Science vs. Business: Who Makes A Better CEO?

By Cliff Mintz

Over the past 30 years or so, the vast majority of CEOs of life sciences companies have made their way into the executive suite via the business, finance, or marketing and sales routes. Many of these CEOs, despite their lack of any formal scientific training, learned enough science to ascend to the executive suite without much trouble. But, beginning in the late 1990s, life sciences companies began hiring CEOs with advanced science and medical degrees, thinking that their scientific training would help to reinvigorate R&D and replenish empty drug pipelines with new blockbuster drugs.

However, the recent economic downturn and ensuing financial turmoil forced many life sciences companies to rethink this strategy and, increasingly, these CEO-scientists have been jettisoned in favor of executives with traditional business or legal backgrounds. For example, Arthur Levinson, Ph.D., former CEO of Genentech, was replaced by Franz Humer (a lawyer) after Roche purchased the company earlier this year. Also, Jean-Pierre Ganier, the former CEO of GlaxoSmithKline, a pharmacologist, was replaced last year by Andrew Witty, who has a business and marketing background. Further, Gerard le Fur, the embattled former CEO of sanofi-aventis who holds a Ph.D. in pharmaceutical sciences, was ousted after only 18 months on the job in favor of Chris Viehbacher, an accountant. Finally, Fred Hassan, a chemical engineer and current CEO of Schering Plough, will be replaced by Merck’s Richard Clark, who has a sales and training background, after the Merck/Schering Plough merger closes later this year.

It is a commonly held belief and something of an urban legend that scientists don’t make good CEOs and don’t belong in the executive suite. A quick perusal of the CEOs who run the top 18 pharmaceutical and biotechnology companies in the world tends to confirm that notion (Table 1). At present, only 5 of 18 of the world’s leading life science executives hold advanced degrees in medicine or the life sciences. The failure of scientists to excel as CEOs has largely been ascribed to a narrow focus, an inability to adapt to rapidly changing conditions, poor social skills, and a clear lack of financial and business acumen. To be fair, however, it is important to stress that most scientists — except those who choose to attend business school — never receive formal training in business or finance during their graduate education. Because of this, it should come as no surprise that most scientists don’t make good CEOs. After all, most of what a CEO does on a day-to-day basis involves business and finance. Nevertheless, this doesn’t mean that scientists who are willing and able to acquire business skills can’t be successful CEOs. To that end, some of the most highly visible and successful biopharmaceutical companies, including Genentech, Millennium Pharmaceuticals, and Gilead Sciences, have been or are currently run by CEO-scientists.

Stan Yakatan, a former life sciences company CEO with a business background and founder of Katan Associates, a management consulting firm that advises emerging biotechnology companies, contends that it is no longer necessary for scientists to hold the top position at life sciences companies. “As recently as five years ago, scientific or medical experience was critical to the success of an enterprise. But with changing economic times and increasing M&A activity, business and management have surpassed the importance of science in the executive office,” said Yakatan. “Further, a good chief scientific officer coupled with a strong manager with a business background should make for a better and more sustainable company.” Seth Yakatan, a former investment banker, CEO of a medical devices company, and a principal at Katan, concurs. “Obviously, having a scientific background helps, but it is not essential. Someone with sufficient business skills and a strong scientific team can be just as effective,” he said.

Steven Burrill, CEO of the investment banking firm Burrill and Company, is indifferent when it comes to whether or not a scientist or business person holds the top spot at a life sciences company. “It doesn’t matter to me if the CEO is a scientist or a business person as long as they understand their core business and can bring value to their stakeholders,” said Burrill. He likens running a successful company to a stool. “If any of the three legs is longer or shorter than the others, the stool will topple.” Burrill stressed that a company must be equally good in science, business, and most importantly, the ability to execute, to achieve an appropriate balance, and to be successful. “That balance must be there before we will invest in a company,” he said.

IN SUPPORT OF THE SCIENTISTS
While nonscientists like Burrill don’t believe that a science or medical background is necessary to run a life sciences company, Steven Projan, Ph.D., vice president and head of global infectious diseases for the Novartis Institute for Biomedical Research (NIBR), strongly disagrees. “Today’s drug targets and the underlying mechanisms responsible for diseases aren’t as obvious as they once were — they are becoming increasingly complex and sophisticated,” said Projan. He contends that life science CEOs who possess scientific or medical training have a distinct advantage over their nonscience counterparts. “Scientists and clinicians truly understand unmet medical needs and because of this, must be part and parcel of the strategic direction for any life sciences company,” Projan said. “This will likely be the key to success for life sciences companies in the future.” And, like most scientists, Projan practices what he preaches — he reports to Mark Fishman, an M.D. who heads the NIBR, who in turn reports to Daniel Vasella, also a physician and CEO of Novartis.

