Ian McCarthy explains why faster isn’t always better when it comes to managing a biotech business.
By Tyler Irving
Managing the ups and downs of starting and growing a biotechnology business is Ian McCarthy’s specialty. He is the director of the Centre for Biotechnology Management at Simon Fraser University’s Beedie School of Business.
As challenging as it is, scientific discovery is really only the first step in a biotechnology breakthrough. Building a strong, well-managed business that can nurture the innovation through to market is crucial. Yet, for those most comfortable in the lab, the idea of running a business is often a foreign concept. Ian McCarthy is the director of the Centre for Biotechnology Management at Simon Fraser University’s Beedie School of Business. His research focuses on the strategies and management practices by which biotechnology and other high-tech industries can grow, adapt and keep up with the competition. ACCN spoke with McCarthy to learn more about how to manage the business of biotech.
ACCN Why does biotechnology need its own centre for management?
IM Ultimately, all industries are different, but biotechnology in particular deals with high levels of uncertainty and innovation. At the same time, it’s a very controlled industry; the regulatory framework means that products are only approved for one use or market segment. That’s in contrast to other industries, where the use of an innovation gets shaped and changed by consumers. Finally, the level of capital investment required is much higher than many other industries. So there are a lot of factors which make it unique from a management perspective.
That said, I’m a big believer in learning from other sectors. A lot of what we do involves understanding relevant practices in those sectors and applying them to biotech.
ACCN Canada is often touted as an ideal place for biotech, due to our natural resources and scientific expertise. Do you agree?
IM I think Canada is really well endowed with top scientists who have the ability to generate world-class intellectual property. The challenge lies in having the right sort of investment environment, in providing the capital needed to take ideas from the laboratory to the market. This is a challenge for many countries, but I think it’s particularly acute in Canada. Most of the investment money is beyond our borders, and when it comes to funding, proximity matters. Canada has certainly had success in terms of getting money from foreign venture capitalists, but I would say it’s probably the number one issue limiting the growth of biotech in Canada.
ACCN What is Canada’s biotech scene currently like?
IM There are hundreds of biotech companies across the country, largely located in the major metropolitan regions, such as Toronto, Vancouver and Montréal. That’s where the largest concentrations of universities and medical schools are; these are also very liveable cities which makes it easier for entrepreneurs to attract talent to work in their new ventures.
ACCN Is that clustering of talent a good thing?
IM Many of the people associated with the Centre for Biotechnology Management have done work on the phenomenon of industry clusters, and we know they are important to the competitive health of an industry. First of all, assembling a concentration of biotech firms and talent drives a healthy competitive dynamic between the firms and talent. It raises the management game of companies and their employees. You have to be good at managing and motivating your employees, because if you aren’t they’ll walk across the road to another company. There are also economies of scale. Everyone wants a Silicon Valley, or Boston’s Route 128, because in addition to having a cluster of high-tech companies, you’re more likely to also have peripheral support companies, such as a regional office of a venture capital firm, or appropriate law firms specializing in intellectual property. In sum, clusters matter, as they provide a critical mass of companies which drives productivity and innovation, which help both the region and the industry as a whole.
ACCN Are we nurturing the kind of clusters we need in Canada?
IM All of the big cities have been doing so for many years. Often these revolve around research parks: in Vancouver we have Discovery Parks, which works with LifeSciences BC on biotech, but also in other sectors. In Toronto you have the MaRS Institute, which is well connected to the hospitals and universities, and which provides knowledge, training and infrastructure that feeds into the cluster. Some of this uses industry money; a lot of it uses government money. Of course, there are only so many resources to go around, but these are the sort of competitive dynamics which exist for all industry clusters around the world.
ACCN Describe some of the projects in which you study good management strategies for biotech.
IM My colleague Karen Ruckman and I have a project in progress that is looking at the speed of licensing. Whether you choose to license a technology and how fast you do it is a very significant factor, because patents are only protected for a limited period of time. The reasonable assumption is that if you have intellectual property, you want to license it and get revenues as soon as possible.
We measured the time it takes from filing a patent to actual licensing, and matched that with the relative sizes of firms, previous licensing experience and other factors. You might imagine that the larger and more experienced the company, the faster it would be at licensing. We actually find the opposite trend: experience at licensing seems to make companies slower at it, probably because they become more diligent, taking their time to find the right partner. Also, bigger companies are less desperate for income, so that also tends to make them slower to license. In essence our research reveals some of the organizational and technological factors of biotech companies that affect their propensity to license with each other, which in turn impacts the resulting speed of a licensing deal.
