Bet on One Big Idea—or Diversify?

HBR’s fictionalized case studies present dilemmas faced by leaders in real companies and offer solutions from experts. This one draws on research by Toby E. Stuart. The latest clinical trial of the experimental therapy L-39, conducted in India, was finally complete—and the results were thoroughly underwhelming. Hilde Dach, the former chief scientist at the drug-development start-up Genbac and now a team leader at the German pharmaceuticals maker Caliska, which had acquired Genbac, could read disappointment in the face of Johan Greve, her boss. The journey ahead for L-39 suddenly looked arduous. Johan and the other leaders at Caliska might soon face a tough choice: Allow Hilde’s unit to continue honing and testing the potential breakthrough drug, or play it safe by focusing on L-39’s potentially very lucrative application as a dietary supplement. Hilde strongly preferred the former. She hadn’t thrown in her lot with Caliska merely to sell “medical foods,” as they were known in the nutraceutical industry. In the laboratory, L-39 (shorthand for a proprietary strain of Lactobacillus bacteria that Hilde had spent years cultivating) was so effective in reducing bowel inflammation in mice that she believed it could become the first probiotic ever to be approved by the European Medicines Agency, or EMA, as a therapy for a specific human ailment—the common gastrointestinal condition known as Crohn’s disease. Johan spread out the new study results on his office table. The India trial was the company’s second of L-39. The first, two years earlier, had assessed how well the bacteria in L-39 were tolerated, and the results were positive, as expected. This time, L-39 was put to the test as a Crohn’s disease treatment, but the data showed that it had little success in improving the trial participants’ clinical outcomes. Worse, the lead researcher in India had noted that in one patient, the bacteria appeared to have “translocated to”—that is, invaded—the spleen, perhaps because the patient was immunosuppressed. Johan tapped the page. “That’s very troubling,” he said. “I know,” Hilde said. If L-39 could translocate, survive, and proliferate outside the intestine, patients could be at risk of bacteremia and, ultimately, multiple organ failure. “And these numbers are so flat,” he said. “We can get them up,” she said encouragingly. “It just means further refining the strain. We’ve already made lots of progress on that, and we’ll make more. Plus, look at this,” she added, pointing to a column of figures. “It’s a statistically significant increase in blood flow to the patients’ lesions. That tells us a lot.” “It’s not nearly enough for proof of concept in humans,” he said. “We’re up against an EMA that has rejected virtually every health claim put forward for probiotics. The fact is, we may have to be more open-minded about L-39. You’ve always seen it as a pharmaceutical product. In the end, that may not be our best choice.” Hilde turned away. She knew he was talking about nutraceuticals. “Hey,” he said. “One way or the other, we’re bound to make some real money on L-39.” Good Germs Hilde scrolled through her in-box, counting the e-mails with “L-39” in their subject lines—three so far today. They were from people all over the world, begging to know how and where to buy the probiotic. Although her research hadn’t made the mainstream media, sufferers of inflammatory bowel disease (IBD) somehow found out about it. She had received some strange messages over the years, such as the one (now on her office wall) from a man asking whether the bacteria could help his two ferrets, which apparently had developed IBD after eating veggie burgers. Strange or not, the e-mails showed there was demand for a product like L-39 among patients with IBD. In their own ways, these people had the same hopes that had first motivated Hilde 15 years ago, when she met Georg von Suttner at an Indian restaurant in Cambridge, England. She was a graduate student, and von Suttner was a famous professor talking about the mysteries of the human gut. She had piped up, as was her style, to say that the study of probiotics—bacteria that help maintain the natural balance of organisms in the intestines—was pseudoscience. Von Suttner wasn’t offended by the comment. He lifted a spoonful of pearly white raita. “How many bacteria do you suppose this spoon contains?” “A few thousand,” she said. “Probably 10 billion,” he said. With a look of wonder, he described the microbiota, the community of micro-organisms that live in and on the human body. “You and I have many more microbial cells than human cells,” he said. “We ignore them at our peril.” That conversation was the start of Hilde’s long, productive professional relationship with von Suttner. Working in his lab in Karlsruhe, Germany, she had a knack for growing strains of bacteria. Dubbed the Microbe Whisperer, she had developed strain after strain—L-39 was her 39th—and had worked with her staff of drug-delivery experts to find a way to keep the bacteria alive without refrigeration. She and von Suttner published