- SWISS MOVE IN
The Swiss take control
Thirty percent of the money spent on pharmaceuticals is used to purchase a relatively small number of very expensive “designer” drugs. The medications are often extremely pricey (in large part–I believe) because the company that produces and markets them needs to recoup the billions they paid to acquire the drug and/or the company that created it.
Novartis and Roche, two of the top 4 Pharma companies, with gross incomes in 2018 of $35 and $46 billion–are headquartered in Switzerland. I have no doubt they are two of the many “Pharma companies that seem to believe acquisitions are the only way to keep their revenues growing as fast as investors expect. With today’s complex breakthrough medicines, it’s often cheaper for a company to acquire the next blockbuster drug than to develop it in-house.1”
In 2006 Novartis paid $5.4 billion, took over Chiron, and planted its feet solidly on American soil. The company they bought was 25 years old and had been created by Bill Rutter, a visionary biochemistry professor.
The son of a Mormon elder from Liverpool England, Rutter was born and educated in Malad a small town in southern Idaho. His grandfather had been a British Army officer in India and had told William about the poverty and exotic parasitic diseases he had witnessed. As a youth William wanted to go to the school of tropical medicine in Calcutta. At age 15 he spent a year at Brigham Young University then lied about his age and joined the navy. World War Two was raging. When the conflict ended Rutter went to Harvard and was drawn to science. After he graduated he was accepted to Harvard medical school, attended a few medical school classes with a cousin, and realized he wanted to be a scientist, not a doctor. He earned a Ph.D. at the University of Illinois and spent a decade as a researcher and professor at the University of Illinois, Stanford, and the University of Washington.
In 1968, after refusing the job offer three times, he agreed to become the chief of the biochemistry department at the University of California in San Francisco. The unit had been leaderless for six years and (he once quipped) “every good scientist in the United States had probably been asked to take that job and turned it down.” He claimed he accepted the post because twenty faculty positions were open, and that was a “bonanza for recruiting1” Rutter gathered top notch researchers and got them to work collaboratively. In academia investigators don’t always cooperate and share. He knew “science was competitive. “Everyone is trying to beat you and will use every trick in the book. You try to cover your bets in many different ways.8”His associates shared their knowledge.
In 1981, deciding NIH would not allow him to use genetic engineering to develop a hepatitis B vaccine, he acquired venture funding, hired great researchers, and formed Chiron. “It was not an issue of damn the torpedoes, full speed ahead. The business of the company initially was research, pure and simple–understanding the potential of a set of technologies. The major pharmaceutical companies didn’t want to become polluted by something that was “controversial” like genetic engineering, and they stayed on the sidelines. He had great confidence he’d be able to do things that helped human beings.”14
. The disease he wanted to put a stop to, Hepatitis B was caused by a virus. It was present, though usually inactive, in the livers of over 200 million people, 1.2 million of whom were Americans.8
Maurice Hilleman at the pharmaceutical company Merck had developed a vaccine that prevented the disease, by inactivating live viruses. His creation was safe and effective but people were afraid to use it. They recalled how, in 1955, the Cutter lab was making the Salk vaccine and failed to adequately kill the polio virus. Two hundred children were partially paralyzed and 10 died. I remember British Liver Professor Sheila Sherlock giving a lecture to a group of doctors back then and asking how many had taken the B vaccine. When but two hands went up she said: “Shame on you. Shame.”
Rutter had worked with Herbert Boyer and others at the University of California. He knew how to genetically engineer yeast and make it grow the shell of the virus. Researchers could then use the viral surface protein to create the vaccine. The idea of using implanted genes frightened some politicians, and the NIH might not fund the research. “Some portion of scientists was genuinely concerned. Others enjoyed the debate and the public controversy.”
