Will Royalties to Inventors Really Improve Productivity?
A Forbes article called “Serial Lifesaver” by Matthew Herper focused on Dr. Peter Hirth, the CEO of the biotech company, Plexxikon. There is no debating that Hirth has had a very productive career in the biotech industry. He’s played a key role in the discovery of three successful drugs, including Recormin for anemia (sold by Roche), Sutent for kidney cancer (sold by Pfizer) and the recently approved Zelboraf for melanoma (to be sold by Roche). Herper’s piece set out to find the reasons behind Hirth’s stellar track record.
Herper concludes: “Hirth’s serial success stands out vividly in a pharmaceutical industry that has for years suffered from a profound innovation drought. He says that large companies should learn from what Plexxikon has done with a staff of only 43, explaining that if he were running a big business like Pfizer, he would form small units of 40 or 50 researchers and fund them sparingly but promise them royalties on any drugs that succeeded. Productivity, he says, would go way up.”
There are a few issues with this statement. First of all, in big companies like Pfizer, the drug discovery project teams do, in fact, contain 40 – 50 scientists. This was true in my day with the teams in disease areas such as osteoporosis, atherosclerosis, ophthalmology and urology. Yes, there were larger teams in broad disease categories such as Neurosciences, but this area was made up of teams working on depression, schizophrenia, addiction, etc. Breaking this zone down into its components shows the 40 – 50 scientist concept still holds. During my Pfizer tenure, the one exception was in oncology, where we had a group in excess of 200. Contrary to the view that size is detrimental to productivity, this group was the most productive we had at the time as judged by the number of clinical candidates it produced relative to the group’s size.
Joshua Boger, an excellent scientist in his own right and the former CEO of Vertex, recently said that, in his experience, the relative size of the respective discovery groups doesn’t matter – it’s having the right people. I absolutely agree with him.
But the bigger issue for me with Hirth’s statement is the fact that the overall process of going from an idea to the discovery of a clinical candidate to the conversion of this candidate to an approved new medicine DOES take an army. It’s amusing to read “Plexxikon created Zelboraf… (and) Roche helped the tiny biotech test it.” This “help” undoubtedly involved literally hundreds of Roche scientists to develop a formulation that enabled Zelboraf to be tested in the clinic, synthesize Zelboraf in sufficiently large quantities for clinical testing, run the necessary toxicology studies in animals to show that the drug was safe, and carry out the full gamut of Phase 1, 2 and 3 trials to justify FDA approval. My guess is that if you created a list of all the people who were involved in the discovery and development of Zelboraf, it would number at least 500 people.
And that bring me to my final issue with Hirth’s stance, that of royalties. There are often seminal discoveries made in the development of a new medicine that extend beyond the discovery laboratory. Many a drug program has been saved by a key observation in the clinic on a drug’s activity, or a breakthrough new formulation that allows the drug to be suitable to be made into a pill or capsule, or a key toxicology study. I would argue that such a royalty scheme is unworkable because, in my experience, you would have to grant royalties to at least a dozen people who have made a seminal contribution. Unless the royalty was miniscule, it would greatly cut into the revenues for the company.
And finally, it is my experience that scientists are an extremely highly motivated bunch. They are driven by making use of their scientific talents to discover and develop something that, if successful, could benefit millions of people around the globe. I am not sure that the potential for a royalty would cause them to work harder. They are already incredibly dedicated.