NewCo Shift Forum 2018

Can Mission Trump Earnings?

Bill Anderson, CEO of Genetech, on the role of the corporation in the competitive, cutthroat business of drug discovery

NewCo
NewCo
May 22, 2018 · 16 min read
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While much of this year’s Shift Forum focused on the ever-expanding intersection of technology and politics, investigating the shifting role of business in society also requires we talk about established businesses, in particular those who might teach us lessons we can apply to today’s most pressing issues. In the interview below, the New York Times’ Corner Office columnist David Gelles speaks with Bill Anderson, CEO of life sciences giant Genentech.

John Battelle: We’re here. We’re in San Francisco. We’re in the Valley. We’re in the center of technology. Yes, we’ve heard from a lot of people in tech.

We forget that there’s a whole part of technology that is deeply entwined with this physical region. It has less to do with computer science — although that field has changed it dramatically in the last 10 years — and far more to do with biology and chemistry.

One such company has been a fundamental force in the Bay Area, in both as a startup, as a leader, as an innovator, then as a large company which was acquired by an even larger company. It struggled with innovation and had to go through all those kinds of changes. That company is Genentech.

I’m so pleased that the CEO of Genentech is here. I am even more pleased that the columnist for the New York Times who covers the corner office, David Gelles, is here. Please join me in welcoming David Gelles and Bill Anderson.

[applause]

David Gelles: Thanks very much. Bill, how are you doing?

Bill Anderson: Great.

How’s everyone out there doing?

[audience shouts]

All right. You will be rewarded. Bill, John just said it. A lot of the attention in this neighborhood goes to the Facebooks, the Apples, and the Googles. Let’s just refresh everyone in the room about Genentech. Genentech is how old?

41 years.

How many people work there now?

About 15,000.

How much square footage do you have devoted to research in your South San Francisco campus?

Wow. Let’s see, about 800,000 square feet. Just to put it in perspective for those of you who don’t go around measuring things in square feet, the annual budget for the National Cancer Institutes is about $5 billion. Our annual R&D budget, with our greater R&D enterprise, is about $10 billion.

Fantastic.

It’s a big research enterprise.

Glad you’re still doing R&D. How many drugs do you have on the market currently?

About 40.

Treating what range of diseases, from what to what?

A lot in cancer. We’re the world’s largest cancer treating company, but then we also treat things from asthma to rheumatoid arthritis, multiple sclerosis, stroke, and on.

How many patents has the company received over the years?

About 20,000.

20,000 patents. Good work you’re doing out there. We’ve been talking a lot over the last couple days about the role of business in society. I feel like Genentech probably has a unique view on this as a company that’s making life saving, life extending medicines and drugs. How do you think about the role of Genentech in society?

It’s actually really simple. Our company was founded by a couple of folks. One of them was a professor at UCSF. He brought his professor’s quest to make something great, to do great science into the company, and we never got past that. I’m glad we never got past it.

That’s basically what Genentech people get excited about, is to come, do great science, and to make advances for patients. That sounds quaint. I know it sounds quaint. You could say, “Everybody does that.”

I was really blown away when I came to the company about 12 years ago. I had a conversation with our CEO at that time. He said, “Bill, you’re going to have choices you have to make. We have to decide, there’s some tactics, something you want to do.

“You’re not positive that it’s the best thing for patients, but it will help you make your earnings target. When you have that choice and every time you have that choice, I want you to miss your target.”

I was like, “Whoa.” I’ve never been instructed to miss my targets in my time in business. That is what it means to be mission focused. To say, “We’ve got a mission and it trumps everything.”

That’s the same instruction we give to everyone who comes in the door whether they’re entry level or a new executive. It’s like, “This is what we mean. We’re not kidding. It’s not something quaint on the website. This is how we live.”

The CEO can say that, but give us an example. What’s an instance where that actually has happened in, say, the last year?