There was a Senate hearing on the topic of genetic engineering and Bill Rutter attended. Margaret Mead arrived wearing a huge long robe and carrying a shepherd’s staff. “Adlai Stevenson, a Senator and a lawyer who would later run for the presidency of the U.S., ran the proceeding and introduced Margaret Mead as a world-renowned scientist who could give guidance on these issues.” Mead was an anthropologist who became famous after she spent 9 months in Samoa and learned that “adolescence on the island was not a stressful time for girls because their cultural patterns were different than those in the U.S.”18
At the hearing stood and repeatedly said something like, “You’re going to hear today from these scientists that this (genetic engineering) is not dangerous. I’m here to tell you it is dangerous.” After each repetition of her statement she pounded the floor with her staff for emphasis. “Boom! Boom!16” To Rutter “A social anthropologist with her shepherd’s staff giving advice on molecular, microbiological, and physiological science’” seemed incongruous. Observing the theatrics and attitudes Rutter realized that if he wanted to make the hepatitis B vaccine his way he would have to give up his job as chief of biochemistry and go private.
Growing the hepatitis B surface antigen in yeast, Rutter’s team “demonstrated how to do it in the laboratory.” Working with Merck, Chiron marketed a successful “B” vaccine. Then, since the company had money and talent, their researchers solved a whodunit that had eluded investigators for years. They identified the virus responsible for Hepatitis C, and we learned 200 million people worldwide and more than 2 million Americans were carrying the intruder in their liver. Some of them would develop cirrhosis and liver cancer.
Located in the right upper abdomen just under and below the ribs the liver is the body’s largest organ. Blood carrying nutrients from the intestine, filters through it before it enters the circulation. The organ metabolizes, detoxifies and produces needed proteins. It dumps unwanted wastes into the yellow bile that it secretes. It’s also commonly infected by several viruses, two of which, Hepatitis B and Hepatitis C often set up shop and become lifelong inhabitants.
Over the next few years Chiron acquired a number of European and U.S vaccine businesses and became one of the world’s largest vaccine makers. With a second company Chiron commercialized DNA and RNA tests that allowed blood banks to make transfused blood safer. The process they developed could detect minute amounts of live hepatitis and HIV viruses in donated blood. Chiron had a biopharmaceutical division, and to the displeasure of their Swiss partner Novartis, often participated in joint ventures with other pharmaceutical companies. In 1984 their scientists worked on the first sequencing of the HIV genome, and in 1987discovered, sequenced, and cloned the Hepatitis C virus.8
In 2006, already owning 49 percent of Chiron, Novartis bought the other 51%, started wearing the mantle of a U.S. corporation, and began to act more like a commercial business. In 2015 the company marketed and charged a little less than a competitor for the first U.S. biosimilar, Zarxio. It’s a medication that stimulates the bone marrow to produce more neutrophilic white cells. In 2018 Novartis paid $8.7 billion for the therapeutic gene that treated and hopefully prevented the worsening of spinal muscular atrophy, a lethal genetic disease. (As mentioned earlier they plan to sell the treatment to Americans for $2.1 million for a course of therapy.)
By 2009 the other Swiss giant, Roche, had a 15 year history pharmaceutical company acquisitions–like Syntex in 1994 and Chugai Pharmaceuticals in 2002. Their CEO was an Austrian born economist. Married with three children he skied, hiked, and made movies in his spare time. Initially thought of as shy he led the company when it plunked down billions and entered the cancer drug fray. Buying California based Genentech for $46.8 billion, Roche acquired a lot of debt and three antibodies that were used to fight cancer: bevacizumab, herceptin, and rituximab. They also had to deal with a “clash of cultures between a freewheeling Californian biotech company and a buttoned-up Swiss multinational.” There was plenty that could go wrong. The California innovator “was full of smart people who were very upset and worried about the idea of another company coming in and making the decisions.6”
The cost of their acquisition virtually cemented Roche’s need to charge high prices and to sell a lot of these drugs. If, at the time, some companies were uncomfortable charging a lot for anti cancer drugs, seems to me that they now no longer had much of a choice. Their shareholders would (no doubt) expect little less than a $100,000 a year price tag for significant products.
The entity Roche purchased, Genentech had started as a company that used genetic engineering to produce hormones. Hormones are molecules that are made in glands. They travel to, turn on and off, and adjust the activities of target organs in various parts of the body.
The existence of these important proteins was unknown before the 20th century. Prior to the 1970s they had been extracted from the glands of dead animals and human cadavers. They were then purified and manufactured. Contaminants were always a concern.
