Derek Lowe has
a nice little piece on the move away from having scientists in top positions at pharmaceutical companies. He quotes an
FT article which notes:
The changes reflect a shift for the scientists who once dominated
senior pharmaceuticals positions to give way to executives with
backgrounds in marketing, legal or other more general business
backgrounds.
To which Derek adds:
My take, for what it's worth, is that scientific training can be
desirable in a drug company CEO, but it's not sufficient, or always
even necessary. The skills needed don't overlap as much as you might
think between science and management, even in a company that makes its
living from science. The problem is, I don't think that the particular
skills associated with law and MBA degrees are sufficient, either.
Being good at running a large organization is a rather rare quality.
And it's not always easy to recognize: some companies have issues (good
ones or bad!) that will swamp most of the signals you might try to get
about the qualities of their CEO.
What strikes me is the oddness of having lawyers in the top slot; the
legal department isn't such a big customary route to the top job. But
the environment has changed greatly. Fifty years ago, with the FDA
pressing ever harder on efficacy, the most important thing in a pharma
chief was probably knowing what went into making an effective drug.
Twenty years ago, you needed to know how to market it to get the most
money out of a very narrow patent window. These days, you need to be
able to negotiate a fearsome political and regulatory environment.
CEOs often are lifelong employees of the companies they manage. In pharma, that could mean you started out in sales or marketing, and as the company grows, it seems to me the research/development end gets outweighed by all the other parts of the company, and thus the numbers of CEOs from the scientific arms will fall.
I think it's fair to say that, nowadays, big pharma is in the FDA-approval business more than in the drug-discovery business.
Increasingly, big companies buy compounds from small companies (often by buying the company) and the value they add is to move through the clinical trial process (which is more of a legal than scientific process).
If you're in the FDA-approval business, why should it even be reasonable to suggest that a scientist should head the company?
I noticed that too--as Megan presents the timeline, the more involved the government is in your industry, the less important it becomes that you know how to make a good product. What is most important is that you know how to navigate the government's bureaucracy.
Well, Pharma lobbied for, and received, the right to advertise their prescription drugs. Are we really supposed to be surprised that marketers and lawyers wouldn't therefore be more involved in the decisions at these companies?
Well, yes and no. Congress before had stripped them of that right. The default position is to be allowed to do something, and it was a regulatory act of Congress to strip them of the right to advertise.
Wonderful. You can see how well it worked for the auto companies when they got rid of the car guys and put marketing people in charge.
Hmm. I actually was thinking the other day that this downturn, whose survivors will be companies that know their market and their strengths, will be the end of imported mba types with narrow 'business' expertise running companies with no idea, deep idea of what the company they are running does.
I've dealt with companies who were restructured or bought out or ERP'ed by people who didn't understand the business. Some didn't survive, others have lost serious market share, one in particular is now in the process of competing with it's former vendors, and we will see who survives (I'm betting on the vendors).
There was a comment on a forum, this one maybe, where someone described Obama as a 'quick study' referring to running car companies.
Hah.
Derek
Derek,
If you consider the universe of small cap drug companies, do the CEOs still tend to be scientists? That's been the case for the small sample of companies I've been familiar with, but is that broadly the case?
"What strikes me is the oddness of having lawyers in the top slot"
It seems like an understanding of M&A (and perhaps anti-trust law) is of top importance for the CEOs of the biggest drug companies now, given the current round of consolidation.
This is a common pattern... technical guys run a company and it grows and is innovative but maybe isn't as profitable as it could be. Marketing/finance guys take over and make more money but innovation and product development lags. Rinse and repeat...
Megan makes a good point here. There has to be a better middle ground for pharmaceutical drugs than the one that we have here. The Herbal supplements markets appears to survive despite much less FDA oversight.
But I am not sure that adding massive expenses to a field is a way to increase innovation (and I want better drugs) nor is it likely to decrease prices. In fact, if the "lottery effect" (a big break-though is required or the company goes bust) becomes dominant it can actually decrease safety.