We have really talented women and men that are making that decision everyday on many matters. I’ll give you two examples. In the last year, we’ve launched two groundbreaking new drugs.

One in multiple sclerosis which is the first medicine to treat primary progressive MS, among other things, and one for hemophilia. In each case, when we went to price these drugs and we looked in sort of, “What’s the going rate for medicines?”

We heard so much outcry about the price of multiple sclerosis drugs that when we priced our drug, we decided actually to price at a 25 percent discount to the drug that we beat in clinical trials. That’s not the way things are done, but we said, “That’s the right thing to do.”

It’s not going to maximize near-term earnings. I don’t know if it’ll ever maximize earnings, but I know that we have a responsibility to society. We’ll take those choices. We did the same with our hemophilia medicine. We priced it actually less than half than the standard of care that we’re replacing.

I want to come back to the corporate culture that allows you to make decisions like that. First, we got to address something you alluded to, which is that the reputation of your industry is not necessarily the best.

There are complaints every day about high drug prices, about putting profits before patients. Are those claims unfair, and how do you address them? How do you talk to them with your employees because I got to believe that you’re getting lumped in with some of this backlash against the pharma industry on a day-to-day basis?

No, it’s true. Are the claims unfair? I think sometimes they’re unfair, and sometimes they’re not unfair.

You want to name names here?

No. I will say that the industry needs to do a better job at policing itself and needs to rethink this whole thing because we have a contract with society. It’s not a written contract, but we have the most vibrant life sciences industry in the world by far. This is the center of medical innovation for the world.

Part of the reason that works is because we have a country that supports innovation, fundamentally. We can have a long conversation about that. I’ve worked in five other countries. There’s nowhere on earth that will pay for innovation.

We say, “Support innovation.” Everyone supports innovation. You got to be willing to pay for innovation to really support it. We have that, but that’s fragile. It’s there because there’s a notion of benefit and cost, and that there’s a balance.

When we lose that and when our industry loses that, that’s a big loss. Not just for the industry, that’s a loss for medical innovation. That’s a loss for future patients. Things need to change.

Do you have a concern that there’s not enough primary R&D being done at the big pharma and biotech firms right now? Is there a risk that that’s been outsourced to the startups? Is that a problem?

I don’t know. I think you could go back and forth. The startups are really good. Some of the big companies are doing some really great R&D.

Some companies choose to outsource more. Certainly, companies that go around like a hedge fund that buys a drug, an old drug, and jacks up the price, that kind of thing. There’s really no place for that.

There’s a lot of companies doing great innovation. We just need to all make sure that our pricing practices are as good as our innovation.

I grew up in the Bay area. I was familiar with Genentech as a kid growing up. I was peripherally aware that it was a big employer, an important company in the region. Then in 2009, it was acquired by Roche, a big Swiss drug maker.

At that moment, a lot of people could have thought, “Well, there it goes, and that a company with proud Bay Area roots might suddenly be just another profit center for an international conglomerate.” Is that what happened?

It’s interesting. Roche said at the time, “That’s not gonna happen. That’s not happened.” It’s a unique company. We’re all familiar with the M&A saga. The big company takes out the small company, and the small company dies.

Roche is a very unique company with a long legacy of really bringing good to society. They basically said at the time they bought the remainder of Genentech. They said, “Look, keep going. We are buying this innovation. We are buying your contract with society. That’s what we want, and we don’t want to mess with it.”

That’s why we have a board of directors. That’s why we have an executive committee. That’s why we have the world leading R&D investment. Frankly, at times that’s given me the freedom to make choices as I mentioned.

I don’t have investment analysts killing me because we priced Ocrevus lower than the standard of care. There’s a freedom that comes with long-term investors, a family ownership structure. There’s definitely been a lot of good that’s come from it.

You just mentioned the family ownership structure. Just to be clear, Roche is a dual-class share structure. Is that fair?

Yeah.

