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“The Pharmaceutical
Industry
in the 21st Century”
Fred Hassan
Chairman and Chief Executive Officer
Schering-Plough Corporation
Remarks for the 100th Anniversary Celebration
of the Department of Chemical Engineering
Columbia University
New York, New York
Oct. 7, 2005
It’s an honor to be here with you today,
and to be invited to speak to such a distinguished group. It is
especially exciting to be here with you on this special occasion
of your 100th anniversary.
So, let me say to everyone: congratulations!
As a chemical engineer by training, I have a deep appreciation for
the value of what one learns in this degree course.
To those working toward your degree -- my experience is that you
have made a good choice.
A strong foundation in chemical engineering is a strong foundation
for your future.
To those of you who, like me, have taken chemical engineering into
a career:
I hope you share my view, that we did the right thing!
Now this afternoon, I would like to talk with you about three things:
First, I will talk about what I see as some of the major challenges
and opportunities facing the global research-based pharmaceutical
industry into the next decade and well into the 21st century.
Second, I will focus on what I believe is the relevance and role
of a chemical engineering education today.
And third, I would like to speak on a much more personal note.
I would like to tell you about some of the things I have learned
in my career; lessons that have helped make my job rewarding --
and which you may find interesting.
Then, I would like to open the floor for a Q & A session.
So, let me start by telling you a little about what I see happening
in the pharmaceutical industry today.
These are exciting times. They are also highly uncertain times.
It is hard to overstate the transformational changes that are occurring
in this unique innovation- and science-centered industry.
Just one example: In research, scientists are just beginning to
apply new sciences and technologies to find treatments for some
of the toughest disease challenges in front of us in areas such
as cancer and cardiovascular disease.
So: What are some of the key challenges that are part of this transforming
environment?
And what are some of the opportunities?
Let me begin with some of the challenges of this transformation
-- challenges that are unprecedented in my more than 30-year-career
in this industry.
From a business perspective… The cost of taking a molecule
from early discovery, through development and into the marketplace
to benefit patients, is rising at an astonishing pace – up
from some $600 million a few years ago, to over $1 billion today.
This trend will no doubt accelerate further.
One important factor driving the rising cost of innovation is that
most of the “low-hanging fruit” of pharmaceutical discovery
science has already been harvested.
New innovations -- for example, innovations that can help moderate
or cure Alzheimer’s disease -- will be much harder, and much
more costly, to deliver.
Another big challenge we face today are societal factors.
For example: It is a reality that every effective medicine has benefits,
but also certain risks.
Even the ordinary aspirin tablet carries risks -- for instance,
aspirin is known to carry the risk of harming the digestive tract.
So it is important to have a balance between benefits and risks.
Today we are seeing an imbalance. There is a preoccupation with
safety, which is becoming unrealistic.
This is having potentially unintended consequences. Ever bigger,
longer and more expensive clinical trials of potential new drugs
may make it uneconomic to develop them.
Ultimately this will not help the patients -- the patients who are
waiting for new medicines, waiting for access to the next discovery.
Another societal factor: the challenge of overall health care costs.
In the more developed economies, the demand for more and better
health care keeps growing – but there is a lack of appreciation
of the fact that we must invest more to meet this demand.
One of the most important investments should be in pharmaceutical
innovation for a very simple reason: As we look at today’s
health care and look ahead to tomorrow, it is clear that pharmaceutical
innovations have become a pivotal factor in driving better health.
Consider just one example: HIV AIDS. In the past decade and more,
we have transformed the treatment of this terrible affliction –
primarily through pharmaceutical innovations.
Today, tens of thousands of people who would have died of this
tragic disease are living productive, rewarding lives.
There are volumes of similar stories of transformation of treatment
through pharmaceutical innovation in areas ranging from cholesterol
management, to mental illnesses, to heart disease, cancer -- and
more.
Yet governments and other payors for health care often resist the
imperative to make the tough choices that would invest more in health
innovation.
Worse: There is a growing trend to imposing controls on the cost
of pharmaceuticals – in other words, to impose investment
constraints on the one area of health care that promises to do the
most for improving health.
In Europe, we have seen the consequences of price controls on drug
innovation. Thirty years ago, Europe was the center of the global
pharmaceutical industry.
