San Francisco Chronicle - June 12, 2005
San Francisco Chronicle Staff*

Roche is widely praised for allowing Genentech to maintain its independence. The result: partnership in the commercialization of fast-growing new cancer drugs like Avastin and a 22 percent sales increase for Roche's drug division in the first quarter of 2005.

Humer, a lawyer by training, presides over a company whose strategy is to use scientific breakthroughs to shape the future of medicine.

In addition to co-marketing Genentech's biologically derived cancer drugs, Roche paired with Santa Clara firm Affymetrix Inc. this year to win the first Food and Drug Administration approval of a diagnostic test using the gene- scanning tools called DNA microarrays, or gene chips.

In a wide-ranging conversation at The Chronicle, Humer discussed the recent industry controversies over the safety of such drugs as Vioxx; what European drug companies can learn from American biotech companies; and how the Bay Area's business culture sets it apart not only from Europe but from the rest of the United States. The following has been edited for space and clarity. .

Q: For the past year, there's been a lot of concern about severe side effects of drugs. A couple of drugs have been pulled off the market -- Vioxx and the most recent one, Tysabri, the multiple sclerosis drug.

Even your drug Accutane has been mentioned as a possible threat to the public, because of side effects. What do you think is the problem with the system, and how much of it do you blame on the industry and how much the FDA?

A: I don't really blame anybody. The FDA, as well as the European authorities, are, and have been, very good in reviewing the safety of drugs. Where I think the system needs improvement is on post-marketing surveillance. How can we detect serious side effects in a large number of patients?

But what I think for the industry is important, we need to keep this in balance. There is a balance between efficacy and safety. There aren't any drugs without the potential of side effects. Therefore we need to see, where is this benefit/side effect ratio going wrong?

We ourselves have had experience with a drug that we had to withdraw in 1997 from the market -- Posicor. Those are, for a company, very difficult and very important decisions to make, together with the regulatory authorities. I think what the FDA is now planning to do, of reinforcing post-marketing surveillance, is a step in the right direction.

Q: Can you describe your experience with Posicor -- how the signal that there might be a problem came to light, and how the company decided to withdraw it?

A: We had no signals whatsoever in the extensive Phase II and Phase III clinical trials. Then the drug was used, because it was so efficacious, in the most serious cases.

That was a drug to treat high blood pressure, and it was used primarily in the elderly, who were on a range of medications.

All of a sudden, two cases of serious side effects appeared, which we reported to the regulatory authorities, (and) sat down to discuss. And while we were in discussions, a third case was reported. And at that time, we jointly agreed that we had to pull the drug.

Q: How can a drug company prevent those problems before they happen -- in the planning phases for clinical trials, or in looking toward the populations that will eventually use the drug, such as those who take multiple medications?

A: Very difficult, because very often the physicians themselves do not know which other drugs people, especially elderly people, take.

Second, side effects which are 1 in 10,000 or 1 in 20,000, it's very rare that you would pick those up in regular Phase III clinical trials or Phase II trials, which run for a few thousand patients, but not tens of thousands of patients.

Therefore those are things which you can only pick up in widespread clinical use, and that's (why it's important to have) the system of side- effect reporting, side-effect analysis, in-house safety boards -- the way we run them -- who review every side effect that gets reported. They follow each one of those up, classify it and monitor if there are any patterns in those side effects.

Q: To what do you attribute these controversies over Vioxx and other drugs, where the FDA is accused of moving too slowly when those signals did emerge?

A: I don't know the Vioxx case, so I don't know -- did they move too slowly, did they move too quickly?

There is one big difference between the drugs we, the Roche family, market. We market drugs for life-threatening diseases. We do not promote our drugs, because it would be inappropriate on television to a wide audience.

Therefore, we have a much tighter control on how drugs are being used; also a much better information base from the oncologist community, from the gastroenterologist community, from the transplant physicians, from the HIV physicians.

Q: One of the reasons why the FDA official Dr. David Graham included Accutane among five drugs on the market that he considered dangerous is that it is used off-label in populations where even the FDA and the company have tried to discourage its use. (For example, in pregnant women.)

