The federal government's enforcement juggernaut rolls on-and the pharmaceutical industry is squarely within its sights. In recent years, the industry has paid close to a billion dollars in fines, civil settlements, and penalties. Many of those charges were brought to the government's attention by pharmaceutical company employees turned whistleblowers. Who else would have the ability to know about an alleged fraudulent manipulation of, say, the complex rules governing the pricing of pharmaceuticals to federal government agencies and to deconstruct them for prosecutors as well as provide a documentary record?	

The whistleblower profile has changed profoundly since the 1960s, when the archetypal crusading line worker took on the corporate Goliath. Today, corporate executives turn informer on their own companies. 	

So what makes a whistleblower? For one thing, money. The qui tam, or whistleblower, provisions of the federal False Claims Act permit private citizens with knowledge of a fraud on the government to bring a civil lawsuit and to receive up to 30 percent of the proceeds. With individual settlements in the hundreds of millions, the rewards to qui tam plaintiffs can be-and have been-handsome indeed.				

In 2001, for example, TAP agreed to pay the federal government $875 million in the largest healthcare fraud settlement ever reached. The fine arose from two qui tam cases, one filed by TAP's former vice-president of sales, who alleged that the company gave kickbacks to doctors and encouraged them to defraud Medicare by billing for free samples. The vice-president reportedly received $79 million for his whistle-blowing efforts.	

Of course, whistleblowers often are motivated by factors other than money, such as the desire to redress a personal wrong, a perceived need to do the right thing, or as a last resort after efforts to get the company to address the problem have failed. In most cases, the whistleblower's motives are mixed. More recently, a new motivation has crept into the mix: self-protection. And those most often so motivated are corporate executives.	

Department of Justice policies encourage corporations confronted with allegations of fraud to offer up high-level wrongdoers. Consider the department's 1999 guidance to prosecutors on bringing criminal charges against corporations-the so-called "Holder Memorandum":	

"In gauging the extent of the corporation's cooperation, the prosecutor may consider the corporations' willingness to identify the culprits within the corporation, including senior executives." (page 6)	

"The prosecutor should be wary of attempts to shield corporate officers and employees from liability by a willingness of the corporation to plead guilty." (page 8)	

As evidenced by the parade of Enron, Worldcom, and ImClone ex-executives lining up to plead guilty before various courts last year, DOJ is serious.	

The pharma industry is rife with opportunities for the government to accuse companies of ignoring, circumventing, artfully avoiding, manipulating, or just plain violating some part of the intricate web that is the industry's legal and regulatory scheme. Conduct that many companies view as merely entrepreneurial can, and has been, viewed by the government as beyond the pale. Companies unwilling to risk their market share may well feel driven to adopt certain "borderline" practices that other companies have initiated to gain a competitive advantage. But DOJ has no tolerance for the "everyone does it" defense.	

So what can executives do if they are aware of, or were involved in, conduct that prosecutors may view as fraudulent? Consider this hypothetical. An executive learns that the company has adopted a particular "interpretation" of a Veterans Administration pricing rule that has the effect of increasing government reimbursement. The executive may suspect that the government, if asked, might not agree with the company's interpretation, and might even believe that it is fraudulent. That same executive may be a senior decision maker in the department that administers VA pricing. He or she may well ask: "If the government ever questions this, will the finger be pointed at me?" The executive's options may be as follows:				

Report the conduct internally. The HHS Inspector General's recently released Draft Compliance Program Guidance for the industry states that an effective compliance program must have "a process [such as a hotline or other reporting system] to receive complaints or questions, and the adoption of procedures to protect the anonymity of complainants and to protect whistleblowers from retaliation." How many pharma companies can claim to have a process that honors that description both on paper and in the behavior of employees and management alike? The hypothetical executive may have some or all of the following concerns: 	

Will I be punished if I draw attention to a practice that is making the company a lot of money? 

What use is an internal report if  management is part of the problem? 

Do nothing. And hope that the government doesn't find out about it. That certainly does nothing for peace of mind. What happens if someone else reports it first? Some executives might be tempted to hope that when and if the conduct is exposed, the corporation will protect and defend them. 	

But a perusal of the front pages of major business dailies in the past year makes it all too clear that executives shouldn't expect support from the company if they are involved in potentially fraudulent conduct. Nor should they expect to fly below the radar if they knew about the conduct but did nothing to stop it.	

Resign. The prospect of unemployment is rarely appealing, and the financial impact of an abrupt resignation can be devastating. Resigning may not even be an option if the executive is contractually bound to stay for a period of time. In any event, leaving may resolve an immediate ethical conflict, but it does not extinguish any liability the executive may have for past conduct.	

Faced with those equally unattractive options and seeking a better solution, executives may well ask: "How can I protect myself against becoming a jobless statistic or winding up at the wrong end of a grand jury investigation? "	

Many aggrieved executives already have used the qui tam law to protect themselves or to right what they saw as a wrong. When the vice-president of sales in the TAP case-who was already troubled by what he saw as TAP's "cowboy" culture-heard about an alleged kickback plan involving sales of Lupron (leuprolide), he reportedly realized the extent of his personal exposure. "The sales force was my responsibility," he told People magazine. "I could have been the one to get hung out to dry." 	