Where the family controls the majority of the voting shares.

That’s right.

That gives them this protection. It’s very easy to be able to make these longer-term decisions, to be able to sacrifice the near-term profits. Do you feel like it’s possible for companies that don’t have those structural protections to make these same choices?

When you talk to your peers at other companies, they might look at you and say, “Easy for you to say. Investment analysts can breathe down your neck all they want. They can’t replace the board.”

It’s possible, but the bar is high. In other words, you have to have a lot of credibility with your investors that you do have that short, medium, and long-term strategy, and that it’s really going to hang together in order to not be delivering maximum earnings in the next quarter.

If you look across, there’s great American companies. There’s great other publicly traded companies in the West, where they do have that long-term outlook. These are really the blue-chip companies, the best, and of course, growth companies.

You have some young companies. They’re allowed to make those sorts of choices on the basis that it’s going to pay off down the road. It’s possible, but it’s not easy. It’s probably getting harder.

Sue from the Gates Foundation was here yesterday, a 14-year Genentech alum. She talked about that moment of the acquisition. She said when it happened, people started referring to you guys as “big biotech.” It was this dirty word that sent a chill through the halls.

Yet, you maintain that Genentech has been able to maintain a quick and nimble culture of innovation. How have you done that?

I would just say on “quick and nimble,” I don’t think we are as quick and nimble as we’d like to be. This is probably a theme at the conference. I know it’s a theme in business. A lot of companies, especially larger companies, have found themselves getting more complicated as the external environments got more complicated.

They’ve matched sub-specialization in the market with sub-specialization in the company. At some point, it gets to where the machine takes over. We’re embarked on a multiyear quest to actually simplify and to make sure that we don’t overcomplicate things, that individuals are still able to make a difference for customers every day or for patients.

I would just say, I would separate that from the question of the acquisition, because frankly, I couldn’t really point to Switzerland on that. I know I’m talking to a lot of other business leaders and leaders of other enterprises. We sometimes have the complications of our own making that we have to fix.

You mentioned this reorganization. First of all, is that going to result in a loss of jobs?

I’m not confident that we end up with fewer jobs. We’re growing our portfolio quite rapidly, the number of new medicines and things. It does mean adjustments at times. There may be fewer jobs here and more jobs there. Over time, it’s an adjustment.

That aside, what do you do when you look at a company as complex and as large as Genentech? How do you actually streamline an org chart in a way that you feel could make the company maybe, a bit quicker and nimbler? What are you actually looking to do?

Is it about stripping away layers of middle management? Is it about making sure not too many people have too few reports? How do you actually think about a criteria through which to make some of these decisions?

You do have to have rallying principles. For example, in the commercial area at Genentech, we’ve looked and said, “We’ve gotten, at times, very internally focused.” What do we want to accomplish? How does our structure work? If department A and department B aren’t getting along, or somehow we need a better liaison between them, we create a department C to manage that.

At a point, you can lose sight of the customer. In this case, we’re saying, “No, no. We’re stripping this down and making it really clear.” The goals are not 26 metrics. The goals are being seen as the number one company in the eyes of the customer, and that every employee feels like they can make an impact on something that matters every day.

You just measure two things. They don’t lie. They are what they are. You clear the decks. You get rid of scorecards that are five pages long and all the boxes are green. By the way, companies get really good at making all the boxes be green.

You clear all that out and say, “No, we don’t care about that.” Does every employee feel like they can make a concrete difference on something that matters every day? Are customers thrilled with what they’re getting from our company? That’s one example in commercial.

We’re going through that process, function by function. What really matters? Is it delivering for a customer? Is it advancing the science? How do you make sure that 95 percent of people’s energy is actually going to that, instead of in meetings or endless procedures? Big companies, we get really good at creating all that stuff, instruction books. We’re not so good at using them.