The seed that grew into Genentech was planted during a meeting that took place in 1973. A scientist from UCSF and one from Stanford discussed the small collections of DNA in the cell’s cytoplasm. They met at a conference in Hawaii and at the end of a long day “took in the balmy evening air as they strolled and talked.”12
One of them, Herbert Boyer, “blue jean clad, with a cherubic face; outwardly relaxed and unassuming”, grew up in a small railroad town near Pittsburg. As a college student he had at times hitchhiked to classes at a nearby college. Majoring in biology and chemistry he was “really taken with the Watson-Crick structure of DNA”, and he earned his PhD in bacteriology. At age 37 he was a researcher at the University of California in San Francisco when one of his graduate students isolated an important enzyme. It sliced DNA at a specific position. The raw exposed nucleotide ends were sticky. Lengths of DNA could be attached.
The other man who walked leisurely in the warm air that evening was Stan Cohen, a 36 year old “trim, bald, bearded” Stanford hematologist. When he was young he wrote a pop song that made the hit parade. He was studying circles of DNA in the cytoplasm of bacteria that were spreading antibiotic resistance from one germ to another—plasmids.
The two investigators wondered if it was possible to use Boyer’s enzyme to hook a DNA fragment, a gene, onto the sticky ends of a plasmid’s DNA. Would the gene then tell the bacteria what to do and make? Would the transformed plasmid survive and clone itself?
It took a few months to do the research, but the following March they tested their idea and it worked. In November 1974 both medical schools filed a patent application, and the academic world debated the potential hazards of genetic engineering.
Over the next few years, surviving on money gathered by a venture capitalist named Bob Swanson, Boyer formed a company and called it Genentech. In its early years the company made somatostatin. A peptide that reduces secretory diarrhea and that blocks the action of some hormones like insulin and growth hormone. The product was not a big money maker.
Genentech then produced genetically engineered human insulin. At the time people were using purified animal insulin. It’s chemically a bit different from human insulin, but it works well. Genentech also produced genetically engineered human growth hormone. It too was not a big money maker.
In 1978 the start-up leased a 10,000 square foot section of an airfreight warehouse near the San Francisco Airport.
In 1980 the company’s technology was up and running and Genentech had a public stock offering. It was wildly successful and Swanson, one of the founders, called gene cloning “the cornerstone of a future billion dollar business.”
During the next decade Genentech developed TPA, Tissue Plasminogen Activator, protein that dissolves clots. It was used to treat “massive pulmonary embolisms” –blood clots that traveled from a person’s legs to their lungs.”
They also developed several cancer fighting medications. One of them, the antibody Avastin, inhibited the growth of the blood vessels that nourished tumors. In 2010 it generated $7.4 billion in revenue for its new Swiss owner, Roche.
The concept that tumors produce a gene that stimulates the growth of the blood vessels that nourish it–wasn’t originally Genentech’s. It was conceived of by Judah Folkman, a surgeon who would later quip that science goes where you imagine it. As a boy, Judah accompanied his rabbi father when he visited people in the hospital. “His father would pray through oxygen tents and Judah would sit in a chair and be very quiet. About age seven to eight he noticed doctors could open the tents and do things, and he told his father he wanted to become a doctor not a rabbi. He thought his father would be upset, but has dad wasn’t. He said you can be a rabbi-like doctor, and Folkman knew he thought it was fine”.21
He served in the navy for two years, went to med school, and became a surgeon. In the 1950s “he developed the first implantable pacemaker that targeted the atrioventricular region of the heart, and he “pioneered the first implantable polymers that allowed drugs to be released slowly. And at age 34 Folkman was “the youngest ever Harvard Professor of surgery.17” He had a research lab and studied the blood supply of tumors. By 1971 he had learned about the way cancers develop their blood supply and he shared his findings in an article in the New England journal of Medicine.
“The growth of solid neoplasms is always accompanied by vigorous new capillaries that come from the host.” Time-lapse movies of an animal experiment demonstrated vessels advancing towards and penetrating a tumor implant and establishing blood flow. If new vessels don’t develop, most solid tumors stop growing when they are 2 to 3 mm in size. They don’t die but the growths become inactive. Folkman’s lab isolated a factor that stimulated rapid formation of new capillaries in animals, and his people tried to develop an antibody to the factor. They were not successful.11”
Folkman kept promoting the concept of cancer enlargement being slowed by blocking a factor that stimulated blood vessel growth.19 In the years that followed Folkman’s paper he noticed that when he rose to speak at medical meetings a number of doctors in the audience filed out. Some physicians thought his idea was farfetched and were apparently tired of hearing his pitch. Believing there’s a fine line between persistence and obstinacy Folkman kept at it.9
In 1989, a Genentech investigator isolated and cloned 3 isoforms of“vascular endothelial growth factor” (VEGF), a gene that caused blood vessels to grow. Then they developed an antibody to VEGF. Subsequently a slew of additional vascular stimulating factors have been discovered.
