CREATIVITY / INNOVATION BOOK SPECIAL ....Unlocking Serendipity Is the Key to Life Science Breakthroughs PART I

BOOK SPECIAL Unlocking Serendipity Is the Key to Life Science Breakthroughs PART I

Multidisciplinary creativity is the key to biomedical innovation, according to a new book by Wharton and Penn experts.

Cracking the human genome code and other big medical advances offer a new level of hope for more effective treatments. Moving those breakthroughs from the lab to patients, however, often means confronting hefty barriers. But progress can get a huge boost through specialized management, interdisciplinary cooperation and the fostering of creativity — or serendipity – notes a new book: Managing Discovery in the Life Sciences: Harnessing Creativity to Drive Biomedical Innovation.

The authors are Lawton R. Burns and Mark Pauly, both Wharton health care management professors, and Philip Rea, a biology professor and co-director of the Penn Life Sciences & Management Program (LSM). They joined Wharton management professors Nicolaj Siggelkow and Harbir Singh on the Mastering Innovation show, which airs on Wharton Business Radio on SiriusXM channel 111, to discuss the highlights of the book.

An edited transcript of the conversations follows.

Nicolaj Siggelkow: How did the three of you decide to write this book?

Lawton R. Burns: The genesis of this book ties back to this program. Penn is a unique place with all of these multidisciplinary majors … but this is a program where we are actually integrating knowledge from multiple disciplines and training undergraduates in dual degrees in biology and business.

We’re the only university in the world that is doing that, and this is perhaps the only school where you could do that, because they have an undergraduate business school, and then you have a phenomenal science program, you have all of the wonderful discoveries coming out of the Penn Health System and the companies they are spinning off.

And so we have this unique lab here at University of Pennsylvania where all of these different faculty from all of these different disciplines are basically two blocks apart. And so it fosters the interaction among everybody. And then you have the university putting these dual degree programs together. You have [former Merck CEO] Roy Vagelos who is funding this dual degree program in life sciences and management, and then you bring together faculty you otherwise would never meet.

Siggelkow: This book is both about the science and the management behind biomedical innovations. Now what makes your book so interesting is that you are taking a broad perspective on the innovation problem. Your book examines the interplay of scientists, managers, investors and regulators involved in this process of discovering new drugs and medical devices. Now, you open up a newspaper and most likely you will find a line like, “the big Pharma model is broken.” And you have a very nuanced answer to that question,

Burns: The Big Pharma model is not broken, it’s basically been in a steady state for the last 50 years. What is happening, though, is we are spending more money on the R&D and not getting any extra output for it, but we’re not getting any worse output for it either. So it’s a question of efficiency, not productivity, in terms of the number of new molecules coming to the market.

And Mark’s chapter goes through the incentives that were put in place because of insurance reimbursement and the fact that drug companies knew that they were going to get reimbursed for their drugs even if they weren’t top of the line or best in class. And so they had an incentive to come up with lesser quality molecules and bring them to market, and then those things don’t necessarily sell well, they may not even get approved, but maybe increase productivity. And so the incentives were put in place by the insurance system.

But in terms of productivity it has been a flat liner for the last 40, 50 years, and every year in our class we go through the latest statistics to see if there is an uptick or a downturn, and it varies year by year. Right now there’s like a two-year uptick but nobody is sure if that is going to persist.

Siggelkow: Let’s talk about the not-for-profit actors in this space. Because if Big Pharma is broken or not, who else could step in? And so we have universities, we have government agencies like the NIH, and of course we have the Gates Foundation. What is the role of these other players?

Burns: What is happening now in biopharma R&D is that the universities and the research institutes are playing a much bigger role. And that is because we are having a more distributed R&D model, open innovation model, and a lot of the basic science and some of the applied science being done in the universities. So Penn is an obvious example, we have two new products coming out of here, and spinoff companies.

So you can’t rely on the pharmaceutical industry itself, and they know this. And they are trying to increase their reach into the universities, their alliances with the universities. We had a huge alliance with Novartis. I think that is the model going forward, so these nonprofit actors like universities’ research institutes will play an increasingly bigger role.

Philip Rea: I would go still further and I would say that the period of the small molecule [in drugs] is sort of petering out by and large. Not entirely, we have the Gleevec story, which is an obvious example of a small molecule that has had an incredible therapeutic impact on CML — chronic myeloid leukemia — and the like.

But we are going more down the sophisticated molecular cellular route, and as a result of that is the real sharpened, fundamental research that is spawning new innovation to a much greater extent than it did in previous years. And so the necessity of entities, universities, NIH, Gates Foundation, etc., is ever more prominent because of the need of investigators that are almost exclusively focused on addressing fundamental, basic science issues.

And out of those spin some fundamental therapeutics without necessarily having the objective of development of therapeutics in mind. A major player in the book is serendipity — getting answers to questions that were never posed but that turn out to be of incredible therapeutic value.

Harbir Singh: So one is the role of serendipity, the other one is can you actually manage innovation.

