Genentech Blockbusters: CEO Interview

How Genentech Wins At Blockbuster Drugs: CEO to Critics of Prices: 'Give Me a Break'

By MARILYN CHASE

June 5, 2007; Page B1

The founding of Genentech Inc. in 1976 launched the biotechnology industry, which engineers drugs from living cells instead of test tubes. Headquartered in South San Francisco, Calif., Genentech just finished its best year ever, with a 72% surge in profit to $2.39 billion, driven by Avastin for colon and lung cancer, Rituxan for non-Hodgkin's lymphoma, Herceptin for breast cancer and Lucentis for blindness.

More than 300 studies presented at the American Society of Clinical Oncology this week will involve the use of the company's drugs against more than 15 tumor types, a spokeswoman said. (Another promising use for Avastin; see related article1.)

Genentech's philosophy is to create medicines to fill unmet needs and to recoup its big research-and-development investment -- $1.8 billion in 2006 -- by charging premium prices. A year's supply of Avastin, for example, costs $55,000. But the company is feeling mounting pressure from Congress and Medicare to curb prices and from competitors seeking to produce rival generic products.

Chief Executive Officer Arthur D. Levinson, who has a doctorate in biochemistry, joined Genentech as a senior scientist in 1980 and did pioneering work on the cancer gene HER2/neu that led to the blockbuster Herceptin. He recently spoke with Wall Street Journal editors about the challenges facing his company and the health-care industry. Excerpts:

WSJ: You have multiple blockbuster biotech drugs on the market and more on the way. In such an uncertain business, how do you manage scientists to achieve that kind of success?

Dr. Levinson: We are first and foremost committed to doing great science. If a drug can't be the first in class or the best in class, we're just not interested. We're not looking to achieve incremental advances or extend patents or do X, Y, Z unless it is going to really matter for patients. That allows us to bring in phenomenal scientists and encourage them to do the basic and translational research.

We decided 15 years ago that we would be committing to oncology, which at the time for us was new. We are now the leading producer of anticancer drugs in the United States. We took a lot of risks. In many cases, those risks paid off. We are now also in immunology. Again, the role of management here is to set the broad direction and then hire absolutely the best scientists and bring them in and say, 'Do your stuff.'

There are always trade-offs -- in the short term, between the cancer patient, or the immunology patient. You can't do everything for everybody. Last year, we spent $1.8 billion in research and development. It's a serious job to prioritize everything that's in the pipeline and decide where we are going to spend those precious resources.

The third thing is we place a huge emphasis on making Genentech a great place to work. Eight or nine years ago, we didn't appear on many lists of the best places. We started doing employee surveys, asking, people 'What do you like; and more importantly, what do you not like about the company? What bothers you?' We've been pleased by the validation. We made it to Fortune's Top 20 List four years in a row. Last year we were No. 1. [This year, Genentech slipped slightly, to the No. 2 spot, behind Google Inc.]

WSJ: How do you balance the high cost of innovation with the pressure to cut cancer-drug prices?

Dr. Levinson: Since 1976, when our company was founded, the biotech industry has lost $90 billion in aggregate. I think it's the biggest money-losing industry of all time. It is hemorrhaging. There are some exceptions: We are doing well, and Amgen is doing well. But for most of the 1,300 to 1,400 companies -- 300 or 400 of them public -- this is a money-losing enterprise.

You don't just crank these drugs out. My lab cloned a portion of the breast-cancer gene in 1982. And we started making antibodies to it in the mid-'80s. Then we got cell-culture results in the late '80s and by the early '90s we were getting animal results. And then approval was in December '98. So this goes back a long, long time. Unless these companies can get a return, we are not going to get the new medicines that are making such a difference to patients' lives right now.

There's another way to look at it -- look at how much society is investing in cancer. In the absence of better care, 42% of everybody out there is going to get cancer. And half of those 42% are going to die of cancer. It's the leading cause of death among Americans under age 85. So how much are we spending on drugs for cancer? We have a $12 trillion GDP [gross domestic product]. And we're spending $15 billion. If I do that math, 1/800th of GDP for the leading cause of death. And people say cancer drugs are bankrupting America! Give me a break.

WSJ: So what led you to cap the price of Avastin at $55,000 a year?

Dr. Levinson: That came out of a lot of feedback from payers and patients. We have patients on Avastin for a very long time. We have healthy margins on the drug. We have to have healthy margins because so few of the drugs make it....But at that point, we can afford to give the drug free. That was part of it.

Once or twice a year we will bring in payers...patients, people who are complaining strongly and understandably about the high price of drugs. We bring them in for a two-day symposium, and you can audit our books. Our margins are respectable, but not off the chart. They are not Microsoft margins; they are not Oracle's margins, even. At the end of the day, it's not that everybody applauds and says we're happy paying the price of your drug. But they understand what goes into the equation. And the vast majority of them say this was a revelation, now we understand it.

