Science Lessons: What Amgen and Gordon Binder Teach Us About Biotech Investment

In Jim Collins’s book Great By Choice, he compared two biotech pioneer companies: Amgen Vs. Genentech. I was surprised to read that Amgen was the Great company in duel, while Genentech being the mediocre one. As far as I know, Genentech is the FIRST, is THE biotech company. Its university style research and productive high-profile publications earned itself prominent reputation in academia. While Amgen is certainly known as another biotech giant, How could Collins put Genentech as mediocre?

It is not about innovation or science, it is about business. Amgen is the most successful biotech business. As Genentech fumbled many times in business, it had to sell 60% equity to Roche in 1990 and basically ended its independent status.

In Collins book, he highlighted on how Amgen handled its EPO submission with its famous Simi Valley Hostages; while Genentech’s slacking cost its failure in tPA Advisory Committee meeting.

I always wanted to know more. Why these two companies are so different? Recently, I found there are books about them: Gordon Binder’s Science Lessons: what the business of biotech taught me about management and Sally S. Hughes’s Genentech: the beginnings of biotech. I started to understand how the people in the two companies determined the fates.

In this article, I will talk about Gordon’s Amgen book first.

Technology:

Amgen is less innovative than Genentech. But make no mistake, Amgen is still very innovative. Science is key in Amgen. In traditional pharma Sales and Marketing people decide projects. But in Amgen, scientists and scientific evidence rules.

Amgen was the first to clone Erythropoietin, thanks to hard-working scientist Fu-Kuen Lin and a close relationship with expert EPO scientist Goldwasser. The EPO project was almost cut due to no progress after 2 years of hard work. The management gave the team another 60 days as the final push. This deadline urged the team to go to UChicago to get more EPO protein supply (purified from urine) from Goldwasser. It turned out he had more supply than every body thought. This extra amount gave Amgen enough material to sequence the amino acids of EPO and soon cloned the gene.

It is very ironic that established pharmaceutical companies were so conservative or arrogant or unwise that none believed in biotech or started biotech business within the organization. The inertia of traditional thinking and corporate stagnancy is so dominant. It is not until the late 1990s that big pharma started to join the biotech revolution by acquisitions.

It was a debated decision to develop long acting version of Epogen and Neulasta. There was not much short-term financial incentive. Scientists disregarded the long acting “development” as “low science”, not as cool as “research”. Binder thought about longer horizon: the new product will provide better legal position against JnJ and looming EPO patent expiration. Btw, nowadays common sense prefers “development” versus “research” for career path, because “D” is closer to the final product then “R”.

People:

Amgen’s competitive advantage is high-caliber people with vision and discipline.

High-calibre executives

A management with B idea is better than B management with A idea.

The book included numerous small stories showing what high-calibre and ethical people they are, covering George Rathmann, Gordon Binder himself, and other employees.

Science of management

This book emphasized on how Amgen use scientific thinking in management, including decisions on whether to cut or keep a program going. The author then elaborated a story how scientist Dennis Fenton transformed pharmaceutical sales practise.

Before, a sales representative has to cover multiple drugs in his region. They have a problem keep up-to-date information about the drugs and have hard time switch between different doctors of specialty. When Dennis listened to the problem then proposed that each salesperson only focus on one drug. Everyone was astonished since the industry has been doing multiple drugs ever since.

Then, with scientific thinking, Fenton proposed to a controlled experiment to test which sales strategy is better. The overwhelming results favoring one-drug-per-salesperson convinced everyone that is the way to go. If you read by Chip and Dan Heath, this is called “ooching”: Run small experiments to test your theories, “fire bullets then cannonballs”.

Excellent team attracts:

  1. best hiring: executives, sales and marketing, scientists.
  2. best commercial partner: Kirin vs JnJ for EPO partering.
  3. best academic collaborator: Goldwasser, Lodish for EPO expertise.
  4. clinical collaborator.

How to keep the best people committed?

By hiring the best people:

  1. 360 degree interview, two-way interview including subordinates. 10-12 people for 1 candidate.
  2. Be honest about the job. No sugar-coating to avoid disagreement. (Be very transparent in job description.)
  3. Voice value to match. Balance exceptional talent and bad qualities.
  4. Hire from top companies.
  5. Use best recruiters — your own current employee, word of mouth.
  6. Baby boomer + veteran.
  7. help them with smooth transition and settle.
  8. Inside promotion: your best candidates are already in your company. Kirby Alton (development), Ed Garnett (HR)

How to keep them committed?