What is the lesson to be learned? It is this: the importance of fostering an ethical corporate culture is not merely tired, self-evident rhetoric. To retain the confidence and loyalty of employees, corporate management must be ever-vigilant to ensure that the corporation's ethical underpinnings-the way it does business-are solid to begin with and are not allowed to slip. 				

Contrary to some widely held beliefs, corporate crime rarely is the product of a single rogue employee or a plot concocted by evil conspirators in a smoke-filled room. It is more likely to be cultural, to grow out of conduct that initially was perceived as entrepreneurial and later diversified into risky, then to borderline or gray, then to illegal. Such conduct thrives in a culture that condones ethical corner-cutting in the interests of revenue maximization. And corporations that regularly engage in "gray area" activity eventually become desensitized to the very grayness of it. 	

Ultimately, it's a collective understanding of "how we do things around here" that determines the ethical decisions that employees and management make every day. A corporate code of ethics that represents a commitment to doing the right thing-that senior management honors and communicates effectively and often to employees-will go a long way towards curtailing "entrepreneurial" conduct that might slide down the slippery slope into fraudulent. 	

Every pharma CEO should read the HHS Inspector General's industry guidance and make a personal commitment to implementing its mandates. A corporate culture in which employees at every level feel safe from retaliatory acts if they report questionable conduct requires that those employees believe in the honesty, integrity, and fairness of senior management. It also requires that senior executives commit to making the tough decisions that might, at times, elevate ethics over short-term gain.  	

If there is any question about on which side of the line those decisions should fall, senior management should remind themselves of this: preventing fraud, in the long run, is a lot easier-and less painful-than dealing with whistleblowers.	

Articles

Features

The federal government's enforcement juggernaut rolls on-and the pharmaceutical industry is squarely within its sights. In recent years, the industry has paid close to a billion dollars in fines, civil settlements, and penalties.

Keep Your Pinstripes Vertical

Don't try this at home. That ought to be the common lesson we draw from most examples of pharma's current performance in the public arena. Despite a series of political victories, the industry seems to save its most ill-favored face for the general populace.	

A year that began with a pledge by companies to help fight worldwide disease and terror now ends with a queue of self-defensive gestures by PR-stricken executives. From newspaper reports to TV specials, from commentators throughout the political spectrum, criticism hits the industry on a near daily basis. Yet answers from industry emerge awkwardly or not at all. A mere handful of companies may stand in a negative light at any moment. But when even one company speaks, the public hears the industry's voice. And when a single company stonewalls, the public senses deception in all.	

Still, the New Year demands a more positive proclamation-something that raises morale even as it implants realism. Resolutions do just that, though they also create internal standards perhaps loftier than any external actor could impose. Thus, for the new year of "ought three," here are a few "oughts" for the industry-principled actions to which companies and executives might well resolve themselves:	

Listen to your greatest fans, and your worst critics-patients. Okay, people can often seem blind to your products' value and downright superstitious in their belief in alternatives. They can also organize, educate, and focus on their conditions in the most sophisticated ways, sparking great opportunities for treatment breakthroughs and alerting companies to competitive advantage. Reject the one, and lose the other. You might as well accept patients for what they are. Then, listen closely, consider carefully, and respond constructively.	

Make friends with the media. Companies reflect the personalities of their top executives, and most executives in this industry seem especially media shy. Perhaps they've bought all the stories about the "liberal" press and so give up before they even start. Some bypass the business press as well. Journalists are generally more curious than critical, but if you stonewall them, they'll only dig deeper.  	

Consort to address common issues. When one company stumbles, it must right itself. When the entire industry falls from grace, at least it has an association or two to defend it. But when a segment of companies runs into trouble, it's a free-for-all; no mechanism for dealing with the matter exists. Companies under a common threat-such as the latest furor over diuretics versus other antihypertensives-make natural allies but must carefully avoid antitrust issues. In an independent, even temporary, consortium they may find more cohesive ways to respond.	

The foregoing "resolutions" all boil down to a simple algorithm: Listen, Relate, and Act. They also imply deeper principles of effective communication. If something makes you feel either defensive or offensive, look for a third alternative. Avoid dividing the world into saints and sinners. Internal lessons follow as well: When hiring, seek the sincere, though imperfect, candidates who will contribute ideas as well as follow policy. Temper theory with reality-allow the stars to shine among the teams.	

Some problems defy solutions, but that doesn't mean we should stop thinking about them. Perseverance furthers. And in this world, a resolution is better than no solution at all.	

Letter to the Editor

Don't try this at home. That ought to be the common lesson we draw from most examples of pharma's current performance in the public arena.

Resolutions

Years ago, a cereal maker ran a commercial in which children who'd eaten oatmeal for breakfast floated to school, snug in a protective bubble of warmth. Today, the same imagery comes to mind with respect to the country's 85,000 pharmaceutical salespeople.  They are protected to a certain extent from the chilling winds of the economy, and they ride high above other salespeople when it comes to compensation.		

