Fast Company recently released its 2011 list of most innovative companies. In the biotech sector, the top five innovators include Amyris, Omeros, Synthetic Genomics, Galapagos, and Amgen. With the exception of Amgen, I have to admit, I was unfamiliar with the other four companies listed.
Interestingly, the top three were all founded within the past six years. I would not interpret this as an indicator that you have to be a relatively new start-up company to be considered innovative. Other companies listed as being innovative — Pepsi, GE, IBM — have stood the test of time. What I would conclude from this is you don’t have to have an unlimited R&D budget to be successful at innovation. Perhaps, innovation can occur on a shoestring — of sorts.
Consider, for example, California-based Amyris (NASDAQ: AMRS), the top-ranked innovative company in the biotech sector. The company’s annual report states, “We devote substantial resources to our research and development efforts.” Here is what it considers substantial. For year-end 2010, Amyris had R&D expenditures of approximately $55.2 million. One of the other top innovative companies, Seattle-based Omeros (NASDAQ: OMER), uses rigorous project management techniques to assist in making strategic R&D program decisions with its 2010 budget, which tips the scales at just under $23.5 million. Even Rockefeller University, one of the foremost biomedical research centers in the world, which has averaged one Nobel Prize every four years for the last six decades, and one National Medal of Science Award (NMSA) every three years, maintains its level of innovation with research budgets of less than $250 million.
But, can we really use the word shoestring to describe R&D budgets in the millions of dollars? It all depends on the context. Consider this: Pfizer announced in February it would be cutting its R&D budget by $1.5 BILLION! Meanwhile, Merck is forecasting to spend about $8.5 billion for 2011. Interestingly, both of these companies were absent from more than one published “most innovative companies” 2011 lists.
John Lechleiter, Ph.D., chairman, president and CEO of Eli Lilly (NYSE: LLY), recently outlined two imperatives to bolster the future of R&D in the pharmaceutical industry and stimulate the global economy. The first is changing the way companies conduct research, or as he likes to call it, “re-inventing invention.” Second, he recommends that government implement public policies promoting an innovative environment. This appears to already be happening. In January, the U.S. government announced the creation of the National Center for Advancing Translational Sciences, an initiative to reverse the slowing pace at which new drugs are being brought to market by the pharmaceutical industry. The new billion-dollar drug development center is the brainchild of Francis Collins, M.D., Ph.D., director of the National Institutes of Health (NIH). In the announcement, Collins stressed that this is not intended to be competitive with the private sector. “I believe a little healthy competitition is important for innovation.”
Collins’ previous experience serves as a great example. No stranger to competition, he competed against rival biologist Craig Venter in a race of public-versus-private-sector research to successfully map the human genome. With Collins at the helm, the human genome project (HGP) is credited with attaining several milestones, running ahead of schedule and under budget. I would argue that the initial competition between these two influential geneticists, and their eventual cooperation, should be credited for this monumental innovation being completed under budget and ahead of schedule.
It seems obvious that unlimited R&D budgets are not necessary for successful innovation. Conversely, competition and government support are integral components of the process. What are some of the other key ingredients? To identify these, I recently interviewed a cross section of individuals actively involved in innovation within the biopharmaceutical industry. I asked the following questions:
Innovation From Challenging Convention
Bernard Munos is the founder of the InnoThink Center for Research in Biomedical Innovation. Previously, he was advisor in corporate strategy at Eli Lilly, where he focused on disruptive innovation and the radical redesign of the R&D model. Munos is a firm believer that the recent lack of innovation in the biopharmaceutical industry is a result of companies getting away from the entrepreneurial, visionary, and imaginative “gut feel” spirit that had made them so successful since the industry’s inception. “Companies successful at innovation identify the gaps that exist in the market and go out and create the new technology needed in order to fill those gaps,” he said. The keys to effective gap analysis are the people. “The real innovators, typically, are people who see things other people don’t. This ability places them in a very small minority.” According to Munos, these people tend to be passionate advocates for disruptive ideas. In a large organization, this creates tension for the majority, who tend to be advocates for the status quo. As a result of the frustration these people experience, and/or cause, typically, they are either let go by large organizations or strike out on their own, as was the case with Craig Venter.
Jeff Chulay, M.D. is the chief medical officer for Applied Genetic Technologies Corp. (AGTC), a clinical stage biotech company using recombinant adeno-associated virus (AAV) technology to develop gene therapy treatments for a variety of genetic diseases. A self-described “impossible dreamer,” Chulay has been involved in grand challenges, including working on Malaria and HIV vaccines. “I tend to be a doer. I enjoy working on important problems where technology can have a real big impact. I enjoy learning new things.” One of Chulay’s favorite phrases is the paradox of “conventional wisdom.” Once something is labeled as such, people do not challenge that a well-known fact may not be true. Chulay believes that if you want to get more innovation, “You have to have an open mind to new ideas that fly in the face of conventional wisdom.”
Executive VP of Business Development at Exelixis, Fran Heller, sees innovation as more of a leadership style and mindset. She states, “You can’t say — today — I will innovate! It is not as easy to conjure up as everyone would like it to be.” Heller explains, “Just about every conference I have attended involves a panel discussion where a presenter will invoke the well-worn phrase, ‘We need to be more innovative.’ A more useful approach is to reveal the main ingredients to creating it, maintaining it, and instilling it, because we are all looking for innovation.” So, how do you find innovation and how do you get more of it?
