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HUNTER RAWLINGS: Good afternoon. Hey, it's a vigorous Cornell audience. I'm Hunter Rawlings, and it's my pleasure to welcome all of you to the Hatfield Address, Cornell's premiere event for the exchange of ideas between the academic and corporate communities. We're honored to welcome Dr George Scangos, CEO of Biogen, as Cornell's 34th Robert S Hatfield Fellow in Economic Education.
As you may know, and most of you probably do, designation as a Hatfield Fellow is the highest honor Cornell bestows on outstanding individuals from the corporate sector. The Robert S Hatfield Fund for Economic Education was established in 1980 by the Continental Group Foundation to honor its retiring chair, the late Bob Hatfield, Cornell class of 1937.
The fund supports not only the Hatfield Address and associated events but also the enhancement of the teaching of economics to Cornell undergraduates. And I want to emphasize that point. This is not simply a Lectureship, it is also support for better teaching of economics to undergraduate students. That's a hallmark of Cornell's commitment to undergraduate education.
Biogen is one of the most valuable biotech companies in the country, with a market capitalization of 57 and 1/2 billion dollars, that specializes in the discovery and development of treatments for neurodegenerative, hematologic, and autoimmune diseases. Among its current projects are efforts to treat such devastating diseases as Alzheimer's, amyotrophic lateral sclerosis, ALS, and Parkinson's.
The company has long had a Cornell connection through its support for programs at Weill Cornell Medicine, including the Medical College Research Fund, digestive disease research, and education programs for multiple sclerosis. Weill Cornell is currently working with Biogen on a clinical trial related to measuring brain function in people with Parkinson's disease.
George Scangos joined Biogen as CEO in 2010 and is credited with leading an impressive turnaround of a then struggling company. During his tenure, Biogen's earnings more than tripled and its revenue more than doubled. In 2015, Fortune named him one of the top 10 CEOs of the year.
Dr Scangos grew up in Lynn, Massachusetts where his family spoke Greek at home. I'll say that again. His family spoke Greek at home, not ancient Greek but the next best thing.
As a freshman at Cornell, he took biology from legendary professor William Keaton for whom Keaton House on West Campus is named. And George told me just a few minutes ago that that course changed his life. And you know there's nothing better, frankly, than hearing a statement by someone who is in a career that has been highly successful who decided to change his major because of a course he took as an undergraduate. George told me he wanted to be a French major, but taking a course from Dr Keaton utterly changed his life, that's why we have distribution requirements.
He earned a Ph.D. in microbiology at the University of Massachusetts at Amherst. And as a young post-doc at Yale, he and John Gordon created the first mouse with foreign DNA that could be passed on to offspring, a transgenic mouse. The news appeared on the front page of The New York Times.
He went on become a faculty member at Johns Hopkins University for six years, then moved to industry and held high level positions at Bayer in Germany and in California and was president and CEO of Exelixis, a drug discovery and development company for 14 years before joining Biogen. This is quite a career.
He is a long time member and current chairman of the Board of Directors of the Pharmaceutical Research and Manufacturers of America. He's also a board member of the Boston Museum of Sciences. Here at Cornell, he has provided significant leadership, serving on the Cornell University Council, the Cornell Silicon Valley advisory Council, and the Life Sciences Advisory Board, which is one of the most important advisory boards at Cornell because of the vast breadth of the life sciences at Cornell.
In May, he hosted a joint Biogen and Cornell Tech event, unlocking the brain, featuring an inspiring discussion with Cornell and Biogen scientists on their work to improve treatments for neurodegenerative diseases. Last November, he visited campus and gave a much appreciated lecture titled, Risk, Reward in Biotechnology, Can We Afford to Innovate?
He told me a few minutes ago the best part of his day to day were visiting with students, teaching students, and taking questions from students. So he's a natural faculty member as well as CEO of a major company. Please join me in welcoming George Scangos.
GEORGE SCANGOS: Well, thanks. I'm sorry to tell you, I'm not going to deliver my talk today in either ancient or modern Greek. And hopefully, it'll be in plain understandable English.