Despite the economic struggles that other industries face, pharma enjoys relative health and vitality. Companies continue to expand their sales forces, and the competition for talent is as fierce as ever. The most desirable candidates have multiple offers to choose from, and top performers can change jobs easily. In such an open job market, employers naturally turn to compensation as a key strategy for attracting and retaining talent. Consequently, sales reps are the happy beneficiaries of escalating salaries and more and better perquisites.

The results of the 2002 compensation module of Hay Group's annual Sales Force Effectiveness Study confirm that many of the same compensation issues that have challenged pharma companies for the past few years are still in play today. With their compensation plans, companies are still looking for ways to:	

distinguish themselves from one another in the clamor for talent

attract experienced employees, both in sales and marketing

Each year, the number of salespeople calling on a finite population of doctors breaks a new record. Logic suggests that, at some point, the market will be saturated with sales reps and pharma companies will stop sending more out. But the industry hasn't hit a turning point yet, and it looks as if additional salespeople will keep on coming, like the brooms in Fantasia's memorable sorcerer scene. In 2001, 60 percent of the companies participating in the survey expanded their sales forces, while none decreased in size. About the same percentage reported plans to expand their forces in 2002.  Companies are, it seems, in their own "arms race." They are all after the maximum number of physician impressions, and no one wants to be the first to cut back. 				

The only sign of a slowdown can be seen in the use of contract sales organizations. Fewer companies use contract sales forces than a year ago, and among those who use them, more than a third expect to decrease their use in the future. It could be that manufacturers are relying on them less because they have become more efficient at hiring their own sales organizations. In fact, one company hired nearly 400 new sales reps in six weeks.	

In recent years, company recruiters have been pressed not only to hire additional reps, but to replace those lost to voluntary attrition. Turnover among primary care physician reps peaked at 19 percent in 2000, then shrank to 12 percent in 2001. Although the trend may be related to the general economic picture and a change in workers' outlooks after the catastrophes of September 11th, pharma companies also deserve a good bit of the credit. Hay Group's 2002 Recruitment, Retention, and Motivation in the Pharmaceutical Industry study shows that nearly 60 percent of participating companies have increased their focus on, and implementation of, new programs and initiatives designed to improve retention.	

On the other hand, turnover among specialty physician reps increased slightly from 9 percent in 2000 to 11 percent in 2001. Demand for those reps resulting from the growth of specialty sales forces may explain that increase in turnover.  Even this seemingly small change could be a concern because specialty reps are an elite and experienced group-generally the last ones a company wants to lose.	

Most interesting is the fact that among high performers, pay is the number one reason for leaving a company. Among average and low-performing reps, the primary driver of attrition remains, as it has traditionally, the person's immediate supervisor-with compensation running second. (See "Why They Leave," page 46.) That high-performing reps are motivated by money is no surprise, but the extent to which that sets them apart from others may be. Companies that place increased emphasis on rewarding top performers are obviously on to something. They should not forget, however, that even within that group, the "immediate supervisor" is the second most often reason that people choose to leave. 	

During the past few years, it seemed that salaries for salespeople within general industry were closing in on those paid by the pharma industry. But the latest statistics show that the pharma industry has stayed ahead of other industries by 20 percent. Between 2000 and 2001, the pharma's median salary increase was 5.5 percent, while general industry's was 3.9 percent. 				

At the same time, US pharma companies are trying hard to stay ahead of one another. Fully half, in an attempt to attract and retain the best sales representatives and managers, target their total cash compensation between the 75th and 90th percent of what the marketplace offers. (See "Targeting the Top," page 46.) That trend is reminiscent of Garrison Keillor's mythical Lake Wobegon where "all the children are above average." Pharma companies are striving for the same statistical impossibility of maintaining above-average salaries for everyone. The result is that the median spirals upward just as companies try to come in above it. Because those companies collectively move the whole frame of reference, it makes it difficult for any individual one to pull ahead of the crowd and set itself apart with its pay practices. Despite their best efforts, all that most companies manage to do is to maintain their compensation at parity with the competition. 	

The vast majority of companies apply merit increases every 12 months. Conformity with core values was cited most often as a criterion for determining a merit increase, and the percentage of companies that take company values into consideration rose from 51 in 2001 to 60 in 2002. That trend will likely continue upward as a result of the Pharmaceutical Research and Manufacturers of America's (PhRMA) codes for ethical marketing practices. More than 80 percent of the participants in Hay Group's annual Pharmaceutical Sales Effectiveness Conference indicated that their companies have established formal policies and programs to address the ethical conduct of their sales forces. 	

Another criterion commonly used for determining merit increase is the compa-ratio, which divides an employee's base salary by the salary midpoint for the particular job and level. The ratio shows an individual's position within their current pay grade. Use of compa-ratios to calculate merit increases rose dramatically-28 percent to 45 percent-between 2001 and 2002. Presumably, companies are using compa-ratios to ensure that their salaries are competitive as a defensive measure against voluntary attrition. 	

An entry-level primary care sales rep earns an average of $47,000 in base pay-up from $45,800 in 2001-and a top-level primary care sales rep earns an average of $82,300 in base pay, compared with $81,000 for 2001. Oncology sales reps and their district managers are the clear winners in the base pay department. Compared with their counterparts in primary care, oncology sales reps earn 30 percent more, and oncology district managers earn 13 percent more than their reps. (See "Primary Pay," page 48.) 	

