Conversations From the Corner Office

Interview transcript

Amgen Chairman and CEO Kevin Sharer talks with Kai Ryssdal

Kai Ryssdal: Kevin Sharer, welcome to the program.

Kevin Sharer: Glad to be here.

Ryssdal: As basically as you can so that I understand it what is biotechnology?

Sharer: Biotechnology is the use of basically things that are in the body naturally to interact with human biology to help either ameliorate the symptoms of disease or cure disease. We try to make things outside the body, in our case natural proteins that are made inside the body, and use them in a therapeutic way. That is a way that helps people.

Ryssdal: Do you consider Amgen to be part of what is commonly referred to as "Big Pharma"?

Sharer: We have characteristics financially that look like "Big Pharma." I'm the chairman of the Pharmaceutical Trade Association. So we obviously --

Ryssdal: So that would sort of be a yes, right?

Sharer: No, it's not a yes. So people ask that question often. But no, we have a technology base that's biotechnology. We've got a culture that's biotechnology. And I have a lot of respect for the "Big Pharma" companies. And they're our partners and competitors. But no, we're a biotechnology company.

Ryssdal: We're on a huge campus here in Thousand Oaks, California. There's buildings all over the place. What happens out in those buildings?

Sharer: Everything the company does happens in these buildings. It's everything from the basic bench level scientific research -- trying to understand basic biology. To manufacturing proteins. Administration. We've got a large 400-child daycare center here. We've got a great gym. This is a good place to work. And we do everything the company does here. It's not all done here but every category of work that we do is done here.

Ryssdal: It's been an interesting year I guess you could say for Amgen.

Sharer: That's one way to call it yeah.

Ryssdal: How would you prefer to refer to it?

Sharer: It's been a surprising difficult challenging time that we can deal with, we are dealing with. But I'd sure rather be dealing with something else.

Ryssdal: What happened? How'd you get here?

Sharer: I think we got here through a long series of events. But the challenge is that one of our medicines, our biggest medicine, so called ESAs. We've got two of them -- Epogen and Aranesp, red blood cell medicines. Have had their labels revised and -- by the FDA -- and the Medicare, CMS, has changed payment policy. And it's caused our sales to go down in those areas. So we've had to restructure the company. It's something in our 27-year history we've never had to do. We can handle it but it's sure not pleasant.

Ryssdal: Well let's break some of those words down. First of all restructure. You've had to lay off a bunch of people.

Sharer: We haven't laid off anybody yet. But we've made an announcement that we're going to lay off through a voluntary program, through attrition and then an involuntary program between 12 and 14 percent of the workforce. Or about 22 to 2600 people. That's a lot of people.

Ryssdal: As you said it's not something this company has ever done. You've had a 30-year chain of really outstanding growth and some great strides in the industry. How does it feel to have to do this now?

Sharer: It feels difficult. It feels disappointing. There's an emotional side that's just absolutely wrenching. On an intellectual front you know that trees can't grow to the sky. You know that every company goes through its own time of trial. And it's our time right now. In our industry this has happened to many companies. So in a philosophical sense you can accept that these things happen. We're trying to do it in a fair way. But emotionally it's wrenching.

Ryssdal: Is there a larger lesson to be learned about the state of biotechnology writ large in your experiences in the last year?

Sharer: I don't think so. I think that biotechnology is a technological base that has enormous promise for the future of healthcare and medicine. If we're going to cure the toughest diseases we have biotechnology's going to be a big piece of it. So I don't see this as anything to do with biotechnology. I think this is a phenomena that large companies -- and we're a large company -- go through from time to time. There's virtually no company with a history of 25 years that hasn't gone through something like this. It's just in the nature of large companies and all industries.

Ryssdal: Back to the restructuring for a second. You mentioned two things have happened that have made the last year an interesting, difficult one for you. The first is the relabeling by the FDA. What does that mean and what happened?

Sharer: Relabeling means that the FDA changes their guidance to doctors about how to use a medicine. In a label in medicine is actually a very, very long document. It might be 20 or 30 pages long, single space type. So it's not exactly what we think of as a label in a consumer way. And so it changes how doctors are advised to use the medicine. And in this case the FDA changed the label to put more cautions on how to use the medicine.

