Destiny of a Young Giant: Passing the Torch at Amgen
This week, Gordon Binder, chairman and chief executive of Amgen, begins turning over the reins of the biotechnology giant to his anointed successor, current President and Chief Operating Officer Kevin Sharer. On Thursday, at the company’s annual meeting, Binder will give up the CEO job. He’ll retire from the chairmanship at the end of the year.
Binder, who will turn 65 this year, can rightly take credit for taking a young company that hadn’t yet launched its first product to a full-fledged pharmaceutical company with a pair of billion-dollar-a-year drugs on the market--Epogen for boosting red blood cells and Neupogen for revving up the immune system. He leaves the Thousand Oaks-based company with hopes of winning regulatory approval for four new drugs during the next few years--a long-lasting form of Epogen plus novel drugs for rheumatoid arthritis, prostate cancer and breast cancer.
An electrical engineer by training, Binder has become a champion of the emerging biotech sector and served as chairman of both the Biotechnology Industry Organization and the Pharmaceutical Research and Manufacturers of America. He has led both groups’ efforts to extend prescription drug benefits to Medicare recipients without government-imposed price controls.
In a recent interview with The Times, Binder reflected on his 18 years at the company--12 as CEO--and what lies ahead for Amgen and the biotech industry.
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Question: Give us a sense of what you feel were your most important accomplishments and some of the tough things you were able to survive and surmount.
Answer: We began 10 years after Cetus was born and five years after Genentech was born and became the largest and most successful biotech company, which is probably the one-sentence summary of our biggest accomplishment of all.
Adversity included a $180-million arbitration loss to Johnson & Johnson [in 1991 over an Epogen distribution dispute] that was mostly offset by later wins at arbitration. But when we lost we didn’t have that amount of money in the bank, so that was pretty disheartening when it happened.
Q: From time to time Amgen was criticized for not having a steady stream of products ready to move on line. Why was there a hiatus in the pipeline? Can you describe where you are?
A: Essentially when we first found Epogen and Neupogen we decided to devote our entire research and development resources to developing and launching those just as well and just as fast as we could. And that was a good decision. What it meant was for a number of years we spent virtually no effort looking for new products. When we launched Epogen in 1989, we began to get some additional money for R & D out of its sales growth, and that allowed us to resume efforts to find and develop new products. It takes eight to 10 years from the very beginning of research to the launch date of a new product. We started seriously resuming this effort in 1989, and it is not perhaps too surprising that it took about eight to 10 years before we’ll have new product launches to show for it.
Q: As you know, there has been a surprising amount of stock price volatility, even reaching the top-tier companies like your own that have great revenue streams and some nice products on the way. What have we learned about the biotech industry from the investor’s point of view in recent years and particularly the last several months?
A: The conclusion is that Wall Street indulges in what is called sector rotation. That means a particular industry is in favor at certain times and it’s out of favor at other times. And it’s really been the industry that’s been affecting our stock price more than our own earnings per share or what we’ve been doing. It caused a substantial increase from about last November until March, and then it caused a partial retrenchment since then, but that was pretty much across the industry. And it’s happened several times in the past, where biotech was in favor and then biotech went out of favor. And I think the lesson is this happens every so many years and it will happen the same way in the future.
Q: But there is something crazy about it not differentiating between established companies with real products on the market and those that one could deem more speculative, that have some prospects but nothing really solid to point to such as you can.
A: I think the ones that are either younger or only have early-stage R & D projects are more volatile than we are. But that means they go up more when the market for biotech goes up and they go down more when the market for biotech goes down. They still tend to go up when we go up and vice versa. It’s just a difference in how far up and how far down they go.
Q: Give us a sense of where the industry is heading. Are we at the point where there will be lot more established, profitable companies?
A: I think in terms of new product introductions, there is a massive change going on. It’s been estimated that new product applications to regulatory agencies like the FDA, that biotech companies will file about as many this year as the pharmaceutical industry. Now a few years ago it was only a small fraction of what the pharmaceutical industry had filed.
Q: Early on your scientists had to do gene sequencing and splicing, and now these things are automated.
A: The equipment is far better, and initially we did make DNA by hand literally. It was the same chemistry that’s in the machines today. But today we make over 10,000 pieces of DNA a year just for our own scientists. In those days making one was a project.
Q: Where does the human genome fit into this?