You just talked about the sense of purpose that you maintain your employees have in spades. How do you as a CEO communicate that to your employees? I’m asking for specifics here. Is it about conference calls? Is it about reiterating the actual mission? I just wonder, how do you actually remind them what everyone is there to do on, be it a weekly, monthly, or quarterly basis?

Probably the most tangible examples are the patients themselves. If you come to the Genentech campus, we have these 30-foot-tall banners hanging around the campus, with individual patients and a little bit about their story. That’s a daily example.

For example, in December, we had a lady named Eve, who came to talk to a group of about 1,000 employees, who was diagnosed with metastatic colorectal cancer almost a decade ago. Her outlook was probably about two years of life expectancy.

She received at that time a Genentech drug, Avastin. She went on to receive a number of other Genentech drugs, including in the context of clinical trials. She’s now on another clinical trial of a really unique combination of cancer immunotherapies, two different ones that we make that are experimental.

She basically came and said, “Look, I’ve been able to raise my children. I’ve been able to celebrate anniversaries with my husband. I’ve been able to continue my job.” A really remarkable person, I have to add.

“I’m alive because of these five products that you’ve made. I’m alive today because I’m on a clinical trial of your products right now. I need you to keep innovating because you are my life. You are keeping me alive. If you stop innovating, then all that stops for me. That’s it. You don’t have to explain, “Why are we here?” after that.

You get a sense that tech in the Bay Area is sometimes more about sharing stories. This is the kind of work you’re doing here. Talk to us briefly about cancer. We’ve got the Vice President Biden’s Moonshot going on.

I hate to use the word “optimism.” Is there a cause for hope among the general population that, if not a cure, are we close to an inflection point where more patients with the right drugs can reasonably expect to start lengthening their lives, even with some of these very severe types of cancer?

Yeah. It’s a remarkable period in progress for cancer. I would say probably, if you were going to quantify it, this decade is probably something like a doubling of the pace. Maybe, it’s more than that, a pace of progress.

Yet, there’s so many tumor types where we don’t have great solutions. I think remarkable progress, to think that we’re going to end cancer in the next 5 or 10 years, that would be crazy.

The fact that we are going to find for a lot of people with advanced cancers, metastatic disease, solutions that allow them to live good lives for a long time, that’s happening. Lung cancer, melanoma, kidney cancer, there’s several major cancer types where we have big, big progress, lung cancer probably the most notable.

There are tens of thousands of people in America just alone receiving cancer immunotherapies for lung cancer and going from a six-month life expectancy to, who knows? They’ve been alive two or three years. They’re getting on with things. It is a remarkable time.

That’s great. Keep up the good work. We’ll take questions in just a minute. I’ve got two more for Bill. If people do have questions, they can come to the microphone.

Genentech’s a local citizen and a global citizen. One question on the local front, and one on the global front. On the local front, I don’t need to tell anyone in this room that the region is in a housing crunch.

There’s some press around a proposed housing development right in your backyard. You are opposed to it. Explain to us why a company like Genentech would be opposed to more housing in your neighborhood.

We’re definitely for more housing. The specific proposal we’re questioning because it’s a very small number of units. It’s right in the middle of one of the largest industrial zones in the Bay Area. From our standpoint, so far, from what we’ve heard, it just doesn’t make sense.

What are you actually doing to help with the housing problem?

We’re part of their housing coalition. We’re actually proposing a number of solutions, including right in our backyard, including opportunities to develop more housing along the 101 Corridor. That’s close to public transportation, businesses, other residences. We think there are some good solutions in the offing.

More traffic on the 101, just what we all need. [laughs]

No, no. It’s the 101 Caltrain Corridor.

That’s better.

[laughter]

You’re a global citizen, too. Last year, when the travel ban was implemented, you spoke up. Why was it important for Genentech as a company that we don’t start putting really strict travel restrictions in place?

As a science-based company, we’re super-dependent on the best science talent from wherever it comes. Some of the countries on the list, for example, of the banned countries offer a lot of scientists. This created an immediate hardship for scientists and their families.