Ryssdal: What's called a black-box warning. Sharer: A black box is a specific aspect of the label that's the most severe warning that the FDA can put on a medicine. And they're not rare to have black boxes on medicines. But they're something doctors really pay attention to.

Ryssdal: Why did the FDA do this?

Sharer: The FDA got some data over the years that said that our medicines when used above the indicated dose and in some uses was not safe. That is it had negative effect on patient survival. And they wanted doctors to understand that doctors should use the medicine specifically at the doses and in the areas that it was approved for. And the data around those doses and those uses says the medicine is safe. And it's not unusual that medicines if you use them in areas in which they haven't been tested or you use them at levels that haven't been tested can have side effects that aren't good.

Ryssdal: And yet doctors using your medicines in ways that are beyond the FDA guidance have negative financial repercussions for this company.

Sharer: That's theoretically true. But our mission is to serve patients. And we want to make sure that our medicines are used in the right way to help patients. And you know we're an experimental business in the sense that we're science based. You learn things about medicines with experience. And as you learn where the medicines are best used you have to adapt to that. Biology's very complicated.

Ryssdal: It's an interesting phrase. Experimental business. Every time you guys do something it's kind of a roll of the dice. It's not like you're making widgets that you know people are going to need.

Sharer: No. No we have a business that's based on science. And it's different than an engineering-based business. In engineering it always works. It might be slower, it may be late or it might be heavier. But it's going to work. In science you have partial information. You run experiments and you can't always predict the answer.

Ryssdal: You're an engineer by background so it's interesting to hear you say that. That biology and biotechnology is in a way tougher than engineering.

Sharer: Much tougher. Because we just don't know as much as there is to know. For example we'll have pictures of biological processes and it'll represent the state of knowledge. But there's lots of things about biology we just don't know.

Ryssdal: So how do you do a business plan when you're in this kind of business? I mean you have to invest huge amounts of money in R&D. You have to have very smart people and pay them a lot of money to spend a lot of hours in the lab doing very difficult things.

Sharer: We've got pretty good visibility in what the medicines in the market right now will do for the next two to five years. We've got a fair shot at predicting what the very late stage products will do as they approach approval. We have less and less information about the early stage products. So the two to five year vista is fairly clear. Beyond five years is quite unclear. And so what you have to do is have lots of medicines under development. Make sure the biology's good. Make sure your intellectual property protection is there. And that you're running experiments based on sound science. And you've got the discipline to stop programs when it's pretty clear they're not going to work.

And so there's a certain sort of oil business like aspect to this. You get all the right information but you can you know drill dry holes once in a while and you've got to have a lot of wells to make sure you hit oil once in a while.

Ryssdal: And when you do hit oil in the oil fields as in biotechnology sometimes you hit a gusher and you get a blockbuster like Aranesp or Epogen.

Sharer: Yes.

Ryssdal: The other thing that's happened to you that's sort of made this a curious year for you is the decision by the government to reduce its reimbursement rate for doctors in Medicare. Explain that to us. Why it happened and what that's going to mean for you.

Sharer: That is a bad decision. It's not based on science. It's not good for patients. And we are deeply disappointed in the government's decision. And we are doing everything we can to change that decision. There's no science behind this. This was an arbitrary decision by Medicare to reduce payment below the labeled range. In other words, the one arm of the government, Medicare, has made a financial decision that is different than what the label says. And that's deeply troubling. And I think it's going to cause patients to have many more transfusions.

In fact, just last night the Senate passed a resolution unanimously asking the government to reconsider this decision.

Ryssdal: And yet again what happens is that because doctors will be receiving lower reimbursement possibly if this decision becomes final, less of your product gets sold. And so you take a hit.

Sharer: Yes. That's a fact. That's not our fundamental motivation. I know it's easy to think that a business only cares about dollars and cents. And obviously we have to care about it. We care about patients. And this is going to hurt patients.

