The Soul of Biotech

From Episode 1×14 of Sports Night:
Isaac: “Thanks, this won’t take long. There’s gonna be a piece in tomorrow’s Wall Street Journal. Don’t worry about it. (BEAT) That’s all.”

Yes, I still have my job. Furthermore, there’s no rationale (barring the sale of Amgen to a competitor) by which I would not continue to have my job. By now, you’ve probably read all about Amgen’s planned layoffs and cutbacks. While I’m obviously not thrilled about it, I understand why we need to cut expense growth in light of the finalized CMS ruling, which impacts our expected revenue growth. It stinks, of course. The news has affected morale a little bit. Some who sense that their jobs are potentially vulnerable have been wondering whether or not to start planning for a transition. Others have already begun to look for other opportunities “just in case.” Still, I’ve continued to be impressed by the strength and transparency of management near me, up through to the VP level.

In one respect, however, I am disappointed. What I have found to be conspicuously absent from Kevin Sharer’s messages to the workforce is any indication that he or the other executives are willing to share in the pain being experienced by those whose jobs are at risk. In Jim Collins’ Good to Great, Collins points to a “culture of discipline” present in great companies — it is a culture in which members of top-level management forgo luxuries in order to set an example for the rest of the firm. For example, at Nucor, a large steel company, workers’ pay was cut 25 percent during the 1982 recession. Executive salaries, however, were slashed by 60 percent, and the CEO himself took a 75 percent pay cut. By “feeling the pain,” rather than distancing themselves from it, executives demonstrate that they share in the entire company’s reality. Indeed, a recent Scientific American article suggests that the leaders who position themselves among the group rather than above it have generally proven to be most effective.

Kevin made over $34 million in compensation last year, placing 24th on Forbes’ 2006 list of most highly-paid CEOs. Although 2006 was a stellar year for the company, I would imagine that Kevin’s 2007 compensation will still be fairly generous. I wouldn’t ask Kevin or any of his team to take a pay cut without a better idea of the big picture. In fact, I sincerely believe that his senior team deserves healthy compensation for their difficult and important jobs. I simply hope that Kevin is not missing an opportunity to win the loyalty of the workforce by actively participating in the cutbacks and setting an example for the rest of us.

Last week, I watched Big Bucks, Big Pharma, which is more or less what SiCKO would have been if Michael Moore had focused on pharmaceutical marketing, although BBBP’s criticisms are much more well-reasoned and well-researched. In fact, many of its facts are more or less right, although I question some of the business interpretations.

For example, one of the talking heads questions the pharma industry’s claims that R&D is what drives up the cost of medicine, rather than marketing, whose budget is often larger than that of R&D. He asks how that claim can be true if a drug company spends more on marketing than R&D each year.

What is missing from his position is an ROI analysis. Compare:

• A $1 million promotion that delivers $3 million this year with a 95% probability.

• A $1 billion drug development budget that delivers $5 billion spread out over the next fifteen to twenty years with a 30% probability.

Which is better? Well, it depends on the priorities of the company to raise cash now versus planning for the future. When measuring the near-term budget, the marketing option seems to cost almost nothing, because it pays back so quickly. On the other hand, if you only marketed drugs and didn’t develop anything in-house — well, you’d be Pfizer. Balancing the portfolio of projects across R&D and marketing is a major challenge for any company. Too little sales and marketing, and you can’t turn the lights on. Too little R&D, and you have to keep spending money buying other companies just to get their compounds.