A: That drug has been on the market for 18 years. The patent for Accutane expired some three years ago, so we are not defending any sales here, because I think the sales are $20 million or $30 million, so this is peanuts.

Off-label use (of Accutane) I think we have for the last 15 years fought tooth and nail against, and that is not an issue that you can put on the doorstep of the pharmaceutical company or of the regulatory authorities.

Q: What are your thoughts about the way drugs are marketed in the United States, and in particular, the use of mass-media advertising to the general public? Also, what are your thoughts about sales tactics and strategies that pharmaceutical companies use in the physician community?

A: We as an industry need to be able to inform the patients about drugs that are available for diseases.

We discussed with the European commissioner that patients in a very large European country, when they go on the Internet site of Roche and want to read something about Avastin, they are not allowed to. We can't show this.

If they speak English, they go to the U.S. Internet site and they can read everything they want. Now does that mean that only English speakers are allowed to be informed?

Personally, I'm not a proponent of this consumer-type marketing of serious medicines. I jokingly said, "One could get a complex when watching U.S. television, because I don't have the diseases which are being advertised, and only happy people seem to have those diseases. And they all have enormously wide teeth.''

So I think that's where perhaps the industry needs to look again: Are we really within the boundaries of patient information?

Q: What about the tactics that pharmaceutical companies use to promote their products with caregivers?

A: Again, I can only talk from the perspective of Roche. With our drugs, it is extremely important that we promote the Avastins, the Tarcevas, the Xelodas of this world to the target audiences.

An oncology sales force that is well trained and covers the most important oncology centers in the U.S. has probably between 60 and 100 (people).

This is extremely important for the physician to find out (and) discuss what is the best treatment that is currently around. So in that sense, those very experienced reps are an extremely important part in the diffusion of innovation. Success in this industry (is determined) by a company's ability to bring forward clinically differentiated products.

It needs to be something that is of a measurable, noticeable benefit. I do not believe that then the competitive advantage is only, "You have 3,000 salesmen, I've got 4,000 salesmen, therefore I win.'' I do not see that that is the future of our industry.

Q: Are you going to get to determine the future of your industry? Novartis' chief executive officer, Dr. Daniel Vasella, has become increasingly insistent upon a merger of Novartis and Roche, and now owns one-third of your shares.

A: Daniel Vasella has publicly declared that he is no longer interested in a merger, and that in hindsight, it would have been wrong for Roche to merge. We will not merge with Novartis -- nor with anybody else, by the way.

Q: Why not?

A: Because I think that's the wrong strategy. We are spending $4.5 billion per year on R&D, which means we've got the critical mass.

We've got a pipeline today which we've built up over the last seven, eight years, that, industry-wide, is considered one of the best pipelines in the business. I do not believe that megamergers produce value, and I think the results we are achieving are vindicating that strategy.

Q: What is the importance of this development that you're doing with Affymetrix on diagnostic chips?

A: I think that is a very important development that's commercially at its beginning.

The P450 chip, which can determine how you metabolize drugs, (can) therefore then influence which drugs you should get, at what dose you should get them, to minimize the famous side effects.

A chip that we're going to bring out later this year -- which will be able to determine the form of leukemia, and the best treatment for that form - - will revolutionize the way leukemia is diagnosed and the way it's treated.

Q: But after you get more and more targeted, developing drugs prescribed only to a specific population, you are narrowing that population of people that will benefit. Are you concerned about the impact on your bottom line?

A: No, no, I'm not at all. Look at Herceptin. Herceptin only works in 15 percent of women who have breast cancer -- who have an over-expression of that gene, Her2. This is a billion-dollar drug. But in those patients where it's used, it is highly cost-effective. It achieves a success rate that no other breast cancer treatment achieves.

That justifies also an economic price. But if you have to give a drug to all comers, and you know it works in 50 percent of the patients only but you don't know in which 50 percent, that's when treatment becomes expensive.

We will probably in the next 18 months be able to have a test that predicts the efficacy of osteoporosis treatment in women in menopause, based on gene variation.

I'm not afraid of that test. If it narrows my target population -- great. But if I get an 80 percent success rate (with a drug for that smaller group) -- wow!

(Then the company might) be faster in clinical trials, and regulatory approval, in acceptance on (health plan) formularies. I've got so many other advantages, which I can use to the economic benefit.