In terms of growth from the previous year, hospital and specialty reps-oncology reps in particular-experienced the biggest increase in salary and total cash, but the pay for primary care representatives was fairly flat. That may reflect the fact that companies now face a greater retention challenge with specialty reps than with those detailing to primary care physicians. Companies have a keen interest in differentiating pay appropriately between specialties. They recognize that there are different pay markets-according to the demand-for each specialty, and they want their compensation to reflect that. 	

 Among field sales managers, the healthiest increase-nearly 11 percent-in base salary was among senior district managers. That trend could indicate the value placed on experienced first-line managers when record numbers of them are new to the job.	

Despite companies' obvious efforts to pay more than others-not only in comparison to industry in general but in relation to one another-only about half of pharma salespeople seem to recognize their relative advantage. Just under half (48 percent) rate their salary as competitive, which is a more favorable arrangement than employees gave other industries, but it still leaves plenty of room for improvement.  	

Incentive pay is, on average, 25–30 percent of sales employees' base salary. Because 75 percent of companies target above the 50th percentile of sales rep salaries in other industries in total cash, they put a lot of emphasis on their incentive plans as the means for employees to reap the rewards of successful performance. (See "How Big is Their Bonus?")				

The success of a sales incentive program depends largely on the company's ability to measure performance against goals. Half of the reporting organizations use a mix of quantitative and qualitative factors to measure performance with the average mix being 83 percent quantitative and 17 percent qualitative. The most popular mechanism for determining incentive payout continues to be comparing performance to goals. 	

On the other hand, the practice of ranking reps to determine payout has become less common, having dropped by 50 percent from 2001 to 2002. Again, the most popular mechanism is comparing performance to goals. 	

In most sales plans (82 percent), incentive payout is based primarily on individual performance, which is measured on several levels. In primary care rep plans, 86 percent measure individual performance, 24 percent measure performance of territory-level sales rep teams (often called pods or mirrors), 7 percent measure district performance, and 14 percent measure regional performance. (Note: participants could choose more than one response.) 	

According to the data, companies are placing a greater emphasis on territory-level performance-which includes individual and pod/mirror performance -and are less likely to supplement individual performance measures with broader ones such as division or corporate performance. The industry's effort to keep measurements to what is directly within the salesperson's "line of sight" is laudable. 	

The catch, though, is that as companies rely on teams to sell their products, through internal mirroring and external co-promotions, the ability to measure an individual's performance at the territory level becomes more difficult. Territory-level performance data are clearly not the same as individual performance data when more than one rep works the territory. Relying exclusively on territory sales data makes it difficult to distinguish between reps who are pulling their  weight and those who are not and could destroy a company's pay-for-performance strategy. 	

Across all employee groups, there is a strong pay-for-performance link, with the top 10 percent of performers earning a substantially greater portion of their base pay as a bonus and the bottom 10 percent earning substantially less. For instance, among responding companies in the 2002 study, the top 10 percent of primary care sales reps earned an incentive that was 76 percent of their salary compared with the lowest 10 percent of performers who earned an average bonus of 21 percent of base pay. In the 2001 study, the top 10 percent of sales reps earned 59 percent of their salary in bonus compared with 32 percent for the lowest 10 percent of performers. Clearly, the gap is growing. The compression in payments across varying levels of performance that was common in years past has begun to disappear as companies reserve more of their bonus pools for top performers.  	

Companies are still fine tuning their compensation plan designs, and the survey revealed the following trends and challenges:				

A move toward simplicity. For the past few years, companies have over-engineered their incentive compensation plans only to reduce their effectiveness. In a genuine effort to be fair, they have tried to take into account all of the data with which they are inundated-a classic example of "too much of a good thing." But plans are only manageable with up to three variables, and beyond that their effectiveness diminishes because they lack the focus needed to inspire and direct employee behavior. Although base salary plus a multi-variable bonus is still the most prevalent type of plan-67 percent of plans reported-more companies are starting to use a single variable (23 percent).

New ways of setting quotas. Setting appropriate goals remains one of pharma companies' biggest challenges. They do not receive information about unreported scripts, and the information they do get often arrives after a substantial time lag. The process is further complicated by the impact of managed care, new products, and competitive behavior. Companies continue to experiment with what they put into the mix, but the one constant is a steady increase in the number of companies that use market share as a criterion. (See "Moving the Goal Post.")

Internal equity issues at the district manager level.  About 30 percent of the industry's district managers have one year or less of managerial experience-the highest percentage with short-term experience in the past four years. To attract candidates and fill their need for managers, companies have frequently had to entice new hires with salaries that top those of incumbents. Salaries reported for DMs with one year of tenure in their company are 13 percent higher than those with six to ten years of tenure. Salaries for DMs with only two years of tenure are also higher. Naturally, that upsets internal equity and causes discontent.  

There are signs that the marketing function is coming of age within pharmaceutical companies. In a benchmarking Hay Group survey among 12 leading pharma companies in 2002, the participants characterized themselves as slightly more sales-driven than marketing driven. A few years ago, the characterization would have been very much more one-sided towards sales. 				

