Industry's Reflected Gold

By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein

San Franciscans seem to feel some ambivalence toward the new Salesforce Tower looming over the financial district. At 70 floors, it is now the tallest structure west of the Mississippi. It is somewhat modest, even graceful, in its appearance, though nonetheless dominant in the cityscape. While attending the JP Morgan Healthcare Conference (#JPM18) last week, I stopped at an intersection to see the usually steel-grey building transformed into a golden monolith by the low evening sun. The nearby buildings at the edge of the Tenderloin framed the tower in stark, shadowed contrast. Though merely gilded by sunset, the massive hi-rise could have passed for gold itself, cast into a giant solid bar.

As the new year turned, the biopharma industry was also bathed in golden light. At JPMHCC and other industry confabs, the mood has been aggressively upbeat, celebrating an improving business climate and eagerly fending off all naysayers. It is another flash from the past for me, however. I feel like a killjoy just thinking it: Stay humble. The golden light shines from another source. In the next moment, it may slip under the horizon.

I had entered the new season of industry meetings with the BIO Investor Forum (#BIF18) in October, then visited JPMHCC, and plan to be at the BIO CEO & Investor Forum (#BIOCEO18) in February. At BIO Investor, I met with a half-dozen CEOs in two days and caught conference sessions in between preparing for and conducting the interviews. (Much thanks to the BIO staff for their help and support on site.) At JPMHCC, the tally of interviews was 12, and though most of them took place off site, I must credit the event for drawing the enormous crowd of companies and executives to San Francisco, all in a single week.

Yet I have felt my mind resisting the organized thought-parceling of the excellent speakers and panels at the events. Instead, my own thoughts keep turning toward something more like a painted landscape of biopharma. All parts, all issues, all at once. It goes something like this:

An industry of invention cannot succeed unless a multitude of companies fail. No startups happen without high risk-taking. Overall risk level predicts the proportion of failures. Portion of successes is always smaller. Many failures may feed a single success. Hence, the industry never stands still, and it is always seeking new and better ways to move forward. Unfortunately, however, it sometimes runs blindly into a brick wall standing outside its familiar space — or it is invaded by waves of change it is powerless to repel.

How the industry tends to experience and relate to the world has changed profoundly as measured against the status quo several decades ago. Yet some echoes from the past continue to resound as loudly as ever, causing me to wonder whether the industry’s internal interchange will ever come to grips with the real world outside — or if all fundamental changes will be forced upon it. I know one thing for sure: no amount of insider cheerleading will suffice to save industry from monumental disruptions coming from beyond its customary borders. In my travels, I’ve especially noted three areas of unavoidable transformation due to forces quite beyond the industry’s control: women’s advocacy, the drug-pricing stalemate, and the new politics.

MOMENT OF INCLUSION

When lightning strikes, the storm ranges wide. No better illustration of that principle has recently hit the scene than the #MeToo movement. First, it seemed, it was only about some liberal Hollywood producer who made a habit of groping women he may have thought owed him favors. But the wildfire rapidly spread to engulf other men in most other walks of life, including the biopharma universe, just as attention in this community of interest converged on the slow progress for industry women. We were happy to create our own chorus of related coverage in the past year, including “The Women of Biopharma” virtual roundtable, published in our latest annual forecast issue in December. (Readers of the Executive Editor’s Blog can also see the verbatim contributions of the roundtable participants in “More from The Women of Biopharma.”)

In a conversation at JPMHCC, a colleague of mine voiced the hope that companies would avoid using metrics-driven rules to achieve greater parity of women in positions of power, as several of our roundtable participants proposed. The hope is based on a valid premise: radical changes in behavior are more durable when chosen in free will. But why, then, has it taken so long for men in this business to share power?

We have all known for many, many years that women are every bit as capable as men and can even bring intrinsic advantages to the top management and board-level jobs. That is as true in biopharma as it is in other sectors. The great disparity in our industry is most obvious in the numbers. “Although women represent 50 percent of the talent pool in biopharma and hold more than half of the doctorates, only 18 percent of the highest-valued biotechnology companies have women in senior and C-suite management positions,” says Lori Lyons-Williams, chief commercial officer, Dermira.

Thus, the solution has to produce dramatic shifts in the numbers, which evidently do not change except by conscious design. In a McKinsey & Co. survey, more than 75 percent of CEOs say they include gender equality in their top 10 business priorities, yet gender outcomes are not changing. At the current rate of change, according to Liftstream, biotech companies will not achieve 30 percent female representation on their boards until 2036 or gender parity (50 percent) until 2056. What other objective measure or goal could possibly exist? And how else will the transformation come without concerted action?

This is not about political correctness; it’s about common sense, knowledge, and intelligence. It may be fashionable now in some circles to express backward views of diversity and gender, but most people will insist on progress because it is right, and it is smart. A 2017 study by Liftstream found, among the 177 biotech companies that went public between 2012-2015, those that had at least one woman on their board achieved an average 19 percent increase in share price, but those with all-male boards had a 9 percent decrease in share price.

Looking at this movement as a zero-sum game, where men must lose for women to win, is both wrong and dumb. You’ve heard of lifting all boats? Releasing women and others from the shackles of tradition will only make biopharma a more vibrant and prosperous industry, opening up more opportunities for all.