For us, we didn’t want to make it a political issue about this party or that party. It’s back to our mission. We need scientists to advance medicine. We need to have access to the best scientists. That’s what the source of our speaking up was. That also led us to our tactics. The company is not on a protest movement. The company is working to advance our mission for patients.

Is that the lens through which you evaluate how you’re going to speak up on different issues, be it taxes, immigration, or gun rights, for that matter? Does it have to be core to your mission for you to get involved?

Core to our mission is the sweet spot for us. We recognize we have 15,000 employees. They have lots of different political views. What brings us all together is our desire to do something better for patients. That’s our bedrock.

We’ve got time for two quick questions and two quick answers. On this side first, please.

Chad Robbins: Hi, Bill. I’m Chad Robbins. I’m the CEO of Adaptive Biotechnologies. Thanks for being here. While we haven’t met, we do a lot of work with your teams, both in genetic research, in early development, also on pRED, Roche side, across the immuno-oncology franchise, heme franchise, etc.

I do have a quick comment. We do work with almost every pharma company you can think of. Your team is fantastic and is actually that good in distinguishing.

BA: Thank you.

CR: A question that I have for you. About close to four years ago now, Roche bought 50 percent of Foundation Medicine. A couple of weeks ago, you did a deal for Flatiron Health.

This is bringing it back to a tech audience. John alluded to it in his opening about the importance now of data. My question relates to, “How do you view the importance of diagnostics, biomarker, and I’ll say, data in general to your portfolio in drug development?”

BA: Great question. It’s super important. We think the simple terms are like three Ds. You have Diagnostics, Drugs, and Data. That’s grossly oversimplified. We need to be really leaders in all three areas.

On the data front, it’s still going to be the medical side of data. Our sweet spot is the medical understanding and what you do with the data. We’re not going to be entering the tech realm. We will be bringing a lot of the tech realm into our medical competence.

DG: This side, please.

Jerry Jones: Hi, I’m Jerry Jones. Last night, we had the opportunity to be with Governor Chris Christie, who has headed up the President’s commission on the opioid epidemic.

The opioid epidemic was brought to us largely through prescription pads in doctor’s offices, prescribing a medicine that had been believed to have certain effects over a certain period of time, that had different effects, and has directly led to an epidemic of deaths and addiction in this country.

In such a situation like that, how does a company such as yours, if you’re ever faced with that, think about making amends and fulfilling the ongoing obligation that you’ve talked about, being the social contract with the American people and patients?

BA: We’ve not been in that realm of pain medicines. It certainly is a crisis. Our approach to that is similar to what we do in other things. We look and say, “Do we have something to bring on this?” We’re pursuing novel biologies for treatment of pain that don’t involve a systemic effect and are nonaddictive.

Unfortunately, a lot of the emphasis on new pain medicines is, “How do you make medicines that still act on the central nervous system and somehow make them less addictive?” That’s really incremental progress.

We’re going for a totally different approach like, “If you don’t want to alter people’s minds but you need to treat their pain, then how do you treat the pain and not the mind?” That’s the approach we’re taking. We’re scientists. We try to do our good through the things we’re good at. That’s our approach.

DG: All right. I think we can all honestly say, “Keep up the good work.” Thanks, Bill.

BA: Thanks, David.

[applause]

NewCo Shift

Covering the biggest shift in business and society since…

NewCo

Written by

NewCo

NewCo explores the stories shaping the world’s most innovative companies through experiential festivals and media offerings. https://medium.com/newco

NewCo Shift

Covering the biggest shift in business and society since the industrial revolution

NewCo

Written by

NewCo

NewCo explores the stories shaping the world’s most innovative companies through experiential festivals and media offerings. https://medium.com/newco

NewCo Shift

Covering the biggest shift in business and society since the industrial revolution

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