Empowerment Is Key
Chulay gave one example of how hiring and empowering employees who can recognize and act on an opportunity can lead to innovation. “Zyban is a product indicated for smoking cessation, but it is also the exact same compound known as Wellbutrin, an antidepressant,” Chulay explains. “When I was at GSK, one of the investigators at a VA Hospital evaluating Wellbutrin commented to the clinical trial monitor, ‘A lot of my patients who go on this drug say they’ve lost their taste for cigarettes.’ The monitor went back and told the staff about this offhand observation. The team decided to collect some prospective data, and after a little exploratory analysis, they quickly realized they were onto something. So, they designed a study.” The innovation was having a person who, when provided with what to many might seem like innocuous information, perceived the value and did something with it. “I think it’s an example of the old saying, serendipity rewards a well prepared mind,” said Chulay. “If you discover a new fact, but you don’t have the background to put it in context, then it’s just one more little piece of trivia.”
Prior to joining AGTC, Chulay worked for AlphaVax, where he soon became disenchanted stating “it was no longer a fun place to work.” So, he began looking for a new opportunity. “Even though I didn’t have a background in gene therapy, what AGTC was doing seemed interesting and exciting. That is what really drew me to the company.” Munos would concur with Chulay’s assessment of “fun” being a key ingredient to innovation. “I don’t think Steve Jobs, Bill Gates, or any of the other successful innovators had any clue where their work would eventually lead them,” Munos said. “Jobs started at HP and eventually left. The sheer thrill of innovating, of doing something new, of doing something cool, is more exciting than any corporate or university bureaucracy.”
Munos believes you can get more innovation by empowering your employees. He explains that if you view innovation as an enterprise, there are only four questions to address. What is the focus? How do you staff and manage it? How do you fund it? How do you mitigate risk? Unfortunately, he believes the industry’s current and excessive spending pattern is geared toward incremental innovation. “It is easier. Companies need to re-embrace disruptive innovation and focus on finding breakthroughs,” he explains.
Heller sees innovation as a responsibility of corporate leaders and their ability to provide an open environment where creativity can flourish. “If you are not allowed to roam a little bit and explore things that are atypical or unusual, then you’re very unlikely to find innovation.”
The three individuals I interviewed for this article suggest the following as means of fostering innovation in your organization. First, recruit and retain the right people. Hire people who are “doers” rather than people who are good at directing others to go do something. Look for people with a willingness to step across boundaries and assume responsibility. For example, when Chulay was hired, after only a few months AGTC had to restructure. Instead of just being responsible for clinical, he assumed responsibility for regulatory and quality as well.
Another means by which you can foster innovation is “spending wisely,” says Harris. This may seem counterintuitive, but here is why it works. If you have a promising compound, as in the case with recent data indicating Cabozantinib (XL 184) as Exelixis’ most promising compound, then it makes sense to put the resources where they will do the most good. Harris explains, “When you have to ask yourself, for every line item, ‘do we really need this?’ it focuses you on what is absolutely core to meeting the clinical and company objective.” In addition, it empowers employees to figure out creative ways to do more with less.
Chulay provided an example of prudent spending. “I received bids from a couple of CRO to find out what the cost would be to do the various aspects of clinical trials. All of the estimates were three or four times my annual salary.” As a result, Chulay decided to do as much as he could himself. “I’ve done everything including set up the database, data entry, design the case report forms [CRFs] and review them with the study coordinators. I had the CRFs printed at Kinko’s and assembled them myself.” He admits he is able to do a lot of this because orphan disease clinical trials tend to be small. Nonetheless, he says, “It’s much more cost-effective for Phase 1 and 2 trials in the area I am researching, to do it all in-house.”
Creating a campus-like atmosphere with Japanese gardens and espresso coffee bars is not, and never was, the answer to fostering innovation. One of Munos’ favorite examples on how to foster innovation is the Defense Advanced Research Projects Agency, DARPA. Credited with instrumental involvement in the development of the Internet, night vision, and GPS technology, this organization of 140 scientists operates primarily via networking. The DARPA model has resulted in incredible innovation, with a budget that is less than half of Pfizer. Some characteristics of this organization, which could be incorporated into pharmaceutical and biotechnology R&D, include few layers of management, as in two, and budget allocation focused on disruptive innovation. According to Munos, “DARPA cannot spend a penny on any idea that is not disruptive.” He believes that company research budgets should be “restricted exclusively to the funding of breakthroughs and everything else should be defunded.”
In his remarks to the U.S./Japan Business Council, Lechleiter concluded, “Innovation is not a panacea for the challenges facing our economies and healthcare systems. But, it is hard to see any way out of the current crisis without innovation.” Just be prepared for resistance. Innovation necessitates change, a scary proposition for allies of the status quo.
Grants can play a pivotal role in R&D successes. Amyris was the beneficiary of a $42.6 million five-year grant from the Bill & Melinda Gates Foundation. Omeros received $5 million from the Life Sciences Discovery Fund of Washington State. AGTC received a couple of $1 million grants from the FDA Orphan Drugs Program. If writing grant requests is not an area of expertise within your organization, there are a variety of resources on the Internet that can get you started. The Better Business Bureau (BBB), as well as other sites, provide some ratings on grant writing companies. Go to http://goldengate.bbb.org to get started. Or, you could watch a short video on innovation by Scott Anthony, the managing director of Innosight, which is well worth 10 minutes of viewing. Go to You Tube and search, “Innovation on a Shoestring.”