"New chemistry: Getting the biopharmaceutical talent formula right"

February 2013 Health Research Institute

New chemistry:Getting the biopharmaceutical talent formula right

At a glanceAs the biopharmaceutical industry faces a host of challenges to its business model, research and development is undergoing a major transformation. New approaches to research are pointing outward, beyond company walls.

2 PwC Health Research Institute | New chemistry: Getting the biopharmaceutical talent formula right

Table of contents

Executive summary 3

Strengthening the role of human resources in R&D 5

New organizational models demand a new approach to talent 10

What this means for the biopharmaceutical industry 16

Acknowledgements 18


A revolution is under way in the biopharmaceutical industry—a revolution borne out of necessity. The industry faces global economic and demographic pressures, rising customer expectations, and outdated cultural models.1 Research and development (R&D) stands at the vanguard of this revolution. Some 35% of life science companies have revamped their R&D models in the past three years, according to HRI’s research.

New R&D organizational models based on partnerships, alliances, and even crowdsourcing are changing talent needs. The most needed skill sets for R&D have moved away from pure scientific expertise to regulatory knowledge and relationship skills. Developing and managing outside partnerships and regulatory science are the two most sought-after skills today. As the patent cliff has eroded company profits, the industry has responded with large-scale layoffs, a staggering 150,000 from 2009-12.2, 3 While the largest number of cuts occurred in 2009 and primarily affected sales staff, smaller waves continue to pare the workforce, extending into the scientific community. The industry is left with talent gaps that threaten its ability to perform well in an outcomes-based healthcare model.

Biopharmaceuticals is considered among the most research-intensive industries and the scientific team is the beating heart of the industry. Management expects this highly educated workforce to develop a constant stream of profitable new products. The challenge is immense.

Thousands of drug compounds are in some phase of clinical trial today.4 But

1 PwC’s November 2012 publication, Pharma 2020: from vision to decision, outlined scientific leaps in drug development as well as the financial pressures faced by the industry.

2 Major pharmaceutical companies face revenue declines, about $148 billion between 2012-2018, as products lose patent protection around the world. Source: EvaluatePharma ‘World Preview 2018’ (June 2012)

3 Challenger, Gray and Christmas and HRI analysis4 EvaluatePharma, ‘World Preview 2018’ (June 2012)

there’s no guarantee the comparatively few compounds that launch will be enough to counteract lost sales from patent expirations. Although drug approvals peaked in 2012, they have otherwise remained below 40 per year since 2002 even as R&D spending has increased (Figure 1). In essence, the industry must make more therapies that fill unmet need, at a lower cost, with fewer resources than ever.

Figure 1: Costs per approved molecule are unsustainably high.

Average cost per moleculeover five years = $2.8 billion

Number of NMEs and biologicals approved by FDA Cost per NME or biological

Num

ber

of a

pp

rove

d p

rod

ucts

Average cost per moleculeover five years = $4.2 billion

Cos

t p

er a

pp

rove

d p

rod

uct

(US

$ b

illio

ns)

Source: EvaluatePharma and PwC analysis

Notes: (1). R&D expenditure on newly approved medicines is clearly historic, but comparing annual investment with annualoutput over a 10-year period provides an accurate picture of the direction in which costs are moving. (2). We have not taken account of expenditure on line extensions, which varies significantly from one company to another. (3). Year 2012 cost per NME or biologic is an estimate.

0

10

20

30

40

2002 2003 2004 2005 20060

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012

2.7

2.2 2.3

3.43.726

3538

28 29

4.23.7 3.8

26

3134

26

35

3.1

43

4.64.9

Est

imat

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NME = New molecular entity

Executive summaryAs the biopharmaceutical industry faces a host of challenges to its business model, research and development is undergoing a major transformation. New strategies for research are pointing outside—to partnerships, alliances, offshoring and even crowdsourcing. Human resources leaders must play a larger role in shaping these partnerships and developing an effective talent strategy for their scientific workforce.


So companies are changing how they conduct R&D, not only reconfiguring existing operations, such as an increasing focus on biologics, but also looking outside for promising new alliances that will help boost capabilities and replenish the pipeline more rapidly.

Partnerships with academic medical centers (AMCs) and third parties, such as contract research organizations (CROs), are the two most common, aside from government contracts.5

In the new pressure-cooker environment, traditional competitors are teaming up to tackle shared R&D challenges. Consortiums, alliances with foundations, and even crowdsourcing are among the new approaches. Done well, these relationships complement in-house R&D and allow companies to share both risk and reward with external partners.

But the new models can’t stand on their own without an effective HR strategy. In a recent PwC global survey, CEOs identify talent gaps as the second biggest threat to their growth prospects, behind anxiety about corporate tax burdens.6 Human resources (HR) leaders should play a

key role in shaping partnerships and developing an accompanying talent strategy for their scientific workforce. HR must be at the forefront of ensuring their organizations are properly equipped with the right mix of people and talent in R&D.

To gain a better understanding of how life science organizations are refashioning their R&D organizational models and approach to scientific talent, PwC’s Health Research Institute (HRI) conducted in-depth interviews with human capital and R&D leaders and a telephone survey of 130 US life sciences industry leaders with human capital responsibilities. Among the insights:

• Fifty-one percent of life science executives, the highest of 19 sectors, report that hiring has become more difficult than before, with only 28% saying they’re very confident they’ll have access to top talent.7

• Some 60% of pharmaceutical executives say they intend to increase investments over the next three years to create a more skilled workforce. And 72% intend to increase their R&D capacity in the next 12 months.8

• Only half of HR professionals surveyed feel their leadership views them as a strategic function, as opposed to tactical. The role is still limited to hiring and firing functions for many companies.