Ryssdal: Surely you appreciate though that when somebody running a multibillion dollar company as this one or any other pharmaceutical company out there or biotechnology company, says repeatedly it's in the patient's best interests, it sounds a little facile in terms of business opportunity.

Sharer: Yeah, I think that what you have to do is you've got to do your own work to decide, "Do others believe that?" In our case the Oncology Doctors Association has said the same thing. Many other independent people have said the same thing. We're one voice among many, many, many. And I think that that's how you ought to test when business people say it's in the patient's interest, obviously it's got financial consequence for us. But we can handle whatever financially happens. And I'm deeply concerned about patients. I've had family members who've taken this medicine under difficult circumstances. Many people here know people who've taken the medicine and had cancer. This is serious stuff.

Ryssdal: How much of what's happening in this company these days is because you have so much of your revenue dependent on these two medicines -- Epogen and Aranesp?

Sharer: Well mathematically from just a straight financial point of view clearly when medicines that account for a large portion of our revenues are affected that's gonna have an inordinate effect on our financial situation and our stock price, etcetera, etcetera. But I'd like to emphasize that we're a really, really strong company financially. And even on a worst case situation with these medicines we've got resources to develop medicines, resources to manufacture medicines and we'll be okay financially.

But yeah one of the things about Amgen that is true is that we have a relatively few products that account for a lot of our revenue. That's not completely unusual. There are other companies in other industries in that situation too.

Ryssdal: Is it though a case of all your eggs in one basket? Many of your eggs I guess in one basket.

Sharer: It's always been the case at Amgen from 1989 when the first anemia medicine, Epogen, went on the market that the anemia market has been very, very important to us. It's become less important to us as other medicines have grown. Enbrel a medicine that we got when we bought Immunex has grown from 800 million dollars to over 3 billion dollars. So we're diversifying. But you're right, we're heavily dependent on the anemia medicines.

Ryssdal: How do you grow now when you're facing the situation you're facing?

Sharer: What we try to do is make sure that we deal with this financial circumstance in a prompt, intelligent, effective way. Which I think will take us into next year. And then after that we have a new baseline for the company financially. And then the pipeline, which is a strong pipeline, still has to kick in. And we're very optimistic about a late stage product called Denosumab which is really a dual blockbuster potential. And if Denosumab is successful and even at sort of the single or double level. It doesn't have to be a homerun. We'll have very strong growth and be a growth company again.

Ryssdal: This is kind of off topic but who comes up with these drug names? Do you guys have a little room somewhere where it's computer generated? Sharer: I can guarantee you that it's not us. Some agency of I think the government has some naming conventions. And this is not our marketing guy's best thinking let me tell you.

Ryssdal: Amgen is often called in the press the world's largest independent biotechnology company. What does that mean to you and why does it matter really?

Sharer: To me it's not important. We of course are happy with our success and proud of what we've done. And we need resources to develop medicines. And I'm glad that we are able to be large enough to spend over 3 billion dollars a year for research and development. I'm glad that we're independent. I'd rather have us control our destiny than somebody else.

But kind of the bragging rights of who's the biggest are sort of more interest to the press. I'd rather try to be the best company we can be. And if we end up the biggest that's great. But size for size's sake isn't that important.

Ryssdal: One of the things you're going to have to do in this restructuring is cut your spending on R&D, research and development. How are you going to build your way? How are you going to build your pipeline to get out of this situation if you're cutting R&D?

Sharer: Well we haven't said we're going to cut R&D absolutely. What we've said is that we're going to target over time to have about 20 percent of revenue be spent on R&D. And right now it's 22 or 23. But I understand your question.

We'll have to grow our R&D spending more slowly and make tougher choices. We're out-licensing some products. We're seeking partnerships in some areas. And you just won't do as many clinical trials as you otherwise would. But we still have more than 3 billion dollars of resources for R&D. So we've got plenty of money to develop the pipeline.

Ryssdal: Biotech sort of has this reputation of being organizationally nimble and entrepreneurial in spirit. Is that going to help you try to get through this? Or are you guys too big and too old to really sort of do that stuff?

