Richard Scheller Developing Products that Save Lives No.3
We're very good at R&D at Genentech. We're very proud of that. I think that a lot of companies have lost their way in terms of their research and development and frankly don't have the quality of scientist that we have. I guess I can say that if I don't mention any particular company. So they have to look outside for their molecules. Now, if you're going to start a biotech company, you can get some scientist together. You can do some experiment. You can maybe raise enough money to get a molecule into the clinic. But remember as you start doing the later stage experiments, these experiments cost hundreds and millions of dollars and it's unlikely that any small company... I would say it's not unlikely, it is impossible nowadays that any small biotech company would be able to raise enough money to do its own large Phase III clinical trials. So the companies have to partner with larger pharmaceutical companies which have the resources to do that. So, while we have 1,300 scientist at Genentech-that doesn't include the clinical groups and so on-however many scientists we have, we will always be a small part of the overall life science industry. And I have a business development group that reports to me, just 25 people. Many have PhDs and MBA; some have MDs, PhDs and MBAs. I'm under educated compared to some of these people. And they have the world divided up into territories and we're constantly looking to in-license innovation that comes from outside of Genentech. So we're very, very conscious that we don't have all the good ideas. We don't invent all the good things. Hopefully, we're somewhat less dependent on it than some of the other pharmaceutical companies who's R&D may not be quite as good, where they, as you said, almost solely depend now on in-licensing. Some of the companies have so much money and are getting so desperate because of the drugs coming off of patents. When a drug comes off of a patent and becomes generic, if it's a simple chemical, not a protein antibody, the generic companies move in and basically, the innovator price falls by usually about ten-fold in six months. And there's huge, huge patent expiries coming in the industry. So people are quite desperate right now. So I would say a lot, but they made a ton of money off of these molecules over the last decade. So now going to the small company and say, "Look, we don't to license it. How much do you want? We'll buy you." And, yeah, that can be a very lucrative model for a start-up biotechs, if you can bring a molecule into the clinic and interest a large pharmaceutical company in the molecule and start with, let say, $20 or $50 million of capital and sell the company five or seven years later for half a billion dollars. So that's not bad. The question is how I'm sort of inward-looking and coming from academia and so on, worked in the lab, sort of been with my students and so on. But now, I have a thousand people that work for me, how do someone like me motivate folks? So, at Genentech, we work a lot on our culture. We spend a lot of time thinking about our culture. I have a leadership team. We motivate people by the fact that we are doing work that we believe will really, really help patients and sick people. And if you think about, if I think about, the kinds of molecules that we have in clinical development for things like Alzheimer's disease, asthma, cancer, infectious disease, psychiatric disorders, if our portfolio plays out reasonably successfully over the next decade, it could actually be the case that we will rather directly affect every family in the developed world. I mean, who doesn't know someone in their family that had one of those diseases? So, we really, really help patients and that is extremely motivating to me. And it's unblind, the clinical trial, especially on oncology clinical trial where you give half the patients the drug and half the patients a placebo. And the end point is how fast they die. I mean, to unblind the clinical trial like that and to see that you've made a difference is really, really... Most, I mean the room usually starts crying. It's really really... So the first thing is, meaningful work. We believe we do meaningful work and we talk about it. So I had a town hall last week so all 2,000 people. We had a patient come and talk. The patient is taking a hedgehog inhibitor. It's for a number of diseases but largely basal cell carcinoma. This guy had a disease called Gorlin's Disease. It's fairly rare but it's a basal cell disease again where you get large growths and if they're not surgically removed, they can be... Mostly they start on your face and then your trunk. He's had it his whole life, it can be fist size. And he's a salesman. And he said, "My whole life I went out doing sales and I had big scars all over." A chunk of his ear is gone. This is a targeted drug. It's a mutation in the pathway that gives rise to this disease. He takes our drug, all the lesions are gone. He hasn't had one since he started taking the drug. He was so thankful. I think that's a big, big motivator for our industry and it's maybe a little different than other industries. I mean, I'm sure I love iPhones but they don't save my-probably does save my life actually. I couldn't say that. But it's a little different. So I think that's really the number one thing. And then we motivate people through, there's always compensation. So we have three components to our compensation: salary, stock and bonus. We target salaries at the 50th percentile of the market and we have a target bonus that's at the 50th percentile. But there's tremendous upside depending on the performance of the company and the performance of the individual. Did you move a molecule into the clinic? Did you publish a bunch of great papers? Were you the lead clinical scientist on a Phase II study where the design was terrific and it worked, et cetera, et cetera. So, bonus, and of course, stock which tracks with the overall performance of the company. So, I think those would be-I can talk about that for a long time-but I think those would be the two major things.
There are ethical issues everyday. There are a lot of ethical issues around the clinical trials. For example, you have a drug that you're pretty sure is going to work and we're required in a number of cases by the FDA to have a placebo group. And nobody wants to be in the placebo when we're doing a survival trial. Nobody wants to be in the placebo group, and one could question whether it's ethical to even have a placebo group or whether you should just put everyone on the drug and compare it to historical standards, which of course is not as good an experiment, that's for sure. But these are real folks that you're treating. So a lot of our issues around our clinical trials are basically determined by the FDA, where I tell us, "No placebo control, no approval, no drug for anybody." So we're required in a lot of cases and we often-often-we sometimes disagree with the FDA on whether it's ethical to have a placebo group. But in the end, they're the regulators and they would rather be really, really sure that you have a drug that makes a difference that you can then market to hundreds of thousands or million people than to... And maybe for some folks, not to get the drug early on and to be sure in the end that it's a good drug. So a lot of our ethical issues around our clinical trials are determined by the regulatory agencies and we basically just have to follow what they say. Now, in terms of drugs and their use in the third world, we wouldn't, frankly, try and make a drug for a third world country disease because it's not profitable. And fortunately, there are groups like the Gates Foundation now that are putting that kind of money into those kinds of clinical development work, that are starting to think more about that. But we can't justify to the people that buy our stock everyday that we are going to spend $1.5 billion and then give it away. Now that's for better or for worse, and that's not the way the rest of the world functions nowadays. If it's free enterprise, it's going to determine what drugs are made. And it's a growth hopefully driven business, I have to justify at the end that there's some return on the investment that I make. In the United States, for example though, it was really a bit of a fallacy that our health care system was so terrible. I mean, in terms of prescription drugs, if you have insurance, insurance pays. If you have insurance and you have to make a co-payment and sometimes on an expensive drug, the co-payment can be more money than someone will have. So if you couldn't afford the co-payment, we paid it. And if you didn't have any insurance and you needed the drug, we just gave people the drug. So somebody want to do a... 60 Minutes wanted to do a story once on one of our expensive cancer drugs and to find somebody that was dying because they couldn't get the drug and make us look bad. But you know what, they couldn't find anyone who wasn't getting the drug. So that drug, we've given away, I don't remember what the number is, billion dollars worth of free drug. We spend a lot of money every year on co-payments for folks. So we believe that, least in the Western world where we operate, everybody has access to our drugs, even if we just give it to them for free.