The researcher in charge of developing the antibody, Napoleone Ferrara, was born in Catania, a Sicilian town near the Mediterranean Sea and not far from the highest volcano in Europe. His interest in science was ignited by his grandfather, a high school science teacher who had a 5000 book library. The Sicilian went to medical school. Then he heard the fascinating lectures of a charismatic Professor of Pharmacology named Umberto Scapagnini, and he decided to become a researcher. Joining Genentech in 1988, Ferrara and his group spent years characterizing the protein and developing the humanized antibody that became Avastin. The years of research were costly. They were funded by Genentech, and the company was ultimately richly rewarded. Ferrara was lecturing in Sienna the day he learned that a pivotal study had shown that his antibody successfully helped treat colon cancer. He recalled he celebrated by drinking a whole bottle of Chianti.
Avastin remains pricey and is not always covered by insurers. Using it can create an additional burden for people who are living on a tight budget and have widespread disease.7
In 2008 Roy Vagelos, the chief executive of Merck commented on the price trend. His remarks were reported in the New York Times. He said he was troubled by an unnamed drug (thought to be Avastin) that “costs $50,000 a year and adds four months of life. He called it a shocking disparity between value and price.2”
Vagelos was 79 at the time. His attitude and remarks were influenced by what he did when he was the CEO of Merck in the 1960s. In his New York Times quoted speech he said the high prices charged for Avastin were, “not sustainable.” He was wrong.
Keeping the price of Avastin high has been a struggle. That year (2015) the British National Health Service and some insurance companies were disturbed by the thought of spending tens of thousands of dollars for the extra months of life the drug could provide. Headquartered in Switzerland, Hoffman La Roche–According to “The Street’—had to resist an effort by many European countries to lower the price of their expensive, cancer fighting drugs. “A bid to push down drug prices by the Swiss health ministry “infuriated drugmakers”.. and the company warned that such a move would hurt employment and would have a “negative impact on their future contribution to the Swiss economy.” In the years subsequent to its release Avastin’s annual revenue always topped $5 billion.3
The second drug Roche acquired, herceptin, was also an antibody. Most cancer causing genes “are sequestered deep in the cell.” By contrast, the gene in question, neu, is connected to the cell membrane and “a large fragment hangs outside.”
It was discovered in the 1970s after a researcher (working with Robert Weinberg at MIT) injected the “DNA from neurological tumors in rats, into normal mouse cells. The injected cells turned cancerous.” After the gene was discovered it was “more or less forgotten,4” and largely ignored before one Genentech’s scientists, Axel Ulrich made an antibody that targeted it.
After Ulrich’s antibody attached to neu it created an abnormal complex. A macrophage, a white cell that “engulfs and rids the body of cellular debris” would float by. It would sense the antigen-antibody combination, know it didn’t belong, and clean up the “mess,” obliterate the antibody and the cell that it’s attached to.
Once created, the antibody to neu might have intrigued some people but it was not really useful. Ulrich talked about it when he gave a seminar at UCLA in 1986. One of the attendees, Dr. Dennis Salmon, was interested.
A university hematologist, Salmon grew up in a coal mining town and, as a boy, had been impressed by the doctors who came to the house to tend to his father. His dad survived two mine cave-ins, then lost a leg in an auto accident. The doctors making house calls “made people feel better.” Salmon “saw the respect my parents gave them. So (he) always thought it would make a pretty cool profession.” In high school he “developed a keen interest in biology.” and in college he spent summers working in a steel mill. The job was tolerable for a few months, but the experience showed him what his life as a factory worker could be like and it “cemented his resolve. This wasn’t what I wanted to do with my life.” After med school Salmon had offers, but took a job at UCLA because “It wasn’t ossified, and if you had some resources and a good idea, you could pursue it.15”
According to Mukherjee, Salmon thought he and Ulrich should collaborate. Ulrich gave UCLA a DNA probe that identified neu, and Salmon checked his array of cancer samples to see if any of them were, perhaps, driven by the gene. Until that time it had only been found in mouse brain tumors. There didn’t seem to be much chance that it would turn up in a human tumor.