Sharer: that's a good question. You know biotechnology is a technology. And it has a sort of two groups of companies. There's a relatively small group of companies, less than 15 companies I suppose, who actually make a profit, who are actually commercial companies, who have over 1,000 staff members. Then there are hundreds of very, very small companies with no revenue, small staff, etcetera, etcetera. So in the large company area I still think, compared to other companies, we're fast and young and nimble. And I think that the way we're dealing with this circumstance proves that.

Ryssdal: You are as many other industries are in this country, but perhaps more than a lot, at the mercy of the federal government. As has been demonstrated in the past year. Whether it's by regulation or who pays for the medicines. Does that drive you crazy?

Sharer: No. I mean virtually every company in American to one degree or another is heavily influenced by federal government decisions. Whether it's regulatory, reimbursement, legislative, intellectual property. That's just the nature of our economy. And sometimes the government's tough to deal with. But basically I think the process is fair. Good decisions ultimately are made. And we can deal with it. It's okay. And if you're in healthcare it's inescapable.

Ryssdal: Actually let's explore that for just a second. I mean this is at the very base a healthcare company. How do you fix healthcare in this country?

Sharer: Hmm. That's a much, much longer discussion - Ryssdal: That's alright. We got all the time you want.

Sharer: -- and I don't have a sound byte. I guess we have to figure out you know what's the problem. And most people point out two problems which I would agree with. One is the rate of growth of spending as a percent of GDP is too high. We can't sustain this rate of growth of spending. And the second one is that too many people don't have access to healthcare through insurance. And I think that the bigger problem is insurance. The people who need to get it who don't have it. And I think that we need to have the political will to actually fix that problem. I don't have a simple answer for how to do it. But I think we've got to fix it. I think it's not acceptable that so many people don't have health insurance.

Ryssdal: Let me reframe the question then. Do you think the government's capable of fixing the healthcare problem in this country?

Sharer: I think the country is capable of fixing the healthcare challenge in the country. And the problem is there's no simple path forward. It's not have the government take over healthcare. I don't think our country wants that. And it's not as simple as without any government intervention the system fixes itself. I think the government's proper role is to set the rules and to be a smart participant. I think we can get there that way. I don't think it's a good idea to have government completely take over healthcare.

Ryssdal: Where is this company going to be in ten years? Not the two to five year time frame you talked about before but ten years.

Sharer: Well ten years from now we should have more medicines on the market. We should be a even more important force in healthcare in the world. Not just America. We should operate in China, in India in commercial ways. We should obviously be bigger than we are now. Because if you don't grow as a public company you don't survive. We should have the same culture that we have now. That is a science based culture that focuses on patients. And we should be a very, very important company.

Ryssdal: How do you do science? Really difficult molecular science as a public company subject to the pressures of Wall Street and analysts and all those demands that you probably spend way too much time dealing with.

Sharer: It turns out that science as you point out is very, very difficult. But from a company point of view, it's relatively straightforward. First thing is you've got to have a culture that respects and understands the scientific process. Number two, you've got to have the best people you can get. Number three, you've got to be involved in the broader world. That is science happens everywhere not just here. Four, you've got to spend enough money and have enough patience to let the process happen properly.

And it turns out that the fundamental science is not nearly as expensive as running big 10,000-person clinical trials. So the financial dimension of doing good science is probably the least challenging of all the things you have to do to have the science be right.

Ryssdal: The world of clinical trials in biotechnology and in medicine and in the pharmaceutical industry overall is a sticky one. Because there's competing financial interests. There are doctors who prescribe medicines who take payments from companies. It's very difficult. How do you steer ethically clear in those situations?

Sharer: There's a regulatory process that helps both at the FDA and in hospitals and physician groups themselves. There's lots of vetting if you will. "Is this is the right experiment to run?" So before you even do anything, you get agreement from others that you're doing the right thing.

