This isn't just a trite observation. There's concern on Wall Street that having "scientifically illiterate" lawyers and financiers in charge of pharmaceutical companies is not good for the sector. At Bernstein Research's "Patent Cliff" Conference in May, Eli Lilly (LLY) corporate strategy advisor Bernard Munos put the bell on the cat:
Question: So what do you make of the fact that a number of -- increasing number of -- pharmaceutical companies are now run by lawyers, and biotech companies, by ex-investment bankers?Munos has a bias here: His boss, John Lechleiter, has a PhD in organic chemistry, one of only two scientists running the Top 10 pharmaceutical companies on the planet (see table below). But Munos wasn't the only speaker at that conference who linked declining R&D productivity -- failures of science, basically -- to modern management's obsession with non-science business models.
Bernard Munos: Well, I'll be very candid. I think it has not been successful for them. I think it's been a disaster. I mean, I declare it's been a disaster. And the legacy that those people have built, I think, will have to be undone before the industry can move forward. Not all the non-scientist CEOs have been bad. I mean, some of them, even though they are not trained as scientists, have very good intuition and are doing a terrific job. But they are the exception to the rule. I mean, if you look at the record, there are certainly scientifically illiterate CEOs that have been a disaster for the industry in my opinion.
Munos argued that M&A activity disrupted R&D by distracting scientists with ever-changing layers of bureaucracy that impede innovation. M&A also reduces the number of new drugs that get to market, he argued, because it reduces the number of companies working on them, and that in turn reduces the "spillover" in knowledge that occurs between different companies. In short, mergers ring-fence scientists into silos where they only talk to their own colleagues and not to competitors whose information might inspire innovation. Mergers may literally be reducing the aggregate amount of new knowledge -- and therefore new products -- that the industry is able to generate.
Frazier, as Merck's president since 2007 and its general counsel before that, may not be well-disposed to this argument given his role in creating Merck's merger last year with Schering-Plough.
Here are the backgrounds of the CEOs at the top 10 pharma companies, ranked by 2009 sales:
- Company, CEO name, background
- Pfizer, Jeff Kindler, lawyer
- Merck, Ken Frazier, lawyer
- Novartis, Joe Jimenez, MBA
- Sanofi-Aventis, Chris Viehbacher, CPA
- GlaxoSmithKline, Andrew Witty, BA in economics
- AstraZeneca, David Brennan, business administration
- Roche, Severin Schwan, lawyer
- Johnson & Johnson, William Weldon, BA in biology
- Eli Lilly, John Lechleiter, doctorate in organic chemistry
- Abbott Labs, Miles White, MBA
Image by Flickr user Horia Varlan, CC.