• Performance incentives should combine “soft” and “hard” metrics, and need not be limited to financial targets.

• Scientists want career paths that recognize and reward their passion and commitment to research, not just additional responsibilities. Too often, scientists are pushed out of what they do best—research—and saddled with management chores that distract them.

Finally, senior executives must act as a powerful motivating force for their people. Companies with decades-long legacies have lost their edge due to repeated layoffs, wearing down the morale of scientific staff. Working with HR, leaders can convey a compelling mission that employees will not only accept, but embrace.

5 HRI survey on human capital in the health industries, 2012. 6 PwC 16th annual global CEO survey, 2013.7 PwC 15th annual global CEO survey, 2012.8 PwC 16th annual global CEO survey, 2013.


The industry’s human resources professionals have had ambitious agendas for the past decade. And they’ve accomplished many things—outsourcing and consolidating services such as payroll and personnel management, establishing global policies and procedures, and implementing performance management systems.

But where other functions such as finance, marketing and R&D are judged based on measurable results, HR has been less successful at connecting to business outcomes. Talent and organizational design decisions, good or bad, are sometimes made without the involvement of human resource experts.

To shape talent goals and business priorities, HR must be more tightly integrated to R&D organizational decision making. How HR leaders take up this challenge will have a major influence on whether their organization will overcome the oft-mentioned obstacle of R&D productivity and refill the pipeline with profitable new products.

HR becomes the R&D spark plug

When companies undertake dramatic changes to their R&D workforce, culture often deteriorates. Morale suffers in many once-proud organizations as remaining employees live through layoffs and reorganizations. Although the changes may be necessary from a financial point of view, they exact a toll on the corporate environment. But HR can be a spark to reboot R&D culture.

“It’s HR’s role to break up counter-productive culture, create a place of safety, where scientists can pose questions, start discussions, and encourage innovation,” said Dave Angel, a 20-year veteran in talent management of pharmaceutical scientific staff. “If scientists know you have an understanding of their role, they will see you more as a partner instead of just someone tracking performance metrics.”

HR leadership often faces internal barriers. For too long, the function was not viewed strategically and limited to the tasks of hiring and firing. In the HRI survey of HR professionals, respondents were evenly divided in their leaderships’ perception of HR’s role. About half (52%) said they felt their own leadership views HR as a strategic function, while the remainder said their leaders see it as tactical. HR is at its strategic best when leadership engages HR as a true partner, and the

approach to managing talent pipeline and organizational culture is rigorous and deliberate.

Some companies effectively use HR in creating new organizational models. Covidien, for example, is moving away from its legacy as a confederation of acquired companies and taking a more integrated approach to recruiting and retaining talent across all business units. Each quarter, the senior executive team devotes time to reviewing the top 100 management roles at the company.

“The challenge is to create a roadmap for anyone identified as top talent,” said Joseph Gibbons, vice president of global leadership and organization development. One direct outcome is that employees have more career paths within Covidien, such as making lateral moves to different business units, which was difficult in the past.

Source: HRI Survey on human capital in the health industries, 2012

70%report their top leadership being “extremely involved” in workforce planning.

Strengthening the role of human resources in R&D


Most valued skills and talent needs are changing

Fifty-one percent of life science leaders, the highest of any industry, report that hiring has become more difficult, with only 28% saying they’re very confident they will have access to top talent.9 Hiring difficulty is worse than the technology sector where competition for talent is fierce.

Complicating the task further are the changing talent needs in R&D, reflected in fewer job openings for scientists with traditional academic training. US chemists and microbiologists are experiencing much slower job growth across all industries compared to biomedical engineers, who are among the highest growth scientific professions (Figure 2).

Biomedical engineers are more typically found in the medical

technology sector but their growth is also an outcome of life sciences’ increasing reliance on technology breakthroughs for drug development. Their educational training in chemistry,

biology and engineering disciplines is closely matched to the broad skill sets sought by companies in the HRI survey.

The life sciences industry is looking for new skills among scientists. Pharmaceutical companies report that the most needed skill in the next three years is the ability to develop and manage outside partnerships. With new rules and approval pathways established by the 2012 FDA safety and innovation act, regulatory science is a close second (Figure 3). This skill, along with bio-informatics and outcomes research, is also becoming more critical as global pricing and reimbursement are linked to demonstrating better outcomes.10

The two largest chunks of R&D budget for drug discovery and development fall at opposite ends of the development timeline: lead optimization and Phase III clinical trials.11 These two areas also happen to be periods when outside partnerships are most likely to occur.

Fifty-one percent of pharma leaders, the highest of any industry, report that hiring has become more difficult for them with only 28% saying they’re very confident they’ll have access to top talent.

Source: PwC 15th annual global CEO survey, 2012

43%51%say hiring has become more difficult

28%say they’re very confident they’ll have access to top talent

30%

Pharmaceuticals and Life Sciences CEOs (n=82) All industries CEOs (n=1,258)

9 PwC 15th annual global CEO survey, 2012.10 For more information on outcomes and reimbursement, see HRI’s publication “Unleashing value: the changing payment landscape for the US

pharmaceutical industry”11 Munos, Bernard et. al. “How to improve R&D productivity: the pharmaceutical industry’s grand challenge.” Nature Reviews Drug Discovery 9,

(March 2010): 203-214.

