Smaller Biotechs Capturing Top Talent From Large Pharmaceutical Competitors

Stock options and an openness to independent personalities are increasing the appeal of small firms for creative, ambitious scientists. The ability of small science-based companies to go head-to- head with much larger firms in attracting top scientific talent is growing, according to researchers and human resources analysts. The traditional recruiting advantages of big companies higher salaries and a greater degree of job security have been effectively offset in recent years by major shifts in the commercial research environment, they say. Firms of a few dozen to a few hundred people, such as biotechnology start-ups, can offer more lucrative stock options than those generally available at large drug companies with thousands of employees. Also, widespread layoffs among the pharmaceutical giants have all but destroyed the notion of protected employment. Perhaps equally as important, however, are the creative opportunities small companies can provide and the chance they offer researchers to have a greater impact on a firm's progress. "It's safe to say that, increasingly, we are not facing big competition for good scientists from the big companies," says Steve Roth, chairman and chief executive officer of Neose Pharmaceuticals Inc., Horsham, Pa., a 40-employee, privately held biotech startup developing oligosaccharides as a new class of anti-infectives. Since incorporation in 1990, Neose has raised more than $22 million, and clinical trials to test the company's lead compound for use against Helicobacter pylori, the bacteria linked to stomach ulcers, began March 15. "We have no trouble. And we have never lost a candidate to a large company." Roth, a former chairman of the biology department at the University of Pennsylvania, has encouraged a number of highly skilled scientists and drug-development managers to defect from larger companies to Neose. For example, Paul Simon, director of drug development at Neose, was recruited from DuPont Merck Pharmaceuticals, Glenolden, Pa. Daotian Fu, director of analytical chemistry, came from Perkin-Elmer Corp. in Foster City, Calif.; Barry Brian, manager of process engineering, arrived from Merck and Co. Inc. in Whitehouse Station, N.J.; and Ray Raskin, manager of quality compliance, moved from SmithKline Beecham in Philadelphia. An important part of Roth's success is the use of stock options, which allow employees to buy company shares in the future at today's prices. Stock options hold the promise of substantial reward for an ambitious researcher willing to tie his or her career to the growth potential of a small company. Unlike the stable value of more established companies, a small firm's share price can double or triple in a short time, if its science or products are well-received. All of the companies contacted for this article offer stock options to their employees. An example of the enormous returns possible with stock options can be seen in the history of SyStemix Inc., Palo Alto, Calif., a biotech launched in 1988 to develop products based on hematopoietic stem cells. For some researchers, shares worth as little as 28 cents each early in the firm's life topped $70 when Basel, Switzerland-based Sandoz Pharma AG bought 60 percent of the company only a few years later, in early 1992. In addition, researchers in smaller companies often have the satisfaction of seeing clearer ties between their performance and their compensation levels, as well as to the advancement of the overall enterprise, reports Todd R. Zenger, an associate professor of organization and strategy in the business school at Washington University. Zenger recently conducted a study that showed large Silicon Valley firms were systematically losing their best engineers --the ones with higher performance ratings and more patents, awards, and publications --to smaller competitors (T.R. Zenger, Management Science, 40[6]:708-29, 1994). "Certainly the same kind of story could be spun about top researchers in biotech today," Zenger says. "There's a more aggressive link between pay and performance in a small company that is attractive to those who have clear talents, knowledge, or expertise to exploit. And there is the sense that this is a phenomenon that's spreading, that large companies are finding it increasingly difficult to match the attractiveness of a small firm." Officials at several large drug companies dispute this view, responding to queries through spokespersons. At a number of other companies, officials were unavailable to comment. "We're not doing a lot of recruiting right now of any kinds of scientists, because we're in the middle of some changes in the business," says Ramona Jones, a senior corporate communications associate at Glaxo Inc., Research Triangle Park, N.C. "As far as the differences between types of companies, there are different personalities and different areas that suit different people. There are a variety of opportunities out there, whether with a small company or a big company. Glaxo has a very good staff--a lot of interaction and a lot of good people." "Merck, with its outstanding reputation for discovering and developing new compounds, continues to attract the top candidates," declares Gary Lachow, manager of consumer communications for the drug company. "We have not seen that siphoning off [of research talent]." Of special appeal to a certain type of scientific temperament, scientists say, is the fact that smaller companies tend to be less hierarchical and more responsive to individuals than larger ones. "Small companies allow for more creativity," asserts Maria- Luisa Maccecchini, president and chief executive officer of Symphony Pharmaceuticals Inc., a two-year-old, privately held biotech firm with 31 employees in Malvern, Pa. Symphony, which is investigating neuroprotective compounds to keep damaged brain and spinal chord cells from dying, as well as a new kind of antidepressant, has raised $7.5 million to date. "If you have a creative, not-very-conforming person, who may have a hell of a time in a big company because he doesn't necessarily follow procedure--he steps on people's toes and takes on more than he should--he'll do great in a biotech company, especially with me. I give people a lot of freedom when they're good." Symphony's vice president for research and development, Richard Meibach, came to the fledgling