Then governments across Europe began to impose price controls on
drugs.
This undermined innovation.
It also distorted the free market environment.
As a result, pharmaceutical innovation moved to the United States.
Today, the U.S. is the last major country with an innovation-friendly
environment in our industry.
Today, many Europeans are looking at the innovation environment
here in the U.S. as a model for what they need to do to repair their
situation.
Yet ironically today, many American politicians and others with
short-term outlooks are seeking to impose the failed European price
control model here in the U.S.
Just when some European governments are attempting to learn from
their mistakes, many of our leaders seem determined to repeat those
mistakes!
If this price control drive succeeds here in the U.S., it will certainly
harm the innovation pharmaceutical industry.
But the worst consequence will be diminished health innovation for
the future.
If we see a price control environment in the U.S., we will not see
the flow of health innovations that patients are waiting for.
In this context, you will be wondering: What is my perspective on
the new Medicare drug benefit?
As you know, this new Medicare benefit goes into effect next month.
It will give tens of millions of seniors and disabled Americans
the opportunity to access government-funded drug coverage.
For many of these senior and disabled citizens, this will be the
first time they have such coverage.
So, my perspective on the Medicare benefit is this:
First: It is the right and compassionate thing for our society to
do.
We must help assure access to medicines, for these citizens.
That is why I am very supportive of this new benefit.
So is our entire industry.
Second: I am concerned about unintended consequences.
Through the Medicare drug benefit, the U.S. government now becomes
an enormous buyer of drugs for citizens.
For the sake of the future of health innovation – we must
all work to assure that this new benefit does not become a doorway
to government-imposed price controls on drugs.
I have spent some time talking about some of the major challenges
we are confronting – important challenges for the pharmaceutical
industry in the 21st Century.
These are not just challenges for our industry. They are truly challenges
for our societies, and for the health of future generations.
But now let me turn to opportunities.
Because despite all those challenges, I remain optimistic about
the future of the innovation pharmaceutical industry. Let me tell
you why.
I see three converging reasons:
The first of these reasons is the coming wave of aging baby boomers.
Their numbers are enormous. They will need more medicines.
Perhaps most importantly of all, this wave of boomers has a new
level of health literacy. The boomers are increasing their knowledge
of health and of medicine. The boomers will demand access to new
and better treatments.
And I have hope that this generation will help to drive a renewed
focus on the efficacy of medicines. I have hope that this generation
will help to restore the essential balance in our society’s
expectations of medicines -- the essential balance between the benefits
and risks of drugs.
My second reason for optimism about the future of our industry,
is this : The extent of unmet medical need continues to be vast.
Despite all the advances in health science that we have seen in
recent decades, today, we have still only answered a small portion
of the unmet need.
Indeed, in some important therapeutic areas, I would estimate that
we have met only 10 percent or even less of the unmet need.
So much remains unmet in critical areas such as cardiovascular disease,
cancer, infectious disease, central nervous system disease and other
areas.
The science-based innovations to meet these needs will come primarily
from one place: the innovation-driven pharmaceutical industry.
And my third, and final, reason for optimism: We are at last seeing
early signs that the new sciences, the new technologies, are beginning
to deliver on their promise.
These are technologies with which many of you may be familiar --
sciences and technologies such as high-throughput screening, genomics
and many others.
It has taken time for these advances, to begin to deliver -- more
time than some observers had expected. But it is beginning to happen.
So we will have tools and pathways, to crack the tougher challenges
-- and begin to respond to those large unmet medical needs.
So those are three big reasons, why I have optimism about the future
of our industry and why I have optimism about achieving health innovation
for future generations.
First: the wave of the baby boomers and the new health care dynamic
they create.
Second: the extent of remaining unmet medical need -- urgent needs
that only the innovation pharmaceutical industry can answer.
And third: the promise of the new sciences and technologies.
Now – let’s talk about you.
Let’s focus for a few minutes on the relevance and role of
a chemical engineering degree today -- particularly with respect
to the innovation pharmaceutical industry.
I would like to address my comments particularly to those of you
who will shortly be wrapping up your Columbia education and are
now thinking about your next steps as you enter the working world.
I believe that the determined pursuit of new science-based medicines
is a noble one.