Look at it as you would any business opportunity, say, recruitment of scientific talent in regions or settings where it was formerly overlooked. Be confident in the multitude of surveys that show positive returns from placing women at the top. Gather resolve from recognizing the positive cultural change that has freed a tremendous pool of talent among women and, important to add, the so-called minorities. Then, hold your company to hiring policies and practices that move it steadily to a fair balance in the composition of staff, managers, chief executives, and board members. And of course, follow old Ben Franklin’s good advice: Make sure the world sees you doing it.

A good number of the CEOs I have interviewed lately are women, but it is still short of parity. My selection of companies to cover must also reflect the areas in which I’m currently working for various other reasons. I can correct for the industrywide disparities only so much. On the other hand, it turns out some of those areas of interest are the most populated with women who have founded and run companies.

MARKET SCALE

Wading into the drug-pricing debate is a dangerous business, yet the mud puddle has grown so wide it is impossible to avoid even in ordinary discourse. Some of my best biopharma friends ache to tell the world no price is too high to pay for innovation. This is essentially the same argument I’ve heard since starting my journalistic coverage of the pharma industry in 1986. It has never convinced me entirely.

For the large companies, although the cost of developing a new drug has indeed risen to Himalayan heights, it has not stopped the reemergence of double-digit profits and sales growth — both of which come after R&D expenses. The highest estimates of new-drug development costs also belie a miserable success rate and low overall R&D productivity affecting biopharma as a whole. Large companies have effectively shifted much of the failure and risk to smaller, pre-commercial enterprises, whose investors want to see a high market potential promised by high price projections.

From what I’ve seen, real or projected price levels relate more to stock value and market cap than to P&L, and thus companies have pushed higher prices to whatever they believe the market will bear. So-called value-based pricing now starts off at an elevated scale of magnitude achieved through years of super-inflation price increases and premium-priced introductions. I worry that when payers will no longer bear the cost of new drugs, the industry will simply turn its back on most folk and aim its new products solely at the upper crust of people who can afford to pay cash.

At the moment, however, I see no objective solution or way to divert that trend — at least, in evidence at the industry meetings or public statements. I only know that the tsunami is heading for shore, a mounting wave of reaction to high-profit healthcare in the United States, and the industry has probably not prepared itself adequately for its true impact. Of course, I expect some pushback on my observations, which I can only hope provoke some discussion of new ideas resolving the views of industry insiders and outsiders in this matter.

Failure in clinical development ran as an undercurrent in discussions at my own meetings and in many conference sessions. It occurred to me that we should either come up with a better word than failure or at least acknowledge its larger meaning in a scientific context. A “failed” trial is not purely loss; it is information gained, and thus it has value — though only if its results are fully revealed. If you’re going to calculate the cost of every new drug based on the total cost of successes and failures, perhaps you should factor in the failures’ true value as well. Don’t know the monetary worth of failed-trial data? Neither do I. Sounds like an exciting research question.

PAIN IN THE BODY POLITIC

It was once so easy for the pharma industry to manage its political life. It has always been solidly pro-business and conservative. Its lobbyists have enjoyed a long run of successful relations with politicians, especially since the Reagan Revolution turned Washington into a more industry-friendly zone. But the current administration and power structure has made life much more complicated for biopharma companies and their advocates.

So I’ll cut to the chase here — why do so many people in the industry persist in their one-dimensional view of politics, where the only thing that matters is how a single policy or legislation affects the industry, in isolation from all other issues?

Between BIF and JPMHCC, the new U.S. tax law passed and hence dominated the second event. Everyone seemed ecstatic about the corporate-rate cuts, even though no one was sure the cuts would actually give their companies a financial boost. Uncertainties over extra-national, state, and local taxes, as well as the loss of key deductions, have delayed effective projections of how much the federal tax cuts may help.

For large companies, the cuts come when they are already flush with cash; small, pre-commercial companies may see some indirect benefits such as improvement in investment, but no direct relief from the non-revenue-based taxes they tend to pay. Stock repurchases are likely to overshadow boosts to employment or compensation for most workers in Big Pharma. When Pfizer’s Ian Read tried to celebrate the tax bill inside the company, employees showed up to protest it instead — and to demand the details of how Pfizer would spend the supposed windfall.

So if you feel giddy about the new U.S. tax bill, you might want to seek more equilibrium by putting it into in a larger political context. Yes, the industry may gain here and there from the actions of a chaotic government, but the necessary tradeoffs may hurt more than help. Add up the direct costs in loss of NIH funding, Medicaid cuts, and regulation that protects companies as much as consumers, plus the general damage to healthcare, the environment (think Puerto Rico), and the practice of democracy. Those tax cut godsends may start to look more like the devil’s own bargain.

TRANSFORMING LIGHT

Thousands of people come to San Francisco during the JPM conference, most of them probably not for the conference itself. By one count, there were 14 parallel biopharma events planned for the week, and countless companies that are not JPM clients hold private meetings all over the downtown area. With so many people concentrated around a common purpose, it would be easy to feel as if the industry were an island onto itself. But it would also be a serious mistake. Though what happens inside the industry is an essential part of the story, it is the outside world that ultimately determines the industry’s fate and deserves its full attention.

The industry does not blaze forth like the sun; it is more like buried embers glowing after a forest fire. Each company nurtures a light of its own, yet lets only some of it escape out into the world. When the whole industry shines as one, it draws illumination from the larger society, the market, and the body politic to reflect that gleam of gold. My hope is biopharma will always acknowledge and respect the sources of its good fortune, and never walk away from its public-health role and responsibility, where its own brightness adds the most to the reflected whole.