Cracking the human genome code and other big medical advances offer a new level of hope for more effective treatments. Moving those breakthroughs from the lab to patients, however, often means confronting hefty barriers. But progress can get a huge boost through specialized management, interdisciplinary cooperation and the fostering of creativity — or serendipity – notes a new book: Managing Discovery in the Life Sciences: Harnessing Creativity to Drive Biomedical Innovation.
The authors are Lawton R. Burns and Mark Pauly, both Wharton health care management professors, and Philip Rea, a biology professor and co-director of the Penn Life Sciences & Management Program (LSM). They joined Wharton management professors Nicolaj Siggelkow and Harbir Singh on the Mastering Innovation show, which airs on Wharton Business Radio on SiriusXM channel 111, to discuss the highlights of the book. (Listen to the full podcast at the top of this page.)
An edited transcript of the conversations follows.
Nicolaj Siggelkow: How did the three of you decide to write this book?
Lawton R. Burns: The genesis of this book ties back to this program. Penn is a unique place with all of these multidisciplinary majors … but this is a program where we are actually integrating knowledge from multiple disciplines and training undergraduates in dual degrees in biology and business.
We’re the only university in the world that is doing that, and this is perhaps the only school where you could do that, because they have an undergraduate business school, and then you have a phenomenal science program, you have all of the wonderful discoveries coming out of the Penn Health System and the companies they are spinning off.
And so we have this unique lab here at University of Pennsylvania where all of these different faculty from all of these different disciplines are basically two blocks apart. And so it fosters the interaction among everybody. And then you have the university putting these dual degree programs together. You have [former Merck CEO] Roy Vagelos who is funding this dual degree program in life sciences and management, and then you bring together faculty you otherwise would never meet.
Siggelkow: This book is both about the science and the management behind biomedical innovations. Now what makes your book so interesting is that you are taking a broad perspective on the innovation problem. Your book examines the interplay of scientists, managers, investors and regulators involved in this process of discovering new drugs and medical devices. Now, you open up a newspaper and most likely you will find a line like, “the big Pharma model is broken.” And you have a very nuanced answer to that question,
Burns: The Big Pharma model is not broken, it’s basically been in a steady state for the last 50 years. What is happening, though, is we are spending more money on the R&D and not getting any extra output for it, but we’re not getting any worse output for it either. So it’s a question of efficiency, not productivity, in terms of the number of new molecules coming to the market.
And Mark’s chapter goes through the incentives that were put in place because of insurance reimbursement and the fact that drug companies knew that they were going to get reimbursed for their drugs even if they weren’t top of the line or best in class. And so they had an incentive to come up with lesser quality molecules and bring them to market, and then those things don’t necessarily sell well, they may not even get approved, but maybe increase productivity. And so the incentives were put in place by the insurance system.
But in terms of productivity it has been a flat liner for the last 40, 50 years, and every year in our class we go through the latest statistics to see if there is an uptick or a downturn, and it varies year by year. Right now there’s like a two-year uptick but nobody is sure if that is going to persist.
“A major player in the book is serendipity — getting answers to questions that were never posed but that turn out to be of incredible therapeutic value.”–Philip Rea
Siggelkow: Let’s talk about the not-for-profit actors in this space. Because if Big Pharma is broken or not, who else could step in? And so we have universities, we have government agencies like the NIH, and of course we have the Gates Foundation. What is the role of these other players?
Burns: What is happening now in biopharma R&D is that the universities and the research institutes are playing a much bigger role. And that is because we are having a more distributed R&D model, open innovation model, and a lot of the basic science and some of the applied science being done in the universities. So Penn is an obvious example, we have two new products coming out of here, and spinoff companies.
So you can’t rely on the pharmaceutical industry itself, and they know this. And they are trying to increase their reach into the universities, their alliances with the universities. We had a huge alliance with Novartis. I think that is the model going forward, so these nonprofit actors like universities’ research institutes will play an increasingly bigger role.
Philip Rea: I would go still further and I would say that the period of the small molecule [in drugs] is sort of petering out by and large. Not entirely, we have the Gleevec story, which is an obvious example of a small molecule that has had an incredible therapeutic impact on CML — chronic myeloid leukemia — and the like.
But we are going more down the sophisticated molecular cellular route, and as a result of that is the real sharpened, fundamental research that is spawning new innovation to a much greater extent than it did in previous years. And so the necessity of entities, universities, NIH, Gates Foundation, etc., is ever more prominent because of the need of investigators that are almost exclusively focused on addressing fundamental, basic science issues.
