How Big Pharmas Simultaneously Repel And Embrace Innovation

In 1993, Ruth Riechl, the new restaurant critic for the New York Times, penned a memorable review of Sirio Maccioni’s elegant Manhattan restaurant Le Cirque (which closed, at least temporarily, in January 2018). Riechl described two distinct experiences she had at the establishment, first as an anonymous diner, then as a recognized Times food critic; in the first instance, she received a bad seat after a long wait, was treated rudely, then served food that was (relatively) mediocre. But once she was recognized as a VIP, she was duly treated like royalty – felicitous seating, solicitous service, and sublime food. In presenting these experiences together, Riechl highlighted both the typical meal experience of most diners as well as the transcendent experience that was possible. (I went to Le Cirque in the mid-80s to celebrate my high school graduation, in my pre-low-carb days; while I can’t remember where we sat, the food, particularly the legendary potato-wrapped bass, was delicious).

Legendary restauranteur Sirio Maccioni, in a 2014 photo.  According to New York Times critic Ruth Riechl, Maccioni’s Le Cirque could provide diners with average or exceptional culinary experiences, depending on their circumstances.  Aspiring innovators in large pharma companies report similarly disparate treatment.  (Photo by Andy Kropa/Invision/AP)

It occurred to me that in many ways, innovation at large pharmas can be experienced very similarly – so often, disappointing and stifling, but occasionally, under the right circumstances, transformative and elating.

This dual-nature of pharma innovation may explain both why so many innovators are repelled by large pharma companies, yet some – including those focused on digital and data – are deliberately seeking out opportunities in these corporations.

In contrast to big drug companies, the appeal of startups is easy to understand – the self-actualization, the sense that your individual contribution not only matters but is essential, the feeling of David vs Goliath, the allure of significant upside, both in terms of impact (disruption, making the world a better place, etc.) and financial return.   You can really get a good feel for this by watching the HBO Theranos movie, The Inventor, where you can see how so many people were drawn to the startup for this powerful combination of reasons. According to this documentary at least, Theranos offered all these elements, lacking only an actual, functional product and an achievable plan to create one.  (My thoughts on Carreyrou’s Theranos book, Bad Blood, are here.)

What’s interesting to me is the increasing number of well-trained, innovative people I seem to be running into, particularly on the digital and data side, who are coming to large companies after spending time in health tech startups, not because they’ve somehow given up on their dreams, but rather because, in some ways, they’re more serious about them, and are seeking more than the superficial accouterments of tech startups (so brutally described in Disrupted, by Dan Lyons). Moreover, these innovators are joining large companies with eyes wide open; they recognize the very real, and highly problematic challenges large companies have with agility and decision-making. Nevertheless, it seems like these innovators (at least the few I’ve met) hunger for the chance to really make a difference in the application of tech to health and drug discovery and development, to work towards a result not twitter-worthy but FDA-worthy, in the context of a well-resourced and credible organization capable of responsibly delivering it.

(Disclosure/reminder: as a corporate VC, I arguably have a foot in both pharma and startup camps.)

The Bad News

First, the bad news. The equivalent to entering Le Cirque as an anonymous patron in 1993 is joining pharma and trying to innovate against the grain. Everything is arrayed against you.

Large organizations tend to be remarkably risk-adverse, essentially because they have an established, successful enterprise and generally worry more about the downside risk of any given opportunity then the upside possibility it could represent. The implicit calculation is pretty simple: one screw-up could bring the whole organization down, while one striking success is unlikely to move the needle all that much. In contrast, startups tend to have very little to lose, and if they’re lucky and/or good, a lot to gain – hence their view of risk is quite different.

To be sure, in most large organizations, no one wants to inhibit innovation — at least not explicitly. Innovation, like failure, is something to publicly cherish and visibly celebrate – the kind of thing that’s abstractly good for an organization to value, but generally not needed or welcome in your operational group, where you’re already plenty busy trying to get defined tasks completed, thank you very much.

But even if you’re skeptical about innovative proposals, to operate successfully in large, highly matrixed organization, you need to maintain generally cordial relationships with as many people as possible. The result is what I first wrote about in 2011, when a senior pharma executive who had recently transitioned to industry from a top Harvard hospital remarked to me that:

“his greatest shock upon joining the business world, the thing he was least prepared for, wasn’t the business vocabulary, the timelines, the quarterly expectations of wall street analysts – none of the above.  Instead, it was dealing with the passive aggressive behavior he discovered everywhere around him.”

It’s a phenomenon I’ve described as “innovation dissipation,” where no one explicitly says “no” to a new idea, it just winds up ping-ponging through an organization until it eventually peters out.