Look, I'm thrilled to be here. I thank you for inviting me. It's an honor to be here. So President Rawlings, trustees, council members, everybody else here, I'm truly honored to be here and to have the opportunity to talk to you for a while and then get in a dialogue with questions.
I also want to take a moment to point out that I was initially invited here by Beth Garrett, whom I met about a year ago. And certainly, her passing at such an early age, obviously a tragedy for her family but for the entire Cornell community. And I was just getting to know her, but she was obviously incredibly bright, wonderful human being, would have been a great president for this University. A so I just wanted to acknowledge her for a moment this evening before I start.
I do want to talk about my career path. So I entered Cornell in the fall of 1966, so almost exactly 50 years ago. That was a long time. And these are actual pictures from that time. So this is my freshman picture. And fortunately, I think the world has changed a lot more than I have.
And thinking back then and what we knew when I graduated in 1970 in terms of science and biology, it was so primitive. Of course, we didn't think it was primitive at the time. Everybody thought this was the modern era, and it was primitive 20 years ago. But looking back now, it's incredibly primitive.
I got a Ph.D. degree in 1977. I have my thesis, which I think was a good one, can now be done in about 10 minutes on a computer by an undergraduate. And so things have changed dramatically.
And if you look forward to today, and you see some of the headlines that are here, Jimmy Carter being a great example. Jimmy Carter was diagnosed with a terrible brain tumor. If he had been diagnosed even three or four years ago, he would be dead now. He is now cancer free, and that's because of some of the new advances in immunoncology and some of the new drugs.
Obviously, there's a huge amount left to be done, but there's been incredible progress over that time. And what's exciting to me today is that we're at the beginning of an era where we will really see transformative medicines. The type of immunoncology that lead to Jimmy Carter being cancer free works spectacularly well for a small subset of patients. Many patients still don't benefit. There's a lot of work to be done to understand how to make that approach of having the immune system attack the tumor work for most patients or all patients.
Neurodegenerative diseases are not very well treated, Alzheimer's disease, Parkinson's disease, ALS. All of those diseases need better treatment.
So we can look at the advances of the past, childhood leukemia which used to have a 90% mortality rate now has a more than 90% survival rate. Hepatitis C, which wasn't even identified a few years ago, is now curable. Aids, HIV is now a chronic diseases if people adhere to their drugs. So there've been remarkable advances, but there is so much more that needs to be done.
But it takes a long time. And so you hear about the fact that it takes 10 or 12 years to develop a drug from the time you start working on it until the time to make the market, that's all true. But the time from when the scientific advance is was first made that can lead to that drug until that drug gets the market can be 20 years or more.
And so you have some examples here. If you look at Gleevec which is an amazing drug for chronic myelogenous leukemia, the chromosome elaboration was first noticed in '60. The genes that were identified in the late '80s. And the drug finally makes it to market in 2001 . And you can see the time frame here, it's 20 years, give or take.
So this industry is one that, if you're an investor looking for a short-term gain, and there are other places you should put your money. This is not a short term industry, it takes a long time.
I'm going to come back to SMA, Nusinersen here is a name of a drug for a disease called SMA. Gene's discovered in 1990, we hope to get approval for a drug to treat that early next year. So it just it takes a long time.
But we're public companies. And so we can't ignore the short term. And I read this book recently, it's called the Shareholder Value Myth, it's written by Lynn Stout who's on the faculty here in the Johnson School. And she makes a couple of very interesting points, one is, what is the purpose of a corporation? Is the purpose of a corporation solely to provide value for its shareholders? I talked to some of my board members, they would agree with that statement. I don't agree with that statement.
And importantly, she makes a point that for companies to focus on short-term valuations, it destroys long-term value. And so in a system where we are measured by what we do every quarter, I agree with the hypothesis that we generate value over the long run, but if we ignore the short term, there is no long run. The company will get activist investors, will be taken over, and there is no long run.
So how do we deal with a system, and how should I think about my job in terms of how I should balance long-term, short-term, how I should think about the different constituencies that are involved in our company?
We're a business. Like all businesses, we have to cater to the needs of our customers. But unlike a lot of other businesses, it's not clear to many people who are customers are. Is it the insurance companies who pay for drugs? Is it the pharmaceutical benefit managers with whom we negotiate drug prices? Is it the physicians who prescribe the drugs? Is it the patients who ultimately take the drugs?