It is exciting to be on the cutting edge of science. It is challenging
to play a role in rising to some of the many important challenges
ahead in our industry. And it is rewarding to be doing good things
for the patients who are waiting.
Your chemical engineering degree represents a terrific base of training.
In engineering. In science. In the application of chemistry, physics,
math and the interplay of these with each other.
There are many specific ways in which your degree can have direct
application in our industry.
Let me give you just a few specific examples.
For instance: You will have special strengths to contribute to our
knowledge and application of heat/mass transfer. This is very important
to the manufacturing of medicines in controlling batch temperatures
and other applications.
A second example: What you have learned here at Columbia can add
special value as we work to implement what we call Process Analytical
Technologies (PAT). This is the continuous monitoring of a given
process instead of taking samples at discrete intervals. Already,
this technology is providing our industry with added controls and
better assurance of product quality.
We need people who understand this area.
And a third example: The statistical design of experiments.
We need scientists and technicians who understand how to design
experiments, so that we can generate more information from fewer
experiments. Your Columbia education prepares you to make a very
important contribution in this area.
And these are just a few specific examples of how relevant, your
degree can be to specific tasks in our industry! There are many
others.
You are developing a solid base of applied science.
Applied science gets things done in our industry. Applied science
turns promising new molecules into new treatments -- new treatments
that improve or even save lives.
Let me give you one exciting example from my own company.
Thanks to groundbreaking discovery science by Schering-Plough scientists,
we identified a new molecule that held great promise for treating
high cholesterol.
As you know, cardiovascular disease is one of the leading killers
in our societies today.
And we had a molecule with wonderful potential.
However, to turn this molecule into a medicine required intensive
work by dedicated teams of other scientists and technicians -- scientists
and technicians who utilized the kinds of applied science that I
just described to turn that promising molecule into medicine.
Today, through a remarkable achievement of applied
science, that molecule is now part of a special new cholesterol
treatment called VYTORIN. VYTORIN is an innovative treatment that
is a major advance in cholesterol therapy.
VYTORIN is now helping hundreds of thousands of people get to new,
lower goals for cholesterol.
You can imagine how good it feels to be part of
the team that brought this vital new treatment to the patients who
need it!
So that is the special value that is added through applied science.
However, there are also two important capabilities
that you have developed here at Columbia that go beyond applied
science.
One of these capabilities is a cross-functional mindset. And the
second capability is what I would call “science-confidence.”
First: the cross-functional mindset.
In large, complex organizations today, one of the most important
factors for success is cross-functional, shared-accountability ways
of working.
Today, no individual, and no business unit, is an island.
High performance by individuals, and individual units, is essential
but it is not sufficient.
They must work seamlessly with OTHER units, across boundaries, to
deliver on shared goals.
Consider my own industry.
Great science that discovers new molecules is an essential for success.
New molecules are the essence of new medicines.
However: Great discovery science is not enough in itself today.
We need to select the right new molecules for development into medicines.
And we must execute the development process with excellence, in
ways that meet the most urgent needs of patients and their care
providers.
At my own company, we have installed a special process to do this.
We call it Customer-Centered Product Flow. At the heart of this
process is early and continuous cross-functional collaboration.
Collaboration among our discovery colleagues.
Our development colleagues.
Our commercialization colleagues.
And our supply chain colleagues.
We expect everyone to work together to get the job done.
And to get it done with excellence.
You can see that the cross-functional nature of Columbia’s
chemical engineering curriculum is an important preparation for
a cross-functional, shared-accountability way of working.
Your education gives you a special capability in this area that
is critical to the success of large, complex organizations.
And now let me turn to the other mindset that is such a valuable
outcome of your education here at Columbia.
The mindset of “Science Confidence.”
Today, there is a desperate lack of executives in large, science-centered
enterprises such as ours who have scientific savvy. The science
savvy that gives an individual confidence in making science-based
decisions.
Throughout my own career, I have found my chemical engineering
background an enormous benefit because I have not been intimidated
by science.
While I have always relied on the experts, I feel I can participate
better in the process thanks to that background.
I know that I can talk with scientists about molecules -- thanks
to that chemical engineering background.
