• Archive

Mastering the Value Chain: An Interview with Mark Levin of Millennium Pharmaceuticals - Levin: Quick-Change Artist

Since founding Millennium Pharmaceuticals in 1993, CEO Mark Levin has grown his company from thirty employees to over one thousand. He has successfully kept pace with advancements impacting the biotechnology industry, such as the human genome project. His success comes, in part, from transforming his organization culturally as well as emphasizing and focusing on each precious link in the value chain. In this interview, HBR senior editor David Champion interviews Levin to reveal his past, present, and future strategy.

How Biotech Reshaped Millennium

Call it strategic dislocation or disruptive technologies, but the pharmaceutical industry is undergoing a seismic shift in its basic economics unleashed by the race to unlock the human genome. A flood of new science, products, and companies are combining to create new sources of value up and down the value chain.

Mark Levin, founder and CEO of Millennium Pharmaceuticals, has driven his company through numerous changes to exploit the opportunities created by this upheaval. In this interview excerpt with Harvard Business Review's David Champion, Levin discusses Millennium's move down the value chain over the last eight years.

Champion: The conclusion of the Human Genome Project seems to mark a strategic inflection point, to borrow a phrase from Andy Grove, for the pharmaceutical industry. Would you agree?

Levin: Absolutely. We're seeing fundamental changes not only in the nature of drugs and drug making but also in the way value is created and profits are distributed throughout the industry. Drug development is an extremely time consuming and expensive process—a typical drug takes 15 years and $500 million to bring to market—and a company's position in that process is critical in determining its profit potential. When Millennium was founded eight years ago, we situated ourselves at the furthest upstream end of the industry value chain: doing basic research into genes and proteins and selling our findings to big pharmaceutical companies. But as the distribution of value in the industry has changed, we've moved downstream, toward the patients who actually use and pay for the drugs.

Q: When you say the distribution of value in the industry has changed, what do you mean?

A: To answer that question, I'll have to give you a brief history lesson. The distribution of value in our industry—in any industry, I'd argue—is shaped to a considerable degree by forces that are beyond the control of any single company and that often play out over the course of many years. To understand those forces, you can't just look at a snapshot of the present. You have to see what's come before and imagine how that will shape what comes next. In the case of the pharmaceutical industry, I believe we're at its third major inflection point.

The modern industry came into being in the early nineteenth century, when scientists realized that the herbs and potions people took to treat illnesses worked because they contained specific active ingredients. Several German companies began to systematically isolate those ingredients, test them for efficacy, and sell them as pills. Those three steps—research, testing, and delivery—defined the industry's value chain for the next l00 years. The major drugs companies that began to emerge—companies like Pfizer and Eli Lilly—participated in each of the activities, either directly or, in the case of research, through partnerships with universities. To thrive, companies had to pursue a strategy of vertical integration along the value chain.

If you have a new vision every 12 months, you become, in effect, a new company every 12 months.
—Mark Levin

The industry's second inflection point came during the 1960s. In the wake of Crick and Watson's discoveries about DNA, people began to realize that certain diseases were closely linked to genetic makeup. By relating slight changes in the proteins produced by specific genes in specific parts of the body to cancer or diabetes or asthma, companies realized that they might be able to develop products that would treat the causes, rather than just the symptoms, of those diseases. Suddenly, basic research was seen as much more valuable. A company that owned scientific knowledge about certain genes or proteins could own the cures developed from them.

The genetics revolution effectively brought two new upstream steps to the pharmaceutical industry's value chain: research into the genes associated with a disease and identification of the proteins those genes produced. Billions of dollars were poured into these activities, and a host of more specialized high-tech companies such as Amgen and Genentech were created. This upstream end was and remains highly fragmented. But even so, the benefits of these investments have been tremendous, and the companies involved have made huge contributions to our basic knowledge about genes and proteins. Indeed, without their involvement, we'd still be decades away from a map of the human genome.

Millennium was a child of this revolution as well. Our main contribution thus far has been advances in research technologies: we've found ways to speed up the search for genes and proteins through information technologies and automation. Our biosensor technology, for instance, uses customized microchips to analyze interactions among proteins and between proteins and small molecules in tiny samples, far smaller than was previously the norm.