Source: Bureau of Labor Statistics

Biomedical Engineers

Medical Scientists

Biochemists/Biophysicists

All occupations

Microbiologists

Chemists

Figure 2: Projected US job growth for biomedical sciences (2010-2020).

62%

36%

31%

14%

13%

4%


Every day the industrial R&D workforce confronts fundamental business questions such as whether to go forward with or eliminate a particular molecule candidate. Unlike academia, where a scientist may spend years focused on one disease, the new commercial R&D skills are more about boundary-spanning disciplines and practical business challenges (see “Star Scientists” sidebar). The shift requires a recruiting team that casts a wide enough net in other disciplines.

The skills needed to develop and manage outside partnerships are not part of typical scientific training. Today’s R&D organization requires a hybrid set of skills that combine technical knowledge with expertise less apparent on curriculum vitae. Cross-trained scientists might have dual scientific and business degrees, management and investment decision making experience, or previous experience in quality or clinical operations.

Adaptability and agility are also sought-after traits. Scientists who have had to fight for scarce technical resources may have acquired negotiating skills that can serve them well in R&D organizations.

The new skill sets are difficult to find in one employee because they’re a mix of different disciplines—statistics, economics, computer science, and epidemiology. They’re better crafted in teams.

Figure 3: Developing and managing outside partnerships is the most important R&D skill sought by HR.

34%Developing/managingoutside

partnerships

33%Regulatory

science

25%Biomedicalengineering

18%Bio-informatics/data-analytics

15%Health

economicsoutcomesresearch

9%Systemsbiology

Very importantRespondents:

Source: HRI survey on human capital in the health industries, 2012

Star scientists, necessary but sufficient?

Star scientists—professionals that lead breakthrough drug discoveries and development of novel medical devices are sought by all companies because they play roles beyond their scientific virtues. It’s more than just technical prowess, they act as boundary spanners, linking seemingly disparate fields and tapping new sources of information. Boundary spanners are skilled at gathering external knowledge across silos and organizational barriers, partly because of their clout and influence. They are also gatekeepers who are particularly adept at deciding what information is relevant toward progress.12 Gatekeepers can translate knowledge across an organization, such as between biologists and chemists. They bring knowledge back into the organization and route it to the right people.

Star scientists can’t thrive on their own.13 R&D and HR leaders should ensure that the right supporting cast surrounds the stars. Effective supporting players act as sounding boards, run lab experiments and improve on the original concept. They tend to change jobs less frequently than the stars (every 16 years versus 6.5 years), retaining more institutional knowledge.14

“You can’t buy yourself success just by hiring a star,” cautions biotech industry expert and professor Frank Rothaermel at Georgia Institute of Technology’s Scheller College of Business. “The best performing companies are bringing star scientists in but giving them freedom to craft their own teams and publish as they see fit.”

12 Rothaermel, F. and A.M. Hess. “Building dynamic capabilities: innovation driven by individual-, firm- and network- level effects.” Organizational Science. 18(6) (November/December 2007): 898-921.

13 Oettl, A. “Honour the helpful.” Nature. 489: (7417) (September 2012): 496-497.14 Rothaermel, F. and A.M. Hess. “Building dynamic capabilities: innovation driven by individual-, firm- and network- level effects.” Organizational

Science, 18(6) (November/December 2007): 898-921.


Thinking differently about performance incentives

Scientists are motivated differently than other employees. Researchers identify one of the biggest motivators as “the cycle of credit.”15, 16 The cycle is proportional to a scientist’s ability to operate within his or her community and exert change and influence with knowledge. The cycle is constant—past contributions reinforce future credibility. Compensation and performance incentives should be designed with these motivations in mind.

Performance incentives reward the most talented scientific staff and align the interests of employees, executives, and shareholders. Too many leaders focus on the numbers—compensation and financial reward. But nonfinancial incentives can be as effective. For R&D staff, the connection to revenue is distant, stretching several years. For medical device companies, this time lag is relatively shorter than pharma and is less of a concern.

One global drugmaker has shifted away from using stock incentives as a core part of performance compensation. Instead, the company is using cash incentives tied with real R&D metrics, paid out over time. The challenge lies in creating the right incentives for performers at all levels. This particular company focused on three principles:

• Acombinationofquantitativeandqualitativemeasuresofproductivityandaccomplishment. A quantitative metric might be number of molecules approved to start preclinical trials. Softer measures can help prevent hard measures from erroneously pushing bad candidates into preclinical trials. An example of a soft measure would be the judgment a leader shows in making tough decisions to kill or sell off candidate compounds that might not have the right profile or probability of success.

• Metricsdesignedforalllevelsoftheorganization. For early-career R&D staff, measures slant toward individual and functional performance. For senior leadership,

group performance receives more emphasis, with a higher risk/reward element.

• Teamandindividualperformancerewards. An effective, balanced set of measures ensures individuals are not only performing in their roles, but contributing to their teams, business units, and company.

In the biopharma world today, where flat or declining company valuations make stock options less attractive, management should consider new approaches to encourage R&D productivity. HRI’s survey underscores this point: few companies offer novel incentives such as intellectual property sharing or sales royalties upon product launch (Figure 4).

Bonuses

Gifts or other non-cash awards

Stock options

Sales-royalties upon product launch

Intellectual property sharing

Source: HRI survey on human capital in the health industries, 2012

81%

43%

35%

25%

15%

Figure 4: Incentive components of performance compensation schemes offered to life sciences employees (% Yes).