And, thanks to that special background -- I can make informed decisions
when we make important science-based choices.
For example: When we must make critical decisions about whether
to invest hundreds of millions of dollars in the development of
a new molecule…
…the huge investment that turns a molecule into a medicine
like the cholesterol treatment VYTORIN -- I am engaged. So your
mindset of science confidence is a tremendous asset as you look
ahead to your careers. It will be of great value if your path takes
you into an applied science specialty.
And it will be of great value if your path takes you also into areas
of general management in a large, science-centered organization.
Finally: a few very personal comments.
Let me share with you a few fundamentals that have made a very big
difference to me as I have navigated my career. I address these
comments especially to those here today who are about to enter the
professional world and to those who are early in their careers.
First, I urge you to place what I like to call business integrity
at the center of everything you do.
In my more than three decades as a business executive, I have seen
a simple but elusive truth proved many times over: By doing the
right thing, by following your own internal moral compass, you will
feel good about your work.
Second, get your hands dirty, early on!
By that I mean make a conscious decision to get experience at the
working level.
It can be seductive to climb quickly into staff roles or perhaps,
to become part of a prestigious consulting firm.
My advice is to take a different path.
Many years ago, early in my career, I was presented with an opportunity
to move from an exciting headquarters job to a job in the field.
It seemed like a tough choice at the time.
However, a mentor strongly recommended that I take that operational
job in the field.
And so I did. I went from the New Jersey headquarters to Nebraska,
where I got the opportunity to run an operational unit. I got down
in the trenches.
I worked with the men and women who were creating value for our
company at the heart of the company’s Midwest operations.
This was one of the most formative working experiences of my life.
That time in Nebraska prepared me to take on many other roles in
my career.
And it taught me how important the work of our front line people
really is!
And on the subject of “getting your hands dirty”:
Approach this opportunity with focus and discipline. You will get
more out of it than being in a hurry to get the next job.
And this will also make a good impression on your boss!
My third and final piece of advice: Learn how to be “in tune.”
Be in tune with the people within your organization. And be in tune
with the stakeholders outside.
What do I mean by “be in tune?”
Being in tune means tuning in to other people’s frequencies
and to keep tuning in as the environment changes.
Being in tune means really putting yourself in the other person’s
shoes. To see the world from their perspective.
This means listening and learning before you lead.
As a senior executive, I have learned that being in tune in this
way with the people at the front lines, with the people who do the
work, is exceptionally important.
By being in tune, I learn from them. And by being in tune, I begin
to earn their loyalty.
I begin to earn their trust.
Meantime I also work hard to be in tune with external stakeholders.
For example: I meet with doctors, as groups and in 1-1 dialogues.
I go out with our sales professionals to hear what our customers
are saying.
I personally meet with important regulators and with other decision
makers to understand their perspectives and to understand the changing
environment.
By being in tune with external stakeholders, I learn to understand
what matters most to them.
Not just intellectually, but also emotionally because health and
health care are very emotional matters! I understand better how
we can best respond. I understand better what we, we, as an organization,
must do to earn their trust.
Ladies and gentlemen: I have talked about three things this afternoon.
The challenges and opportunities that the pharmaceutical industry
faces as it steps into the 21st century.
The relevance and role of a chemical engineering education today.
And a few of the principles and disciplines that make my life’s
work -- my ongoing life’s work deeply enriching. I hope these
lessons will also enrich many of yours.
Ladies and gentlemen: Thank you for your attention.
And now, let’s turn to a Q&A dialogue together.
DISCLOSURE NOTICE: This speech and the prepared materials for this
speech contain certain “forward-looking statements”
within the meaning of the Securities Litigation Reform Act of 1995,
including statements related to VYTORIN and the market potential
for VYTORIN. Forward-looking statements relate to expectations or
forecasts of future events. Schering-Plough does not assume the
obligation to update any forward-looking statement. Many factors
could cause actual results to differ from Schering-Plough’s
forward-looking statements, including market forces, economic factors,
product availability, current and future branded, generic or over-the-counter
competition and the regulatory process, among other uncertainties.
For further details and a discussion of risks and uncertainties
that may affect forward- looking statements, see the company's Securities
and Exchange Commission filings, including the company's second
quarter 2005 10-Q.
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