several articles in scientific journals, and they caught the attention of a team of entrepreneurs and investors specializing in biotech start-ups. They soon persuaded Hilde and von Suttner to launch a firm focused solely on the pharmaceutical aspects of L-39. The nascent company, Genbac, raised €2 million; then, as Hilde’s ongoing experiments showed that L-39 could reduce inflammation in mouse intestines, €7 million. After the first human trials were complete, Big Pharma began to hover. At first, Hilde and the rest of the team politely hinted that they would retain control of the company indefinitely. But then Caliska, a global firm with businesses selling generic, off-patent medications and nutraceuticals, but with a well-respected R&D unit, approached Genbac with a €40 million offer. Hilde had initially resisted, worrying that Caliska might fancy L-39 more as a dietary supplement than as a pharmaceutical. But von Suttner and the rest of the start-up team persuaded her that the deal was too good to pass up, given the uncertain prospects of all therapies during the research phase. Now Hilde was leading Caliska’s pharmaceutical-probiotics research team, which employed some of the scientists who had been with her at Genbac. Von Suttner was long gone, having retired happily, and the initial investors and entrepreneurs had moved on, too. The market for L-39 as a pharmaceutical was modest by Big Pharma standards. Of the estimated 5 million IBD sufferers worldwide, a third or so had Crohn’s. The market size was nothing like that of diabetes patients, who numbered in the hundreds of millions. But L-39 was relatively inexpensive to produce, and as a pharmaceutical it could be sold for at least €5 per daily dose. Still, Caliska’s enthusiasm for L-39 was about more than numbers. As company executives watched the EMA reject health claim after health claim from probiotics luminaries such as Nabisco, Chr. Hansen, and DuPont Danisco, they grew obsessed with becoming the first company to get the agency’s approval in this area. Anticipating huge positive publicity from such a breakthrough, they poured millions into Hilde’s research. Given the recent trial results, Hilde wondered whether Caliska would now rethink that investment. She noticed Johan in the doorway, looking unusually serious. Pressure from the Top “I just got off the phone with Oskar,” said Johan. Hilde knew that Oskar, Caliska’s CEO, would want to know about the latest findings. “He’s not upset,” Johan continued. “He’s been in this business a long time, but he’s leaning on me hard to see cash flow from your team, and the board is with him on that. He’s a big proponent of the nutraceutical idea and can’t wait to get your strain of Lactobacillus into the medical foods market with the Caliska name on it.” “Caliska may have a split personality as a pharma and a nutraceuticals company, but my team doesn’t,” Hilde said curtly. “We do biotech, not medical foods.” “As you know,” he said, “even if nutraceuticals don’t have to jump through the same regulatory hoops as pharmaceuticals, they still can be highly effective for patients. We sell many sophisticated compounds, and we’re well respected in the industry and among investors for that business. Nutraceuticals make a big difference to our bottom line—they’re our fastest-growing segment. In fact, they pay for our R&D. Think about it: Using your existing work, we could manufacture an over-the-counter L-39 tablet for 25 cents, which we could then sell for more than €1 per pill at retail.” “We’d be competing for an unpredictable, fad-influenced customer base against nonscientific companies that make all kinds of exaggerated claims.” “But we’d be competing for an unpredictable, fad-influenced customer base against nonscientific companies that make all kinds of exaggerated claims. Remember that study we saw, saying that half of 50 probiotics tested didn’t even contain the specified strain or stated concentration? I’d rather stay out of that market, at least for now. After we’ve developed the Crohn’s therapy and shown the world L-39’s value as a pharmaceutical, fine—the nutraceutical people can then do whatever they want.” “The company can’t wait that long,” Johan reasoned. “We have a chance now.” “What would we claim?” she asked. “That the bacteria increase blood flow to bowel lesions? That they reduce inflammation in mice?” “You want to unlock the potential of L-39?” Johan said. “Selling it as a nutraceutical is just another way to do that.” “But what about safety?” Hilde asked. “If the bacteria translocate, if someone dies—” “We won’t let that happen. We’ll solve all the safety issues before we take the product to market.” “Let me see if I understand,” Hilde said. “You want me to tell my scientists, some of the best in their field, to spend their time and energy developing this nutraceutical instead of trying to improve L-39 so that it can help patients with Crohn’s and other serious conditions? You want me to postpone that dream, probably for years, so that we can get the European Food Safety Authority’s approval of L-39 as a supplement? That would