers couldn’t create the necessary value. It’s to say that they haven’t, at least in part because they’re focused on just one audience.

Instead of simply proving that a pain drug reduces pain without causing other big problems, maybe the trial should prove that the pain drug does something the payer wants from it – maybe a reduction in follow-up visits to the doctor to get another pain drug. Or delays the prescription of an opioid. Or allows a generic to be used in most cases. Or shows that a GP, after a relatively low-cost visit, can prescribe the product without sending the patient along for specialist follow-up. Or can avoid an expensive diagnostic procedure. A me-too cancer drug (and there are plenty of them in development) could justify premium pricing by measuring, along with whatever purely clinical data it needs for approval, reductions in hospital-acquired infections, or length-of-stay.

I spoke with one CEO who told us that the nurses in hospitals testing his oncology drug loved it because they spent less time cleaning up after patients nauseated by the standard of care. I asked: Are you measuring how much less time they’re spending? No, he said.

Biotech wants to be paid like it’s always been paid: for promises of novelty. I’d be curious to hear a biotech claim that it should be paid, as the UK’s NICE pays for Millennium/J&J’s Velcade, when the drug delivers the value the payer and patients want. That value could be a particular medical outcome, or better quality of life, or lower medical costs. Or something that makes the payer’s services more attractive to the employers its competing with other payers to win as clients. But it isn’t necessarily whether it’s clinically better than placebo. Or even standard of care. Effient’s head-to-head trial against Plavix proved – in crude summary – that it’s clinically better. But payers clearly don’t see enough value to justify switching away from a drug soon to be generic.

So my suggestion: if bio really wants to promote the long-term health of the biotech industry (and the broader pharma business as well), maybe the theme for the next convention should focus on customers.

How about “What’s In It for Me?”

image from flickr user zizzy used under a creative commons license

Guest Post: At ATS, a Storm of Questions for IPF Drug Developers

Michael Gilman is the CEO of Stromedix, a Cambridge, MA biotech developing novel drugs to treat fibrotic organ failure. You can follow him on Twitter @Michael_Gilman. Interested in guest blogging for In Vivo? Drop us a line here.

At around eight on Sunday morning, just as the first sessions of the American Thoracic Society meeting got underway at the labyrinthine convention center in New Orleans, the skies opened up and unleashed ropes of rain. Thunder rumbled through the lecture halls, strobes of lightning lit the corridors. Power was lost, briefly snuffing out lights and laptops and stranding attendees on towering escalators. And it went on like that for two full hours — man, this place has some serious weather.

It was hard to miss the metaphor.

This year’s ATS was to be the moment in the sun for clinicians, scientists and drug developers working on idiopathic pulmonary fibrosis, a staggering, deadly disease for which there is no approved therapy outside of Japan. Perched prominently on the calendar just two weeks prior to opening day was the PDUFA date for InterMune’s experimental IPF drug, pirfenidone.

The relatively tiny IPF crowd is usually swamped at ATS by the hordes of folks working on asthma and COPD, but this year several significant IPF sessions were on the program. A pirfenidone approval, the first for the condition in the US, would have been a jolt of electricity to the IPF community gathered in New Orleans.

Alas, it was not to be. The FDA did not approve the drug and IPF investigators reeled. I don’t have an especially informed opinion on pirfenidone. Above all, I’m disappointed for patients, who are desperate for treatment options. But, given the bafflingly inconsistent clinical data and confused deliberations of the FDA advisory panel, approval was by no means a slam dunk.

The FDA’s action left meeting participants with a long and rather painful list of questions. What targets do we go after next? What are the right endpoints? What patients do we enroll? Do we even understand the real natural history of the disease? What does the FDA want? Will anything ever work? It also sparked remarkably strong emotions among pulmonologists, many of whom are absolutely convinced the drug will help their patients and others equally persuaded it doesn’t work.

But Monday morning in New Orleans dawned bright and sunny. And the first major IPF session of the conference packed the vast auditorium to fire-code-violation levels. The centerpiece of the session was a couple of densely-packed reports from an expert panel that had deliberated for three years on formal guidelines for diagnosing the disease and treating it.

Conclusion on the latter point: No currently available treatments were recommended, including pirfenidone. Clearly, however, the troops were undaunted. You could sense people picking themselves up, dusting themselves off and getting psyched to wade back into battle. They want to beat this disease.

Which leads me to ask the following question.

Why do we do this? We are, generally speaking, intelligent folk. We’re rational and data-driven. Yet, inexplicably, we continue to pile into an enterprise in which the odds are ridiculously stacked against us. Are we nuts? Masochistic? In denial? Or just relentlessly optimistic? Convinced that our next idea is going to be better than our last? What is it that fuels our passion to develop new medicines for patients when it so often feels like a fool’s errand?

I don’t have an answer, but whatever it is, it was on display in New Orleans this week. And it’s inspiring. --Michael Gilman

image from flickr user ray devlin used under a creative commons license