For me, that is very easy and very clear, it has to be patients. Biogen does not exist for the benefit of insurance companies. We don't exist for the benefit of physicians or pharmacy benefit managers. We exist to bring drugs to patients who need them.
And so our customers are patients. And we have to be laser focused on the needs of those patients. And it's hard to do that.
And one of the things I've learned is that, unless you have a disease or a loved one, or a really close friend has a disease, you don't know what it's like to have that disease. People who have diseases like MS, where we sell most of our drugs or other chronic diseases, suffer more than they let on. Even their spouses and their children don't want to hear them complain.
They have aches. They have pains. They have fatigue. Sometimes they have confusion. They know that they can't go around complaining about this all the time. So they suffer in silence.
And the human cost-- I'm not talking about a financial cost now-- but the human cost for the patients and their families is, I think, more than most people realize. And so it's important for me, it's important for our employees to know patients, to know their families, to meet them, to talk with them, to appreciate the needs that they have and to understand that that's why we come to work every day.
We don't come to work every day to make-- we have any of our investors in the audience, I apologize, but I don't get motivated by coming to work to make wealthy hedge fund managers even wealthier. I get motivated because there are patients out there in dire need of better therapies. And we and companies like ours have the ability to bring those therapies to those patients. That's why we exist. And without that need, there's no reason for us to even exist.
So for me, point number one is be laser focused on what patients need. And if we do that, the rest, I think, will follow.
Obviously, we have to have a strategy. You have to know where you're going. And the strategy's-- I'm not going to go into all the components of a strategy-- but you have to have a direction, you have to know what your competitive advantages are, where you have a right to compete, where you have a chance to win. And you have to play in that field.
And so for us at Biogen, that's neurodegeneration. When I got to Biogen, we had programs in cancer, we had programs on heart disease, and we had other programs. They weren't competitive.
It's a big world. There are a lot of smart people. And if you can look in the mirror and say, I have a right to compete here, I have a right to think I can win in this area, get out, you should get out. And so we exited.
We shut down oncology, which is what most of a big part of the biotech industry is focused on. So that was not without some controversy. We closed out our cardiovascular research which wasn't competitive. And by doing that, we had been spending about $200 million a year on those things. And we took that $200 million and we put it into neurodegeneration where we do have a really world class organization and where we can compete and go toe to toe with anyone. And so then you can fund those areas more aggressively and be even more competitive.
On the strategy though, sometimes you don't know where science is going to take you. You put a drug into clinical trials for one indication, you do some work, you realize it may even be better for some other disease that maybe is outside your strategy. So you can't follow this strategy blindly. It has to be a guideline, a guidepost rather than a hard and fast rule.
Culture, to me, is almost everything. You can decide strategically to get out of oncology or get out of cardiovascular or make whatever strategic moves you want. Those are easy, they're intellectual, they're analytical decisions.
Culture is the not so easy and analytical. It's emotional and it's behavioral. And one of the things that we've worked on really hard at Biogen is trying to change the culture. When I got to Biogen, it was a culture of fear.
So what I realized early on is, I would ask a simple question like, how did you get to that number? And I would expect somebody to say, well, I did this. And instead, they would say, let us get back to you. And then 30 people would work for two weeks to put together a 50 page PowerPoint presentation and bring it back, because they didn't want to be caught short, they didn't want from me to ask a question that they had not considered.
And so they'd come back and they'd say, here's how we got to it, but here are 10 alternatives. And we think these three are the best. So they wouldn't even make a decision just because they were afraid. That kind of culture is really awful for a company, and it's awful for the people who are working in it. And plus, it takes 30 people two weeks to answer a simple question. And those 30 people, that's 60 people weeks of time that could have been spent on something more productive.
So fortunately, we have, I think, one of the best human resources people in the world working with us, who happens to be here tonight Ken DiPietro who's also an alum of ILR School and is here today because he's on your Advisory Council. And so Ken and I have worked really hard over the past few years trying to change that culture.
We've had some success. It's way better than it was. We have a way to go. It's hard, it doesn't change overnight, and it's a work in progress.