15 McAllister, RB and CE Vandlen. “Motivating Employees in R&D.” Cornell HR Review (October 30, 2010).16 Latour, B. and S. Woolgar. “Laboratory Life: The Social Construction of Scientific Facts” Princeton University Press: (1986).


Some approaches acknowledge scientific achievement through nonfinancial means (Figure 5). Many scientists gain a sense of fulfillment by being recognized by their peers. Allowing them to participate in conferences satisfies a need for belonging in a scientific community. Participation also allows the scientist to use informal networks to percolate and refine ideas—something they bring back to the workplace.

Shared experiences can motivate scientific staff. To keep R&D employees engaged with their work, AstraZeneca sponsors an annual week-long “Inspire to Innovate” event, in which scientists come together for interactive training to explore leadership behaviors, share patient and drug development stories, celebrate local R&D stars, and

Well-designed scientific career ladders are a differentiator

Most large companies have established some formal career ladders for their staff. Scientific career ladders can differentiate employers in the eyes of job seekers and current employees. But poorly designed career paths can unwittingly pull top scientists away from what they do best—research—and burden them with unwanted administrative and management chores.18

A good design provides both paths with similarly attractive compensation systems to avoid losing top talent. For a scientist early in their career, formal and informal career coaching to uncover their interests and talents helps. At the upper rungs of a technical ladder, components such as an academic appointment, young scientist mentoring, or rewards for publishing in top-tier journals can be meaningful.

One recent survey of US life sciences PhD candidates found 41% of them expressing interest in commercialization and 30% interested in management career opportunities.19 For most, their dominant interest is still basic and applied research, but recruiters should take note of broadening interest in alternative paths. One path might lead to further deepening of their subject matter expertise, another might allow generalists to take on cross-functional responsibilities.

Even the act of designing or revising a career ladder is laden with risk because it can upset traditional hierarchy. Career ladders should factor in global scientific workforce pipeline and demand, workplace cultural norms, and generational perceptions that vary from country to country.

Learning &development

Sabbaticals

Source: Health Research Institute

Figure 5: Examples of non-financial and financial incentives for the scientific workforce.

FinancialNon-financial

Incentives

Cash milestonepayments

Stock options

Profit sharing Bonuses

Autonomy Sense of thrill

Appreciation

17 http://www.shrm.org/research/surveyfindings/articles/documents/2012_empbenefits_report.pdf18 Owens, J. “Getting on the right career ladder.” Nature Reviews Drug Discovery, 4, 87 (2005).19 Sauermann, H and M Roach. “Science PhD career preferences: levels, changes, and advisor encouragement.” PLoS ONE 7(5): e36307.

even participate in a scientific photo competition. Scientists walk away with inspiration, ideas, and creative techniques to use in their daily work.

Joseph Gibbons of Covidien suggests a “thinking sabbatical” to get scientists away from the constant deadlines-and-milestones culture. Rewarding scientists is “less about increased management responsibility, more about expanding the breadth of their thinking,” said Gibbons.

Sabbaticals have shown to be a positive factor in employee well-being, creativity, and competency development. But they are still rare in the private sector. A recent multi-industry benefits survey concludes only 15% of companies offer unpaid sabbaticals.17


HR departments are challenged to deal with an industry in flux. Technology has played a huge role in transforming the R&D organization, from a better understanding of genomics and proteomics, to more scientists focused on pathophysiology to understand the underlying conditions for a disease.20

Organizational structures that bring scientists together to tap into their talents are also evolving. Companies are trying a host of different approaches to externalize risk and cost with the hope that it will result in more productive and innovative models. HR should keep pace to remain relevant.

What many new organizational models have in common is an understanding that scientific talent is no longer housed strictly within a company. Instead, it can be curated from external sources, and arranged into a reinforced network of relationships.

Approximately one in three pharmaceutical and medical device companies revamped their R&D model in the past three years, according to


Organizationalstructure

76%

Productpipelines

74%

Leadershipteam

72%

Resourcemix

72%

Incentivemodel

24%

Figure 6: Proportion of leaders saying their company made the following specific changes as a result of a change to their R&D model.

20 Please refer to PwC’s report, “Pharma 2020: From vision to decision” for more information on the technical and managerial hurdles facing R&D.

the HRI survey. These R&D changes had major effects on organizational structure, leadership, and other aspects of human capital (Figure 6).

New organizational models demand a new approach to talent“ What Big Pharma needs to focus on today is not defending its

patents but rather developing clever new business models that honor innovation, respect profit, and provide access for the many. This will be as challenging as discovering new drugs.”

– Dr. Hans Rosling, Karolinska Institute


Opening the door to new partnerships

Companies are shifting R&D models to be more externally focused with shared costs and risk (Figure 7). Some 29% have one or more partnerships. Twenty-seven percent report having at least one corporate research partnership or consortium, and another 31% have partnerships with academic medical centers (AMCs).21

Sometimes the need to confront basic issues can justify collaboration, or a pre-competitive alliance, among firms that usually compete. The semiconductor industry created SEMATECH, a not-for-profit consortium, to tackle shared manufacturing challenges.

The pharmaceutical sector has a challenge of equal complexity and appears to be taking similar steps. In 2012, 10 large drug makers formed a consortium, TransCelerate,22 to reduce drug development costs and exchange ideas on standardizing methods of discovery and development. TransCelerate has an ambitious agenda to develop clinical data standards and a new risk-based monitoring approach for clinical trials.

