Sunday night we attended what we now think of as the kickoff to the JP Morgan meeting, the extraordinary concentration of biotech/pharma movers and shakers which is the MPM Capital dinner at San Francisco’s Ferry Building.
The dinner operates as a kind of temperature gauge for the industry; lots of folks with the power to actually do something looking for each other’s opinions and sharing their own.
Our quick sense this year: they were worried. But it was less the conversations that struck us as indicative of the industry angst than the unusually frank remarks of the dinner’s keynote speaker: Thomas Ebeling, once the GM of Pepsi in Germany, the CEO of Novartis Pharma and Novartis Consumer Health, and soon to be the boss of Germany’s largest broadcasting group ProSiebenSat.1 Group.
Ebeling’s a controversial guy. But he’s also got a very pretty broad view of the practical side of the business world. Which was why Ebeling’s theme -- a critique of the drug business – was so compelling.
There were plenty of things he said he liked about pharma (the passion to do good, for one; the extraordinary return-on-sales, for another). But there were plenty he didn’t. Not that the criticisms were particularly novel: you hear many of them in private conversations. But you rarely hear them publicly from one of the business's big shots and never aggregated. Here are the points we can remember (who thinks to take a reporter’s notebook to these shindigs?):
- Some of Big Pharma’s very senior managers (one assumes not excluding the speaker) are very sharp. But there’s a huge fall-off in quality as you get below the top.
- Big Pharma managers, trained in consensus decision making, don’t take individual responsibility. Not a lot of bold decisions, therefore, likely to get made.
- Pricing in pharma will change to a pay-for-performance model.
- This industry – and all its constituents – hates bad news. So rather than confront it, managers generally try to avoid it, exacerbating the problems pharma faces.
- Given the R&D productivity problems, in-licensing is crucial – but no one wants to say "yes" to them. Everyone will remember the executive who championed an in-licensing candidate that fails after millions in trial expenses. No one remembers the person who said “no” to Lipitor.
- If that ain't enough to block most deals, the not-invented-here syndrome can help. NIH remains a powerful force in pharma: fundamentally, all R&D heads all want to develop their own drugs.
- Pharma will evolve to a holding company model – it’s just too complex to run as it is.
Ebeling finished up his excoriation by answering a question from MPM partner Vaughn Kailian: “If you were appointed CEO of Sanofi Aventis what would be the first three things you’d do?”
The answer must have warmed the hearts of the biotechs in attendance – though the per-company math wasn’t particularly exciting. First, Ebeling would raise $800 million to $1 billion in capital and use the money to buy eight to ten biotechs. Then, because he wouldn’t be able to afford to develop all those products, he’d find Big Pharma partners to help. It’s a shots-on-goal strategy, he said: better 20% of something than 100% of the one asset you can afford to do yourself – and which doesn’t make it to market.
And finally: “I’d find a great head of R&D. Good marketing guys are common; great R&D heads are very, very rare.”
Picture from Der Aktionar Borsenmagazin