Q: And also a soaring price. A course of Avastin costs $40,000 for colorectal cancer, and they're testing a double dose in lung and breast cancer, which would presumably cost $80,000.

A: That's again an assumption, at this point in time.

Q: Today, the U.S. market is twice the size of the European market and far more profitable. However for the United States, at some point, we're going to run out of money.

A: I think spending on health care will be one of the great challenges of the 21st century, because we all want to live longer, and we want to live a better quality of life.

Q: What's your response to those who criticize you for not making drugs available for reasonable prices in poor countries?

A: A lot of that criticism was focused with regard to AIDS and HIV. With AIDS and HIV today, access to drugs for the developing world is no longer an issue. The issue in most of the countries is one of priorities of the local health care system, it's one of health care infrastructure, it is one of nursing, it is one of government priorities in order to invest in that area.

In terms of AIDS and HIV, we, Roche, together with a couple of other companies, work very closely with most governments in sub-Saharan Africa, Thailand, China, Brazil, in order to make those drugs available at different prices.

I think we've made very substantial progress as an industry to counter that criticism, which I would say was fully justified five years ago. The industry made a mistake at the time. A big PR mistake.

Q: When I was in Singapore, I went to a large biotech complex there. They boast about having the FDA setting up an office there to monitor the progress of their manufacturing capability.

In terms of lowering the price of drugs, is outsourcing a strategy for you -- to place manufacturing facilities in areas where labor is cheap?

A: No, the issue is not one of cost there. The issue is one of supply, safety and guaranteeing a supply chain. We are also in discussions with the Singaporean authorities, because they have a very interesting concept there.

We're trying to distribute our manufacturing capacity among three major sites at the moment -- Basel, Germany; South San Francisco; and Vacaville --

and register all sites for all products, so that we can shift capacities around.

Q: May I ask what you find to be the positive aspects of operating in California, and what you find to be the negative aspects?

A: Well, the positive aspects are the enormous science base, plus the enormous entrepreneurial spirit in this part of the world. And bringing those two together, probably through venture capital, which is available like it is in no other part of the world.

That's the most fascinating and positive part of it: this drive, this innovation, this never giving up on anything.

The negative side of it, it is very far away from Europe, and it is a totally different culture. If people think they can operate in California the way they operate in New York or Indianapolis or Basel, they are on the wrong boat. If people here did not speak English, it would be much easier for everybody to recognize that this is a different world.

Q: We are probably the least aware of the way in which we are different, because we take these things for granted. What do you think is distinctive about our business culture?

A: About the business culture, two things: enormous flexibility, the fact that to fail is not a black mark. You can start again, and try again. The fact that here you have capital available that you have nowhere else in the world. People are willing to invest in high-risk ventures.

And the no-fear factor in academia and business. The two work side by side. People change from academia to business and go back again -- very unusual in Europe.

Q: Do you think that your Genentech people are culturally distinct from Roche people?

A: Yes. If we were to acquire 100 percent of Genentech, we would destroy that culture. One of the intelligent decisions we made was to keep the independence of Genentech, because they also look at problems in a different way.

They look at the same biological target in Basel and South San Francisco. And in Basel, they come to the conclusion: no; in South San Francisco: yes. Or vice versa, based on the same science.

Then to have the ability to say, "Well if you believe in it, you go ahead. " And we do that here, we're doing that in Japan with Chugai, we're doing that with a new setup that we have in China.

Q: From a strictly business point of view, has Genentech been a good investment?

A: Great investment. If you think that in 1990, we bought the 60 percent of $2.1 billion (then the market capitalization for Genentech), today the company has a market cap of $35 billion. So that's $20 billion.

In between, we got up to 100 percent (ownership) and sold back to 60 percent, where we made another $8 billion. So this was by all accounts a great investment.

Q: And in terms of the drugs that are now in your stable?

A: Genentech has access to a different pool of in-licensing contacts. They know other people than we know. Rituxan, from Idec. We probably wouldn't have found Idec at the time when that deal was made. The same way as they wouldn't have found Tarceva, (through a partnership with) OSI Pharmaceuticals. We made that deal. And then said, "Bring in Genentech."