firm from Janssen Pharmaceutica in Titusville, N.J., a division of Johnson and Johnson Inc., New Brunswick, N.J. Saul Cherkofsky, vice president for pharmaceutical development at Symphony, moved from DuPont Merck Pharmaceuticals. "Some people are good, but they're conservative they'll do what you tell them to do and you do need those people. But I don't specifically hire those people. The big companies do, because they fit into a system, and they don't upset the system. But what I'm really looking for are, maybe, the more difficult people, who are more independent, more creative, more pushy." "The little companies are where almost all the fun is and where an individual scientist can make a huge difference," says Roth. "There are, however, scientists and I know these people who would never think of working in a small company, because they like to know they're part of a gigantic, massive operation, even though their own part in that organization is often very small. At Neose, if you're sick and can't come to work one day, the company is going to feel it. Everyone knows it when someone's not here." In addition to carrying a higher profile than they might in a larger company, small-firm researchers are often required to fill a wider array of roles. "Most of the scientists, because of the nature of this beast, have to deal with potential investors, for example," observes Wanda deVlaminck, vice president for clinical and regulatory affairs at Avigen Inc., a 15-employee, privately held biotech company in Alameda, Calif., that has raised almost $10 million for gene therapy research since its launch in 1992. "So, they're out of the lab a little bit more than they would be in a large company. A lot of people enjoy feeling that they're part of the whole company rather than just doing some isolated science in a lab. The diversity of learning experiences in a small company is intriguing to them." "Everybody is asked to do a lot here, because there aren't a lot of hands," says Pamela Murphy, vice president for corporate communications at Cytogen Corp., a $120-million, publicly traded biotech with 220 employees based in Princeton, N.J. Cytogen, established in 1981, is developing innovative radiolabeled antibodies for diagnosing specific cancers. According to some human resources analysts, however, a discussion of the different working environments of small and large companies, to a degree, begs the more pressing question of where the greatest number of jobs are currently to be found. "The problems that some of the big companies are having are because they're not growing," says Howard Garrison, head of the policy analysis and review office of the Federation of American Societies for Experimental Biology in Bethesda, Md. "Big companies are having to cut back on their research budgets and are, therefore, not hiring. So, it's not much of a choice small companies are where the opportunities are." "There were really only two reasons to work for a big company," according to Roth. "The salaries are higher there's just no doubt about that and, up until not long ago, the perception was that the security was better. But, at companies where jobs were considered to be sacrosanct, it's no longer the case. And when scientists realize that, then it comes down to the salary difference. "The salary difference is real, but it's minimized by the option package that small companies can put together for good scientists. And big companies cannot compete with option packages of the sort that little companies can put together. It just doesn't happen." Both large and small research-based companies offer stock options to employees. However, for reasons related to company size, a small firm's stock options are usually a more important part of an employee's overall compensation package than would be the case in a large company. "The difficulty is that a large company's stock has much less opportunity to appreciate," says John H. Martinson, a managing partner of the Lawrenceville, N.J.-based Edison Venture Fund, a $200 million fund that invests in emerging high-tech companies. "Part of the economic incentive of being with a small company is that the stock options may greatly appreciate in value. "Also, a large company often will not go deep enough in the organization to [offer stock options] to the scientists. It tends to go to the senior management, and not much lower than that. In a small company, you tend to see most professional employees having stock options. The scientist feels that he is sharing in the same reward system as top management and investors." Because of the chance of substantial returns, stock options represent an alternative to higher pay, boosting the appeal of a small-firm research position. The fact that stock options represent a degree of risk they can lose most or all of their value if the firm struggles also tends to attract a different kind of person, according to Martinson and others. "Stock options tend to attract a certain type of individual who's more entrepreneurial, more confident that a small group can succeed," Martinson says. "Also, there's often a much greater chance for career growth in an expanding small company than in a slower growing large company." "Extremely ambitious, driven people may take a cut in salary, because they're more adventuresome, but they want a return in the long run," says Maccecchini. "Stock options play a big role. A director or a vice president in a pharmaceutical company can easily make $200,000 to $300,000--nobody here makes that much. So, in the more senior positions, we do a lot of work with stock options. But we also give stock options to the secretary and the animal-handling person." The competition for research talent is perhaps most intense in parts of the country where some of the biggest drug companies exist side-by-side with thriving biotechnology firms. Roth notes, for example, that Neose is in a region of the country where many large drug companies have headquarters or research facilities, including Princeton, N.J.-based Bristol-Myers Squibb Co., Merck, SmithKline Beecham, and others. "We're literally surrounded," Roth says. "We know the people. We know them well. And we get a very large number of unsolicited resumes from people who have been laid off at big companies."

Smaller Biotechs Capturing Top Talent From Large Pharmaceutical Competitors

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