require strong, positive results in two full-scale, randomized, placebo-controlled trials. Once Oskar sinks all that money into the supplement and starts getting a nice stream of income from it, why would he continue to invest in L-39’s pharmacological promise?” “I’m not trying to force you into anything,” Johan said. “The company values your expertise. But we must be practical. Some form of diversification might prevent your team from losing its standing within Caliska during the long journey to—and through—the clinical trials for the EMA.” “You know how I feel,” she said resolutely. “We should go for broke on making L-39 work as a pharmaceutical.” A Chilling Premonition Hilde was trying to get into her suite of offices and labs, but chains were on the doors. Her employees were outside with her. “What’s happening?” she asked. Someone told her that the clinical trials in Europe had failed, L-39 was causing organ failure, Caliska had disbanded the team, and everyone was out of a job. She woke up with a start and glanced over at her husband. “Are you awake?” she said. “I had a terrible dream.” “What about?” he asked sleepily. “Ever since the latest trials, I’ve been worrying that L-39 might turn out to be a complete failure,” she admitted. “It won’t be,” he said. “But even if it is, at least you’ve already made your money on it.” “I didn’t get into this to get rich,” she protested. “Maybe your dream is telling you something,” he said. “What do you mean?” “Your single-minded focus on the pharmaceutical aspect might ultimately be, I don’t know, self-destructive?” “How can you say that?” “If L-39 fails as a drug and you’ve got nothing else, sure—Caliska might shut it down. But if you have a separate, thriving nutraceuticals line, they’d think twice. And you could bring Genbac’s scientific expertise to bear—and change the whole probiotics field. Educate customers about the science of probiotics.” He did have a point, Hilde thought later that morning on her way to work. She’d never get a chance to change the world if Caliska halted her work on L-39. But developing a dietary supplement would undoubtedly be a big distraction for the members of her team—and would certainly delay their work on the drug. Hilde was torn. What Would You Do? Some advice from the HBR.org community The vast majority of alternative medicines turn out to be ineffective or even dangerous. If the goal is for L-39 to make money, then by all means Caliska should consider marketing it as a nutraceutical. But if the goal is to improve health, the only defensible route for it is as a pharmaceutical. Brian Jackson, MD, associate professor of pathology (clinical), University of Utah If Caliska introduced a safe nutraceutical version of L-39, people with Crohn’s disease could try it immediately, yielding anecdotal results on its potential as a pharmaceutical. This inexpensive proof of concept would help the company decide whether to invest more into developing it as a treatment. M. Voionmaa, educational outreach coordinator, Finger Lakes Independence Center, Ithaca, New York The balance between diversification and straight-line focus is what produces results. Hedging is the same as wearing a harness while climbing a rock wall. When you go to new destinations, it is wise to hedge proactively and have alternatives as safeguards while you still focus on the main goal. Jeremy Reinbolt, private wealth manager, Vancouver, Canada Should Caliska market L-39 as a nutraceutical? The Experts Respond Jonathan Lewis is the CEO of Ziopharm Oncology, a Boston-based biopharmaceutical company. I have nothing against nutraceuticals—many therapies outside the strict limits of Western medicine are highly effective. But I do have something against losing focus, and that’s the danger for Caliska. There’s a right way and a wrong way to do drug development. The right way starts with a well-planned strategy that’s approved by all of the company’s stakeholders. Equally important is a singular focus on perfecting new drugs and bringing them to market. I’m not talking just about targeting your resources—it’s also about having the unwavering discipline to ignore the many daily distractions you face on the path to the marketplace. One potential distraction that Ziopharm encountered was a project involving information technology. IT holds enormous promise in the world of cancer therapies; networking capabilities and big data will be transformative. But getting involved in IT would have meant losing our main focus on bringing new, effective cancer medications to market. So we didn’t pursue that approach. I don’t mean that a company should stick to a narrow objective, such as developing a single therapy, at all costs. That approach is fraught with risk, given that drug development is inherently unpredictable. Several years ago Ziopharm began collaborating with Intrexon, which had figured out how to use synthetic DNA components to control cells. The Intrexon collaboration was well within our focus, but it also allowed us to broaden our options—to hedge our bets, in a sense. That hedge helped us recover earlier this