Recently, a colleague offered what I thought was an astute explanation for this phenomenon: “Why spend political capital saying ‘no?’” he asked me. He’s right. The savviest, most senior players in complex organizations seem especially adept at this, politely taking meetings and pursing their lips while listening thoughtfully, and then suggesting several follow-up meetings they know full well aren’t likely to lead anywhere.

It turns out, there’s even a phrase for this mindset: “trust the process.” This may not have started out as cynical in spirit, but in practice, in a large organization, it basically means let the process play out, and don’t try to rock the boat by interfering. The result – as Safi Bahcall brutally describes in Loonshots (my WSJ review here, and my more detailed discussion of this exact point here) – is a culture where everyone is highly attuned to the (perceived) views of those at the apex of the hierarchy, and original, orthogonal, or non-incremental perspectives will struggle to be heard. That’s the system, and often the fate of bottom-up innovation within it.

At this point, would be innovators out there might be ready to don their airbirds, sling their Herschel backpacks over their shoulders, grab their Sightglass lattes, and head off the to closest WeWork.

Not so fast. I’ve recently spoken with several health tech innovators who actually did something more or less like this early in their careers, then quite deliberately choose to take their talents to large pharma companies with many of the liabilities enumerated above. What were they thinking?

The Good News: The Three Rs

Turns out that like, like VIPs dining at Le Cirque, innovators who find themselves aligned with and integrated into pharma strategy may be treated to an exceptional experience. According to several such well-situated innovators, large, incumbent companies have a lot going for them; in particular: resources, redundancy, and results.

The resource aspect is fairly obvious: when a large company truly commits to a particular strategy, approach, or technology, they are able to pursue this goal in a deep, remarkably thorough way, deploying people, capital, and leveraging (as well as acquiring) institutional know-how. Example: a few months ago, I heard a senior pharma oncology leader describe the way they were approaching a particular category of high-priority targets, and it was mind-blowing in scope, staggeringly comprehensive. Multiple options were systematically evaluated at almost every step in the process – truly the “mutually exclusive, collectively exhaustive (MECE)” concept applied to a particular area of biological discovery. Offerings from many startups were considered at each of these stages, and it was hard not to be struck by the observation that while a small company could potentially optimize one particular solution or approach, the large pharma could effectively afford to choose from among these to pick the best one.

The second, often underappreciated aspect that several innovators kept returning to is the redundancy and depth you see in big pharma; I was regaled with stories of how, in startups, you often have only a single person in a key area like legal or regulatory, and you are disproportionately dependent on their expertise, not only in terms of what they know, but also their ability to recognize their own gaps. Obviously, there is a huge emphasis in startups in hiring excellent people, but in many ways, startups operate largely without a net, a precarious situation which can, and often does, prove disastrous to young companies.

The last, and in some ways most important difference between startups and large companies is that at the end of the day, many startups just need to look promising enough to justify an acquisition or an IPO – sizzle with the promise of steak. But at a large company, the buck stops with you in many ways; your business depends not on the glamor or glitz of an emerging technology, but on actually getting it to work, and getting it to market. Thus a buzzy startup like Stemcentrx could make billions for its investors, yet ultimately fail in the hands of the pharma company who acquired it and tried to bring the products to market. The jury still seems to be out for the early CAR-T companies (including Juno, acquired by Celgene [itself acquired by BMS], and Kite, acquired by Gilead). (Disclosure: my wife works at Gilead though not in oncology.)

Just as academia tends to attract researchers who pursue novel science, and biotech startups often attract researchers keen to turn raw science into promising therapeutics, pharma attracts many researchers with the determination and patience to see raw science and promising therapeutics through to approval and into the clinic. Their mission is achieving clinical impact at scale, and it’s a powerful draw for some innovators.

Bottom Line

Pharmas are attractive for innovators pursuing approaches that are strongly endorsed by senior leadership and reasonably welcomed by the operational areas of the organization. The way some pharmas are working through the complex supply-chain logistics required for delivering CAR-T therapy or gene therapy at scale offer striking examples.

On the other hand, pharma organizations generally prioritize caution over agility, and incremental change over radical new approaches. Thus even innovation welcomed by the C-suite (like a lot of the original digital and data efforts) can run into the grindstone when those in the trenches can’t see the benefit, and experience only burden.

In general, large pharmas, like other big companies, are likely to remain generally resistant to profound innovation, though they will embrace and really go after specific opportunities they view as adequately validated or promising. Such traction requires explicitly endorsement and constant, active support from the top echelons of management if the approach is to even have a chance. Meanwhile, detached innovation initiatives reliably garner transient publicity but tend to achieve little durable organizational impact.

There’s likely a considerable opportunity to harness the many bottom-up innovative ideas to which pharma seems constitutively unable to respond; the robust startup ecosystem offers an attractive alternative or salvage pathway for some but not all of these promising approaches.