PhD biopharma CEOs: Better, bolder, or occasionally lucky?

For as long as I can remember, it's been fashionable for management consultants to attribute many of the challenges of biopharmaceutical companies to scientists run amuck (a perspective both summarized and challenged here).  Running a company, the management experts argued, was too important to be left to the scientists, who tended to focus more on whether their ideas were interesting rather than whether they were marketable.

The consultants weren't entirely wrong - there were (and still are) a lot of inefficiencies and running a multinational company clearly requires a far more expansive skill set than running a lab.  Business considerations matter.

I've also argued that scientists have contributed to biopharma's woes by consistently overestimating their knowledge, just as business executives, with equal consistency, have underestimated the challenges of domesticating science.

Given this background, I was surprised recently to hear a senior management consultant point out that two of the most significant examples of biopharma value creation he's seen - at Genentech and Gilead - were companies led by scientist-CEOs (Art Levinson, a molecular biologist, and John Martin, a chemist).

In his view, their scientific background permitted them to make difficult, game-changing strategic decisions driven by their confidence in the underlying science.

I'm not going to specifically discuss either of the companies he cites (disclosure: my wife works for one of them), and there are plenty of caveats here.

However, what fascinates me is the underlying hypothesis that profound value creation in biopharma is enabled by a deep appreciation of the underlying science, and the apparent ability to make a series of informed bold bets that prudent, more traditional management might avoid - something that seems especially important in an exception-driven enterprise.

On the one hand, it seems easy to look at many big pharmas (most led by non-scientists) and find ample evidence of excessive caution, to see cultures where the false precision of revenue forecasting has trumped biomedical insight, and where layers of bureaucracy and endless committee meetings dominated by "mid-levels managers playing not-to-lose rather than to win" (to paraphrase a recent Bruce Booth tweet) prohibitively impede rapid progress.

Yet, it's also easy to be deceived by the big bets that work out, and forget the failures.  As noted in this recent HBR post, we often ascribe great predictive talent to experts who make contrarian predictions that work out, even though such contrarians "were incorrect more often than not."

In other words: there's a powerful narrative around the science-driven CEO, whose knowledge enables her to make (and win) big bets.  But are these successful CEOs really good - or just overconfident risk-takers whose bold bets just happened to work out?  Are we forgetting about the many equally smart CEOs whose passionate pursuit of their scientific ideas led nowhere?  Is there a secret sauce?

The issue isn't one of small bets vs large bets - most appreciate the virtues of starting off with small exploratory efforts; the question is when to push forward, when to quit, and when to aggressively run with something.  Confidence in the ability to make these assessments leads to faster decisions, and over time, infuses the company with a sense of strategic direction and conviction that most biopharmas seem to lack.  Of course, this approach can quickly lead you astray as well.

I suspect the key issue relates less to the training of the CEO, and more to the strength of her vision. In what remains my favorite post, I've previously discussed the challenges in business of balancing purpose and process, a sense of mission with a facility for getting things done.

While founder CEOs absolutely require the ability to "get sh*t done" (see this classic post by serial entrepreneur Elad Gil), their dominant quality often seems to be their conviction, the power of their belief in what they're trying to accomplish.  In the case of life science companies, this often means a powerful belief in the underlying science, and its utility in solving important problems.  To get a company off the ground, you need irrational exuberance; you need to convince yourself and your team that although most ideas/products/companies/scientific hypothesis fail, yours will succeed.  Excessive optimism may be a necessary but not sufficient condition for founder success.

The real question is what is the "right" profile (not that there's a single answer) for the successful leader of an established biopharma company?  Traditionally (and this is true for all startups, not just life science) there has been a push to replace the enthusiastic founder with a more established manager, someone more practiced in the complexities of operating a large and growing organization.  Such executives often have a more measured - and frequently, more realistic - view of the underlying science than the original founders, and tend to be more aware of the downstream challenges and risks.

While careful managers offer the apparent benefit of limiting investors' downside risk with the promise of prudent leadership, they - arguably - may be less likely to prosecute truly bold visions, such as the creation of what at least used to be the world's most impressive biopharmaceutical R&D engine, or the decision to invest $11B to acquire an early Phase 3 asset that bigger companies (led by non-scientist CEOs) couldn't bring themselves to buy.  Cautious leadership can limit investors' upside opportunity as well.

Of course, it's equally fair to look at Lilly's recent Phase III failures as proof that scientist CEOs can make big bets that fail (bets many would say were actually based on bad science - see this characteristically articulate critique by Nathan Sadeghi-Nejad).  Similarly, consider the FDA's recent savaging of Aveo's tivozanib, a year after co-founder and MD Anderson President Ron DePinho offered a rather different assessment.

Smart industry analysts such as Sadehi-Nejad and others emphasize that biopharmas tend to use the mantra "science is risky" as a universal response to all failure, rather than recognize that many failures could be avoided with better decisions, while many costs could be lowered through leaner org structures; see this recent discussion as well.

I agree about the benefits of a leaner org structure, and agree that on balance, the industry's many Phase 3 failures probably reflect desperation more than insight.  However, I'm less sure about the ability to avoid ultimately placing big, risky bets - bets that analysts, with 20-20 hindsight, are sure to critique when they fail, and praise when they work.  (In contrast, and much to his credit, Sadehi-Nejad's concerns about Lilly significantly pre-dated the Phase 3 failures.)  In our business, high-stake bets seem both inevitable and essential - though reducing these costs and risks through a more progressive, technology-enabled approach to regulation would do wonders for innovation.

Bottom line: Given the tremendous headwinds facing the biopharmaceutical industry today, I wonder whether traditional, conservative management - and, like most large corporations, big pharmas are managed incredibly conservatively - will continue to prove an effective strategy, or whether they ultimately will be run over by smaller companies willing to bet on a larger vision, leanly executed.  Investors, at least, have the ability to spread their bets; employees have to make a choice, while patients, in whose name drugs are developed, are left to hope that from this crucible, important innovation will emerge.  Let's hope they are right.

 

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