Being Bob: Q&A with Robert Essner

It's clear that pharma is in the midst of a period of executive turnover. Recent months have seen new CEOs at GSK and Lilly, a new chairman at Gilead, a new head for Novartis' US operation, and new CFOs all over the place. Still, it was a surprise to hear that Robert Essner, the industrey legend who oversaw the transformation of Wyeth into a modern pharmaceutical company, would step down as chairman later this month. Shortly before the announcement, Pharm Exec talked with Essner. Here's an edited transcript.

Like Fred Hassan and several other high profile pharma executives, you came out of the pre-Novartis Sandoz. What was there about that organization that generated such a concentration of leaders?

There are two sides of it. First, Sandoz was a good company. It had good leadership models, good people, and a real emphasis, even in the 1970s, on training and developing people. It gave people exposure to more parts of the business, more parts of the world than most companies today. They also had a willingness to give people a lot of responsibility at a relatively young age. I mean, I was made head of their non-prescription drug business in the United States when I was still in my 30s, and I think that's something that probably not many companies have the kind of guts to do.

The other side of it is that, after a while, it became obvious it was a very Swiss company when it came to its centralized leadership. People like me and many others came to the conclusion that while we probably had good career prospects at Sandoz, those prospects would probably be better optimized somewhere else.

So, Sandoz not only developed good people, but they created an environment where those good people tended to disperse out of the company and go other places.

In an interview you did at Tuck University, you said that in your early career, "I thought I was a good leader. I had good ideas, but nobody was following me." How did you change that, because that's obviously a challenge for any leader.

For me—and it's something that we've instituted here—it was routine, 360-degree reviews, where people's performance, their attitude, and their management style are all reviewed not only by their bosses, but also by the people who report to them, and sometimes by the people who work alongside them. I've found that that it helps a lot to see how other people see you.

The first time you do one of these reviews, you think, "This can't be right, they don't understand me." Then you do it again, and you get the same response. It's a little bit like watching yourself on videotape. The first time you're taped, you say, "I don't look like that." But after you've done it four, five, ten, a hundred times, you understand that is in fact the way you look. Once people accept the reality of it, they automatically respond in very good ways.

It seems that you think of leadership primarily as a skill set—something people can and must learn to do.

I don't know if it's exactly a skill set, but it's something that can be learned by people who want to learn. There are a lot of styles of leadership, but people who want to lead, I think, can find a style that will work for them.

Leadership, obviously, is a huge issue in the industry right now. What do you think of the pharma industry's performance in that aspect?

It's not been a strength. One of the things the industry has lacked is visible leaders who can express the reasons why pharma should be appreciated. Part of the issue is that people in our industry tend to be very fact-based. Industry messages have been primarily aimed at the head. But for many people, healthcare is a heart issue. We have facts and figures and arguments about the contribution of drugs, the value of drugs, the responsible way most companies have behaved, but we are unable to respond to attacks, which tend to be very anecdotal and emotionally driven.

One of the reasons Billy Tauzin is the head of PhRMA right now is that I watched him answer some questions in a TV interview. He was asked by a reporter about drug importation from Canada. Billy said something like, "Well, I'm no expert on drug importation, but my mother went into a drugstore in her hometown in Louisiana last Thursday, and let me tell you what happened..." I don't remember exactly what he said, but I remember that at the end of the story, people looked at him and they said, "Okay, I kind of get it."

How about leadership at FDA?

Phew! That's a tough one. I've known the last few FDA commissioners, not really well, but I've certainly come in contact with them a lot. They're in a very difficult position, not unlike pharma leaders. When something goes wrong, they come under such a hostile attack that it consumes a lot of their time and energy, especially the commissioner. It has put FDA in a position where they deal more with the political reality of things than they do with the science. And that's never good.

It seems we're at a point when fairly large policy decisions are being made in reaction to prodding from Congress, such as ratcheting up the standards on drug approval.

Ratcheting up is one thing, but I think the issue today is unpredictability of the standards. It's not just that they're evolving, they're changing based on the sense of what the politicians want, and that's a shame. FDA has very good people committed to what they're doing. But I watched some of the Congressional hearings on C-SPAN, and the treatment FDA officials get is really brutal. Congress has got to realize that they are best off when the FDA deals with science and medicine, instead of trying to respond to political pressures.

One of the big issues in the industry is the switch to the specialty market. Does this mean we're on the verge of a huge improvement in the way we treat specialty conditions, or does it mean we're on the verge of seeing a collapse of the current favorable economics of specialty drugs?