But it did. The oncogene, now called Her-2/neu, was found in some breast cancers, and it turned out to be an important reason for their rapid growth. Some breast cancers made and used it in large quantities. Scientists implanted Her-2 containing cancers in a mouse and watched them grow wildly. Traztuzumab, the antibody that inactivated Her-2 caused the cancer cells to die.
The scientific findings were intriguing, but it took a while before Genentech was fully committed to the idea of making a cancer drug. It would be a first for them. A drug that interfered with cancer was still a reach.
Salmon kept working the project. They couldn’t use the standard mouse monoclonal antibody. It could trigger an immune response. They found a Genentech scientist who knew how to create a mouse that produced monoclonal antibodies that a body would think came from a human. In the summer of 1990 they successfully created Herceptin. Women with breast cancer became experimental subjects. 15 were studied in 1992. 900 were given the drug in 1996. It kept making a difference. When, in 1998, the drug application was submitted to the FDA it was quickly approved. Its initial monthly price was $3,208. It rose to $4,573–$54,000 a year in 2013.
The research and development costs were part of the overall lab costs of Genentech, and before the company found a useful antibody their scientists probably produced a lot of duds. The overall cost of creating a new drug was significant. Testing, development, and getting FDA approval cost a lot. I suspect hundreds of millions of dollars were spent in the process.
But the reward, $6 billion plus a year, dwarfs the expenses. The high price tag has little to do with research and development and much more to do with the way the market works. The pharmaceutical manufacturer has a five year monopoly. During that time they have no competition and can charge whatever they think they can get away with. People with insurance often have a co-pay, and it can be substantial. But no company would price compete. They wouldn’t want to charge less for a new cancer medication. Others might follow suit, and that might upset the apple cart. To enhance stockholder value prices need to stay high. And of course once they owned the drug the Swiss company Roche “needed” to recoup the $46.8 billion they paid when they bought Genentech in 2009.
When Roche announced their revenues in 2016, the third antibody they had acquired from Genentech, Rituximab topped the list. With $7.3 billion in annual sales worldwide and $3.9 billion in the U.S., the drug was on fire.
When pharmaceutical spokes people justify the high price of drugs they commonly invoke the cost of research, but are unable to supply details. Rituximab provides a window into how much it really costs to create an innovative medication when researchers have a strong sense of where they are going and how they are planning to get there.
Approved by the FDA in 2012 the injectable antibody has revolutionized the treatment of some lymphomas. It targets a unique protein called CD20 that is found on the surface of only one kind of human cell: the B cell. Part mouse and part human (chimeric) in origin, the antibody was first tested for dose and toxicity in 1994. After rituximab is infused it circulates and “tends to stick to the side of B cells that’s rich in CD20. Natural killer cells then destroy up to 80%of a body’s B cells.”
The drug was developed by a San Diego start up called Idec. Its founders included several Stanford university researchers and Ivor Royston, a San Diego immunologist.
The son of a Polish sheet metal worker who entered Great Britain via the beaches of Dunkirk, Royston always remembered the summer when he and his mother lived in the castle his father was re-roofing that was once the home of Henry VIII and Anne Boleyn. In 1954 the family moved to America. In the U.S. Ivor, a good student, went to medical school, and married. His first wife’s father was a successful business man who liked to “challenge the young man with business problems.” If the son-in-law couldn’t solve the problem, his father-in-law would tell Ivor how stupid he was.” Years later when he was running Idec, Royston “wasn’t afraid to get involved with business people because “if I could deal with my father-in-law, I could deal with anybody.”