And then the last point in here says be a responsible steward of capital. And so we have about $11 billion in revenue. We have maybe $7 billion of cash in the bank, a lot of it in Europe, unfortunately. But we have to take care of that money, we can't waste it.
And so when we think about the short-term versus the long-term, in my view, we have to spend on the long term. We have to invest in research projects that will bring new drugs forward in the future. That's our business. If we don't do that, we don't exist.
But we can't waste that money. We have to be frugal with it. We have to make sure that people are making good decisions. When you're doing research, a lot of what you're doing doesn't work, and so you have to be able to distinguish well thought out ideas, well executed plans that maybe disprove a hypothesis. That's good work, that has to be rewarded.
And that has to be distinguished on the opposite end of the extreme from some sloppy thinking and mediocre execution, and somebody just got lucky. And if you don't distinguish those, over time the company goes in the wrong direction. So you have to be very thoughtful about what to do with the capital.
And you know this is some examples of what we've done over the past few years at Biogen over the past six years since I've been there. There's a number of drug approvals, Fampira is a drug that helps them MS patients walk better.
Tecfidera is our first, the second oral drug for the treatment of multiple sclerosis. It's a really good drug, it's been received. You see the baseball underneath it, that's because after Tecfidera was approved and we knew what it was going to mean patients, we actually went to Fenway Park to celebrate.
Plegrity is a new drug fro the treatment of MS. Zimbryta's another new drug for the treatment of MS. Eloctate, Alprolix are new drugs for the treatment of hemophilia, and they provide a real benefit to patients with hemophilia.
And then on the top right, you see Benapali and Flixabi. And I have to say, it took me a long time to get used to all these names, they're kind of-- Zimbryta, Benapali, Flixabi-- so drug naming is a science in itself, because you have to get approval from the regulatory agencies. And the name has to be really distinct from all other drugs, because they don't want some physician to write a prescription in sloppy handwriting and have the pharmacist think it's something else that's related, it has to be trademarked around the world. So anyway, you end up with weird names.
But Benapali and Flixabi are biosimilars. And we've used our skill in manufacturing to make biosimilars. The biosimilars are the biological equivalent of generic drugs. And so these are versions of etanercept, step which is Enbrel and infliximab, which is Remicade. So those are big drugs here used for the treatment of rheumatoid arthritis. There's a third one Humira, we have a biosimilar version of that hopefully will be approved next year.
We're selling these in Europe now, where the intellectual property has expired. We're doing this with a joint venture with Samsung. It may seem like an unlikely partner, but if you think about it, making a biosimilar is reverse engineering somebody else's product. So I need to make a product like that, and Samsung is obviously very good at reverse engineering other people's products.
So this has been a very good joint venture. And I think biosimilars, generic drugs, are an important part of our industry. I think there is, in some sense, a social contract, and I'm going to get into some of the other aspects now, where we spend a lot of time and a lot of money developing drugs, and most of those things that we work on fail.
Those things that do work out on the market. We market them, we get criticized for what we charge for them. And I'll get to that in a minute, whether that criticism is justified or not. But then they go generic, intellectual property expires. From that point on, they should be cheap, and they should be really cheap, and that should make room for the expensive new drugs that are coming onto the market.
So I didn't want to spend a little bit of time-- in the next few slides are kind of the industry's view on drug pricing. And I appreciate that it will be a different view from what a lot of people in this room probably think about drug prices.
And let me first acknowledge, we have an issue in this country with health care costs, and we have an issue with drug prices. And the issue is people, go to the drugstore to get their prescription and they can't afford the co-pay. In the worst case now, they're increasing number of policies that are co-insurance, so you have 20% co-insurance. So if you're taking $100,000 a year cancer drug, and you have a 20% co-insurance, and you have to pay $20,000 out-of-pocket, obviously, for a lot of people, that's just out of reach and they can't do that.
And even the high deductible policies, that might have $5,000 or $10,000 deductible. This is a structural issue. These are policies designed for rich people that are sold to poor people. And if you're rich and you can afford that $5,000 or $10,000, and you're taking the chance because you're healthy and you're going to keep your premiums low, fine, knock yourself out. But because of that high deductible, the premiums are lower, so people who don't have as much disposable income tend to gravitate to those policies, that's a structural issue that we have to address.
