Safi Bahcall knows a thing or two about managing change. In August of 2002 he led a merger buyout that transformed Synta Pharmaceutical Corp from being the US subsidiary of a Japanese company to a fully independent drug discovery and development business whose number of employees doubled in just over a year.

"The activities of the company have changed dramatically from primarily research to a majority of resources focused on clinical development," said Bahcall, the CEO of Massachusetts-based Synta. The company's primary focus is oncology and immunology treatments, with two drugs in Phase II clinical trials, another in Phase I and one or two expected to move from the lab into trials within the next year or so.

"It was a Japanese-owned research subsidiary, and now we are a fully independent, American, hard-charging, rapidly growing, small company. Those are two very different types of companies," Bahcall said.

Synta's success thus far serves as a lesson for other emerging biotechs and pharmaceuticals companies, which often struggle with the transition from being primarily research-oriented to focusing on product development and commercialisation. Many biotech companies fail to make the leap from the lab to clinical trials and beyond, winding up on the scrap heap or getting bought well before investors would have liked to see that happen. Why such companies fail has often been a real head-scratcher for those in the industry and its analysts.

Tough transition

A recent study of biotech management practices, however, suggests that a primary reason for such failures is an ongoing conflict, at many companies, between the collegial, informal, creativity-based management model common to scientific endeavors and one that has more discipline, structure and predictability. As part of that conflict, biotechs tend to hire managers whose expertise is in the science end without management experience, and that can be fatal, according to the Biotechnology Framework Study by consultancy Mardis, Aibel & Associates, based in New York.

The study's findings are notable because biotechnology management has not been widely studied or analyzed in the 25-year history of the industry. The report includes pure biotechs as well as emerging pharmaceuticals companies in its analysis, referring to them all generally as biotechs. The study included 56 companies, including Synta, ranging from those with fewer than 50 employees to those with nearly 100, intentionally avoiding large biotechs to keep the focus specifically on transitional stages and strategies.

Overall, what comes up again and again is the need to balance solid science with solid management.

Perhaps one indicator of just how much emphasis is placed on science is that even though biotechs are in business and at some point aim to turn losses into profits, the study found that top executives don't place a priority on the kinds of non-science IT systems that are crucial to running a business. Systems such as business processes that collect and manage information on revenue and customers, like ERP (enterprise resource planning) applications, just aren't on the radar of most CEOs surveyed.

Just one of the CEOs surveyed listed "developing and using unique discovery and developmental tools, databases, and information management systems" as a top concern. That finding stands out in an industry where "effective collection, cataloging and sharing of data, information, and knowledge is a critical task," the study said.

Because the CEOs, who set the focus and priorities, pay non-science IT little heed, it stands to reason that others in their companies won't either, said Walt Mardis, managing director of the consultancy that conducted the study. CEOs care about making money and operational issues. "By the time you get down to IT, it's, 'I don't have time to worry about this, number one, and number two, I don't know anything about it, and number three, I can probably get away with acceptable IT performance'."

A truly great IT component isn't going to drive a biotech to success, while mediocre business IT probably won't kill a company either, Mardis said. So many companies, the study suggests, aren't worried about tracking financial data, customers or revenue information. However, at some point they need to put more focus on those issues.

Change in pace

As they go through their life cycle, biotechs become more complex businesses to run and that requires more of a management structure than many have when they start out. But at the same time, biotech CEOs have to resist the temptation to create too much of a bureaucracy, which tends to stymie innovation, slow down the ability to make quick decisions often required in a scientific atmosphere and waste resources, the report suggests. The study outlines the typical biotech life cycle from start-up to maturity and offers recommendations on how to move through those stages.

Companies that do succeed share in common far-sighted top executives who anticipate change and prepare for it ahead of time, though without making changes before necessary. Successful biotechs share the characteristics of clear and focused strategies, "maniacal emphasis on executive", performance focus, fast, flexible and responsive organisational structures, and leaders who are committed, knowledgeable and involved.