After medical school Royston carried out research at the NIH, became board certified in oncology and tried “to understand how the body recognizes cancer cells, and how can we get the body to make an immune reaction to cancer cells.” When he was a low level research doc at Stanford, Royston was stirred when he learned how to make monoclonal antibodies. “You could produce antibodies by fusing lymphocytes with myeloma cells and create a cell that don’t die and keeps making antibodies.” A colleague went to England, contacted the physicians who made the discovery, brought back cells from the “the myeloma line, the immortalizing cell line” and gave a few of the precious “hybridomas” to Royston. Ivor spent the next 22 years trying “to figure out how to make antibodies against cancer cells.13”
From the outset (1985) Idec researchers were looking for a monoclonal antibody that could be used to treat B-cell lymphomas. There are about 240,000 cases of the disease in the U.S. each year. The antibody they were trying to develop could also be used to improve some autoimmune and inflammatory diseases. Their efforts consumed millions of dollars.
In 1991 they needed more money and had an initial public stock offering. The proceeds netted enough money to get through FDA phase one testing–(toxicity and dose) and phase 2: treating patients without a control group to see if the drug seemed to work. The company had allegedly spent $80 million to this point. But they did not have the money necessary to perform the phase 3, the double blind, control versus treatment group, studies that the FDA requires before they approve a drug. The startup couldn’t get the medication to market.
In 1995 their CEO, a former Genentech guy, signed a collaboration agreement with his former employer, Genentech. The giant chipped in $60 million and acquired “a majority of the sales and profits that Rituxan would generate if it earned FDA approval.”
It was initially approved in 1997. Out of the gate Genentech charged $3475 for a month’s worth of the infusion. In 2002 $1.47 billion of the drug was sold. Genentech got most of the money. Idec got $370 million. By 2013 the average 30 day cost of infusions had gone up to $5031.
Vis-a-vis the price having something to do with the cost of development, Idec spent $80 million and walked away with $370 million. Genentech spent $60 million and hit the jackpot. The cost of research, development and getting the drug to market was $140 million. In 2017 it brought in over $7000 million—$7 billion.
In 2017 the antibodies Roche acquired with Genentech accounted for more than half of the company’s revenue. That year they sold $7 billion worth of Avastin; $7.4 billion worth of Herceptin; and $9.2 billion worth of Rituxan.5
1 http://fortune.com/2015/07/28/why-pharma-mergers-are-booming/
2. http://www.nytimes.com/2008/07/06/health/06avastin.html
3. Switzerland takes on its top drug makers in price row Reuters Sept 16, 2014. https://www.reuters.com/article/us-swiss-medicine-prices/switzerland-takes-on-its-top-drugmakers-in-price-row-idUSKBN0HB0XA20140916
4. http://www.nytimes.com/books/first/b/bazell-her.html
5. https://www.genengnews.com/a-lists/the-top-15-best-selling-drugs-of-2017/
6. https://www.ft.com/content/ee986108-e689-11e3-b8c7-00144feabdc0
7. https://www.jci.org/articles/view/77540 Siddhartha Mukherjee, The Emperor of All Maladies. Scribner 2010
8. https://www.strategy-business.com/article/16383?gko=6321f https://www.cdc.gov/mmwr/preview/mmwrhtml/mm5251a3.htm https://www.ft.com/content/313c6abe-5628-11e9-a3db-1fe89bedc16e
http://cws.huginonline.com/N/134323/PR/200604/1045686_5_2.htmlh ttps://history.library.ucsf.edu/rutter.html
9. https://tvst.arvojournals.org/article.aspx?articleid=2503070 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2268723/ https://www.scientificamerican.com/article/quiet-celebrity-interview/ https://news.harvard.edu/gazette/story/2008/01/m-judah-folkman-biomedical-pioneer-dies-at-74/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5541201/
10. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1383764/
11. Tumor Angiogenesis by Judah Folkman, NEJM, 197112.
- “Genentech” by Sally Smith Hughes, University of Chicago Press; 2011
- https://libraries.ucsd.edu/sdta/histories/royston-ivor.html https://libraries.ucsd.edu/sdta/companies/idec.html https://libraries.ucsd.edu/sdta/transcripts/royston-ivor_20081014.html
- https://digitalassets.lib.berkeley.edu/roho/ucb/text/rutter_william_2015.pdf
- https://www.uclahealth.org/u-magazine/coal-miners-son
- https://oac.cdlib.org/view?docId=kt7q2nb2hm&brand=oac4&doc.view=entire_text
- https://www.scientificamerican.com/article/quiet-celebrity-interview/