Surprisingly, at present, Eli Lilly is the only major pharmaceutical company that hired a Ph.D. as its CEO. John Lechleiter, who holds a Ph.D. in organic chemistry, was appointed as Lilly’s CEO last year. That Lechleiter is the only Ph.D. to hold the CEO position at a major pharmaceutical company suggests the notion that Ph.D. scientists aren’t good managers and lack social and business acumen may be more pervasive in the industry than previously thought.

SOME PREREQUISITES OF SUCCESSFUL CEOs
So, what does it take to be a successful life sciences company CEO? While there are no absolute requirements, most industry pundits agree that a successful CEO must be strategic, provide leadership, be results-oriented, and possess the ability to adapt to rapidly changing economic and business environments. Unfortunately, although scientists are trained to think strategically and are unabashedly results-oriented, there is little or no emphasis placed on developing leadership and interpersonal communication skills during their graduate education. Also, many life sciences graduate programs don’t offer and, in some cases, actively discourage, any training in business or finance for their graduate students and postdoctoral fellows. Consequently, through no fault of their own, most scientists who matriculate through traditional academic Ph.D. programs lack the required people skills and business training to become effective CEOs. And, paradoxically, while many of today’s life sciences company CEOs possess the requisite business acumen and people skills, most lack the scientific knowledge and “hands-on” training to make informed decisions about new R&D strategies and opportunities. Many business analysts believe that the lack of business and science integration that currently exists in the executive suite at most life sciences companies will ultimately have a negative impact on the future of the U.S. life sciences industry.

THE ADVENT OF JOINT PH.D.-MBA PROGRAMS
As life sciences R&D continues to become increasingly complex and costly, it may be necessary for a CEO to have command of the technical and scientific knowledge offered by the Ph.D. degree and the people and business skills imparted by an MBA degree. While many business schools already offer MBAs in biotechnology and biomedicine, these programs tend to emphasize business and finance and offer little, if any, real scientific training. Consequently, the value of these programs is questionable at best. Recently, however, some forward-looking academic institutions have launched joint Ph.D.-MBA programs.

Table 2. Academic institutions that offer joint PhD/MBA program in the life sciences

Name of Insititution         Location               Website

Dartmouth                          Hanover, NH       http://www.dartmouth.edu/~gradstdy/programs/dartmouthphdmba.html

Pennsylvania State           Hersey, PA           http://pennstatehershey.org/web/pharmacology/programs/graduate
University (Dept. of Pharmacology)

San Diego State               San Diego, CA     http://www-rohan.sdsu.edu/~cba/news/story/phdmba.html
University

University of                      Farmington, CT     http://grad.uchc.edu/prospective/programs/phd_mba/
Connecticut

University of Florida        Gainesville, FL       http://idp.med.ufl.edu/joint/phdmba.html

Vanderbilt University       Nashville, TN         http://owen.vanderbilt.edu/vanderbilt/Programs/mba/joint-degrees/mba-phd-engineering/

Wake Forest                     Winston-Salem,     http://business.wfu.edu/default.aspx?id=142
University                           NC

These joint Ph.D.-MBA programs require graduate students to obtain both Ph.D. and MBA degrees. The existing programs take less time than it would to get each of the degrees individually and mainly cater to scientists who have decided to eschew academic science careers in favor of management jobs in the life sciences industry. While these programs are relatively new, scientists who are also interested in business are taking advantage of them. Kristy Houck graduated almost two years ago from the Pennsylvania State College of Medicine joint program with a Ph.D. in Pharmacology and also an MBA. “I loved the science, but knew that I did not want to perform bench work for the rest of my life. This opened a world of career opportunities for me,” said Houck. “Previous graduates of the program have quickly risen to management-level positions because they are recognized as business-savvy scientists,” she added. Other academic institutions are closely watching these programs to determine whether or not graduates of the joint Ph.D.-MBA programs have better employment outcomes as compared with people who go through traditional Ph.D. and MBA graduate programs.

The life sciences industry (like most others) has been affected by the recent financial crisis and as a whole, is at a pivotal crossroads in its history. Global competition, increasing drug development costs, and downward pricing pressures indicate that life sciences companies must operate more effectively and efficiently to remain competitive. This, coupled with increasingly complex new drug targets, the advent of nanotechnology and personalized medicine, and growing unmet medical needs, suggests that the CEOs of the future will be better equipped to meet the challenges of a newly configured life sciences industry if they are appropriately trained and equally adept in both science and business.