Between 2001 and 2002, positions in product management saw moderate salary growth, and the percentage increased with the job level, suggesting that there is a demand for more experienced people. Also, the higher levels of product management were paid incentives as a percent of base that approached 20 percent-less than what sales people received but still a relatively substantial payout.  	

Companies tend to apply their corporate incentive plans to marketing/ product management positions rather than having distinct plans as they do for sales positions. What's more, few, if any, develop joint incentives for sales and marketing to encourage collaboration between the functions. Given the growing importance of marketing to sales success, companies may be well advised to establish a stronger link between the specific challenges of marketing and those employees' incentive compensation. 	

For the time being, sales people in the pharma industry continue to enjoy the effects of an employee's market. As they float along in their protective bubble, they can feel safe knowing that their employers are still motivated to make their compensation plans ever richer, easier to understand, and more realistic and fair.	

Years ago, a cereal maker ran a commercial in which children who'd eaten oatmeal for breakfast floated to school, snug in a protective bubble of warmth. Today, the same imagery comes to mind with respect to the country's 85,000 pharmaceutical salespeople.

When Will the Bubble Burst?

Today, Biogen's billion-dollar flagship multiple sclerosis product Avonex (interferon beta-1a) faces stiff competition from Serono's Rebif (interferon beta-1a), launched in the United States in March 2002. Although the two were already competing in Europe, financial analysts and media following the MS market predicted massive market share erosion for Avonex, especially after the announcement that Pfizer had agreed to co-promote Rebif in the United States. Some contend that Biogen is too dependent on the sales of one product and isn't strong enough in the short term to withstand Avonex losses. But as Biogen celebrates its 25th anniversary, Avonex's market share is holding steady at a healthy 50 percent; the company's new complex in Research Triangle Park, North Carolina, puts it on the map as a major manufacturer; and its leaders are confident that the big picture remians regardless of observers' gloom and doom about its product line.	

Chairman and CEO Jim Mullen ignores Biogen's "one product company" critics and focuses on long-term growth.	

Mullen, along with Burt Adelman, MD, executive vice-president of research and development; Hans Peter Hasler, executive vice-president of commercial operations; and Thomas Bucknum, Esq., executive vice-president and general counsel, tell Pharmaceutical Executive that the drama-tic business and operational changes underway, coupled with sustained small-company enthusiasm and efficiency, ensures Biogen's resilience and long-term growth.	

Jim Mullen's six-foot-four stature belies his gentle manner-although anecdotes reveal him as a leader in a hurry who instills the same sense of urgency in his employees. His management style seems to say that most timelines are made to be shortened, because time is not on the side of today's biotech and pharma companies. It is precisely that urgency that prompted Biogen to launch Avonex within 33 hours of FDA approval. And it got the company where it is today, eagerly waiting, months ahead of schedule, for FDA approval of the second product it will market on its own-Amevive (alefacept), indicated for the treatment of moderate-to-severe chronic plaque psoriasis, an inflammatory skin disease that the American Academy of Dermatology estimates affects more than 100 million people worldwide.				

"Whenever we look at a timeline, Mullen throws us up against a wall," says Bucknum about his boss's demand that his team cut their original six-month regulatory application process in half. And for good reason. Amevive represents the first new psoriasis treatment in 20 years, and dermatologists seem receptive, if not outright enthusiastic, about a new option that could offer good results without the toxicity of some oncology products currently used to treat the skin condition. 	

With FDA approval expected in the first quarter of 2003 and annual sales projected to peak at an estimated $500 million, Biogen began pre-launch professional and consumer education initiatives months ago to prepare the market 	

for a new entry. Those initiatives include an unbranded insert in dermatology journals that uses sophisticated medical illustrations and excerpts from published scientific literature to explain the immunologic underpinnings of psoriasis and the rationale behind biologic therapies that target T-cells to treat it.	

Partnering with the National Psoriasis Foundation and Jerry Mathers, "the Beav" from the classic sitcom "Leave it to Beaver," Biogen aims to raise awareness of the disease and its treatments among patients and their families. Along those lines, the company already launched psoriasissupport.com, a "virtual community" modeled after Biogen's successful multiple sclerosis websites supporting Avonex. (See "Virtual Community Generates Real ROI," PE, March 2002.) If the company repeats its experience with avonex.com and MSActiveSource.com, it will build a membership of tens of thousands of patients who volunteer their personal medical histories and demographic information to help refine the website's content as well as enhance the targeting of Biogen's professional and consumer marketing efforts. 	

As marketing and medical education efforts were in the works, clinical and regulatory groups expedited Amevive's new drug application process. In yet another demonstration of its sense of urgency, in August Biogen was the first company to submit an application using the then brand-new common technical document (CTD) to FDA and the European Medicines Evaluation Agency (EMEA). Submission for Japan is next.	

A few of Biogen's regulatory people were involved in the World Health Organization's International Congress on Harmonization guidelines for global application submissions and felt comfortable going with the new CTD format. 	

So they didn't hesitate and, to Mullen's satisfaction, the process was successful and efficient. The company plans to continue using the CTD with other compounds as they move through the pipeline. (See "Multi-Product Company in the Making," page 42.)	