WSJ: What's your reaction to the Democrats in Congress who are trying to pave the way for generic versions of biotech drugs?

Dr. Levinson: There's a lot of impetus to allow the FDA [Food and Drug Administration] to approve generics. Our position is we don't mind that. Nobody is looking for free handouts here. But what's missing from the Waxman-Schumer-Clinton Bill is an appreciation for the complexity of the science involved in producing a generic biologic in a pill.

Makers of pharmaceutical pills can show chemical equivalence easily. But if you are producing a biological, it is not made by chemical synthesis. It is made by a Chinese hamster's ovary cell or an E. coli bacterium -- a very complex route. We do not yet have analytical techniques to tell you that a copy is clinically identical to the innovator's drug. Our recommendation to the FDA would be to simply require a clinical trial to make sure that the drug is behaving in the clinic as expected.

WSJ: You recently said that the factor limiting R&D isn't money but the ability to find the best people. Aren't we producing enough people?

Dr. Levinson: I think Bill Gates made a comment about immigration and the fact that we make it most difficult for the smartest people to come into this country. We're tightly constrained in terms of bringing great scientists from Great Britain, France or Germany. We struggle to bring in these incredible people who are going to help the economy, help patients and help our business grow. At the end of the day, it will only be good. But we are making it tough on ourselves.

WSJ: You have an unusual situation in which some doctors are treating macular degeneration with your cancer drug Avastin, even though it hasn't been approved for that use, rather than your pricey eye drug Lucentis, which has been. And now the government wants to set up a bake-off comparing them, but you made the decision not to supply drugs for the trials. Why?

Dr. Levinson: To give everybody perspective, I have to go back in time: Fifteen years ago, one of our scientists, Napoleone Ferrara, had purified a protein, VEGF [vascular endothelial growth factor], that induces blood vessels to form. It's been a theory for probably 100 years that [cancers] have some weird way of bringing in blood vessels that nurse the tumor and allow the cancer to grow. Ferrara showed that, lo and behold, 90% of cancers overexpress this protein. It was a semirational leap of faith that if you interfered with this protein, you could block the nourishment of the tumors from blood vessels. That led to the development of Avastin, a monoclonal antibody that blocks VEGF and is now used in colorectal and lung cancer.

About 10 or 12 years ago, Ferrara showed that in patients with macular degeneration, there's also a very high level of VEGF. There's too much [vessel formation] at the back of the eye, near the retina. So he thought, maybe an antibody to VEGF might also help AMD, the leading cause of blindness over age 55.

So we spent two years doing protein engineering. We made it bind more tightly, smaller to reach the back of the eye and noninflammatory. We made three important changes and ended up with Lucentis.

We did a Phase I study and showed that this drug doesn't cause any problems. We did a Phase II study, and we started seeing some incredible, near-miraculous results. We did the Phase III trial, and it confirmed absolutely the Phase II results. And we published the data, and people saw that an antibody to VEGF can potentially save vision. But the drug [Lucentis] wasn't approved. [That was in mid-2005; Lucentis won approval for eye use on June 30, 2006.]

This is a disease that over the course of days you can go from 20/20 vision to losing your eyesight. It's very, very quick, and once you lose your vision, it's gone and you will probably never get it back. The FDA takes a very, very long time to approve the drug. But there was Avastin out there and it was already approved. So you could if you wanted to make a leap of faith that the Avastin molecule would also work in macular degeneration. But Avastin is not approved for that.

WSJ: There's a big difference in cost -- $2,000 a shot for the approved eye drug Lucentis, versus $50 a shot if a doctor splits off a small fractional dose of the cancer drug Avastin -- which was priced to be given in a large IV infusion -- into tiny opthalmic syringes so it is cheaper as an eye shot.

Dr. Levinson: There's a big difference in cost, right. We did Phase III clinical trials of Lucentis that cost $40,000 to $45,000 per patient [the most expensive clinical-development program Genentech ever undertook]. We spent two years to do all kinds of protein engineering to make Lucentis.

It is a very expensive enterprise. What would you suggest we do? We have $1.86 billion to spend on R&D. There are people dying of all kinds of cancers and immunological diseases and everything. We have what we believe are other potential absolutely breakthrough therapies. Would you take your money and do a two-year extraordinarily expensive equivalence trial? [Researchers say such a trial of Lucentis vs. Avastin would cost $50 million.]

Furthermore, access is not a problem with Lucentis. It's very, very difficult to come across a patient who at the end of the day won't have access to Lucentis, either by insurance or by co-pay assistance programs or by our free drug programs.

I have a philosophy -- I invite criticism. But don't ever come to me with a complaint without saying, here is what we might do to make it better. I am happy to hear Part A if I hear Part B.

Write to Marilyn Chase at marilyn.chase@wsj.com4
http://online.wsj.com/article/SB118100806142024548.html