Second you have to make sure that informed consent is properly done. That is patients understand what it is that they're signing up for as a participant in an experiment. You've got to make sure that you've got monitoring policies that check at the sites you're doing the trials with enough frequency to make sure the data is collected accurately. It's suitable for registration purposes. And you've got make sure that the lead physicians, who actually are running the trial in a scientific medical way, are people of good reputation, good intent, good experience. And you have to do all those things. There's not one single easy thing to do. And you've got to be willing to be open about the results.

Ryssdal: Amgen found itself on the front page of the New York Times a number of months ago over reimbursements to doctors for some of its medicines that those doctors prescribed. Why'd you get yourself into that situation?

Sharer: The system in the United States is that for medicines prescribed by doctors and given in their office, doctors are able to make money on those medicines. That's a law. That's part of the system. We didn't create that system. That is the system. We have a competing product with a J&J product. And since those two products came on the market, the unit price of that product's gone down 40 percent. And so the society has benefited. And it's a commercially competitive situation. We're a relatively small part in these medicines of doctors' overall reimbursement. And if the laws were to change that said no doctors can make any money on any medicines, you know we'd do it that way too.

Ryssdal: But surely you understand people who picked up the New York Times that day or who read any of a bunch of other stories about doctors and pharmaceutical companies and biotechnology companies having financial relations, they look at it and they say, "Oh, this whole system's just corrupt."

Sharer: There's a point of view that some have. I understand that point of view. That doctors should not make money on things they do. In other words the U.S. healthcare system has as a financial underpinning the idea that the more doctors do the more they get paid. That is if you're a heart surgeon, the more heart surgeries you do, the more money you're going to make. If you're somebody who's doing tests, the more tests you do, the more money you're going to make. If you're prescribing drugs in your office, the more drugs you prescribe, the more money you're going to make. That is the system we have in the United States. It's not unique to pharmaceuticals.

We can have a big debate about whether that's the best system or not. And I'm not trying to defend it. I think that it's imperfect that's for sure. And having doctors have a direct economic interest in the number of procedures they do or operations or medicines they prescribe is something that we've got to watch. But that is the system we have.

Ryssdal: I'm not hearing you say that Amgen doesn't want any part of that anymore.

Sharer: Well, we can't unilaterally say that we can't participate in the system and hope to succeed as a company. I mean we've also got to be a player in the system in a logical, legal and fair way. And we certainly don't do things to incent doctors or encourage doctors to use medicines that are bad for patients or in the wrong way.

And I think one of the things about the New York Times article that was really unfortunate is it left the impression in the minds of patients that their doctors are going to do things to do them that are not good for them simply for financial reasons. I don't think doctors do that. I think doctors are, by and large, honest people who are small independent business people. They've got to think about making payroll too. And they've got to work within the system that we have. And so it's a more complicated situation than just doctors make money on things they do.

Ryssdal: You're an engineer by training. You spent a lot of time at telecommunications companies and General Electric and consulting. What do you know about biotechnology?

Sharer: Well by now having been here 15 years quite a lot. And when I came here, I didn't know anything. But I've had enough time and have taken the time to understand the science, the medicine, the regulation. So I've spent more time at Amgen by far than any other place. And after 15, now my 16th year at it, I think I know what's going on.

Ryssdal: What's the one thing you spend the most time on in your work day?

Sharer: There isn't a dominant thing that is a one thing. But kind of on the top three are always organizational and personnel matters. Number two is communication with all of the stakeholders that we've got to communicate with. Doctors, the press, Congress, the board. That's always there. And number three is always the operations of the company. How are we doing in our pipeline development? How are we doing in science? How are doing in manufacturing? And so those three things -- organization, personnel, communications and company operations are always in the top three in terms of how I spend my time.

Ryssdal: Do you ever get out and walk around the labs and poke over some guy's shoulder and say, "What is that thing you're doing?"

Sharer: I don't try to make suggestions to scientists. But I do go out and listen to how they're doing. Just last week I went down in the labs and talked to three groups of seven young scientists each to find out how all of the things that are happening in the company now are affecting them. What do they think? And how are they doing? So I do get out and talk to people for sure.

Ryssdal: What'd they say?