As promising as the research is, and the market may be, for Amevive, the financial and media worlds are still obsessed with the competition Biogen faces from Rebif. (See "Tug-of-War Waged in Ink," page 40.) And even the company admits that, in the short term, it expects Rebif's sales to affect its bottom line. After all, 93 percent of its 2001 revenue came from Avonex sales.				

Biogen's other revenue comes from royalties-the company out-licensed technology to Merck and SmithKline Beecham that eventually led to the development of hepatitis B vaccines and diagnostics. It also licensed alpha-interferon to Schering–Plough more than 20 years ago, and to this day, sales of S-P's Intron A (interferon alfa-2b, recombinant) contribute significantly to that company's $1.4 billion global franchise. Those deals formed the foundation of Biogen's autoimmune franchise and kept the cash flow moving during its early years.	

"I think out-licensing was probably the right decision, even though you could say, 'Gee, Burt, if you guys were selling alpha-interferon, beta-interferon, hepatitis B vaccine, and now Amevive, you might be the largest pharmaceutical company in the world," says Adelman. "The reality is that the company did not have the infrastructure at that time to take those products forward. And I'm not sure anybody fully recognized the size of the markets for those two products. The royalty stream, which has been quite significant, enabled the company to grow and build the Avonex franchise, our research organization, and the current pipeline. 	

If you want to generate cash for critical product development, you have to develop collaborations-research-based relationships-and ultimately that becomes very distracting. I can't think of a better way to get a complex company like Biogen started than with a significant royalty stream that is hands off. We didn't have to do anything except open the envelope and take out the check." Yet, Biogen continues to out-license products, including bivalirudin, an antithrombotic currently marketed as Angiomax by the Medicines Company, also based in Cambridge.	

One of the company's most dramatic changes was its move to license more products from others, beginning with Antegren (natalizumab), the first compound in a new class called selective adhesion molecule inhibitors. Discovered by Elan, Antegren may be the next generation MS treatment. The Biogen–Elan collaboration brought Antegren to late-stage clinical research. Two Phase III trials for MS and two for Crohn's disease are currently underway. Other deals, with Icos for LFA-1 antagonists and Celltech for CDP-571, among others, are helping to fill the company's pipeline.	

"No matter how good your own science is, there will always be much more science going on outside than inside," says Adelman. "What we've done and should continue to do is use our capabilities and expertise to leverage access to product candidates at reasonable costs. We are not prepared to spend $2 billion for Erbitux, for example. We just don't have the financial wherewithal. We have to bring to the table other assets that a potential partner would recognize as significant in value in lieu of cash. And those attributes are clearly in the biologics manufacturing and commercialization areas." 	

Coverage of the Avonex–Rebif market-share war has all but eclipsed the news that gives a substantial edge to Avenox, an advantage that no competitor can claim: As of May 2002, Medicare covers Avenox injections. That represents access to the treatment for an additional 30,000–40,000 patients, according to Adelman.				

Another edge stems from Biogen's small-company background, which forced integration of business and operations functions. In short, being a big company with small-company cohesion and cameraderie means that employees don't have to be directed to integrate-they already do.	

"I came to this company 13 years ago because it had closely aligned its commercial vision with its research vision," says Mullen. "It is one of the competitive advantages and one of the things that allows us to focus on the right things. It's what I call, 'I want to care if we win,' which means that if we get a product all the way through to approval, I want it to be important, not just an approval. 	

The other way to do that is to have broad interaction of the commercial group all the way back to the R&D group. They've been very strongly connected historically. So it's not as if we're trying to fix something that was broken. What we're trying to do is evolve a system and a structure that still works as we continue to grow. When I first started here, everybody could fit on two floors of this building. So it wasn't all that hard to keep it connected. You wandered around and you had a beer on Friday."	

The Friday "happy hour" custom still exists at Biogen headquarters and it's as popular as ever. But communication among headquarters and the other 16 internationally located affiliates is much more of a challenge-less about keeping in touch, and more about cross-training and experiencing different cultures to better drive and manage a global business. 	

"I don't care how many video conference calls you use," says Mullen, "how much e-mail or voice mail you have. Until individuals have a personal, trusting relationship in which they can conduct business, all those things are a distraction. People have to learn first hand what's going on. So a lot of the senior people need to travel globally. We've put a huge emphasis on international experience and international exposure, so we've moved a lot of people around." (See "International Implementation," page 38.)Mullen lived in Paris for three years as Biogen built its European organization. He says living abroad and working in different disciplines makes for efficient teams. "We have quite a number of people relocating between here and Europe so we're getting a lot of cross-functional experience. We are also trying to avoid the silos that you find in a lot of the big pharma companies, where people have a single job and it takes 20 years before they get experience in anything else. So we have a lot of people who have served in many multifunctional roles."	

In addition to the unique market leadership opportunity afforded to Biogen by securing Medicare coverage for Avonex, the company has another major ace up its sleeve. It is one of the only biotech companies to get high marks from clinical trial sites in an established survey of 405 principal investigators or study coordinators conducted annually by CenterWatch, a well known clinical trial recruitment website. In June 2001, Biogen ranked within the top tier of sponsor companies that included GlaxoSmithKline, Merck, Pfizer, and Eli Lilly. In fact, Biogen came in third, with 71 percent of the respondents rating it "very good" or "excellent" to work with. 				