Much of the industry has embraced alliances (see sidebar, p. 13) as a way to tap into more scientific minds. BioPontis Alliance, a North Carolina-based investment firm, connects academia and established companies.23 The consortium aims to reduce risk by identifying the most promising

therapies in academia and developing partnerships with for-profit firms or manufacturers. To date, 10 academic institutions, three large pharmaceutical companies, and one contract research organization participate.

Contract research organizations become more closely integrated

Contract research organizations (CROs), which historically focused on services such as data management and site monitoring, represent one of the fastest growing talent pools of R&D scientists. Employment in CROs has doubled from 2000 to 2010.24

Next to government-sponsored research, CROs are the most common type of partnership at pharmaceutical and medical device companies surveyed (Figure 7). These

partnerships can range from early-stage development and product design through clinical trials and post-launch studies. Within the last decade, outsourcing to these supporting entities has grown to such an extent that it now encompasses over 40% of drug discovery and development spending.25

Beyond clinical trials, CROs are becoming more tightly embedded with pharma, sharing both risk and reward, while moving away from a historic fee-for-service model. Yet deeper relationships are not pervasive. The HRI survey found that 38% (Figure 8) of survey respondents characterize their partnership with a CRO as highly integrated and strategic, while 47% describe it as arm’s length. The results suggest that some companies still see CROs as low-cost vendors for limited services and may be missing a broader opportunity.


27%

In-licensing

42%

Governmentcontracts

21%

Out-licensing

35%

CRO

12%

Biotechinvestment

27%

Corporate researchpartnership or

consortium

31%

AMCpartnerships

Crowdsourcing

Internally facing Externally facing

Figure 7: Medical device and biopharmaceutical partnerships, % responding they have one of the following partnerships in place.

21 Within the largest multinational pharmaceuticals companies, these rates are significantly higher in the authors’ analysis.22 Johnson, Linda A. “Major drug makers team up to improve, speed up costly patient testing of experimental drugs.” AP (September 19, 2012).23 Moran, Nuala. “New models emerge for commercializing university assets,” Nature biotechnology 29(9) (2011): 774.24 Lubick, N. “Working for a Contract Research Organization.” Science (May 25, 2012).25 Economist Intelligence Unit. “Finding Alignment - Opportunities and obstacles in the pharma/CRO relationship.” The Economist (January 2012).


38%Highly integrated strategic partnership

47%Arms-length vendor relationship

16%Don’t know


Figure 8: Respondents characterize the relationship they have with CROs in two distinct ways.

Another recent industry survey on outsourcing indicates that companies intend to increase the depth of their CRO partnerships.26 A strategic partnership requires breaking out of a project-oriented mindset, sharing more proprietary information, and considering the full range of capabilities a CRO offers (see table above).

Today the quality and complexity of CRO research capabilities are increasing in response to changes in the industry, including more outsourcing. Rather than waiting for ad-hoc requests for services, a strategic partnership engages the CRO in every stage of the R&D process, from early-stage planning of drug development to clinical trials and beyond.

University and academic medical center relationships flourish

Many companies are going straight to an external source of early-stage innovation and scientific talent: academic medical centers (AMC) and research institutions. These institutions spend about 13% of total US R&D expenditures, according to one estimate.27 All large pharmaceutical companies have established at least one AMC partnership, often specific to a disease. And the HRI survey reports 31% of pharmaceutical and medical device companies engage with AMCs.28

Pfizer’s Global Centers for Therapeutic Innovation was established in 2010 to pair teams of researchers from academic medical centers with company scientists. Researchers gain access to Pfizer’s library of drug candidates and work side by side with Pfizer scientists. A joint steering committee of Pfizer and AMC investigators shares research decisions, while Pfizer retains first rights on any biologics developed. And in 2012, Novartis and University of Pennsylvania launched a $20 million effort to investigate personalized cancer therapies, citing Penn researchers’ intellectual capacity as a reason for the agreement.29

A study of more than 100 academic-industry partnerships identified organizational factors that result in a positive outcome, such as the generation of a new solution or intellectual property.30 In particular,

Characteristics of a Strategic Partnership

• Limited, select number of providers based on competency (not capacity)

• Long-term commitments – minimum of 3 years

• Integrated teams, responsibility, accountability

• Periodic portfolio (not project-task) review

• Shared governance responsibility

• Senior and middle-management committees

• Coordination over standard operating procedures (SOPs) Source: Kaitin KI, editor. Strategic outsourcing and global drug development. Tufts Center for the Study of Drug Development R&D Management Report. 2008 Mar;3(2)

26 PwC Industry survey: Trends in Asia clinical outsourcing, 2009-10.27 “The Economic Contribution of University/Nonprofit Inventions in the United States: 1996–2010”, BIO, (2012).28 For more information about academic medical centers, please refer to HRI’s publication, “The future of academic medical centers”.29 Thomas, K. “Novartis and Penn Unite on New Anticancer Path,” The New York Times, August 6, 2012.30 Pertuze JA, et al. “Best practices for Industry-University Collaboration.” MIT Sloan Management Review 51(4) (Summer 2010): 83.


the findings emphasize that good talent selection and communication can make the difference. Partnership managers can take these steps:

• Recruit project managers that habitually network across technical and organizational boundaries.

• Plan for a multiyear collaboration and cultivate relationships with researchers even if funding isn’t there.

• Establish robust communication links with academic researchers including in-person meetings, a communication plan beyond meetings, and an exchange of university and company personnel.

One major rationale for such agreements is the chance to approach a scientific challenge from two different technical directions at the same time. Because most industry scientists got their start in an academic lab, companies can tap into dormant relationships in these scientific networks and benefit from them.