So we have to address those issues. It should not be decreased that people can't afford medicines in a country as rich as this one. Everybody should have this. So let me acknowledge that, but let me then give some rationale for why drugs do cost what they do.
We spend a lot of money in R&D. 17% of all the R&D dollars spent in the US are spent by the biopharmaceutical industry. It's by far the largest investor in R&D.
When we think about drug prices, you think about Pfizer and Merck and Lilly and J&J, and these are big, rich companies with good returns. But many of the innovations come out of smaller biotechnology companies. And there are a couple thousand biotechnology companies in the United States right now, some small fraction of them are public, maybe 20% are public, several hundred public biotechnology companies.
If you take all those companies together, only 8% of them are profitable. The other 92% lose money. Before I was at Biogen, and I was at Exelixis, which a startup when I went there, had 20 people, and that was in 1996.
And in 2000, we took Exelixis public, we did an IPO. And as a brand new CEO, I didn't know how to take a company public. So I went to a course given by one of the investment banks on the process, how you do it. And there were people from all different industries there ready to do an IPO.
And I remember very distinctly sitting down with the CEO of one of the health bar companies, I forget which one. And I discovered in that conversation that he had to be profitable for four or five years in a row before he could go public, and that was actually the rule for most industries. Exelixis, a company that I was CEO of, was founded in '96, went public in 2000, and if things go well, it will become profitable next year. And so the distinction in this industry that you can have a company and keep it funded for 20 years or 25 years before it becomes profitable is a distinct part of just industry.
But what it means is if you take all in, all the biotechnology companies together, the net return is somewhere between 4% and 7% depending on the year. That includes companies like Biogen and Gilead and Amgen and other big biotechnology companies that are quite profitable, and it also includes all of those hundreds of companies that are losing money. And it's a risky investment.
So why does any investor invests in a business that's risky and returns on average 4% to 7%? That makes no sense. It's only because investors think they can pick the winners. And if you are a winner, the payoff is big time. And the payoff is big time partly because of drug prices.
And so if there is the inability to charge what we currently charge, it will have a really depressing effect on the biotechnology industry in the US. And that's not to say we shouldn't do that. Maybe it's the right thing to do. But we shouldn't do it without an understanding of what the consequences will be.
This just shows you some of the-- I can skip through this. I'm going on a little long, I think. But this shows you the drugs that we've had approved over the last few years and some of the things we're working on in the future. And so let me turn to some of those things now.
If you look across the industry, the number is 7,000. Although, I showed this in a class that I taught this morning, and my cautionary statement to the students is, be careful when you see statements like this, question them. Where did the data come from? Are the data really true? Especially in this election year, we should be questioning what we hear.
And so I suspect the actual number is less than 7,000, but its several thousand in any case. And you can see how they're distributed between cancer and infectious and neurological disease. There are a lot of drugs in development. There's a lot of money being put towards this.
I'm going to talk for a minute about neurodegeneration, because that's where we work. This has been an area that's been particularly refractory to drug discovery and development, because we don't understand, really, the biology of the diseases very well. There are not good biomarkers to know, when we put a drug into people, whether or not it's actually working or not. In some cases, diagnosis is difficult to make.
We're doing now a phase three trial for Alzheimer's disease. About 35% of the patients who get referred to come into this trial-- and they've been seen by a neurologist and diagnosed with Alzheimer's disease-- don't have the Alzheimer's disease. They have dementia, for sure, but it's not Alzheimer's dementia, it's a different kind of dementia. And that's just a sign of how difficult the diagnosis is.
And so it's been difficult. And I think all in all, there have been 120 drugs in development for Alzheimer's disease over the past three years, zero success, so zero out of 120. But nevertheless, we've learned from those. It's a huge problem, we have to solve this problem.
Now, I just want to point out here. And do I have a-- yeah, I do have a pointer. Nature is a scientific journal, we had an article on our project couple weeks ago in Nature. This is the cover.
These are brains, these are PET scans of the brains of an Alzheimer's patient. The orange is the beta amyloid, the deposits that you see in the brains of Alzheimer's patients. And this is after a year of treatment. The amount of amyloid deposits in the brain of this patient have been drastically reduced.
