Is There Life After Big Pharma?

Pharm Exec: Why do you think Big Pharma marketing execs may eventually end up as CEOs of biotech companies?

Israel: The emphasis of our activities is helping investors and boards of earlier stage companies identify key management. The needs of a public company that has no marketed products are quite different from Merck's, for example. So typically, our clients are companies that have drugs in development but have not yet reached registration. But that doesn't mean that they're any less concerned about succession planning and having the right talent at the helm.

Stephen Israel

There's a fascinating thing going on right now. In the process of being engaged by both public and private companies to help identify new leadership, the emphasis has shifted dramatically over the last few years. I would almost call it a new imperative: Our venture capital clients have always thought it was best to attract CEOs who can raise money and drive R&D milestones. But now, our clients seem to be strongly favoring commercial leaders—people that are likely to have come from the discipline of a Big Pharma company and who have P&L experience—people who actually run businesses. They might not have been the CEO of a major company, but they might head a business unit, such as the therapeutic area head for respiratory or oncology or cardiovascular.

The message here is that biotech companies have learned that they're better served by having business leaders who have proven general management skills and strategic marketing backgrounds—not simply entrepreneurs who might have the ability to raise money or inspire hope, etc. And there are many examples of this in the industry.

Why has this shift occurred?

Wall Street no longer values technology as much as it does products. Those analysts who cover public biotech companies are more excited about where companies are in product development than they are about technology. So you can have a company that has a great technology base, but if they don't have a product in Phase II development, Wall Street won't reward the company by increasing the value of its stock price.

If products are valued over technology, it means that the premium for leadership is more toward people who are very product oriented. And those people are the ones with management and marketing backgrounds.

At the same time, there are 1,400 or so biotech companies—maybe 400 public ones—with more of them moving from being R&D-driven to commercially-focused entities that are close to reaching the marketplace. Since that's started to happen, these companies are scratching their heads and saying, "Gee, we don't have anybody here who understands how to launch a product. We need to bring on board commercial leadership, both on the board level and management level."

There's a new cadre of business people running biotech companies at earlier and earlier stages. This is not always going to be the case, because there are many former heads of R&D, like Bill Koster at Neurogen, who go off and successfully run early stage companies. But my view is that more and more, people with pure commercial backgrounds are going to be running early stage biotech companies.

Can you give an example of someone in the industry today?

Paul Clark at Icos, formerly president of Abbott Pharmaceuticals. He's been at Icos four or five years, so it's been a while—he may have been one of the first to fall into this trend. Paul was not an R&D guy, and he joined Icos before they got their lead compound approved; it was very early. But I would argue that his commercial instincts helped the company be successful.

When leaders like Paul, with strong commercial backgrounds, come in, they help set financial goals early. They don't drive R&D, but they help focus it because they have very strong networks in the marketplace. They're able to think about in-licensing issues, diversification of platforms, markets, and whether the research is focused on true unmet medical needs. They bring a commercial perspective to the strategic decisions that all biotechs are faced with. It's not to say that people with R&D backgrounds can't do the same, but Paul is a good example of the value and perspective that a leader with a strong business background can bring to the table.

What's the response to recruiting from commercial, Big Pharma people? Are they interested in these opportunities at biotechs?

Making the decision to go from Big Pharma to biotech leadership depends on how well the company is funded and who the investors are. Also important is what phase of development the companies products are in, what therapeutic areas the organization focuses on, and how risk-averse those areas are.

The compensation gap has narrowed over the years between Big Pharma and biotech, so Big Pharma therapeutic area heads are more likely to be lured to run those companies. The wealth creation opportunity is also attractive to many Big Pharma executives. The pharmaceutical industry has consolidated so much in recent years that it's not as much fun as it used to be. There are enough "drool stories"—stories about people who went into biotech and made a lot of money—out there that people are taking interest.

Is the migration of Big Pharma execs to biotech companies a fleeting trend or does it having staying power?

It's more than a trend. It's sort of the biotech industry's and investors' coming of age story. They are recognizing the importance of business leadership for companies that are at early stages of development. It's not that they never had this thought before, it's just that it's now becoming more validated.

What about succession planning inside biotech companies? Who do you see as the next generation of leaders? Will they come from the commercial or R&D side?

Commercial. Boards of these companies are increasingly challenging their scientific founders to bring commercial leadership in sooner, for the purpose of succession planning. If you're a founder of a company, and you didn't grow up in a commercial organization, it's going to be hard to make the transition to a more commercial focus, because that side of the drug industry is pretty complicated.

What's going to be the response from biotech founders, the people who tend to be more focused on the science?

There's a lot of hubris in the pharmaceutical industry and there are a lot of smart people. The scientific founders come in every shape and size, so there are some people who will be quick to recognize that the value of their company will be significantly enhanced if they pass it on to a commercial leader. Then there will be others who are so thoroughly wed to what they do that they can't walk away from it. If it's your baby and you founded it, it's hard to walk away. But I think the boards of these biotechnology companies are very cognizant of the need for commercial leadership today.

At any given time, I'm working on multiple recruiting assignments for these kinds of companies, where a chief executive officer or board member suddenly recognizes that they have reached a point that calls for a different kind of leadership. Their compounds have reached Phase II, and now they need somebody to come in and bring a different perspective to the table, in order to take things to the next plateau.

Stephen Israel, who manages the biotech practice for industry recruiting company Korn/Ferry, says yes—there certainly is a world of opportunity out there for top pharma marketing and commercialization executives who want to make the jump to biotech. In fact, Israel says, they are the most sought after professionals for C-level positions at biotech companies.