31 http://www.masshightech.com/stories/2011/04/04/daily45-Vertex-forms-75M-deal-with-CFF.html32 Haas, J. “Pfizer, CFF Focus On Possible Combination Approach To Treating CF’s Underlying Cause”, Health news daily, November 26, 2012.

Some alliances work best when a foundation is at the hub. The Cystic Fibrosis Foundation (CF Foundation) and Vertex initiated a research partnership in 2000 at the behest of CF Foundation leader Dr. Robert Beall, resulting in the development and launch of Kalydeco, a targeted therapy for some cystic fibrosis patients.

The partnership gave Vertex access to leading scientists, clinical trial participants, and rich patient information. “Working with the foundation quickly assembled a lot of expertise for us,” said Dr. Eric Olson, who led development work on Kalydeco at Vertex. “For instance, if there were specific investigators we wanted to work with, we had a quick and credible means of introduction.”

Vertex meanwhile was skilled at understanding the type of protein found defective in certain types of CF. The foun-dation had years of experience sponsoring fundamental research in understanding the disease, an appreciation for the real-world impact on patients and caretakers, and the most comprehensive registry of CF patients in the U.S.

Over the course of the collaboration, CF Foundation invested $76 million contingent on meeting certain research milestones. In return, CF Foundation received

future guarantees on sales royalties. CF Foundation provided access to its national clinical trials network for the research, helped recruit patients, provided leading practices in clinical trial design, and helped define outcome measures as understanding of the disease evolved.

The agreement held Vertex accountable to progress. Milestones were established jointly but remained flex-ible, and CF Foundation provided regular scientific advisory feedback. If Vertex scientists met milestones, CF Foundation awarded more money. Kalydeco was reviewed and approved within three months by the FDA. The drug was developed about 12 years after the partner-ship’s inception, compared to an average of 14 years for most pharmaceuticals.

Today, Vertex is developing two more drugs (in Phase II clinical trials) targeting a much larger sub population with CF. This work is supported by an agreement with CF Foundation for up to $75 million.31 While mid-sized Vertex benefited from outside expertise and funding, much larger biopharmaceuticals companies are also finding advantage in foundation research partnerships.32

Corporate-Foundation collaboration highlights extended talent networks in R&D


Crowdsourcing opens up a new world of talent

For years, technology firms such as Apple and Google have used public contributions (“the crowd”) to supplement internal software development. In the life sciences industry, two major events boosted the cause of open innovation in 2012.

First, the National Institutes of Health (NIH) announced an initiative pairing

33 http://www.nih.gov/news/health/may2012/od-03.htm34 http://www.nih.gov/news/health/jun2012/ncats-12.htm35 Marta Falconi, “Glaxo Opens Clinical Trial Data.” Wall Street Journal. October 11, 2012.36 https://www.innocentive.com/ar/challenge/9933186

InnoCentive operates on a simple premise—redefine research as a challenge to be solved by anyone and reward them. Spun off from Eli Lilly in 2005, the company uses 270,000 crowd-sourced participants to help various commercial, government and nonprofit organizations solve problems.

Alph Bingham, founder of InnoCentive, believes the biopharmaceutical and medical device industries can do more open innovation and crowdsourcing. Bingham chal-lenges the industry to redefine its productivity problem. “The first step [for pharma executives] is to realize that they are in the risk management business.”

InnoCentive challenges companies to completely rethink the way they view problems and solutions. First, organiza-tions must understand the power of framing a problem as a “challenge.” Portraying a scientific goal as a competitive challenge is a better way of organizing and distributing work, according to Bingham. It’s also a powerful motiva-tional tool. But it won’t work well unless the sponsor has enough “solvers” for the challenge.

This is where crowdsourcing comes in, sharing questions with the broader community in the hope that someone with a different perspective or unique insight will find a solution. A viable solution requires an inducement sufficient to draw solvers to the challenge—such as a cash reward.

Not all problems result in a new drug or device. One current challenge offers $25,000 for devising a coating that keeps a biologic medication stable for several years under harsh conditions, such as a tropical climate.36 The challengers require that the technique work in a standard manufacturing process using readily available materials. The solver must sign over intellectual property rights.

Five things to consider before crowdsourcing your next scientific hurdle1. Assess your ability to solve the problem internally.

2. Understand your opportunity cost of internal versus external failure.

3. Ascertain whether the initial discovery can be explored by the third parties.

4. Understand the risk and potential reward of posing the challenge to the crowd.

5. Determine whether your challenge can be discretely broken into smaller pieces, or whether it’s best kept whole.

Source: Health Research Institute

Could open innovation be a means to drastically reduce the cost of new drug development? Bingham thinks so: “It’s about getting others to take the risk that they might not solve the problem or be compensated.”

InnoCentive attracts scientists for “extreme” open innovation

industry-abandoned drug compounds with NIH-funded researchers.33 Three companies made the initial asset donation, with five more following suit.34 The compounds have gone through pre-clinical or Phase I testing before donation. NIH provided $20 million in funding for grant applicants in addition to streamlined legal and administrative documents between the researchers and drug companies.

Second, GlaxoSmithKline announced the open availability of 4,500 clinical trials results and gave away the chemistries for hundreds of drug compounds that may fight tuberculosis. Outside scientists now have a complete view of all clinical trial data including adverse effects that may have been underreported in the past.35 When a big company opens up its scientific coffers, it could encourage others to follow suit.