I am pretty sure that this is an undesirable equilibrium.
Joe, I think you have it backwards in your first paragraph. The herbal supplement market survives nicely because it has less FDA oversight. More specifically, they don't have to prove efficacy. All they have to do it make sure that their preparations don't do anything obviously nasty, then sell it with the magic phrase: "Sold as a dietary supplment only. Not intended to treat, modify, or cure any disease."
We have Orrin Hatch to thank for this. Personally, I think that either these people should have to go through what we do in the regular drug industry - or we should be able to do what they do. Making a separate category for "herbal dietary supplements" is absurd on several levels, starting with the science.
I don't know about that. There's doubtless some room for streamlining in the FDA process, but OTOH, I recently tried both natural melatonin supplements and zolpidem (generic Ambien) for insomnia. The melatonin supplements turned out to have very little effect. I was out ten bucks, Whole Paychecks got a little richer as a result, and I have a mostly-full bottle of pills that taste orange floor cleaner. Whoop-de-doo.
The zolpidem, on the other hand, had me walking into walls and put me under for 5-6 hours during a time when my body otherwise would hardly sleep at all, and I wouldn't be suprised to learn that the research process which first produced it turned up some variants that would have prevented me from ever waking up again (or converted my liver straight to liquid form, or something).
I can definitely tell you which market I would prefer to have more closely regulated.
Derek:
Yes, I think that having a herbal supplement pathway is confusing at best and misleading at worst. Without good randomized controlled trials or prescription claims databases, it is also pretty hard to detect adverse drug reactions with these products. I am sure that there are herbal supplements sold that have levels of risk seen with Rofecoxib (to take a high profile example).
Given how cost effective drugs are for the results that they give (the alternatives looking like: do nothing, lifestyle changes and surgery), I would prefer a less hostile regulatory environment.
Joe
A lot of companies follow this arc. Typically, an entrepeneur who is not a professional manager has an idea and starts a business around it, and if the company succeeds eventually control passes to the professional managers/lawyers.
Or we can just let Obama pick all our CEOs.
It makes sense because they're generally much less likely to kill people than drugs; most of them have been around for centuries. And for the same reason they usually can't be patented so would never make it through a very expensive FDA review. You can sell a supplement and cite studies and let the consumer be the final judge.
The only alternative would be to ban the sale of things people already take.
You can sell a supplement and cite studies and let the consumer be the final judge.
Right, because consumers are so good at interpreting clinical data. I agree that the FDA approval process needs to be shortened, but getting rid of the requirement to conduct proper phase 1, 2 and 3 studies isn't going to help anyone.
The FDA approval process shortens lives compared with lazzie-fare since the process keeps good drugs off the market for 10 years while they are analyized.
Site a source please that the approval process goes more harm than good? You think companies wouldn't put dangerous drugs on the market and conduct poorly run clinical trials? You don't think the public would then demand that the FDA put back into place?
Right, because consumers are so good at interpreting clinical data.
Shockingly, yes, despite our public schools most people can read a study that green tea reduces various cancer rates and figure out that green tea extract might be good for them.
I agree that the FDA approval process needs to be shortened, but getting rid of the requirement to conduct proper phase 1, 2 and 3 studies isn't going to help anyone.
Yes, it is, as I just pointed out. You can't patent green tea extract and make millions selling it way over production costs, so it really doesn't make sense for anyone to pay a billion dollars to get approval for camellia sensis as a cancer-preventing agent. Plus, billions of people already drink green tea anyway.
Shockingly, yes, despite our public schools most people can read a study that green tea reduces various cancer rates and figure out that green tea extract might be good for them.
They can read the final sentence of the news article misreporting the study that draws an inaccurate conclusion that green tea reduces various cancer rates. Big difference. But at least you can't overdose on green tea.
Actually, in one of the patent cases I worked on, the product (a nutritional supplement, previously essentially unregulated by the FDA) suddenly came under FDA scrutiny, and the FDA seems to be moving to require tougher standards for some nutritional supplements. But that's silly, because there is no significant downside to nutritional supplements (when was the last time you heard about anyone overdosing on Centrum?) Herbal supplements are only a little more dangerous.
