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MAY 17, 2005
Genentech's Winning Formula The biotech giant is drawing raves for its cancer drugs' breakthroughs. But its CEO says that standing still could be fatal to its fortunes Genentech (DNA ) CEO Arthur Levinson is having a very good cancer meeting. At this year's American Society of Clinical Oncology (ASCO) conference in Orlando -- the world's biggest cancer-research meeting with 30,000 attendees -- Genentech studies are the stars of the show.The company reported that Avastin, approved last year for the treatment of colon cancer, was able to improve the length of survival for both breast cancer and lung cancer patients. Its breast cancer drug proved able to cut tumor recurrences after initial treatment by 50%. And Tarceva, the Genentech lung cancer drug approved last year, extended the lives of patients with deadly pancreatic cancer. The company's stock has climbed 1.2 points, to $73.77 per share, since the meeting started May 13, as a result. The 55-year-old Levinson's biggest problem for the near future may be figuring out how to manage the very high expectations of shareholders and the scientific community alike. Levinson sat down with BusinessWeek Senior Writer Catherine Arnst at ASCO to discuss the company's future plans. Edited excerpts of their discussion follow: Q: It's unusual for a company to have so many good results in cancer research at one time. Were you surprised? A: Well, we've always had very aggressive goals, but this time we exceeded expectations. We've had a great last two years. We're not banking on hitting the ball out of the park like this every time though. Q: How do you keep the company from resting on its laurels at this point? A: I really hate arrogance. It's easy to think we're better than everyone else -- and that's how we get into trouble. We will continue to set a slow and steady course. Q: Your high stock price is certain to bring increased pressure from shareholders to maintain or increase a certain level of performance. How will you manage these expectations? A: I have always set a goal of maximizing shareholder value over a five- to eight-year timeframe. I will never trade off our drug pipeline to improve next year's earnings. We have always planned our internal goals for five to eight years out, and we will continue to do so. The Herceptin data in the adjuvant (post-surgery) setting is an example of that. We saw evidence that it could prevent relapses, but we knew it would take a seven- to ten-year trial before we learned anything. We still went ahead with that trial. Q: Genentech has been praised by oncology researchers for designing its clinical trials to prove that its drugs could prolong life, a very high bar for an experimental cancer treatment to reach, and these trials are long and costly. Most companies seek only to prove their drugs can shrink the size of a tumor. Why did you go for survival data? A: There was never a lot of debate on that inside Genentech. It goes to our core values. We want to make drugs that make a big difference. We are asking patients to pay a lot for these drugs. We don't want them to pay for an incremental benefit. I realize that most cancer drugs are approved (by the Food & Drug Administration) on response rate, but that endpoint doesn't always translate into longer life. Q: Roche Holdings owns about 56% of Genentech's stock. Have their deep pockets helped the company to take on these kinds of costly survival trials? A: Early on, Roche provided us a cushion to take risks, but that ended in the 1990s. At this point, we're very pleased with our relationship. They make a wonderful partner, and they've been intimately involved in the design of our clinical trials on a selective basis, and on specific projects. Overall though, they are very hands-off. Q: Roche has taken over the marketing of many of your drugs, and you've shared development of many others with partners. As you continue to grow, will this partnering strategy change? A: We do believe we can continue to grow through partnerships. All of our partnerships have been very good, and they have always been productive. Q: Genentech is also very closely identified with cancer treatments now. Will that continue to be the company's main focus going forward? A: In 1982 (in Genentech's early years), it was not clear that a huge investment in cancer research would pay off. That had clearly changed by 1990, and in the early 1990s we decided there was a tremendous unmet need in cancer, and emerging progress in interesting approaches to cancer. We are also focused on immunology, there is also tremendous unmet need, and the science is progressing. If things go well over the next three to five years, the field of immunology could blossom as well. There is a wealth of upside potential there. Q: Are you getting to the point where you will regularly need new blockbuster-size drugs (those with sales of more than $1 billion a year) to sustain growth? A: At some point we will. We do need to regularly introduce very important drugs. But focusing on blockbusters to the exclusion of other things can introduce a level of myopia. So often the estimates of potential are wrong. It's almost never what we think it will be. Q: What do you think you'll be talking about at the 2006 ASCO meeting? A: We have broad programs to look at further indications (approvals) for our drugs, possibly by working in combination with other drugs. I don't have a lot of hope for a miracle drug for cancer in the short run, but we continue to need highly effective drugs with good safety profiles. We will definitely be looking at more combinations with other drugs, such as Avastin and Tarceva. 
BW MALL
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