Filling spaces: What happens when senior biotech execs move on?

By Pearl Freier

In the past 18 months some of the more well-known biotech companies have announced that key executives and leaders have left to start their own companies or have been recruited as CEOs of early-stage venture-backed startups. While the industry and science appears to be benefiting as a whole, the source companies for this talent could have reason for concern.

As many management team and VP-level positions remain open for a year or more, the director-level, middle management employees and scientists become prime pickings for headhunters.

Some scientists become frustrated with the instability surrounding their groups. Some begin to believe they are more likely to advance their careers if they leave the company. And if they do find that opportunity elsewhere, in frequent cases a few colleagues follow.

An example of this scenario that comes to mind is a director of biology who was recently recruited. He left his company while it was in the middle of a search for a head of biology that is now entering its 10th month, according to company insiders.

While the company is still interviewing candidates, this recruit found his opportunity elsewhere and about a month later recruited a scientist and a research associate to join his team.

A high percentage of senior-level positions in biotech are filled from outside the company. The preference tends to be for an individual with a strong history of large pharmaceutical company experience.

This criteria can make recruiting more difficult for several reasons. In many cases, biotechs can’t compete with the salaries and yearly bonuses that these prospects have. The housing markets in San Francisco and Boston often make relocation difficult from other parts of the country. Pharmaceutical employees aren’t always willing to undertake some of the risks involved in working for a biotech company, especially for those that don’t have deep financial resources.

Another costly problem that is facing biotechs is the trend for executives recruited from outside the company to leave the company 18 to 24 months after being hired. They often don’t feel the same connection to a company as someone who has been trained and promoted from within.

Let’s say it takes about a year to find the person and costs more than $100,000 in retained executive search fees, and then add sign-on bonuses and relocation expenses. Maybe it takes the newly hired executive four to six months to get to know the company and the employees and to get up to speed. Add expenses for the conferences he or she will attend and all the other benefits.

A significant investment has been made for someone who may leave in a relatively short period of time. Don’t forget that the position may have been open for a year prior to that.

So what happens when the search has to be conducted again? It is often treated as a new search, and the long hiring process starts all over again.

Not surprisingly during these times with hiring freezes and budget cuts, there may be a tendency to put the search on hold indefinitely, creating more uncertainty about the state of the department or group.

Because senior-level positions are difficult to recruit for, there must be more strategic planning in place to cut the time to fill those openings, whether it is to develop more talent internally or to identify qualified outsiders faster. The lack of planning is, to a large extent, attributable to a lack of criteria defining what constitutes talent based on expected goals for the position.

For example, senior-level positions in business development are some of the most difficult positions to fill. A majority of biotech companies insist on hiring a strong scientist with an MBA from an elite business school with a history working for large pharmaceutical companies. Many are inflexible, requiring the candidate to have a scientific background and strong publication record even for business development positions.

This rigidity has proved costly for companies who choose to keep the position open for an extended period of time. Some companies have decided that they would prefer to leave the position open rather than hire someone with a proven business record in another industry and a demonstrated capacity to understand enough of the science to put deals together.

However, other biotech and pharmaceutical companies have had the vision to look for other sorts of criteria to define talent.

An example of a successful biotech executive who may not have originally fit the bill is Steve Holtzman, CEO of Infinity Pharmaceuticals and former chief business officer of Millennium Pharmaceuticals.

Holtzman doesn’t have the traditional scientific background; in fact, he was a philosophy major in college. He is probably most well-known among executive search firms for some of the work he did putting together record-breaking business collaborations with pharmaceutical companies during his tenure at Millennium.

His new company, Infinity, raised $70 million in venture capital funding over the summer.

Ray Gilmartin, the CEO of pharmaceutical giant Merck, discussed his own lack of a traditional science background in the book Lessons From The Top by Thomas Neff and James Citrin. He had no direct pharmaceutical experience. He attributes much of his success to his ability to build a great team and to exploit the talents of others. He said that his most important skill is selecting the right people for the job.

The question remains: What is the impact for biotech companies that don’t have a process in place to fill positions efficiently?

That is difficult to predict, but an Amgen executive told an interesting story in the book The War for Talent, based on the study of the same name by McKinsey & Co. Years ago, Amgen beat the competition for anemia drug Epogen’s patent by just a few days. A team of dedicated scientists worked around the clock on it. Today Epogen is a blockbuster drug and its lifetime value is estimated at $50 billion.