year, when experimental data showed that a molecule Ziopharm had been developing wasn’t having the effect we’d hoped for. Caliska should resist the allure of easy money in the nutraceuticals market. That brings me to another, vital aspect of drug development: You must be guided by the data. We put a lot into that molecule. The laboratory findings and the early rounds of human testing were compelling, but the big randomized, double-blind, placebo-controlled trial told us that the molecule didn’t work, at least in the setting we had chosen. We were brutally honest with ourselves, and we stopped immediately. The pain and grief were enormous. But you can’t be emotionally attached to any one treatment. The human response to therapies is just too hard to predict. Things that work in the lab—on inbred, identical mice living in controlled conditions—often don’t work in people. Human beings are very different from one another—there are so many variables. Hilde Dach’s story illustrates the inherent tension between those two elements of doing drug development right: maintaining a singular focus and following the data. The crucial question for Hilde is whether the data, at this point, are definitive. I don’t think they are. A preliminary human trial was a disappointment, but she admits there’s room for improving the strain of bacteria. On safety, she doesn’t yet have enough data to make a decision. So she should persevere, and the company ought to support her. For now, Caliska should resist the allure of easy money in the nutraceuticals market. Distracting Hilde from her singular focus would be too great a risk. Colin Hill is a professor at the School of Microbiology, University College Cork, in Ireland. He is also the president of the International Scientific Association for Probiotics and Prebiotics. Hilde mistakenly thinks she faces a zero-sum game. She assumes that if Caliska markets her strain of Lactobacillus, the company will lose interest in possible pharmaceutical applications, and she’ll become a mere purveyor of dietary supplements. That reflects a simplistic view of the probiotics industry. Probiotics is an enormous, under-researched field. No one knows where today’s studies will lead. Our bodies are “superorganisms” that host vast numbers of microbes—the human gut may be the richest ecosystem on Earth. Some of those microbes produce neurotransmitters that affect brain behavior; others prevent infection. When five people eat contaminated chicken, why do three get sick while the other two shrug it off? It might be because distinct populations of microbes interact differently with each human host. The path for Caliska is fraught with uncertainty, whether it takes the pharmaceutical or the nutraceutical approach. The microbes can be manipulated in various ways—by diet, by probiotics, and by prebiotics (which stimulate microbial growth). Taken together, they may constitute a treasure trove of novel therapies. Someday, for instance, we might be able to use a microbe as a vehicle to deliver drug treatment to a specific area of the body. Given that promise, Caliska would do well to take on multiple dimensions of this largely unexplored field at the same time. It would be shortsighted to focus only on pharmaceutical applications of L-39 when its greatest potential may lie in medical foods. It would also be very difficult to get approval for a probiotic-based pharmaceutical, though not impossible. I can envision approval for one that, for example, prevents recurrence of a bacterial infection. For now, though, no probiotic pharmaceuticals exist. The big hurdle is understanding the mechanism of action: How does a probiotic produce its effect? What metabolite interacts with what receptor? The interaction between a microbe, which might have 3,000 genes, and a human body is very complex. That’s not to say that the nutraceuticals road is easy. The European Food Safety Authority has very high standards for approving probiotics as medical foods—and for good reason. In the early years, a lot of smoke and mirrors surrounded probiotics. A company could put Lactobacillus into a product, call it a probiotic, and make all kinds of vague claims—without doing any research to back them up. That wasn’t good for consumers or the industry. Nowadays, the EFSA requires rigorous proof of efficacy merely to approve low-level health claims. That means companies like Caliska have to sink millions of euros into research and clinical trials just for the glimmer of a possibility that they’ll win the right to make very bland claims for a probiotic nutraceutical. Some firms may wonder whether that investment is worth the trouble. Clearly, the path for Caliska is fraught with uncertainty, whether it takes the pharmaceutical or the nutraceutical approach—or pursues both simultaneously. But I believe that the risk and hard work will eventually pay off in the creation of therapies that we can’t imagine today. To my mind, the science of probiotics is the most exciting area in the field of biology.

Bet on One Big Idea—or Diversify?

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