But we've become increasingly aware that we cannot afford to remain a research company because the value in our industry is shifting again. We're at the third inflection point. For the moment, at least, it looks as though most of the really big leaps in basic scientific knowledge have been made. We've mapped the genome, and the information is publicly available. We're awash in basic information about genes. As a result, that stage of the value chain is no longer as lucrative as it was seen to be just a few years ago. Value has started to migrate downstream, toward the more mechanical tasks of identifying, testing, and manufacturing molecules that will affect the proteins produced by genes, and which become the pills and serums we sell. At Millennium, we've anticipated this shift by expanding into downstream activities across several major product categories. Our ultimate goal is to develop capabilities and a strong presence in every stage of the industry's value chain—from gene to patient.

Q: So you want to shift from being a specialist to being a generalist? That seems counterintuitive. The value chain for other high-tech products has, after all, tended to break down into a few separate, largely independent industries. Take the computer business: there's chip manufacturing, computer assembly and delivery, and software: Intel, Dell, and Microsoft coexist where IBM used to dominate. Why is the pharmaceutical industry different?

A: It's because there's still only one really valuable product you can sell: the pill or serum that the patient takes. The discrete stages that specialist companies can carve out ultimately do not carry enough of the product's value, so margins tend to be quite small. Say I find a target protein for obesity; that target is still $500 million away from doing anybody any good. Even if I find a molecule that actually hits the target, it's not valuable unless I've got hundreds of others to offer as well. The vast majority of promising molecules—we call them leads—never make it through testing. I'm not saying that you can't make a good steady business by being a niche player—there are, for instance, very profitable companies that just do preclinical and even clinical testing. But no company will ever create any serious long-term value in our industry by staying in just one or two stages of the value chain.

Q: So you plan to build Millennium into a fully integrated pharmaceutical company?

A: We prefer to call it a biopharmaceutical company, but basically, yes. From the start, we've believed that the industry's future lies in personalized medicine. One day, everyone will have their own genomes mapped out and stored in memory chips, and doctors will look at the information in those chips and prescribe accordingly: "Mary, you should take this drug, but Mark, you should take that drug, because different things in your genes are causing your asthma." We want to be the leader in personalized drug therapies. In fact, our expressed goal is to be the first company to deliver health care tailored to the patient's genetic profile. To achieve that goal, we need to reach all the way to the doctors and the patients.

Q: Given the downstream strength of the pharmaceutical companies, aren't you at a huge disadvantage having started at the less valuable end of the chain?

A: Not entirely. One major weakness of traditional pharmaceutical development was that companies all tended to focus on the same targets—those identified in the academic literature. This created a me-too phenomenon. It's why we have 60 birth control pills on the market, and so many calcium channel blockers, and so on. Because we have the ability to find our own targets, we have an advantage. We can avoid the me-too competition that drives down profit margins.

Excerpted with permission from "Mastering the Value Chain: An Interview with Mark Levin of Millennium Pharmaceuticals," Harvard Business Review, June, 2001.

[ Order this article ]

David Champion is a senior editor at Harvard Business Review.

A History in T-shirts

Each year Millennium hands out T-shirts emblazoned with the company's annual theme, reflecting the organizational and strategic challenges the company wants to address in that year.

"Nothing's impossible"
Getting the company off the starting block.
Employees: 95
Revenues: $8 Million

Deal with the organizational impact of growth.
Employees: 140
Revenues: $23 million

"Perspicacious targetization"
Move downstream in the drug development process.
Employees: 266
Revenues: $32 million

"Validated leaders"
Preserve entrepreneurial spirit.
Employees: 486
Revenues: $90 million

"Prime the pipeline with products"
Find development leads.
Employees: 726
Revenues: $134 million

"Genetically defined, clinically inclined"
Acquire testing capabilities.
Employees: 952
Revenues: $184 million

"Millennium products: over-the-top and on the market"
Codevelop drugs with partners.
Employees: 1,330
Revenues: $196 million

"Focused execution"
Set precise individual goals, and get drugs through testing.

Excerpted with permission from "Mastering the Value Chain: An Interview With Mark Levin of Millennium Pharmaceuticals," Harvard Business Review, June 2001.