Different approaches exist to crowdsourcing contributions. In one incarnation, a curated set of expert contributors are recruited. In another, the network relies on the redundancy and self-correcting nature of large, open crowds.37 Each model can take advantage of serendipitous discoveries that occur when scientists address problems out of their usual disciplines and training.

One company, Transparency Life Sciences, operates a drug development crowdsourcing website that seeks the talents of two groups—patients and researchers. Patients contribute ideas on real-world outcomes they hope to achieve with a treatment.38

Researchers help review compounds that have made it to Phase II, where abandonment rates can be high. Professional development and a chance to contribute ideas outside their field motivate some scientific contributors. Combining crowd input with the latest technologies in at-home testing and patient-submitted data, Transparency Life Sciences hopes to upend the high cost, risk, and slow progress of clinical trials. Three projects today target Crohn’s disease, multiple sclerosis, and Parkinson’s disease.

The company plans to create a peer rating system for researchers who contribute the most valuable conclusions. “The input is additive to our own internal process, not a substitute. At the end of the day, we have to use our own judgment,” Foster added.

Companies may be reluctant to tap into crowdsourced talent for fear of losing intellectual property. An external crowdsourcing strategy still requires a company to have robust internal R&D processes and a research culture adept at evaluating outside ideas. It also requires a clear vision of what intellectual property is most important to keep proprietary, and what can be shared.

Rebooting internal R&D culture

While many companies have looked outside for talent in new partnerships, others are refashioning their own scientific workforces. Some 60% of pharmaceutical executives say they intend to increase investments over the next three years to create a more skilled workforce.39 And 72% intend to increase their R&D capacity within the next 12 months.40

Bigger companies are borrowing a page from smaller, more agile startups in the size and focus of their internal R&D groups. Scientists join smaller companies for a reason. “It’s the opportunity to do a lot more things than at a larger company where people are highly specialized,” said Dr. Bahija Jallal, biologics president at AstraZeneca.

Scientists are attracted to work environments where they have freedom of scientific pursuit and the chance to tackle tough problems. Scientists derive satisfaction from being connected to the end result—seeing patients benefit from their discoveries. In less hierarchical companies, this connection is easier to establish.

Smaller companies tend to have a narrow therapeutic focus out of necessity. Some large companies, many of which grew by acquisitions, are coming to a similar realization that focused R&D is advantageous. Today Merck focuses on eight therapeutic areas. Eisai, a large Japanese biopharmaceuticals company, restructured its internal R&D into 12 different units. Six are focused on therapeutic areas, while the other six focus on technology platforms, regulatory science, or riskier “next generation” topics. Each group is “biotech sized” to around 100-250 people to encourage faster decision making.

Decision making in a smaller company tends to be highly centralized and quick; but reporting relationships and job roles, less defined. Scientists may be wearing multiple hats, doing basic research but also acting as technical support as early trials begin. When the worlds of large and small organizations combine, a larger company can help new staff transition from what management thinker Henry Mintzberg called an “adhocracy,” to a more disciplined, more mature system.

“Patients have been vocal about what they want to see in clinical trials,” said Marc Foster, chief operating officer of Transparency Life Sciences.

37 Gary P. Pisano and Roberto Verganti, “Which kind of collaboration is right for you?” Harvard Business Review (December 2008): 3.38 Refer to HRI’s publication, “Unleashing value” for additional information on patient-reported outcomes.39 PwC 16th annual global CEO survey, 2013.40 Ibid.


Thinkliketheweb

The power of the Internet and its related social media explosion lies in the vast set of networks of influencers and followers discovering each other. In the future, a company’s value may be judged on how well it establishes and maintains a robust talent network that spans traditional boundaries.

Value goes beyond finding the right suppliers and effective outsourcing. It extends to how well each of your employees attracts and reinforces the right elements into the network. Your R&D people still need a robust ability to conduct their own R&D, but they should be savvy enough to identify, attract, and cultivate an outside network too. In the right environment, scientists view themselves as part of a web of knowledge, rather than lone experts.

“It’s no longer about your value as an individual contributor,” says Christine Carberry, vice president of program and alliance management at EnVivo Pharmaceuticals. “It’s about creating a network that allows you to connect ideas from multiple sources, which can lead to new insights and innovation.”

LeadersfromR&DandHRjointlyidentifymostvaluableskills

The industry as a whole has suffered a loss of more than 311,000 jobs during the past 10 years. Many of these scientists have found work in startups, CROs, or other industries.41 Those left may be pondering whether their skills are still valuable.

Leadership needs to make talent and technical needs fully transparent to frontline scientists. This includes frequent and consistent communication about resource investments, training and development, and internal job opportunities.

For their part, scientists should take responsibility in self-assessing their technical and other skill sets against these needs. Particularly as more early-stage science is accomplished through partnerships, roles in early drug development may be most vulnerable.

TapHRtolaythegroundworkforan externaltalentstrategy

Most HR executives can articulate a talent strategy for current staff. Yet how many have a vision for how large teams from different organizations and cultures can work together? HR must help companies find R&D leaders who can effectively develop and manage outside partnerships, such as with CROs, AMCs, and disease foundations.

HR management can take the driver’s seat in making the job easier by devising rules of engagement for external partner-ships. HR also can establish performance metrics for external collaborators and ensure these are part of early partner-ship discussions. Finally, HR can smooth cultural integration of collaborations or sharing of staff between organizations.

Articulateapowerfulmotivatingforce

Companies are undergoing fundamen-tal, disruptive change to their R&D models. Once proud pharma giants have lost their edge in innovation as a result of repeated layoffs.