I think some of the talk is a little exaggerated. The big factor driving the pharmaceutical industry today is the availability of good new products with new product technology—there's a real scarcity of that right now. If you start with the assumption that the biggest issue in the pharmaceutical industry today is new product to fuel growth, I'm not sure that what you want to do is say, "We only what to be in specialty markets," or, "We only want to be in mass markets."

The wiser course of action is to take advantage of all the good new product opportunities, whether they're in mass markets or specialty markets. Over the last few years the industry's productivity has been in fields that were not fully developed. But given the relatively poor state of treatment in a number of the specialty conditions, companies have been successful in developing drugs that add something useful in, for instance, oncology. In our case, it's rheumatoid arthritis or hemophilia or in other areas that we're heavily involved in today. That's not because Wyeth said, "We want to be a specialty company." That's just where our research took us, and I think that's true for many other organizations.

A good drug changes some conditions from specialty conditions to mass-market conditions—the way Prozac helped move treatment of depression to the primary-care doctor's office. Presumably, a good agent for Alzheimer's, a condition that Wyeth and you personally are very interested in, would do a similar thing.

It's been my personal passion, this Alzheimer's disease. I'm 60. If you really look with a cold eye at what Alzheimer's alone will cost to deal with when my generation reaches 80 ... No country in the world has any plan that will allow them to deal with this issue alone and not either break the bank or have to put in place significant rationing of healthcare. This issue is huge, but it's still far enough in the distance that the governments and politicians don't want to deal with it today. But it's clearly coming.

But you have both a treatment and a vaccine in the works, is that correct?

We actually have more than ten projects in clinical development. We're trying to, in the words of our researchers, surround this disease and use every pathway we can think of to get at it. One of our candidates is a vaccine in the sense that it utilizes the body's immune system to attack the beta amyloid plaque that seems to be a cause of Alzheimer's disease. But we have other approaches, such as a monoclonal antibody, to get at that same target. We have other approaches aimed at other points we think are the basic biological causes of Alzheimer's disease.

If it works, it's going to be real proof that your new approach to research is working. What stage are you at in the transition to that newer approach to R&D?

The learn and confirm model? We're there. We are now doing all of our development work using this model, and it's going extremely well. Our whole development machine now uses this method of first developing the hypothesis you want to test in the "learn" mode, and then testing it in the "confirm" mode.

In the last year you've had a couple drugs fail in Phase III. How many projects do you have in Phase III that came out of learn and confirm?

I don't know the exact number; it's a large number of compounds in Phase III. But the things that failed—the things that have been delayed at the level of regulatory authorities—those were developed using the older model. I don't think the failure rate has anything to do with the model that we're embarked on now. We had a success with Pristiq [desvenlafaxine] in depression, and we're hopeful that we'll have Relistor [methylnaltraxone, for opoid-induced constipation] approved. It was approved in Canada I think last week, and we're hopeful we'll have that approved here in the near future. [It was in fact approved by FDA on April 24.]

Tell me about Prevnar. Pediatric vaccines like this are potentially world-changing drugs.

Prevnar [a vaccine for multiple strains of bacteria that cause childhood pneumococcal infections] was still very much a project when we acquired American Cyanamid in the mid-1990's. At that point, vaccines were out of favor in the pharmaceutical industry. Prices were low, and I think a lot of companies thought of them mostly as service items, items that they supplied but weren't really an important part of their business mix.

Prevnar was being developed by the Lederle vaccine group, who were talented people, but their concept of a vaccine was very much that vaccines are not quite commodity items. At one point, we woke up and said, wait a second: Prevnar is really a very sophisticated, very valuable biotech product, and we started to think about it in those terms. We invested in it in terms of its development, its commercialization. We priced it in a way that looked more like a biotech product—still not very expensive, but certainly more expensive than any vaccine in history when we launched it. And our vaccine people were very nervous that we were setting a price that would not be accepted, but we still thought Prev-nar represented a tremendous value as a biotech product.

The initial estimate for the total peak revenues for Prev-nar was $300 million or $400 million. At that level it would have been a small, interesting product. But we reconceptualized it, priced it, developed it, advocated it. Promoting is not such a big part of vaccines, but we took it very seriously, and made it into a multi-billion dollar product. I think the recent renewed interest in vaccines is, in many cases, a direct by-product of Wyeth showing the world that vaccines can be important, commercially valuable products.

How does a company like Wyeth make this drug accessible in parts of the world where it's really needed?

