Unlocking Serendipity Is the Key.

The authors are Lawton R. Burns and Mark Pauly, both Wharton health care management professors, and Philip Rea, a biology professor and co-director of the Penn Life Sciences & Management Program (LSM). They joined Wharton management professors Nicolaj Siggelkow and Harbir Singh on the Mastering Innovation show, which airs on Wharton Business Radio on SiriusXM channel 111, to discuss the highlights of the book. (Listen to the full podcast at the top of this page.)

An edited transcript of the conversations follows.

Nicolaj Siggelkow: How did the three of you decide to write this book?

Lawton R. Burns: The genesis of this book ties back to this program. Penn is a unique place with all of these multidisciplinary majors … but this is a program where we are actually integrating knowledge from multiple disciplines and training undergraduates in dual degrees in biology and business.

We’re the only university in the world that is doing that, and this is perhaps the only school where you could do that, because they have an undergraduate business school, and then you have a phenomenal science program, you have all of the wonderful discoveries coming out of the Penn Health System and the companies they are spinning off.

And so we have this unique lab here at University of Pennsylvania where all of these different faculty from all of these different disciplines are basically two blocks apart. And so it fosters the interaction among everybody. And then you have the university putting these dual degree programs together. You have [former Merck CEO] Roy Vagelos who is funding this dual degree program in life sciences and management, and then you bring together faculty you otherwise would never meet.

Siggelkow: This book is both about the science and the management behind biomedical innovations. Now what makes your book so interesting is that you are taking a broad perspective on the innovation problem. Your book examines the interplay of scientists, managers, investors and regulators involved in this process of discovering new drugs and medical devices. Now, you open up a newspaper and most likely you will find a line like, “the big Pharma model is broken.” And you have a very nuanced answer to that question,

Burns: The Big Pharma model is not broken, it’s basically been in a steady state for the last 50 years. What is happening, though, is we are spending more money on the R&D and not getting any extra output for it, but we’re not getting any worse output for it either. So it’s a question of efficiency, not productivity, in terms of the number of new molecules coming to the market.

And Mark’s chapter goes through the incentives that were put in place because of insurance reimbursement and the fact that drug companies knew that they were going to get reimbursed for their drugs even if they weren’t top of the line or best in class. And so they had an incentive to come up with lesser quality molecules and bring them to market, and then those things don’t necessarily sell well, they may not even get approved, but maybe increase productivity. And so the incentives were put in place by the insurance system.

But in terms of productivity it has been a flat liner for the last 40, 50 years, and every year in our class we go through the latest statistics to see if there is an uptick or a downturn, and it varies year by year. Right now there’s like a two-year uptick but nobody is sure if that is going to persist.