So this is the first demonstration that you can actually have a drug that actually does remove the amyloid. And from human genetic studies that if you can prevent the accumulation of that amyloid in the first place, you can prevent the onset of Alzheimer's disease. Different question to say, if you already have that deposition, if you remove it, will you be able to do something about the disease?
And so these patients in a small trial seemed to have improvement in their cognition. We gave them two cognitive tests. And there was a dose-dependent improvement in the rate of decline. Nobody got better, but the slope of their deterioration changed. And in the highest dose, actually flat, they didn't even seem to get any worse.
So there is hope. And hopefully, we can do something about that.
Now, we live in the real world. Because the industry's 0 for 120 and we're spending over $2 billion on this project, it's not without note from our investors and from various pundits around the industry. And you can see some of the headlines here. Biogen making a risky shift from MS to Alzheimer's. Biogen's playing too much lotto, too risky. Biogen is a takeover target, but don't ignore the risks.
And then so we have to deal with that. In my view, these are backwards looking risks. They look at what's happened in the past and extrapolate that into the future. They ignore the fact that for many of those failures, we've learned. They ignore the fact that we understand more about the biology of the disease. They ignore the fact that now we can image the disease with PET scanners and actually know who has Alzheimer's and who doesn't and monitor the amount of plaque in their brain. And they ignore the fact that there are much better and more sensitive measures of cognition than there used to be.
And so what we have to do is decide if all of that plus our data make it a reasonable bet to plunk down $2 billion and do the phase three trial for these patients. And we did, but--
I'm optimistic. I believe this is going to work, but time will tell. We're in the middle of clinical trial now, and we'll see. And we have to enroll 2,700 patients. And each patient will be on the drug for 18 months. And so it will take a few years until we know, until the result.
There are other things, the middle thing here. Biogen-- what does it say-- loses big MS gamble as Antilingo fails clinical trial. Well, this is a drug to treat MS. Every drug on the market to treat multiple sclerosis slows down the autoimmune attack. Multiple sclerosis is an autoimmune attack on the protective sheath around neurofibers. And so drugs slow down that attack, and they provide some relief to the patients.
There is no drug that regenerates mylein or that will keep the myelin from getting destroyed in the first place. That was the goal of our Antilingo project. It's that next generation of therapies, it's what patients need.
It's true, we did a phase two trial that failed. However, we learned from that trial. We were able to identify a subset of patients in whom the drug seemed to work. We know what dose we have to give those patients. And we know how to measure whether or not the drug works.
So although this trial failed, we didn't lose the gamble, we learned. We'll do another trial. And hopefully, that drug will work and be one of the next generation of treatments.
But these are the headlines. That's Investor's Business Daily. Every one of our investors reads that. And so we have to answer for that. And so I spend a fair amount of time making sure that our investors understand why we're doing what we're doing, why we're doing it, what the risks are, and what the potential is.
And if they think those are reasonable, they stay investors. If they don't, they don't. But we have to do what we think is the right thing. So I don't know how long I've been talking, but maybe I should get through this quickly.
The point of these slides is, it gets harder to make medicines now. The regulatory requirements are harder, the easy biology is all done, the low hanging fruit's gone. And so what we're talking about now are really difficult issues that cost a lot of money.
We do have bad actors in the field. And you see here some examples, Valeant and Turing and Mylan with the EpiPen. Those are abuses of the system. They should not happen, and I think it's an easy way to legislate that.
The interesting thing is, when Hillary Clinton sees all these abuses and says, we have to do something about the drug crisis, this is what happens to the stocks. And just to show you how quickly this happens, she tweeted at 10:56 AM, and if you go to 10:56 AM on this slide, it's right about here. So one tweet does that. And that tells you how fragile the markets are and how nervous investors are about the current environment and the ability to sustain the kind of innovative environment that we need.
So I'm going to skip these, because I want to leave some time for question, and they're just more industry propaganda. And I do want to get to a couple of points. This one, I think, is interesting.