And out of those spin some fundamental therapeutics without necessarily having the objective of development of therapeutics in mind. A major player in the book is serendipity — getting answers to questions that were never posed but that turn out to be of incredible therapeutic value.
Harbir Singh: So one is the role of serendipity, the other one is can you actually manage innovation.
Burns: The serendipity part is, first you’re doing experiments, you have a hypothesis in mind, you are looking for some expected findings, and then they don’t turn out. The question is, what happens then? And what we found in these case studies is that part of the serendipity is just recognizing that there was some serendipity. Say, “Those were some unusual findings which I didn’t expect. What do those mean?” And then they pursue a new line of inquiry or investigation, which leads to some really fundamental discoveries.
“The Big Pharma model is not broken, it’s basically been in a steady state for the last 50 years.”–Lawton Burns
In terms of managing innovation — we need more time, we need more research funding, we need more students. And there is something to be said for having a lot of what we call corporate slack to finance open investigation, open inquiry into things. Because that is what we see in a number of these case studies, they weren’t necessarily originally funded but they required time, they required the cooperation and collaboration with investigators all over the world, it required money, and oftentimes that is what it takes to pull these things off.
It’s not something you can engineer and just do top down. A lot of this stuff is bottom up, individual investigators driven by a passion, driven by a curiosity, with a hypothesis that is unusual, and pursuing it even in the face of Doubting Thomases.
Rea: Something that is really relevant is the life science and management program itself. So I would say the imperative for that program, which essentially is the brainchild of Roy Vagelos. The thing that the LSM program is about is the objective: to put people in positions of responsibility, with respect to the allocation and distribution of resources, who have a sufficiently nuanced understanding of the science to identify a nascent proposition in the scientific sector without losing the potential significance of that finding in translation.
A major player into that is an appreciation that some of the best leadership — when creativity is the key determinant, not productivity — often comes from individuals who have a very deep understanding of science. They came out of science themselves, and then they acquitted themselves of the requisite skills in order to administer science if you will, and make calls on which projects to carry forward, which ones maybe are long-term objective projects and which projects are maybe shorter time but could provide funds to support the longer term project.
Burns: Just to tie this into some academia, you are both in corporate strategy, I recall the corporate strategy literature saying — at least one stream of it — that the key to strategy is resource allocation — not necessarily the people at the top, but the people controlling the budgets down below and where they allocate finite resources, and being willing to seed and continue seeding programs that might not necessarily be paying off. We see that in a number of the case studies here.
Singh: These days it is very much in fashion to be lean and mean, that let’s release cash flow, let’s scale down facilities. I think you are making a different case.
Burns: Well it can go both ways. There are some case studies in the book where people came up with discoveries basically experimenting at their kitchen table over wine and cheese using off the shelf parts that weren’t made for these kinds of experiments. Just basically developing prototypes from scratch, tinkering in their garage.
So some people have done it lean, but I think if we’re talking about the biopharma industry, they’re not necessarily going to get away with doing this in a garage. It’s going to really take significant allocation of capital to see more discoveries go through, especially if it is distributed across a larger ecosystem of players.
Singh: So the other question that intrigued me was this idea of … the triple helix.
Burns: Well it’s just two case studies, and so you can’t generalize from that, but everybody in the world wants to be like [Massachusetts’ innovation hub] Kendall Square. Every day I pick up some reading where this city wants to be a medical hub, or this city wants to be a biotech cluster. We were teaching on China’s health care system. They are trying to develop four of their large cities into biotech clusters, but their approach is basically top down.
And it’s not necessarily the case that they’ve bought into this triple helix, or can replicate the triple helix, and that means you have the support of local government, which is willing to extend deals to entrepreneurs and start-up companies so they will locate there. And then you have a rich bed of scientific institutions. You’re not going to get much better than Harvard and MIT up in Boston. And then on top of that you need private equity and venture capital.
So that was the triple helix that we identified in Kendall Square, and a little bit in San Diego. But those are the necessary ingredients, whether or not it is sufficient is a whole different question. There is a whole literature on these economic clusters that I am not necessarily the master of. But that is one of the things we see, and at least these cities that other places are going to try to replicate. But I am not sure you can replicate Harvard and MIT in the short term.
Rea: As someone who spends a lot of time teaching science, I think that the cluster effect … is very significant. Basic scientists who are primarily academics realized there’s somewhere where their fundamental science can go. There is gainful employment for really talented young scientists in biotech, for example.