ACCN You’ve also written about how the concept of velocity applies to industry; can you explain that?
IM In the 1980s, Stanford University professor Kathy Eisenhardt studied the speed and process of strategic decision-making in the minicomputer industry. Because many aspects of the industry were changing so rapidly and in different directions, she characterized it as a ‘high-velocity’ industry. She proved that firms led by managers who made faster decisions will outperform those that don’t. As her work was eventually replicated for many different industries, I noticed that just about every industry was being called ‘high-velocity,’ including biotech. I thought to myself, “how can biotech be a high-velocity industry when it takes 10 to 15 years to develop a product?”
Going back to Eisenhardt’s original definition of industry velocity, you find that what she talked about was rapid and discontinuous change in five things: regulations, technology, products, customer demand and competitors. What I saw in the biotech world was a mix of different speeds and directions: the science is changing very rapidly and often discontinuously in terms of new discoveries, but the products change slowly and more continuously. When it comes to regulatory change, it is slow, but the direction can change, as when [U.S. president Barack Obama] undid the restrictions that inhibited and indeed almost killed stem cell research in the U.S.
So biotech isn’t really a high velocity industry, and the key to success is not necessarily being uniformly fast. Rather, it’s in synchronizing the decision-making schedules of different functional areas: research, product development, legal and in the case of large firms, manufacturing. All of these functional areas are operating on different temporal clocks, and effective leadership is all about coordination and synchronization.
In our work we talk about two temporal mindsets: monochronic and polychronic. Monochronic people like to do things in a linear, one-at-a-time fashion. Polychronic people are multitaskers, and think of time as being intangible, so they are less concerned with deadlines. What we argued in our paper was that if you’re in a world like biotech, where everything is changing at very different rates, managers with polychronic temporal orientations will outperform the monochronic ones.
Industries are not uniformly fast or slow, according to business professor Ian McCarthy. Rather, they can be characterized by both the rate and direction of change in five main functional areas: regulations, technology, products, customer demand and competitors.
ACCN How can chemists and chemical engineers interested in biotech benefit from your research?
IM Entrepreneurship, management and leadership are like music, medicine, sports or any other arena. Some people are born gifted entrepreneurs, and there would be very little a business school could add, but that’s a very small percentage of the population. What we do is study what makes a great entrepreneur and their road to success. We then distill and convert this understanding into knowledge, training and education which helps people raise their entrepreneurial game. A classic example is networking. We know entrepreneurs are good at it, and we know that the network of a first-time entrepreneur is different to that of an experienced serial entrepreneur. We can study their techniques for making connections and gathering knowledge, capital and talent, and translate this into lessons.
ACCN What about researchers who don’t want to start new ventures, but instead prefer to partner with existing firms for research and development?
IM Biotech is a bit of an outlier in this regard compared to other industries. In a way, it’s precisely because it’s so innovative in terms of science that it often feels less inclined to be innovative in terms of its business models and management ideas. Part of it is also the regulatory framework behind biotech, which slows the pace of its development and makes it difficult to experiment with the process of business innovation. But I think this is a key area where biotech could learn from other industries.
It’s very difficult for one firm, even a big one, to possess all the knowledge and resources necessary to do business. Certainly it’s good in terms of job creation, but if the long-run outcome is that it makes you uncompetitive, then it’s not viable. Thus, open innovation, user innovation and crowd-sourcing are hot topics these days. More and more, firms are asking their industrial customers, their suppliers and even their consumers, to innovate on their behalf. I don’t see any reason why this “open source” trend should not apply to the biotechnology industry, whether it’s pure outsourcing arrangements for things like field trials or testing services, or outsourcing to take advantage of problem-solving talent you don’t have. For example, two employees of Eli Lilly established a spin-out company called InnoCentive, which posts scientific and engineering problems for the public to view and solve. It then rewards the individuals who come up with the best solutions.
ACCN Does all this apply to small firms as much as to the big ones?
IM I would say it applies equally, if not more. I recently read a report that stated only a third of Canada’s biotech companies actually make profits, and of those, about half were making only a few million dollars a year. These companies suffer from liabilities of smallness and newness. They’re fragile, and they need stronger management and leadership to ensure that they survive than a larger, more established company which is sitting on billions of dollars of cash reserves.
Photo Credit: Simon Fraser University / From a diagram by Ian McCarthy ( REF. McCarthy et al. 2010. A multidimensional conceptualization of environmental velocity. Academy of Management Review, 35(4): 604-626)
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