You read about drug prices going up. And these are the list prices and how much, on average, what the average drug price has gone up over the past few years, 9%, 10%, 11%, 14%, 12%. That's what you see in the papers. As the payers have consolidated and the health care industry has changed, discounts have gotten bigger, and so net prices are these.
So in 2015, the average drug had its price raised by 12%, what the pharmaceutical industry saw with 2.8%. So the ironic thing is, well, not the ironic, that sad thing is that patients get charged the price that reflects the 12%. So where does this money go? It goes to pharmacy benefit managers, it goes to insurance companies, it goes to pharmacies, it goes to wholesalers.
And so there are a whole lot of people in the middle providing a service. They need they should get paid for that service. But the issue here-- and you see these diverging over time-- is the incentives are wrong, because all of those people in the middle get paid as a percentage of the cost of the drug. So a pharmacy benefit manager with whom we negotiate a discount-- if we say, OK, we got a drug that costs $100. And they negotiate us down to $70, and so we get paid $70. There is $30 in there, they get a fraction of that $30.
If our drug costs $60, and we only discount it to $50, they get a fraction of that $10. So they like high prices, big discounts. And of course, then the net goes down and the industry raises prices even more. So this is a bit of a vicious circle that we have to get out of, it serves nobody's interest.
AUDIENCE: My name's Nathan Canell from the class of 2001. I happen to also be a hematologst at the Dana-Farber, so I'm intimately aware of a lot of this work. And one of the concerns in academic and corporate interactions has been concerns for undue influence of pharmaceutical companies and physician practices and choices.
And many institutions, my own institution, this one as well, has conflict of interest policies in place. How do you view the steps that we should be taking forward to facilitate those interactions but prevent the influence and biases that can result?
GEORGE SCANGOS: Yeah. No, that's a great question. And Harvard in particular has really strict conflict of interest policies. Massachusetts has very strict conflict of interest policies.
We were recruiting a head of regulatory affairs, a head of drug safety. And we took her out to dinner and she said, can I bring my husband? And we said, of course.
And so we're sitting at dinner, and it turns out her husband is a neurologist at Mass General. And so I have to turn to this guy in the middle of dinner and say, I can't pay for your dinner. I'm sorry, because I cannot pay for dinner for a health care provider in Massachusetts to avoid the conflict of interest things.
So I think they've gone too far. I don't know. In the old days, when clearly, there was behavior that was inappropriate and there were attempts on the part of pharma companies and biotech companies to influence physician behavior, we need a system that prevents the abuses. But there are productive interactions that we should be having.
We can help you. You can help us, all for the benefit of the patients. And so the requirements that conflicts of interest be listed and public is a good start. I think that's a good policy, so everybody knows. But some of the policies, I think, as you're alluding to, and I think you're at one of the worst institutions for this have gone overboard. And they need to be rolled back a bit, I think.
AUDIENCE: Thank you.
HUNTER RAWLINGS: George, I wonder if you could address the following question, just while we're waiting for the next one. Pharmaceutical companies work a lot with universities now, and you have for some time. It's often said it's quite difficult to get folks from the private sector and folks from academia working well together. What are the keys to trying to make that better?
GEORGE SCANGOS: I think the real key is having people who have worked in both environments. In our research group over the past few years, we've made a conscious effort to go hire academic scientists. And these are senior people, well-funded. These are not people who are coming to us because they can't fund their labs. They're well-regarded people, known nationally, to come work in our research group.
They have no trouble working with their academic colleagues. And that's one of the reasons we wanted to bring them in. And so we have a lot of interactions with a variety of universities. But it's because there are people working in the company who understand how to work with people in universities. And they used to know them as colleagues, and so it's natural.
So I think having people go back and forth is good. I think it would be interesting to have a sabbatical program where people could come work in a company for a semester or a year, see what it's like, develop some relationships, and then go back with those relationships. So it's all about people, getting them to know each other, getting them to trust each other and understand each other.
HUNTER RAWLINGS: That's very helpful. Yes, ma'am.
AUDIENCE: Hi, I'm Cynthia Kubas, class of '78. And in full disclosure, I've been in oncology pharmaceuticals since 1980, mostly in sales, now in lung cancer marketing with Lilly. And one big issue we have now in cancer marketing especially, is direct to consumer. Recently Bristol-Meyers-Squibb advertised Opdivo to lung cancer patients, and not too much longer later there was an article in the New York Times about the miracles of these drugs.