That is a very significant play into the equation, certainly in certain parts of the world, in the UK and Europe for example, where funding for fundamental research is scarce and hard to obtain. A model that I often use when I am teaching biochemistry is to point out that some of the fundamental discoveries that I am describing, they were not actually done in universities, they were done at places like [biotech firm] Genentech, or they were done by Shimadzu. … The Nobel Prize came out of Shimadzu, likewise Genentech.
Burns: If you look at where these entrepreneurs come from, and the seed bed in which they grow, it’s very interesting. We did a study with a colleague at Stanford on medical device entrepreneurs. They are mostly physicians, but almost all of them had a bent in engineering. Whether their father was an engineer or they minored in engineering in college, or they double majored in engineering.
“Some of the best leadership — when creativity is the key determinant, not productivity — often comes from individuals who have a very deep understanding of science.”–Philip Rea
And so they had this interest in tinkering with things, playing with their hands, making prototypes, and then they just happened to go to the right place, oftentimes Stanford or Duke where they are surrounded by some other people who help them scale up this business, who provide the seed funding. So you have to look for the constellation of these different actors coming together in some very favorable seed beds for this stuff to germinate.
Siggelkow: What to me sets this book apart is that you have these in-depth studies of individual diseases and where different solutions came from. So let’s start with cardiovascular diseases and one of the key discoveries in this arena has been statins. They were discovered in Japan by Akira Endo who works for Sankyo, a Japanese company, but they were not brought to market by them but by Merck. What were some of the lessons that we can draw?
Rea: Takira Endo was originally trained as an agriculture biochemist … who came up with enzymes that clarified fruit juices. I think the key play in that story is that he went and had a leave of absence of two years … and he went to New York City.
And that is when he became cognizant of the scale of cardiovascular disease in the west. Cardiovascular disease was virtually unheard of in Japan at that time. And so then he went back to Japan and engaged in this huge number of screens of fungal filtrates for agents that interfere with … cholesterol biosynthesis.
What happened was one, he was operating in Japan and Sankyo did not have the awareness of the extent of cardiovascular disease at that time. Cardiovascular disease was relatively rare, and at that point in time no one had considered the possibility of the identification of therapeutic agents that could address the cholesterol matter, which came out of the Framingham Heart Study in the U.S.
Because it had never been done before, the thing that stalled that research program was the animal trials that sported a cellular histology that looked like a pre-cancer. As it turns out that was not the case, it was more a manifestation of elaboration of a membrane system that is involved in cholesterol biosynthesis, a sort of compensate response to statin therapy.
Merck at that time was aware that Sankyo had a patent on statins and they were investigating the statins. In Merck’s case, what was so wonderful was the leadership of research at that time — Roy Vagelos — had trained as a cardiologist at Columbia. He had worked with very sick heart patients, and he had also spent the bulk of his career as a fundamental biochemist working on lipid metabolism.
So he was perfectly positioned to understand this nascent technology and what its true significance might be. And as a result Merck received a sample of the agent in question, it’s called mevastatin, the very first statin to be discovered, and they started doing trials, and on the basis of those trials, and on the basis of the advice they were getting from some of the clinicians with whom they were interfacing, they realized that they were on to something that could be huge, and of really profound significance.
They realized that even if there were some off-target effects of the statins, which as it turns out is probably not the case, they felt that the benefit to individuals that would likely succumb to cardiovascular disease in their 30s or their 40s without some sort of therapeutic intervention far outweighed that risk. That was what seeded what eventually happened, and Merck carried the product forward as you know. They went forward with an alternate to mevastatin.
Singh: When you go forward in that you see the story of Lipitor and Warner Lambert coming up with something that was very innovative, the most successful drug in history. What are the lessons?
Rea: That is a wonderful example of serendipity. It was Warner Lambert that started the Lipitor cascade before they were bought by Pfizer, and that was thanks to the work of Bruce Roth, who was a very young postdoctoral fellow … and he was adept at tinkering around with organic chemicals. And he was the first guy to do an in vitro synthesis of a statin. He recapitulated the synthesis of mevastatin, and Warner Lambert got wind of that and they hired Bruce Roth.
“A lot of this stuff is bottom up, individual investigators driven by a passion, driven by a curiosity, with a hypothesis that is unusual, and pursuing it even in the face of Doubting Thomases.” –Lawton Burns
What then drove the development of the statins to eventually give rise to Lipitor, with one or two byways, was I think the recognition that if Lipitor, or atorvastatin as it was called at the time, were to enter the market it had to have a significant edge over pre-existent statins.
That is when they pushed very hard … and doubled the efficacy of the agent, meaning individuals could take far less of the therapeutic to get even more benefit than they would get from the statins currently on market. That is what really solved the case.