A: We actually had a major genome program of our own starting a number of years ago. And we filed patents on some of the results of that. But the best way of thinking of the genome work is that this is one more tool. It’s an important tool, but it’s only one and it works best when it’s combined with other tools that we have when we look for new products.
. . . I think that joint statement [by President Clinton and British Prime Minister Tony Blair on patenting of genes, which triggered a slide in biotech stocks] was very unfortunate, because all the president and the prime minister really did was state what was then the existing situation and people thought that this was some kind of change, because why would they have a press conference? They weren’t actually proposing any change in the present situation at all. The market reacted out of misunderstanding, really.
I think the patent office and the courts will sort out what is patentable and what isn’t very nicely. And we don’t need any legislation or any new executive branch initiatives to deal with this.
One of the requirements to get a patent on anything is that it has to be useful, and if it has to be useful you have to have some idea of what you’re going to use it for. And if you simply have a sequence of a gene, you don’t have any idea what you’re going to use it for. You don’t even know if it’s in the kidney or somebody’s brain or whatever.
And most importantly, little pieces [of genes] should not be patentable, because you can imagine that dozens of people could get patents to little pieces of the same gene. Now how would a company like us get a license from each and every one of them so we could develop anything? It would be an absurdity there.
Q: You are tremendously profitable at the moment. What are you doing with the fruits of your success?
A: Basically we have higher profitability than other pharmaceutical companies as a percent of sales. And we invest some of that into a higher percent of R & D as percent of sales than other people have, and part of it drops to the bottom line as a higher profit as a percent of sales. We need to strike a balance between the near term and the long term, we need to strike a balance between shareholder return and investing in the future, and we think we’ve done that in the split that we’ve made of this extra money.
Q: Do you see gene therapy in Amgen’s future?
A: I don’t see it in the near term in anybody’s future, but never say never with regard to science. We made the decision a few years ago to start investing in that in a small way, and eventually I think it will come. . . . I would be surprised in 20 years if we did not have one or more [gene therapy products].
Q: There has been, as you know, talk of extending Medicare coverage for drugs broadly, but there have also been simultaneous talks about price controls. How do you think this will play out?
A: We think it’s just absurd that Medicare doesn’t cover drugs. It makes no sense to cover all parts of health care except one. More and more, drugs are going to reduce hospitalizations and reduce surgery. . . . We have one product under development [for treating hyperparathyroidism] whose only competition is going to be surgery. And so it just needs to be covered by the system.
Suppose I offered an investor an opportunity to invest in a program [to develop a drug] that’s going to cost $500 million and at the end of the 10 years the government will tell me what my selling price is going to be. I doubt that I could find any investors who would want to do it. This is going to have a chilling effect on R & D if they in fact institute any form of government price controls, no matter how benign.
There are only about 30 biotech companies that are profitable today of about 1,500, and those others are going to have future cash infusions from investors if they are going to reach profitability. And those will be very hard to come by if Congress introduces some draconian price control. It would put some companies out of business.
Q: What are the next 10 years going to be like for Amgen?
A: We have four product candidates in very advanced state of development which we expect to launch in 2001 and 2002. That will change the nature of the company. We’ve had to change our organizational structure, we’ve had to change a number of things to go from being essentially a two-product company to a many-product company.
Q: At some point do you become more like the traditional pharmaceutical companies?
A: We have some characteristics of those companies now, of course, because we have a fairly large sales force. But I like to think in the world of R & D, we are still basically a biotech company, and I hope we’ll always have many of the biotech attributes when it comes to the R & D side of the business.
Q: As you know, from time to time, there has been talk of takeovers of your company. Is that going to happen in this atmosphere of merging of large pharmaceutical companies?
A: No, I don’t think so. And the primary reason is that with very few exceptions people haven’t made any hostile attempts and we don’t want to be acquired. . . . I expect the concentration of big pharmaceutical companies to continue, but I don’t see Amgen being acquired.
Q: What’s ahead for you on a personal level?
A: I want to work but not full time, and I think that work is going to be in the venture capital world. And it should be medically related, but it could be diagnostics, it could be an instrument. It wouldn’t have to be a therapeutic biotech product.
Q: What kind of advice are you giving to your successor?
A: He’s been here for seven years now. So he’s more than ready to take over. I think he knows Amgen’s a great company and he knows why it’s a great company. And he has every intention of doing the things that need doing to keep it that way.
It would be detrimental [for me to step down] right in the middle of launching new products. We didn’t want to change horses in the middle of the stream, so to speak, so now is the ideal time to do it.