And then a patient wrote in and said, well, my wife had hope, but she was not one of the 20% of people who respond to these drugs. As you alluded to these IO drugs before. So just in general, with direct to consumer advertising, where do you think that's going?
GEORGE SCANGOS: Well, I'd like to answer two parts of that. I'll answer the DTC advertising. But Opdivo and Keytruda are another very interesting case. I think it makes a different point.
I'm ambivalent they've learned about direct to consumer advertising. In some cases, it can serve. And it's not only TV direct to consumer, but there can be magazines and social media. There can be all kinds of advertising of drugs.
It helps to make people aware. And so if the goal is to get them to go their physician and say, what about this one? That's not necessarily a bad thing, that might be a good thing. But it does more than that, because patients read it, and they go to the physician, and they say, I want this one.
And the physician will prescribe it, because they don't have time. They're busy, and they don't have time to explain, and it's probably just as good as something else. And physicians don't do anything they don't think is in the best interests of their patient. And so it works.
So look, I'm a head of pharma, I have to be very careful what I say here, but speaking not as the head of pharma, speaking as a person, I'd be very happy if it were banned. And that there were different ways to get information available to patients, but no company can do that by themselves, because then the competitors do it and you're at a disadvantage. So it's not something the companies can do on their own.
HUNTER RAWLINGS: One more question. Please.
AUDIENCE: Actually, I'm from the Johnson School. And a number of big pharma companies and biotech companies have constant pressure from activist investors. A lot of lender activism because of the unstable cash flows. A lot of short interest. Big LBO and P/E targets as well. So you have all this constant pressure from all the different parties and these risks. How do you focus on what matters when you go to the office and go to work? And how do you-- all these things on the back burner and focus on the core product?
GEORGE SCANGOS: Yeah. That's why I come here, so I can put all that away for a bit.
Look, when I came to Biogen, Carl Icahn had taken an interest in the company. And the company was under a lot of activist pressure. Carl Icahn manage to get three people elected to the board of Directors. Those people are still on the board of Directors.
So I understand very well the necessity to, let's say, service the short term, make sure that our quarterly earnings are at or above expectations while we invest for the long term. Now, for five of the six years I was at Biogen, the stock was going up, and up, and up, and revenues were going up. It's easy in that kind of environment, money's coming in, it's easy.
And now we're in a more mature phase of our drugs, until some new-- and hopefully, we'll get some new ones next year. But for the past year or two, we've been in a phase where revenues have been growing 8%, 10%, so fine but not 40%. And earnings growing a little more than that. And that makes those people nervous.
So in this kind of environment, when revenues are marginally increasing, and you squeeze costs out so your earnings continue to rise, it gets harder to make those balances. And so that's something that is a continual struggle.
There's no magic formula, you have to invest for the future, you just have to. And research is not something you can turn on and turn off. If you start it, you're making a 10-year commitment, and you've got to stick to it. Because if you stop it, then all the money you've spent is wasted. And so once you make the commitment, you've got to do it.
So you have to be thoughtful about the commitments you make. You have to be tough on prioritization. You have to do experiments where you can kill things early rather than after you've spent hundreds of millions of dollars. And if you do all that, then you can do both, although it's a challenge.
HUNTER RAWLINGS: George, efharisto, para poli. Thank you very much indeed. This has been terrific. Don't go anywhere.
So we have a gift for George. It comes in two parts. It's a highly breakable. I've been told to use two hands, and I hope you will too.
GEORGE SCANGOS: Wow. Oh, that's beautiful. Thank you, that's beautiful. I don't want to touch it. Thank you.
The biopharma industry is in an historic period of innovation, with deep pipelines across many difficult-to-treat disease areas, yet numerous challenges may impact whether promising drugs ever get to the patients who need them. In the 2016 Hatfield Lecture on Oct. 27, Biogen CEO George Scangos '70 discussed how innovative biopharma companies are able to bring transformative therapies to patients, work to ensure access to those therapies, and meet the demands of their shareholders.