Burns: Phil’s comments basically show that you need to know the science as well as the business to see how these products and companies emerge.
Siggelkow: Rob, you were involved in a chapter I think on balloon angioplasty, and I think that was partly the kitchen table innovation story. Most of the chapters are about drug discovery, and this was a chapter about medical devices. So what were some of the new insights that came from looking at medical devices?
Burns: Well I stumbled on that one. I was doing a study of all of these medical device entrepreneurs, and I stumbled across someone who said that balloon angioplasty was one of the 10 most significant medical innovations of the 20th century. And I knew what it was but I didn’t really know how it came about, and I didn’t fully appreciate why it was one of the 10 most.
So I hired three MBA’s, two of whom were cardiac surgeons, to help me go back and dig up all of this information. And it just turned out to be one serendipity after another. And I think that was particularly interesting about this innovation is the fact that the pioneers were experimenting on themselves.
And so they were basically cutting open their veins and inserting things into their veins to see how this stuff would work, and then they would fashion not only their own catheters but their own balloons at the end of these catheters — using all kinds of wacky materials — just to see if this stuff would work – to come up with what we call proof of concept.
So these were people who obviously believed in what they were doing, because they were willing to risk their lives for it. And they’re mavericks, that’s one of the things we teach about in innovation … it sometimes takes mavericks to pull things off. That’s who these people were. One of them actually got the Nobel Prize 20 years after being ridiculed for what he was doing. That’s just how maverick some of these people are.
It’s a fascinating study. And then the guy, Andres Grunzeg who is recognized as the pioneer, he was ridiculed by almost all of his colleagues, and it took a couple of innovation champions, people who are superior in the hierarchy who recognize that he may be on to something, to support him, to protect him from all of the other colleagues who just wanted to torpedo his research.
Siggelkow: Mark, coming back to this question of, “Is big Pharma broken?” — now we hear the economist’s side of the story.
Mark Pauly: I think the correct statement is — it’s not any more broken than it ever was. It’s not really correct to imagine there was some kind of golden age that we’ve fallen from. We actually provide some empirical evidence in the book on two things that are supposed to be indicators of problems.
One is the flow of new innovative products, and the actual empirical evidence suggests that that rate of introduction has been pretty much stable, maybe even slightly increasing over time — if you look at it over a long time period. There was a period in the late 1990’s when there was a substantial growth in the introduction of new products, but that was because the FDA changed its rules and allowed drug companies to pay for their own randomized control trials. So they cleaned out the inventory of products they were working on and put them on the market all at once.
But then after that blip was averaged out, the rate of introduction of new products has been pretty stable over time. I do think it is worthwhile to say that they are still turning out some wonderful new products, and if anything, the effectiveness of the products that are introduced … has actually improved a little bit.
“If you really want to know who is responsible for the increasing cost of new products, I tell people to look in the mirror.” –Mark Pauly
So that’s good news. The bad news is that the cost per new drug developed has increased substantially over time. There’s actually quite an argument and a fuss people make about this, but at least some estimates suggest it’s as high as $2 billion per new drug that actually makes it to market. Now most of that money is not actually money that was spent on the drug that made it to market. It’s payment for all of the dry holes and the attempts that failed. And a big chunk of it also is the cost of capital, because the time period between investment and return is so greatly delayed.
But what we found evidence for and conclude is that the usual explanations for this, like scientists just want to get grants and they don’t really want to make their products available to the commercial market, or firms are just thick-headed when it comes to recognizing wonderful new products, those may all be true actually, but we actually favor an alternative explanation that says: As real income has grown and as insurance coverage of drugs has grown, the revenue potential of a new product has increased. And so if a new product can generate more revenue than was true 10 years ago, it’s going to make sense to invest in products with a lower chance of success because the higher revenue is going to offset that.
So if you really want to know who is responsible for the increasing cost of new products, I tell people to look in the mirror. If only you were as poor or as poorly insured as you were 20 or 30 years ago … than it wouldn’t pay to bring these new drugs to market.
… So that is important. The other point I would make is the big Pharma model used to be what we call screening dirt. They come back with the latest set of things from Costa Rica, it would be dirt and venom and bugs and things like that, and then actually a very efficient technique was developed to have automated screening to see if there might be some molecules there that were effective against some disease or other.
Discovery has moved away from that toward what is called rational drug discovery. But one of the messages that we convey in the book is that although it’s called rational drug discovery, there’s a lot of irrationality and a lot of serendipity.
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