Think in their foot:

  1. US military introduced 200 benefits. Then SDC help them finally realized “to eliminate” the negatives as much as possible. “Reduce red-tape and obstacles”.
  2. What employees want?
    1. contribute to decisions
    2. collaborative work environment
    3. challenge
    4. sense of achievement and satisfaction
    5. training and advance in career.
    6. resources
  3. Work environment:
    1. bottom-up management: ask for people’s ideas and suggestions
    2. It’s OK to be wrong.
    3. In Amgen: You>Peer>Boss; others: Boss>You>Peer
    4. efficient meeting
    5. Collaborative team: 5-9 people,fresh blood in 3 years.
    6. Everyone gets to play, contribute, trust, delegate to people.
    7. avoid internal toxic competition
    8. respect each other: one guy won’t share how he solved a problem; fired.
    9. eliminate hierarchy: no reserved parking; no special office.
  4. Help them grow:
    1. review everyone, including CEO himself.
    2. In his second company PrimeJet, he actively help co-pilot get licensed to become pilot.
    3. Free english class for spanish speaking employees.
  5. Balance work and personal lives.
    1. Annual company-wide family event for sales and marketing people w. spouse invited.
    2. Time-saving perks: dryclean, daycare, car wash, fitness.
  6. Compensation: percent increase based on performance; options.
  7. Praise-time-attention: 3-1 ratio in terms of praise vs critic.  ‘Good leaders make people feel they are at the very heart of things.’ Event the suppliers feels good. George Rathmann once stepped out of an executive meeting to attend scientists who report “we did it!”.
  8. Learn from employees:  CEO goes to company research poster session. Know the truth, not filtered information.  Employees need to hear truth too. $199 million fine on Amgen in 1991, didn’t have the money. Everybody outraged and concerned. CEO spent whole afternoon Q&A, and answer everyone’s concern until the last guy.
  9. Be human. Ed Garnett had a confidence crisis; George reflected on he sometimes doubt himself, too, looking at mirror in the morning.
  10. Review to let people know their standing.; incorporate “value” in review.
  11. Underachiever: give a chance to change position within company.
  12. Review yourself.
  13. When resignation occurs: talk immediately to see if it is salvageable.
  14. Let people be proud.
  15. Embrace change.
    1. be incremental: size and colorcoding of vials.
    2. George Mueller: when asked about Saturn V, “take calculated risk and try the impossible.”
  16. Maintain startup spirit.

Finance:

No matter how awesome a company is, Warren Buffett buys stock at bargain price for investment. Amgen is a great example that IPO is not a good price to buy, because the purpose of IPO is to raise as much as fund for the company, not make every IPO investor rich. So most IPOs are heavily decorated and precisely timed to optimistic market condition to woo investors’ money.

Amgen is not different. IPOed at $18 to raise “as much as possible”. The stock price later dropped to ~$3 level in a couple of years, an 80% drop. From there, eventually AMGN rise to $8200 ($171 as of 07.09.2017 adjusted for 48 fold split). Still, you will be much better of not buying the IPO.

Amgen is financially very disciplined. It even managed to turn 3 years of profit (albeit small) in the first years of existence. Very hard for cash burning biotech business. In preparing for the launch of Epogen and Neupogen, the company temporarily diverged fund from R&D to sales and marketing. It made scientist unhappy for the short term. but the commercial success of those drugs eventually provided tremendous funds for research later.

The value of ethics: always do the right thing

  1. Today’s problem in American corporations:
    1. compensation practice drives short term stock price speculation
    2. analysts have conflicts of interest.
    3. GAAP accounting has many conflicts of interest. Auditing firms are unable to be honest; otherwise they will lose business.
  2. Binder propose: CEO should create a culture of ethics.
    1. His farther Charles Binder is highly ethical
    2. Gordon Binder’s previous career at Litton; he postponed his Ford job to take care Litton boss Harry Gray’s broken leg.
    3. Unethical spreads and drives ethical people away.
    4. He fired a guy who falsified resume; what else he can falsify?
    5. Fight atheletes’ abusing EPO
    6. being honest build trust
  3. Politics:
    1. Chugai/Genetics Institute loophole: off-shore firms can get around patent.
    2. PDUFA lawmaking: Amgen actively participated and advocated regulations that seemed bad for industry but good for patients.
    3. FDA insider review: FDA officer went out their way to help Amgen.
    4. treat congress staffers seriously; they will appreciate.
  4. “We have to do this pediatric EPO trial!” Even though there was no financial incentive for Amgen to do it.

The conclusion is: focus on developing patent and know-how that improves patients health and life, do valuable thing for patients. Once patients benefits, the benefits for hospital, payor, company and investor will follow naturally.