David Finegold, dean of the Rutgers School of Management and Labor Relations, likens the recent evolution of the pharmaceutical industry to the more abrupt changes to the studio system of classic cinema wrought by a 1948 Supreme Court decision. “If you look at what happened to movie studios in the ‘40s, they used to do everything themselves — employ actors and directors, own movie theaters; everything was in house,” explains Finegold. “Now they do a few things well and the rest comes together on a project-by-project basis.”
What happened quickly in the film industry has in the pharmaceutical industry evolved a little more slowly in response to a whole set of competitive, regulatory, and technological changes. “The notion that pharma is vertically integrated and does all drug development, manufacturing, and marketing by itself is breaking up,” says Finegold.
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Take the challenge of type II diabetes, which is exploding globally as lifestyles change — with places like China, India, and Japan seeing triple-digit growth rates yearly. Finegold asks, “If you are a big pharmaceutical or biotech, how do you take advantage of that space?”
To develop therapies that are more effective than what can be developed in house, big pharma is bringing together different technologies and functions that exist in universities, small biotechs, contract research organizations, and patient groups. “The role of big pharma is the role that the Hollywood studio plays,” says Finegold. “They’re the network integrator. They identify areas where they want products developed; they find the best partners; they finance projects; and they have the largest marketing and distribution arms.”
“A common issue the industry is facing is the perception that the existing way of internally developing new drugs is not working,” says Finegold. As a result, companies are adopting different approaches that involve external partners or internal structural changes:
Create strategic investment arms. These departments operate like venture capitalists within a large company. Having identified promising markets, they search out the best scientists and startups and make strategic investments. “Typically large pharma is going more to biotechs,” says Finegold, “because universities are too early-stage. But for medical devices and tools, they may go to universities.” The big pharmas also offer themselves to startups as a potential exit strategy, willing to purchase or license a product that works.
Redesign internal research and development. GlaxoSmithKline has restructured its research and development operation to fund proposals by internal teams that are functioning like small startups. Each team makes a proposal that includes the capital it will need and the milestones it will reach, and the company decides whether to invest. “This is an effort to cut through the bureaucracy, allow for internal entrepreneurship, and bring the forces of the market into the internal organization,” says Finegold.
The challenge that this type of structure faces in a large organization, however, is building effective incentive systems. “It is hard in a large, already public company to have stock-based incentives,” says Finegold. “In small startups, the founders have significant ownership and employees have significant stock options. Now pharma is doing more incentive compensation than it used to but it’s not quite the same.”
Develop partnerships to create personalized products. The growing field of personalized medicine — the goal of which is to diagnose genetic conditions linked to particular diseases and develop specific therapies for them — is creating new kinds of partnerships. For example, Roche, a leader in molecular diagnostics, has been working with Genentech, which is strong in gene-based therapies. The companies recently announced a deal that would bring Genentech entirely within Roche.
“Instead of thinking, ‘We’re a small-molecule company, a large-molecule biotech, or a device company,’” says Finegold, “with moves to more personalized medicine, we need to look at integration and be relatively neutral about different technologies. We need to come up with the best solution that can be tailored to a specific population.”
But, continues Finegold, “the whole process of developing drugs is very expensive, and there is pressure from the payer side — if you want this price for a drug, you have to demonstrate that the medical benefits justify the price.” The hope is that targeted drugs like Gleevec and Herceptin will be more efficacious than typical blockbusters and will therefore justify the higher prices and smaller patient pool.
Open source and prize model. Eli Lilly has created an online marketplace for innovations. The idea is to advertise for a needed solution by offering, say, to pay $1 million to the first person who can develop an assay that has certain properties. The advantage is that Lilly is only paying for successes.
Be large and small at the same time. “One of the challenges for big pharmas is: how do you buy a successful biotech firm without killing it?” says Finegold, who adds, “The track record is not great for keeping talent and innovation.”
To resolve this problem, Johnson & Johnson has for a long time had a more decentralized structure, with about 300 separate business units. Its message to newly purchased companies is: “We’re buying you because we like what you do — you’re distinctive, and we want to keep it that way.”
Finegold grew up in New York City, where his father was a physician at New York University-Bellevue. For the last 30 years, his father, an expert on childhood cancer, has been director of laboratories and pediatric pathology at Texas Children’s Hospital. His mother was a nurse; and his stepmother is a pediatric neurologist.
Finegold earned a bachelor’s degree in social studies from Harvard in 1985, then went as a Rhodes Scholar to Oxford, where he got a doctorate in political science.
His first job was as senior research fellow at the Centre for Education and Industry, University of Warwick, in Great Britain, where he compared education, training, and skill systems in different countries.
As he began to realized that government’s role was not significant, his interests turned to the private sector, and in 1992 he moved to California to work as a political scientist for the Human Capital Department/Institute on Education and Training for the Rand Corporation in Santa Monica. His research explored several industries from the workers’ and employers’ perspective.
In 1996 he became a research associate professor at the Center for Effective Organizations at USC, where his focus switched to building high-performance organizations.
He moved in 2001 to the new Keck Graduate Institute of Applied Life Sciences in Claremont as a professor of strategy and organization studies, where he took the lead in developing the strategy, management, and business ethics curriculum and research program.
Finegold became dean of Rutgers’ School of Management and Labor Relations in 2006, and his research interests now involve why people make the decisions they do and what influences behavior — “how incentives, organizational structure, culture, and the broader policy environment impact the way in which economic activity and industry are organized and firms do what they do.”