Q: You've lost both your father and your wife to cancer. How has that impacted your leadership, and your vision for Roche, which is a leader in cancer treatment?

A: The only thing that I perhaps see clearer than others is: Had the treatment options available now, six years after my wife's death, been available (then), she would still be alive, or have a higher chance of being alive.

And many of these cancers -- if you have relatives who have died of them -- we're still treating many of these cancers like in the Middle Ages: Try this, let's add this, and let's see what happens in another chemotherapy.

In the meantime, you lose your hair and you change your personality, and I think that's so destructive. To see the progress we're making, the real progress, is very satisfying.

Q: You've mentioned that the historic center of gravity of the drug industry in Europe has shifted to the United States. Have we won that cultural war, and if so, what are we doing right and what could Europe do?

A: The United States is the clear winner in terms of investment in R&D by this industry, and also in terms of output of new products and the speed with which the population has access to these new products.

What has Europe done wrong? Europe has focused only on costs, and not on benefits, has disregarded the fact that you only invest in R&D if there is also a reward at the end of the period for R&D.

If I'm the health minister and I have a budget squeeze, I don't really want to tackle the hospitals, I don't want to tackle the cost of the doctors, but I could cut the price of the drugs by 10 percent with an edict (price controls) tomorrow.

And the drug prices are down 10 percent, even if the cost of drugs only represents 10 percent of your budget. But at least you've done something that is easy to sell to the public. You do it often enough, and you destroy an industry.

What it has led to is that the good people who come out of universities didn't find good jobs they wanted in industry in Europe. They went to the United States.

If you have a researcher who at 25 or at 30 moves from Frankfurt to California or to Boston, most likely he will get married to an American, and he will have children.

And seven years later or 10 years later, when somebody says, "Well, why don't you come back to Frankfurt?" he'll say, "You must be joking. My wife doesn't speak German, my children like it here, I'm not going to move." You lose a generation of researchers.

Q: Are we going to be able to afford to be the victors of this situation, in which we pay the world's highest prices for the greatest number of advanced medicines?

A: You are also the beneficiary economically of the investment of the people who live here, of the high-tax-paying jobs (in the drug and biotechnology industry). I think if you make the balance, it is still a very positive balance for the United States. I'm a great believer in this country.

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Beyond the boardroom

What do you wake up worrying about in the middle of the night?

About the success or failure of research projects -- that's what keeps me awake.

And which ones in particular?

The hope that certain clinical trials come through, and what will the results be. Because it's all so unpredictable in science. You never know.

What do you do to relax?

A number of things. First, I go skiing, which I enjoy very much. I try to jog twice a week -- difficult enough. And then I do love opera and classical music.

Have you ever been to the San Francisco Opera?

No, I haven't managed that.

Back in college, what did you think you might be doing once you graduated?

Wow, I don't think I had any idea. I studied law and then did an MBA and happened to get into the pharmaceutical industry and enjoyed it so much, I stayed there. I couldn't imagine working somewhere else. I think those are things in life that you cannot plan. They just happen.

What is your dream vacation?

On a tropical island, with my wife, for two weeks, without being bothered by faxes and telephones and e-mail.

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Briefcase

Name: Franz Humer

Age: 58

Job: Chairman of the board of directors and chief executive officer of Roche Holding Ltd.

Education: Doctor of law, University of Innsbruck; MBA

Past affiliations: Former general manager at Schering-Plough, where he worked from 1973-1981; former chief operating director at Glaxo Holdings plc, where he worked from 1981 to 1995.

(1) ON DRUG ADVERTISING "Personally, I'm not a proponent of this consumer- type marketing of serious medicines."

(2) ON THE LATEST TECHNOLOGY "A chip that we're going to bring out later this year will revolutionize the way leukemia is diagnosed and the way it's treated."

(3) ON MERGERS "I do not believe that megamergers produce value, and I think the results we are achieving are vindicating that strategy."

___

*Participating in this interview were assistant business editors Marcus Chan, David Tong and Sam Zuckerman; staff writers Bernadette Tansey, Carolyn Said, Victoria Colliver and Tom Abate; and editorial assistants Colleen Benson and Steve Corder.

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