Sharer: The message was they appreciated the openness with which we're dealing with this situation. They understood why we had to do it. They deeply regretted it. And on a personal level it made them feel uncertain and uncomfortable. But they're focused on doing the right thing and doing their work.

Ryssdal: A lot of the research I did before coming to talk to you talked about your interest in leadership. And how you feel that that's a key element of the position you're in and making companies work. How do you lead when you're telling people, "I'm sorry you're going to lose your job, and this company is not going to make as much money?"

Sharer: I think in tough times is the real test. When it's good times it's easy. Tough times you have to be available. You can't hide out. You've got to tell the truth and not try to spin it. But also provide hope and promise for the future in a sincere and genuine way. You've got to listen to people. You've got spend extra time communicating. And you've got to be able to show that there is a path forward. And you've got to maintain a positive attitude yourself. And I don't mean a Pollyanna attitude. You've got to be sensitive and respectful that this is very, very difficult. But you've also got to say, "Hey look, you know the seas are pretty darn rough but we can get through this." And you've got to be believable in all those communications.

Ryssdal: Are you through this or is there another shoe yet to drop here?

Sharer: Well we're right in the middle of this restructuring. We've announced it. And it's begun. But it's going to take us for probably the rest of the year to actually get it behind us. And depending on what the government decides in the nephrology area, our medicine is used in cancer and kidney disease, it's not impossible to imagine that there's another shoe to drop. But we don't think that'll be the case. And we're working hard to make sure that doesn't happen.

But ultimately in the FDA and Medicare are the decision makers. And they've got the decision. And we're going to try to influence the best we can.

Ryssdal: Does that frustrate you that it's a little bit out of your hands?

Sharer: It's life. I mean most things when you think about it as CEO of large company there are lots and lots of things you can't totally control. What we get paid to is to be able to manage through whatever life throws at us and try to have enough influence and good sense and perspective to get through it.

So yeah it's frustrating when the government makes decisions that you know are bad for patients. It's frustrating when people do things that you just don't agree with. But that's going to happen from time to time. You've got to be able to kind of pick yourself up and get through it.

Ryssdal: Let's get back to the pipeline for a sec.

Sharer: Okay.

Ryssdal: You say your pipeline's strong but that's not what a lot of people say. In fact they use the word "thin." How do you explain that difference?

Sharer: Oh you know six months ago those same people were saying we have the best pipeline in the industry. So pipeline views they really, really ebb and flow kind of in the general perspective on the company. I think we've got a couple of medicines in the pipeline that are very, very promising. And I feel good about. Denosumab I mentioned is one for osteoporosis and bone cancer. Two different indications.

The nature of our business is that virtually every company has at one time or another a dominant medicine late stage in the pipeline. We're lucky we effectively have two. There are 38 molecules that are in one stage or another of clinical development. And I think that's a pretty strong pipeline. But hey, you know it's like handicapping the race before the race starts. We'll see what happens when it actually gets across the finish line.

Ryssdal: In a lot of ways running a biotech company is sort of a gamble. Does that appeal to you on a personal sense? The element of risk and reward that's in here?

Sharer: What really appeals to me is what we do counts. In other words the things that people at this company do are trying to help people with the most grievous illness you can imagine. And our medicines really matter to the people who take them. So that is deeply, deeply appealing. The chance to really make a difference to people.

The fact on a business side that it's high stakes and complicated and played out on a world scale, that's appealing to the leader in me. But to the humanity in me what really appeals to me is we really help people.

Ryssdal: Is your job hard?

Sharer: There are days when it's very, very challenging. But I'm trained to do this. My experience prepares me well. And I'm well equipped to deal as my colleagues are with this. But some days it's hard. Yeah. Sure some days it's hard.

Ryssdal: Kevin Sharer is the chairman and CEO of Amgen. Mr. Sharer thanks a lot for your time.

Sharer: My pleasure.

[NOTE: The text above is an extended excerpt of the interview and may have been edited. It should not be taken as a verbatim record.]

	DOW -1.49%
	NASDAQ 0.00%
	S & P 0.00%
Details...