That might sound like basic management, but it is also the case that the biotech company life cycle, while fairly standard in the industry, presents executives with challenges other types of companies don't encounter because they shift so radically in focus and mission from a research base to product launch and commercialisation.

"CEOs and investors say, 'We want to create a successful business,' but in truth what many of them are looking at is meeting the next [regulatory agency] review or the next research milestone," Mardis said. Given the choice between meeting a scientific goal or building a business that can achieve new scientific goals down the road, there is a tendency to focus on the near term, he said. While there are many exceptions to that approach, the biotech industry has to be driven by the science.

"They're going to be rewarded for hitting a home run with a molecule" that proves to be a successful drug target when the overall vision has to go beyond that, Mardis said. "That's where I think the motivation in the industry is not necessarily wrong, but it's certainly not toward sustaining successful businesses."

Getting around the bases from research and development, or R&D, to having a commercial infrastructure is a tricky proposition. "Keeping all of that melded together in one unit is a challenge," said Mike Webb, CEO of Epix Medical, in Cambridge, Massachusetts, which develops targeted magnetic resonance imaging contrast agents to manage and diagnose vascular disease.

Both Synta's Bahcall and Webb started out in science and then jumped to management and consulting. Bahcall has a PhD in physics, but switched careers and was a McKinsey consultant for investment banks and pharmaceutical companies before taking over at Synta. Webb is a biochemist who moved to management and consulting because "knitting together those two groups is something that other people thought I was good at."

That skill is being put to use at Epix. "We've been a high investment level, loss-making company for nine years and in the next few years we're going to become a profit-making company, and managing the company then [when it is profitable] and what investors think of us is going to take a shift," he said. The company, founded in 1992, has 90 employees and last month submitted an application to the US Food and Drug Administration (FDA) for approval of its MS-325 contrast agent, which is in Phase III clinical trials. Epix hopes to have approval late this year or early next, but is preparing now for that step. Product launch is what is going to lead to profitability, after all.

"We've had over the last five years or so a very small skeleton marketing department, although a very large company is our strategic partner and they'll be selling our product throughout the world. We'll be playing a role in the marketing of the product," Webb said. The partner is Schering, which will handle getting European Union and other regulatory approvals worldwide for the contrast agent, which is expected to happen midyear. For its part, Epix recently went from two to three marketing positions and will probably increase that to five before FDA approval is granted.

"Because commercialisation is my background, I'm participating directly in a lot of that work," Webb said of the progress being made as Epix prepares to launch its product. That kind of effort has gone from taking about 1 per cent of his time to perhaps 15 per cent of his time, he said. Courting investors has also started to require more of his efforts.

Since Epix submitted its paperwork for FDA approval, "investor interest in the company has probably gone up five-fold, along with the stock price, so I think I'm spending probably twice as much time on Wall Street and investor relations, doing presentations, as I had been," Webb said.

But that is time well spent. "When you're hot, you want to capitalise on that," Webb said.

Growing and innovating

Investors place a lot of pressure on biotechs to push the science to the next step rather than emphasising a broader view that covers terrain like how to deal with the FDA, how to market a product and how also to deal with failures that might occur along the way. Knowing how to do all of that are hallmarks of success in the industry, the study found. But it also cautioned that among the best practices of successful companies is the ability of top management to keep things from moving ahead before necessary, and to keep the spirit of creativity and innovation alive as biotechs mature.

Bahcall brought in most of his own management team when he took the helm at Synta, adding intellectual property, business development, biology and finance management with people who had a biotech background. The company now has 80 employees, spilling into a second facility at its site and is looking for still more room.

"It's useful to have people who have scar tissue from having been there and done that multiple times," he said of how he shaped his management team.

One thing he doesn't put a lot of emphasis on is having a rigid business plan, choosing instead to remain flexible. Flexibility, the Mardis, Aibel study suggests, is necessary for success.

"You have to have the right processes and the right people. You have to be able to move quickly and know what you're doing," Bahcall said. "You have to have the right vision and values in place -- get the right people in the right job and make sure they know where we're going and why we're going there."