The outspoken Genentech CEO, Arthur Levinson

I really enjoyed reading the interview with Genentech’s CEO, Arthur D. Levinson in yesterday’s Wall St. Journal. He says what he thinks, even if it doesn’t always make him popular. He’s in a good position to do so, too, since he runs the world’s most successful biotech company, which makes a variety of excellent drugs. Levinson himself was deeply involved in the scientific work that paved the way for breast cancer drug Herceptin.

Levinson is quite the rhetorician. Let’s take a look at a couple of interesting excerpts:

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…

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.

I think his points are generally right. But he uses a classic technique: talking about the issue in macro terms. I don’t know that anyone has said that cancer drugs are bankrupting America. On the other hand, the drugs can bankrupt cancer clinics (as the WSJ itself has reported in the past) and certainly put the strain on some patients.

The WSJ interviewer is no fool, though, because the next question is:

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

And the answer is kind of wishy-washy.

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…

Our margins are respectable, but not off the chart. They are not Microsoft margins; they are not Oracle’s margins, even…

But Microsoft and Oracle don’t give products away, so what point is he really making? The truth is the price is capped in order to ward off price regulation, but Levinson isn’t brave enough to say that.

He also addresses an issue I’ve been writing about: generic biologics.

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. [But biotech drugs are more complex than generally appreciated.] 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.

That sounds very reasonable, until you realize that requiring full-blown clinical trials, and then also insisting that such generics not be considered fully substitutable, would be enough to prevent a biogeneric industry from emerging. As I’ve written, the industry doesn’t like to admit that its own products aren’t necessarily identical from batch to  batch. Plus, when they make process changes they just do bioequivalence studies, not full phase III trials. That should be good enough for generic companies, too. (Though I actually think Genentech should be allowed to keep its post-patent monopoly, albeit at a regulated price.)

Levinson also has an interestingly-phrased answer about immigration policy.

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.

I thoroughly agree on the desirability of a liberal immigration policy. But Great Britain, France and Germany? Sure it’s hard for citizens of those countries to come here. But why cite those countries rather than say India or China? Does he think putting a European face on immigration difficulties will lead to greater sympathy?

June 6, 2007

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