Pharma’s Cutting Edge

A new crop of mega-pharma leaders has been installed recently, so it’s no surprise that they’re making rounds among analysts and reporters, telling anyone who will listen that they’ve seen the errors of their forebears’ ways and are committed to do things differently and better now.  Chief among their messages is that they will tackle the R&D productivity problem.

Look, everyone seems to know that bureaucracy limits pharma R&D productivity and is perhaps the single most important limiting factor.  But we don’t read much about what caused this current bureaucracy.  So let’s do that. 

In 1992, a group of organizational consultants (Boyatzis et al) formerly with McBer (part of Hay Group) published their work conducted between 1986 and 1989 for a major pharma client they refer to as Sinclair, Inc.  Although it’s possible to deduce the identity of “Sinclair”, it’s not important, because all major pharmas use consultants to organize themselves, and all organizational consultants follow the same academic gurus to develop their “best practice” recommendations.  While implementation details differ among companies, the basic organizational structure of major pharma R&D is remarkably similar.

The authors of this study, which to my knowledge is one of the first documented case studies of the project-team/project-champion approach to new drug development (immediately prior pharma structures were functional area-dominated), were clearly at the front edge of an organizational wave sweeping through pharma, as evidenced by their recommendation that project teams evolve beyond simply clinical development structures into vertical organizations that incorporate all strategic elements of drug discovery and development for a given therapeutic area.  Such structures didn’t emerge until circa 2000, some 10 years after this paper was actually written.

The authors imply that the single most important potential (at the time) long-term problem with the matrixed project-team approach to development is its potential encouragement of bureaucratic instutitions.  Stated simply, project champions (i.e. team leaders) and functional area leads eventually get bored and need room to grow their careers.  They become experts at drug development generally and at their respective disciplines specifically, and–justifiably given the costs to the organization of training them to become experts–the organization attempts to retain them by giving them promotions to positions of “greater responsibility” (Have you ever read an executive’s bio that claimed a taking of positions of lesser responsibility??).

The outcome of this promotion cycle is apparently not easily preventable, as it has been repeated at every major pharma:  Team leaders and functional leaders are initially given loftier titles in their current jobs (In the early ’90s such leaders were typically Directors and Senior Directors; now they’re typically VPs).  After a few years, the best of these leaders are promoted to a layer of management beneath the previous most-senior layer of R&D management, which at the time of the Boyatzis paper was Vice President, R&D.  Of course, it wouldn’t do to promote a VP to report to a VP, so the previous VPs of R&D were promoted to Senior VPs initially, and now are mostly Executive VPs or sometimes President, or even Chairman, R&D.  The newly minted VPs (project champions and functional leads) were then sometimes promoted to Sr. VPs and were given responsibilities for oversight of all the project champions and functional leads. 

In some firms, one or two additional layers of management were inserted between the project-team and functional leads and the head of R&D to accomodate additional promotees and managers coming from acquired companies who weren’t immediately laid off.

And so, the pharmas all created pernicious layers of bureaucracy between the head of R&D (a single point of leadership and accountability) and the previously quasi-entrepreneurial and quasi-independent project teams and their functional-area internal suppliers of talent.  These new layers have served the primary roles of gatekeeper (i.e. project-team second-guesser) and funds-distributor, and their members have predictably transformed from energetic risk-takers into entrenched bureaucrats.  Despite the implementation of therapeutically aligned strategy- and tactic-tasked management groups (nonironically called centers of excellence in some companies), this bureaucracy has persisted and even flourished.

How to break this bureaucracy habit?  I wish I had all the answers, but I readily admit I do not.  Here’s what I think I know.  It appears that the creation and destruction of bureaucracy in today’s pharma R&D organization is homeostatic to a degree.  That is, there does seem to be a tolerable upper limit on bureaucracy, with control maintained largely by defections of unhappy bureaucrats and talented project/functional leads to smaller firms, where they can regain their vigor and sense of importance.  The downside to relying on this particular homeostatic mechanism is that it tends to lead to pharma R&D organizations composed increasingly of people who are content to remain in a bureaucracy.  Such people are by definition not movers and shakers.  And I mean no offense to anyone who finds themselves trapped, financially or otherwise, in such a position, but these are not the folks pharma needs among its ranks to disrupt the innovation status quo.

Pharma is starting to experiment with some rather obvious potential solutions to the problem, but I’m not at all sure these solutions will prove to be scalable to an enterprise level.  One widely publicized experiment is occurring at Pfizer, where so-called serial entrepreneur Corey Goodman has been hired to run the Biotherapeutics and Bioinnovation Center, a consortium of biotech-like research units, initially comprised of the formerly independent companies Rinat and CovX.  What makes this experiment different from some of the other company-within-a-company experiments you’ve probably heard about, is that Goodman has his own research budget and reports directly to Pfizer’s CEO, Jeff Kindler, rather than to Pfizer’s R&D head, Martin Mackay. 

Should these experiments prove successful, pharma may be tempted to expand them to allow these mostly autonomous units to provide a meaningful piece of the collective pharma pipeline.  But again, I’m not sure they scale to the extent pharma needs to maintain its collective pipeline size.  The risk is that, as the model proves itself effective, the same human factors that have led to bureaucracy in the project-team R&D organization will lead to bureaucracy in the internal autonomous-unit R&D organization. 

The ultimate bureaucracy-busting solution might lie in the trend towards outsourced innovation we’ve witnessed in the last few years.  It may be that disruptive talent simply can’t be grown and maintained indefinitely within the confines of a large research organization whose investors demand some semblance of predictable earnings growth.  It may be that the ultimate pharma R&D organization will look a lot like the extramural program of the NIH, with pharma’s R&D leadership tasked with sourcing and funding large networks of small research outfits–both for- and non-profit–and external/internal CROs (for the latter stages of development).  It wouldn’t be sad.  It would just be different from today, and we need something different from today to sustain a healthy pharmaceutical industry.

July 30th, 2008 | Category: Miscellaneous, R&D | Subscribe to comments | Leave a comment | Trackback URL