We have committed ourselves, working with the Global Alliance for Vaccines and Immunization, with the World Bank, with the Gates Foundation, to getting Prevnar to every kid in the world who can benefit from it. The current formulation, the seven-valent formulation, is developed based on the strains that are prevalent in the United States and Western Europe. But the 13-valent formulation, which is coming in the next couple of years, will be valuable everywhere. We're actually starting to do demonstration projects in parts of Asia, to make Prevnar available to kids who couldn't otherwise afford it.

Currently two-thirds of the drug industry's profitability comes from the US, and it certainly looks like profitability in the US is going to get squeezed. What happens then?

Well, from a Wyeth perspective, this year for the first time, more than half our revenue will come from outside the United States. A lot of companies sell drugs for much lower prices outside the US, and that is true for some of our major products like Prevnar and Enbrel. But we have prices that are within a global band, and sometimes more expensive outside the United States. So I think we will be relatively insulated from that problem, in that our business is growing faster in Europe and in Asia than it's growing in the United States. We've worked hard to see that Wyeth is relatively resistant to that issue.

And for the industry as a whole? They're just going to have to be more like you?

The big issue obviously is not demand, it's pricing. With both Enbrel and Prevnar we felt we had a certain value we were offering, and that we could command a certain price, and that price was justified. There are many cases where we waited months, years before those products became available in a given market, in order to make sure that we could establish a consistent global price band. But it takes a lot of discipline and a little bit of courage to carry that off, as well as a real belief in the value of what you're selling.

Speaking of selling, what do you think the sales model ought to be for pharma?

I think there have been problems with the sales model. We got into a position where our customers were building up defenses against our sales reps. If a doctor's office is having to build a moat to prevent pharmaceutical reps from coming in, something is wrong with that. Several years ago, we stopped sending multiple reps to the same doctor's office, and tried to listen a lot more to what our customers were saying. Trying to force an enormous number of reps onto a relatively finite number of busy customers is a defunct idea, and deserves to be defunct.

There are many people whose argument is not against a particular drug or a kind of selling, but against drugs overall. They believe that Americans are massively overprescribed.

I don't know that they're massively overprescribed. If you look at specific categories, you may find that's true, but overall Americans don't get a large number of drugs compared to the French or the Germans or the Japanese. I think American culture has a different set of values and expectations around healthcare and drug use than other parts of the world. People here believe that if they're sick or their kids are sick, everything possible should be done. In other parts of the world, people become accepting of the fact that they just can't afford that.

The rationing that goes on—I mean a real denial of care that would be considered standard in this country—is an ingrained part of many of the government-controlled healthcare systems around the world. It's not talked about much here, but if you go to Canada or the United Kingdom or other parts of the world, if you are of a certain age and have a certain condition, nothing will be done for you. In the United States, it would be considered morally wrong not to try to provide some kind of care.

Now those things may change over time, and they may change as Americans decide what they can afford, but healthcare in this country still has a much more egalitarian element. Look at Wyeth, for example. All of our compensation and benefit structures are tiered with rank and pay, except health. I have exactly the same healthcare program as our lowest paid employee, and I don't think that's an accident. I think that is a fundamental expression of American values that, while I may get more pay and more this and more that, when it comes to health, the lowest paid person deserves the same opportunity for health and reimbursement of health costs as the highest paid.

You studied to be a historian. I'd be interested in hearing a historian's perspective on the industry at this moment.

It's a tough time. Given all the marvels in the last couple of decades that really have changed healthcare in a very positive way, why haven't we been more successful in building a strong reputation? I think one of the causes is that maybe the industry, in terms of how it's positioned itself to the public, has gotten maybe a little too big for its britches. Listen to the wonderful public service ads that talk about how we cured cancer. I have a lot of friends who are physicians, and you listen to how they view that. It's like the tool maker claiming the benefit for the use of the tool. The way the industry's positioned itself as the hero in healthcare has caused a real backlash.

When I joined the industry, companies were more or less invisible. Other than a few names, people didn't know companies. Practically nobody knew the names of drugs unless they were taking them. I think the success of the industry, and our consciousness of that success, has caused some of the backlash. I think we need to tone it down a bit. We need to recognize that we are tool makers. We make potentially lifesaving tools, but it's the doctors' and the healthcare system's skill in using it—selecting the right patient, using our tools well—that are the reasons for these outcomes.

We need to step back and look at ourselves through others' eyes. Some of the pride of people who really believe in what they're doing may have exacerbated the problem.I think we need to remember who we are, and where we fit into the healthcare industry.