I note, by the way, that I also just worked on a patent case where our client essentially patented green tea extract. You'd be shocked at the things that are done with the patent system.
Not that I disagree with your main point (there's no need to regulate herbals on par with serious pharmaceuticals), I just thought that was interesting.
I think the biggest danger of herbal supplements isn't that they are ineffective or dangerous, but that someone might use them instead of an effective treatment for a disease.
Sure, someone might not OD on green tea extract, but it would be a tragedy if someone with cancer decided to take green tea extract instead of getting chemo that would save their life.
What the regulatory path to prevent that, if there should be one, I have no clue.
That's no guarantee of safety. Look at ephedrine. It's been around for centuries, and it was in all kinds of herbal "energy" and diet supplements, including Metabolife and Stacker 2, until it finally killed a couple of famous people gave the FDA the leverage to convince the courts that it was a drug. For that matter, morphine and cocaine have been around for centuries, and either one can kill you quite dead.
Because for the most part, they don't work. And the ones that do work have side effects and risks just like other drugs.
Basically, "nutritional supplements" are either frauds, or unregulated drugs.
There are plenty more examples besides ephedrine. Peanuts and milk, for instance, occasionally kill people. Should they also be regulated as drugs?
I tend to favor having operational managers in the top slot. Most of business/marketing/sales is common sense. Law can be picked up by reading regulations, statutes, and cases.
Technical knowledge is harder to come by, and a good technical leader can better select the most promising areas for new research, including the companies to acquire. Technical knowledge is also important for insuring operations are conducted cost effectivley.
I think people appreciate having the leader of a drug company who has spent their life curing disease.
Of course, not all technical people have common sense, but such people tend not to go into management.
The FDA approval process shortens lives compared with lazzie-fare since the process keeps good drugs off the market for 10 years while they are analyized. It also costs 700M+ and reduces the patent windows so they often aren't affordable. Drugs that would cure less than a hundred thousand can't be persued at all in interstate commerce. However, I consider this generally known.
This is the beginning of the end for these companies. It all started when the railroads replaced the old RR guys with real estate guys. Later the car manufacturers replaced the car guys with bean counters.
Every officer of every company should be someone who really loves that business and wants to be in that business. As soon as that goes away, the company heads down the tubes.
Well, as someone with a J.D., I don't see why they'd have anyone other than a lawyer at the top. Lawyers are best at navigating regulatory environments, understand capital markets and corporate finance, are trained to think logically, interview people, and present persuasive arguments. We're great!
and clearly quite humble, too!
Those are all things that the CEO should hire a lawyer to do (or to advise him). None of them has anything to do with understanding the business.
Operations guys generally make horrible managers. Very, very few people who are good at the essentials of a business are good at running a large organization. You see this in all technical industries, where the greatest innovators usually can't be shown in public. The "Distinguished Engineer" title was created as a way to promote and recognize technical talent that couldn't handle and didn't want executive responsibility.
Organizational management is a skill. Generalists can better handle the problems that an organization faces. The ones who really succeed really love the field they're in, but pulling a topflight researcher out of the lab is frequently a really bad idea.
Look at Oracle and Microsoft - the iconic leadership came from a sales guy and a generalist with some interest in technology. Gates is pretty geeky, but he's not a real top flight coder and nowhere as geeky as Paul Allen. Same with Apple, where Jobs, the "techy" CEO, is really a generalist who is interested in the product, while Woz was the real tech guy. The lengthy and laborious career track to become a researcher also militates against taking those people into executive management - they're only starting their careers at 30-35, while an MBA or JD starts at 24 or 25.
As to the whole "car firms died when marketing got involved"... you really don't know what you're talking about. Marketing is always involved in product development and is tied tightly to understanding what customers want. Bob Lutz, a prototypical "car guy", is an MBA who worked in sales and marketing, not designing engines.