Biotech’s that stop doing this to their new product development teams get huge returns
By Candaice Newell
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Executive Summary
As capital investments in biotech ventures fell by 38% from 2021 to 2022, companies are looking to be more efficient (ie profitable in more projects), thus knowledge-sharing practices that could increase profitability are extremely important in a sector which already has challenging net profits overall. BCG’s annual survey has demonstrated that companies with “simple” meetings structure have twice the profit margins of time-wasting firms.
Research published in the Journal of the Academy of Marketing Science suggests that meeting frequency has the optimal impact on biotech new product development (NPD) team performance when the frequency of weekly meetings is moderate (more than once but less than five) rather than high or absent — and optimizing that number can double net profit margins from that new product.
Biotech firms should foster time-appropriate collaboration to drive the development of a new product and consider integrating alternative methods of knowledge-sharing that limit time away from best getting the product to market.
Impact: navigating the tight net profit margins of biotech
The COVID-19 pandemic resulted in record-breaking investments in the biotech sector as investors flocked to invest in innovation for diagnostic and therapeutic technologies. But biotech funding has decreased by over 38% from 2021 to 2022 as investors become more selective with which ventures they want to fund, and the market adjusts to a post-COVID-19 consumer. According to a 2022 Deloitte report, the cost to bring a new product from the discovery stage to market launch in the biotech sector has hit $2.3 billion — a $298 million increase from 2021. Hence, companies are seeking ways to either reduce costs or increase performance when pushing new products to market.
General productivity losses due to “over-meeting” are documented. On average, typical employees (spanning biotech and other industries) participate in 11 to 15 meetings per week (“The Future of Meetings Report 2021”, Fellow.App), however these efforts come at a cost. According to the 2018 Panopto “Workplace Knowledge and Productivity Report,” the average organization with 5,000 employees loses ~$13.3 million per year in productivity due to inefficiencies and time wasted in these meetings. But even that impact would only be a small portion of the net profit margin in biotech, particularly as the sector has such high R&D expenses.
BCG annually surveys 1,000 global companies (across all sectors, not just biotech) to create a “Complicatedness Index” that distinguishes between the performance of those firms based on their internal collaboration practices. Comparing the organizational activities of “simple” (top quartile of financial performance) vs “complicated” (lowest quartile of financial performance), they find that employees at simple companies may spend slightly more time attending in-person meetings but those meetings are deemed to be more important and ones where all participants add value. And despite having more in-person meetings, they also have more time to devote to uninterrupted focused work. BCG found this “well-moderated” meetings system of simple companies lead to double the profit margins of the complicated companies (“Meetings and emails are here to stay, so make the most of them”, BCG, June 2020).
New Product Development (NPD) teams in the biotech industry are under extraordinary pressure to create new winning products in the marketplace compared to say the pharmaceutical industry, which can rely on a more steady stream of existing products. The comparative risks are explicit in the margins. According to data regularly collected by NYU Stern professor Aswath Damodaran, both the pharmaceutical sector and biotech sector have relatively strong gross margins (67% and 61% respectively) – but while the net margin of pharmaceutical sector is 18%, the biotech sector net margin is under 1% on-the-whole. A large biotech company, with up to 5,000 full-time employees, has an average of 214 NPD employees, in approximately 10-12 person teams, operating at any given time (“Product teams benchmark report 2023”, Airtable). If just some of those teams could near double profitability on just their product, the impact on company-wide net profits would be substantial.
Findings: optimizing the performance of NPD teams to increase profit margins
Knowledge-sharing among new product development (NPD) teams is a key factor for success in innovation efforts. New product development is a set of process to create and launch a new product to market. An NPD’s team role ranges from generating an idea, concept development and testing, marketing strategy and business analysis, market testing, and bringing that product to launch. The biotech industry is a knowledge-intensive industry that depends on collaboration to drive NPD and organizational success. However, emerging research suggests there is a threshold to knowledge-sharing practices that may yield less effective teams. A recent study published in the Journal of the Academy of Marketing Science investigated the impact of internal knowledge-sharing practices, notably meeting frequency, on “new product profits” defined as the profitability of a new product development project (ie net profit margin), as an indicator of NPD team performance. For confidentiality purposes, each NPD team reported new product profit margins on a scale, from 1%-7%, instead of the actual percentages which are confidential.
The study examined NPD team practices and outcomes in two U.S. biotech firms with operations in the United States, Europe, and Asia. A field survey was administered to team members to assess knowledge-sharing behaviors and team leaders to assess performance outcomes. Data was collected from 182 respondents from 20 NPD teams with: (1) an average team size of 10, ranging from 4 to 22 members, (2) new product profitability scale ranging from 1% to 4.355%.
A model tested NPD performance as a linear and quadratic term of meeting frequency. Results from model tests suggests an inverted U-shaped relationship between NPD team meeting frequency and performance outcomes. As such, moderate levels of meetings yield maximum performance. These results challenge the common view that “more is better” and that in-person knowledge-sharing frequency in-of-itself is always beneficial. Findings suggest the optimal frequency for meetings in NPD teams is 2-4 times a week. NPD teams that host meeting 2-4 times a week yield two times better net profit margins than teams that meet daily or only once a week.
Solution: concerted internal knowledge-sharing with a purpose
This study delivers critical insight for the senior management of the firms in the biotech industry to maximize the performance of their NPD teams and improve net profit margin outcomes. Biotech company executives and managers are encouraged to:
Day One: Implement a system to track each NPD’s meeting frequency both real-time and future looking, if not already being done, as standard practice.
After: Establish a firm specific baseline of the length and frequency of meetings per week in which NPD teams engage, and pilot different meeting frequencies within this timeframe to assess changes in their own performance outcomes similar to the original study.
Finally: Consider integrating alternative methods of knowledge-sharing entirely (non-meeting) that limits time away from the scope of the project and fosters better collaboration to drive the development of a new product.
The original study does not provide parameters on when and why there can be too much knowledge shared within NPD teams and does not thoroughly address the relevance or quality of knowledge shared and different forms of knowledge-sharing practices that can impact performance outcomes. Biotech companies might also use other metrics of performance outcomes, including actual net profits instead of a profitability scale, when applying this to the NPD teams within their own firms.
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Candaice Newell is a PhD candidate in Pharmacology at the University of Toronto and a member of the Graduate Management Consulting Association (GMCA Canada). The research applications proposed in this article are solely the views of the author and do not necessarily reflect the views of the original academic journal article authors nor any individual member of our Editorial Board