That bodes well for Biogen, in an environment in which companies lose billions of dollars and, even worse, waste valuable time because of stalled clinical trial patient enrollment. That's a problem plaguing many Big Pharma research programs, and it is one of the main causes of the industry's new product dry spell.	

So as Biogen works to plump up its autoimmune portfolio with products to treat chronic ailments such as Crohn's disease, it may not experience the delays recruiting patients or negotiating with investigators that other companies often do. That should be true for its second psoriasis treatment LFA-1, and ultimately for cardiovascular patient recruitment, a relatively new therapeutic area for the company, currently in Phase II trials of Adentri (adenosine A1 antagonist) its treatment for congestive heart failure.	

Quoted in the CenterWatch survey report, Adelman says that Biogen facilitates sites' relationships with clinical research organizations (CROs). "In the past few years, we have tried to figure out how to best work with CROs so that our sites don't feel they are being managed by an intermediary and not by us directly. Many investigators don't even understand what CROs are and why drug companies use them." He credits the CROs for their high ranking in the CenterWatch survey but admits that he works with CRO senior managers to align their organizations with the Biogen culture and philosophy.	

Finding itself in the apple of clinical trial investigators' eyes may prove to be a critical edge in beating competitors to market with secondary and tertiary indications for Biogen's products, potentially extending their lifecycles and contributing to the longevity of its developing autoimmune and inflammation franchises.	

Hasler, on board for little more than a year after a long career with the international arms of Wyeth, Lederle, and Abbott, thinks about Biogen's global competition with the same sense of urgency as his colleagues and his boss.				

"In the multiple sclerosis area, we have more competition today and we know that," he says. "But in the psoriasis area, there are five or six new products expected within a few years. So our speed there is crucial. For Amevive, the labeling negotiations will be crucial for what we'll be able to claim.That's the big theme in the industry today, of course; to bring products quickly to market is number one. And number two is to bring the right product labeling to the market. We are not a generic company. We don't want to get into price competition with others in the market. Our goal is to add value, to differentiate, and to always reach more patients than we have in the past."	

As Mullen and his team prepare for the year-long celebration of Biogen's golden anniversary, one thing is true: It's a big deal to go from a one-product company to a two-product company. It's difficult to simultaneously expand and keep the vision and the day-to-day activity aligned on both local and global levels. 	

But the "campfire culture," as Bucknum calls it, the hallmark of the small company in Cambridge, is still alive and well despite the dramatic changes that will change Biogen from a small research boutique to a large manufacturer ready to hit the ground running in the race to market.	

Executive Profile

Fifty years ago, Watson and Crick changed the world by discovering the structure and function of DNA. Twenty-five years ago, Biogen opened its doors as one of the world's first global biotechnology companies. Thirteen years ago, James Mullen joined the company as director of facilities engineering and seven years later was promoted to international vice-president. Four years after that, in June, 2000, Biogen appointed Mullen president and CEO, and-in an uncanny continuation of its half-life evolution-named him chairman of the board after James Vincent vacated that seat midway through 2002.

Biogen's Big Picture

New dynamics are forcing the industry's human resource departments to rethink their operational game plans. The drivers-consolidation, globalization, scientific advances, public policy, and competition-have pushed HR leaders into new territory to address business needs. As a result, they have implemented new initiatives for management development, competency modeling, cultural development, performance management, and compensation. Traditional HR management processes are no longer adequate to prioritize activities and align resources for those efforts. Pharma companies need a more systematic approach, and, fortunately, they can find a new operational paradigm for HR in a somewhat unlikely place: research and development.	

Terms such as customer focused, demand driven, and systematic have always been a part of new product development. Those elements are crucial to ensuring that companies properly allocate people, time, and capital to the highest priority initiatives. To minimize risk and maximize opportunity, many pharma R&D departments have partnered with marketing and manufacturing to create collaborative approaches that include techniques such as cross-functional reviews, portfolio management, and gating-decision points for moving a project forward. 	

This article shows pharma companies how they can apply that approach to HR management by viewing HR initiatives as products. As with any new product, HR services must be innovative, "manufactured" to customer specifications, distributed effectively, and have a buyer-all in the context of meeting current or near-term customer needs. The article also outlines how Pharmacia's HR department faced the challenge of reducing infrastructure costs while implementing new, best-in-class programs.	

HR specialist groups, such as compensation and benefits, organizational effectiveness, recruiting or staffing, diversity, and human resource information systems, can function as discovery, development, and manufacturing, while generalist groups, such as business unit HR teams, will operate as marketing, sales, and distribution for HR products. By incorporating key principles from R&D-knowledge sharing, gating, portfolio reviews, resource management, and basic marketing concepts-HR can better position itself to deliver timely and cost-effective products that its internal customers will value and adopt.	

As the industry undergoes significant changes, pharma companies' responses have been dramatic, ranging from a growth in collaboration and alliances to increased merger and acquisition activity to reengineering, cost-cutting, and corporate restructuring.  Those responses carry significant HR implications and provide HR with a tremendous opportunity to become a strategic partner at the company's highest levels. To succeed in the new environment, HR must:						

develop products and services-management development programs, cultural initiatives, and compensation planning-that are closely aligned with the true business needs of the company and its subsidiaries

develop consistent messages and global processes while remaining responsive to local issues

create scalable, flexible roll-out processes and systems to facilitate rapid integration of HR programs

help top management create a culture that improves productivity and rewards superior performance

develop new incentive programs that reward right behaviors such as collaboration and innovation

perform all of the above under tight budget and headcount constraints.

