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Too big to succeed, too entrenched to listen
April 2011
by Peter T. Kissinger  | 

As I mentioned in a recent column, success begets failure. Individual winners become complacent or drunk with power. Soon they lose an ability to think of their complaining environment as anything but uninformed or misinformed. They deserve greatness.  
Hedge fund managers, dictators, CEOs, labor union bosses and university administrators are all subject to this problem. Servant leadership is too rare, and even Gandhi wasn't perfect. This is a fact I know from experiential learning. A phrase from my youth has been haunting me for weeks: "If you don't have anything positive to say, don't say anything at all." It would take more discipline than I've got to be silent.
I was really looking forward to a settled 2011, with serious people making progress on serious problems in a civil way. Then Tucson, Tunisia, Egypt, Bahrain, Libya, Iran, Wisconsin, Syria, Ohio, Pfizer, Yemen and Indiana happened. What's going on here? Is there an SNP, a biomarker, a common cause to explain all of this?  
A few people comfortable with their power have little sympathy for the suffering majority who wish for a fair hearing and to not be shut down or out. Taxpayers, students in the Middle East and research scientists at Pfizer all have this complaint. Leadership, entrenched for decades in many cases, can't seem to listen and embrace new ways. Constituencies such as shareholders, citizens and elected officials play along for a while.  Then the tipping point occurs. We're there.  
Once the government employees got a better deal than the unemployed taxpayers who paid them, demands for realignment and shared sacrifice became inevitable. When so many work for the government, the ever-smaller numbers supporting them with taxes see a lack of sustainability. We're all shareholders of something.
I still have many friends at Pfizer (my surrogate marker for Big Pharma as a whole), but far fewer than before. The announcement of closing their Sandwich, England R&D center hit me like a ton of bricks. The way it looks from the outside, two CEOs spent billions on acquisitions that have done nothing for patients, nothing for shareholders and nothing for employees or their communities.
I'm not buying that Skokie, Kalamazoo, Ann Arbor, St. Louis, Groton, California and New Jersey would all have been in worse shape without the help of Pfizer's planners. We have no way of knowing for sure. If all this was to be a stimulus, it's clear it did not have a positive result for employees or shareholders. A little more than a decade ago, the company was suddenly too small, and the pipeline too empty. The ensuing financial engineering didn't help. Now they are too big in the wrong places and more heads must go. They hint that a good portion of products supporting their huge sales should now be spun off. The previous leadership sure looks confused in retrospect. 

To be honest, I don't have an answer for them. They tried something and it didn't work. So now it's on to try, try again.
It appears that the next, current and future try is vertical disintegration. Pfizer, GSK, Merck, Johnson & Johnson and Lilly, among others, have been playing this theme song for some time now. It's a matter of breaking the ego system and embracing the life science and manufacturing ecosystem.
Components include outsourcing much that is tactical to CROs and CMOs and strategic to passionate small biotechnology firms and academics. In the last three years, this has included moving captive facilities and people into CROs and CMOs who can be recognized for success with lower net income than expected for pharma.  
In a way, "too big to fail" has become "too big to succeed" from an R&D perspective, particularly for the "R" (or discovery) part. Discovery risk is pushed out to smaller business elements. Many will fail. "De- risking" is a new word. The tactical development stuff being pushed out to competent contract partners accelerates a 20-year trend, not unlike what has long been common for auto parts.   
There is a renewed discovery opportunity for academics and small firms, but they too are highly stressed; the universities by tax revenues and the small firms by declining venture investing in the early stages. What makes disintegration sensible is that it allows for flexible allocation of people when projects or companies fail. It puts talent in smaller environments where faster decision-making is a survival instinct.  
A new jargon has developed around the terms open innovation, virtual integration, FIPNet, precompetitive technologies, and the like. Slide decks from strategists at major pharmas and their supporting consulting firms are becoming highly repetitive. Deals are being announced weekly. Pharmas have agreed to make unique animal models (or precompetitive technologies) available to other firms. They have opened up their libraries to screening by outsiders, and have opened up their screens to outside molecules and even whole libraries. They've announced major deals with multiple universities and jointly funded venture capital; trying yet again.
This new and refreshing openness to things "not invented here" is a positive trend, and I'm rooting for it to work. It will if we don't let planners get too frustrated by the unknown unknowns that define biology. 
Underneath all of this realignment, the innovation machine is alive and kicking, but struggling a bit for funding. Government grants will get even tighter and early stage venture capital is about as rare as flying pigs. Nevertheless, while we're in the valley today, the really good stuff will get sorted out and make it over the next mountain. In my next column, I plan to take a look at a few topics with momentum that are changing the world of drug discovery and development.
Peter T. Kissinger is a chemistry professor at Purdue University, chairman emeritus of BASi and chairman of phlebotics and director of Prosolia in Indianapolis.



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