Wednesday, December 05, 2007

Genentech's Gamble

For a time, his maverick approach produced an impressive winning streak. Soon after he took over as CEO, he briefly amped up Genentech's research spending to 50% of the company's sales—more than twice what most drug companies spend on R&D. The resulting stream of hit drugs pushed Genentech's sales up from $1 billion to $9 billion since 1999, and the company swung from a $1 billion loss that year to profits of $2 billion in 2006. Genentech's market cap soared past $75 billion, surpassing the valuations of Amgen (AMGN), Bristol-Myers Squibb (BMY), and Schering-Plough (SGP).

To prove it, Levinson is taking on one of the most treacherous areas of medicine. He's targeting diseases that arise when the immune system becomes deranged, attacking the very tissues and organs it's supposed to protect. These so-called auto­immune diseases include multiple sclerosis, rheumatoid arthritis, lupus, and more than 80 other ailments for which there are few effective or lasting treatments. Together, they afflict some 23.5 million Americans and are so disruptive for victims that they cost the U.S. health-care system $100 billion a year—nearly double the economic burden of cancer.

Levinson himself is still in the thick of scientific decision-making. When newly hired researchers defend their early-stage research in meetings, he often drops in to pepper them with questions. It's rare for pharmaceutical CEOs to get so deeply involved in research that isn't anywhere close to yielding marketable products, Scheller says. Adds Vishva Dixit, vice-president for discovery research, "He'll send us e-mails at 2 a.m. about some journal article, and he'll say: 'Have you read this paper? Look at figure 5, panel E.' He's the CEO, and he's sitting at night, pondering science. That's an awfully powerful message to the rank and file."

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