The reinvention need not be revolutionary. HR can create its own product development process as an analog of that used by drug development. (See "In Parallel.") By applying concepts developed and optimized in R&D, HR can quickly transform itself into a function capable of creating cost-effective products that its internal customers-the business managers, line staff, and employees-will readily adopt. To manage the new product development process, HR needs to become more adept in several areas: gating and aligning development efforts, managing project portfolios, marketing products, and managing  performance.	

Gating and alignment. As in drug development, the new HR product development process consists of an established set of gates and milestones for regular review of HR projects on a regular basis. By objectively determining which projects warrant continued development, mediocre ones will be discontinued before they burn significant resources. 	

The gating process begins with HR validating an identified business need or problem-such as competitors aggressively recruiting the company's sales reps-and turns it into a project proposal: design and test a retention scheme for key sales reps. The process ends with senior leadership making a final go/no-go decision. In between, an HR project goes through several phases, each marked with its own set of pre-defined deliverables and approval requirements. Throughout the process, HR and business unit leaders must challenge project leaders with the question, "How does the project align with the company's operational and strategic business objectives?" 	

Rather than apply the gating process rigidly, HR must customize it to fit the organization. The further along a project moves and the more resources it requires, the more formal the review process must become. But not all projects need to pass through the gating process; HR should establish criteria for determining which projects to managed that way.	

Portfolio and project management. Another key theme borrowed from R&D is the ability to look across all initiatives and their specialist units to make go/no-go decisions based on an understanding of business needs and priorities. Project management requires HR to re-allocate functional resources, including people and money, to alter departmental plans and objectives and to reset priorities and commitments. 	

It also requires the ability to effectively plan work, manage issues, control quality, mitigate risks, and measure success. Good project management requires strong governance mechanisms to track progress and take corrective actions when necessary. Additionally, using a suite of tools and templates improves the standardization and transparency of project information and, ultimately, the quality of the end product.	

Marketing. R&D has learned a couple of valuable lessons that will also benefit HR. First, if there is no customer, there may be little reason to discover and develop a product. Second, every initiative must have a well defined project plan, including an assessment of market potential. HR must learn to operate with a similar customer focus, aligning new products with an identified customer need. To do so, HR must:	

provide opportunities for design teams to gather input from HR customers

incorporate "marketers"-business executives, line staff, and HR generalists-early in the development process to ensure a successful launch

stay in touch with customers to understand changes in issues, needs, and concerns.

Organizational culture is the nearly intangible mix of operational, infrastructural, and attitudinal "feel" within a company. Employees are highly sensitive to tone and symbol when it comes to assessing their relationship with the organization. Traditionally, leaders set the agenda for culture, but through an increased focus on its customers' needs and a more pragmatic process for managing initiatives, HR can become a catalyst across the organization for building a performance-focused culture. Just as R&D, marketing, and manufacturing are about delivering results, HR can take a more customer-focused, results-oriented approach. 				

After its 2000 merger with Monsanto, Pharmacia's HR function faced the challenge of reducing infrastructure costs while also implementing new, best-in-class programs. Like other HR departments operating in a post-merger environment, Pharmacia struggled with some complex issues: 				

lack of communication regarding new products and services both within and outside of HR

an "if I build it, they will use it" mindset

lack of global coordination and communication.

Given that environment, Pharmacia's HR department began to quickly gain control of the projects it was pursuing or planning. It wanted to establish a support infrastructure to institutionalize an integrated approach to HR work planning. Moreover, Pharmacia needed to design a customer-focused HR product flow model-one conceptually similar to that used by its R&D staff. The innovative, step-wise approach the company adopted transformed a once sporadic project prioritization approach into a systematic year-round process.	

At the time, Pharmacia had 85 corporate HR projects in development. Many of them were scheduled to roll out directly to the global business units. The HR generalist teams and their business unit customers were concerned that, without adequate review and input, the initiatives would not be successful. The solution was an HR portfolio review.				

In preparation for a two-day review meeting, the leaders of each HR specialist area identified all projects intended for deployment to internal business customers or that required involvement from outside their given specialist area. The inventory was extensive. It included projects related to leadership development, compensation plans, benefits programs, HR technology, HR shared services, recruiting, and diversity. For each project identified, the leaders completed a template with the following information:	

fit with Pharmacia's business vision, strategy, and objectives

fit with HR's vision, strategy, and objectives

the organization's capacity to absorb the project

New dynamics are forcing the industry's human resource departments to rethink their operational game plans. The drivers-consolidation, globalization, scientific advances, public policy, and competition-have pushed HR leaders into new territory to address business needs.

Pharmaceutical Executive-01-01-2003

Keep Your Pinstripes Vertical

Resolutions

When Will the Bubble Burst?

Biogen's Big Picture

A New Game Plan for Pharma HR

Table of Contents