Leadership in R&D need a compelling mission to keep staff at all levels focused on the goal. Mission must go far beyond an eloquent statement. In the hospital sector, Cleveland Clinic no longer refers to staff as “employees.” Instead every employee, regardless of role, is now a “caregiver” reinforcing the goal of great patient care.42

Company leadership must be able to convey a compelling, motivating mission not just for the public, but one that is trusted by staff. In turn, this will attract stronger talent and better external partners.

Conclusion

Research and development continues to be the heart of the biopharmaceuticals industry. Only now it is spread across a series of partnerships, alliances, investments, and crowds. Companies must do a much better job of tapping into inside and outside talent networks.

The quest for talent must be in harmony with new collaborative R&D models in the life sciences industry. Involving HR in strategic planning and organizational design helps identify skill gaps, aligns employee incentives with company goals, boosts staff morale, and solidifies external partner relationships. HR, R&D, and management must function as complementary elements of a new chemistry of innovation in pharmaceuticals and life sciences.

41 http://www.nature.com/naturejobs/science/articles/10.1038/nj7402-281a

42 From a blogposting by Delos Cosgrove, Cleveland Clinic CEO. http://www.linkedin.com/today/post/article/20121211130510-205372152-replacing-employees-with-caregivers

What this means for the biopharmaceutical industry


Kelly Barnes Partner Health Industries Leader [email protected] (214) 754-5172

David Chin, MD Principal (retired) [email protected] (617) 530-4381

Ceci Connolly HRI Managing Director [email protected] (202) 312-7910

Serena Foong Senior Manager [email protected] (617) 530-6209

Sarah Haflett Senior Manager [email protected] (267) 330-1654

HRI Regulatory Center

Benjamin Isgur Director [email protected] (214) 754-5091

Bobby Clark Senior Manager [email protected] (202) 312-7947

Matthew DoBias Senior Manager [email protected] (202) 312-7946

Caitlin Sweany Senior Manager [email protected] (415) 498-7902

Health Research Institute Advisory Team

Chris Albani, Principal

Alisa Bechthold, Director

Paul Blase, Principal

Charles Boesel, Director

Ed Boswell, Principal

Megan Brody, Director

Ranjan Dutta, Director

Todd Evans, Director

Robert Franco, Principal

Michael Goff, Principal

Marla Graeber, Principal

Anup Kharode, Director

Mike Mentesana, Principal

Mark Mynhier, Principal

Joseph Palo, Partner (retired)

Kristen Soderberg, Manager

PwC’s Health Research Institute (HRI) provides new intelligence, perspectives and analysis on trends affecting all health-related industries. The Health Research Institute helps executive decision makers navigate change through primary research and collaborative exchange. Our views are shaped by a network of professionals with executive and day-to-day experience in the health industry. HRI research is independent and not sponsored by businesses, government or other institutions.

About PwC

PwC US helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms with 169,000 people in more than 158 countries. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/us.

Christopher Khoury Senior Manager [email protected] (202) 312-7954

Ingrid Grygiel Analyst [email protected] (720) 931-7566

Erin Brophy Analyst [email protected] (617) 530-4058

Janice Drennan Editor [email protected] (813) 348-7411

Health Research Institute


About this research

The research for this report included 16 in-depth interviews with HR and R&D executives in the pharmaceutical and medical device industries. HRI also commissioned a telephone survey in September-October 2012 of 130 such executives on human capital issues. We also reference findings from PwC’s 15th and 16th annual global survey of CEOs.

Margaret Anderson Executive Director FasterCures/The Center for Accelerating Medical Solutions

Dave Angel Former Vice President, Human Resources Momentive Chemicals

Julie Barnes Director, Health Policy Bipartisan Policy Center

Alpheus Bingham Founder and Boardmember InnoCentive

Christine Carberry Vice President, Program and Alliance Management EnVivo Pharmaceuticals

Mary Dwight Vice President of Government Affairs Cystic Fibrosis Foundation

Marc Foster Chief Operating Officer Transparency Life Sciences

Joe Gibbons Vice President, Global Leadership and Organizational Development Covidien

Bahija Jallal, PhD Executive Vice President, Research and Development MedImmune

Simon King Vice President, Human Resources, Global Research and Development AstraZeneca

Rick Lyman Director, Global Organizational Effectiveness and Change Boston Scientific

Eric Olson, PhD Vice President, Cystic Fibrosis Franchise Vertex Pharmaceuticals

Frank Rothaermel, PhD Professor & Sloan Industry Studies Fellow, Strategic Management Scheller College of Business, Georgia Institute of Technology

Rosanne Setoguchi Director, Talent Acquisition DIRECTV

Melissa Stevens Deputy Executive Director FasterCures/The Center for Accelerating Medical Solutions

Penny Stoker Vice President, People Services and Transformation AstraZeneca

Acknowledgements

To have a deeper conversationabout how this subject may affect your business, please contact: Michael SwanickPartnerGlobal Pharmaceutical and Life Sciences [email protected](267) 330-6060

Michael GoffUS Pharmaceutical & Life Sciences Advisory Services [email protected](203) 539-4336

Douglas S. StrangUS Pharmaceutical & Life Sciences Advisory Services [email protected](267) 330-3045

About the PwC Network

PwC firms help organizations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.

Learn more about PwC by following us online: @PwC_LLP, YouTube, LinkedIn, Facebook and Google+.

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This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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"New chemistry: Getting the biopharmaceutical talent formula right"

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