Burns: The serendipity part is, first you’re doing experiments, you have a hypothesis in mind, you are looking for some expected findings, and then they don’t turn out. The question is, what happens then? And what we found in these case studies is that part of the serendipity is just recognizing that there was some serendipity. Say, “Those were some unusual findings which I didn’t expect. What do those mean?” And then they pursue a new line of inquiry or investigation, which leads to some really fundamental discoveries.

In terms of managing innovation — we need more time, we need more research funding, we need more students. And there is something to be said for having a lot of what we call corporate slack to finance open investigation, open inquiry into things. Because that is what we see in a number of these case studies, they weren’t necessarily originally funded but they required time, they required the cooperation and collaboration with investigators all over the world, it required money, and oftentimes that is what it takes to pull these things off.

It’s not something you can engineer and just do top down. A lot of this stuff is bottom up, individual investigators driven by a passion, driven by a curiosity, with a hypothesis that is unusual, and pursuing it even in the face of Doubting Thomases.

Rea: Something that is really relevant is the life science and management program itself. So I would say the imperative for that program, which essentially is the brainchild of Roy Vagelos. The thing that the LSM program is about is the objective: to put people in positions of responsibility, with respect to the allocation and distribution of resources, who have a sufficiently nuanced understanding of the science to identify a nascent proposition in the scientific sector without losing the potential significance of that finding in translation.

A major player into that is an appreciation that some of the best leadership — when creativity is the key determinant, not productivity — often comes from individuals who have a very deep understanding of science. They came out of science themselves, and then they acquitted themselves of the requisite skills in order to administer science if you will, and make calls on which projects to carry forward, which ones maybe are long-term objective projects and which projects are maybe shorter time but could provide funds to support the longer term project.

Burns: Just to tie this into some academia, you are both in corporate strategy, I recall the corporate strategy literature saying — at least one stream of it — that the key to strategy is resource allocation — not necessarily the people at the top, but the people controlling the budgets down below and where they allocate finite resources, and being willing to seed and continue seeding programs that might not necessarily be paying off. We see that in a number of the case studies here.

Singh: These days it is very much in fashion to be lean and mean, that let’s release cash flow, let’s scale down facilities. I think you are making a different case.

Burns: Well it can go both ways. There are some case studies in the book where people came up with discoveries basically experimenting at their kitchen table over wine and cheese using off the shelf parts that weren’t made for these kinds of experiments. Just basically developing prototypes from scratch, tinkering in their garage.

So some people have done it lean, but I think if we’re talking about the biopharma industry, they’re not necessarily going to get away with doing this in a garage. It’s going to really take significant allocation of capital to see more discoveries go through, especially if it is distributed across a larger ecosystem of players.

Singh: So the other question that intrigued me was this idea of … the triple helix.

Burns: Well it’s just two case studies, and so you can’t generalize from that, but everybody in the world wants to be like [Massachusetts’ innovation hub] Kendall Square. Every day I pick up some reading where this city wants to be a medical hub, or this city wants to be a biotech cluster. We were teaching on China’s health care system. They are trying to develop four of their large cities into biotech clusters, but their approach is basically top down.

And it’s not necessarily the case that they’ve bought into this triple helix, or can replicate the triple helix, and that means you have the support of local government, which is willing to extend deals to entrepreneurs and start-up companies so they will locate there. And then you have a rich bed of scientific institutions. You’re not going to get much better than Harvard and MIT up in Boston. And then on top of that you need private equity and venture capital.

So that was the triple helix that we identified in Kendall Square, and a little bit in San Diego. But those are the necessary ingredients, whether or not it is sufficient is a whole different question. There is a whole literature on these economic clusters that I am not necessarily the master of. But that is one of the things we see, and at least these cities that other places are going to try to replicate. But I am not sure you can replicate Harvard and MIT in the short term.

Rea: As someone who spends a lot of time teaching science, I think that the cluster effect … is very significant. Basic scientists who are primarily academics realized there’s somewhere where their fundamental science can go. There is gainful employment for really talented young scientists in biotech, for example.

That is a very significant play into the equation, certainly in certain parts of the world, in the UK and Europe for example, where funding for fundamental research is scarce and hard to obtain. A model that I often use when I am teaching biochemistry is to point out that some of the fundamental discoveries that I am describing, they were not actually done in universities, they were done at places like [biotech firm] Genentech, or they were done by Shimadzu. … The Nobel Prize came out of Shimadzu, likewise Genentech.

Burns: If you look at where these entrepreneurs come from, and the seed bed in which they grow, it’s very interesting.  We did a study with a colleague at Stanford on medical device entrepreneurs. They are mostly physicians, but almost all of them had a bent in engineering. Whether their father was an engineer or they minored in engineering in college, or they double majored in engineering.

And so they had this interest in tinkering with things, playing with their hands, making prototypes, and then they just happened to go to the right place, oftentimes Stanford or Duke where they are surrounded by some other people who help them scale up this business, who provide the seed funding. So you have to look for the constellation of these different actors coming together in some very favorable seed beds for this stuff to germinate.

CONTINUES IN PART II