The big pharmaceutical company that saw the future
ROCHE IS A strange entity. The Swiss giant is the world’s second largest drug maker and one of the most profitable big pharma companies. But its largest group of shareholders, mostly drawn from Fritz Hoffmann-La Roche, who founded the company in 1896, is led by André Hoffmann, a nature lover and sustainability advocate who believes that the purpose of business is not primarily about making money. Even his bosses are discouraged from making a quick frank. Severin Schwan, an Austrian who has run the company since 2008, is only the seventh CEO in 125 years. Much of his compensation is tied up in company stock for ten years, giving him, as he puts it, “literally a vested interest” in his long-term future.
Another thing sets Roche apart from the crowd. For two decades, it has developed an unpretentious diagnostics division alongside its mainstay of drug production, with the goal of creating more personalized healthcare. This unit, which accounts for nearly a quarter of sales, has generated lower margins than pharmaceuticals and turns off the kind of investors who only aspire to blockbuster drugs. If it had not been for the patience of the Hoffmanns, some suspects, activists would have forced Roche to sell or separate him a long time ago.
And yet, over the past year or so, the ability to diagnose an illness in its early stages has taken on real meaning. The division helped the company navigate the covid-19 pandemic. Roche was not one of the star vaccine producers, but its daily life PCR and antigen testing sustained benefits despite slowing treatments for cancer, its greatest activity. In addition, advances in gene sequencing and other molecular biology techniques have made it possible to identify SARS–VSoV-2, the covid-19 virus, as well as the means to combat it. This highlighted the interest of combining biotechnology and diagnostics. These are two areas in which Roche excels.
Far from shedding diagnostics, Roche is now doubling down, expanding into digitization and advanced data analysis to create personalized cancer treatments. It is, according to Tim Haines, boss of Abingworth, a venture capital firm in biotechnology, “the golden age of diagnosis.” The bets placed years ago give the heavy-sounding Basel company a premonitory appearance.
Mr. Schwan, whose experience is in diagnosis, can barely contain his enthusiasm. After a long conversation with The Economist, he came back for more a day later. As he explains, cancer is a panoply of diseases based on individual mutations. Diagnostics identify genetic and other differences between patients, leading to the creation of more personalized treatments. The tailor-made market, by definition, is smaller than that of successful drugs, but if patients respond better to treatment, the value of the drugs may be correspondingly higher. Sifting through the oceans of genomic data can produce even more precision.
The accumulation of mass of patient information has long clashed inconveniently with concerns about medical confidentiality. Less now, says Schwan. He says the pandemic has helped change the mood in two ways. First, the use of data-crunching to accelerate the fight against covid-19 has made health authorities, hospitals and doctors more open to the idea of sharing medical records, as long as the information is anonymized. This is, after all, biotechnology, not big tech. “We are not in the advertising business,” he says. Second, regulators have shown what he describes as an “incredible” drive to speed up drug approval by accessing real-time clinical trial data. “Why shouldn’t we do the same for cancer drugs that save lives? “
Roche, which recently fell behind oncology competitor Merck in immunotherapy treatments, was eagerly awaiting the reversal of this digital wave. Two US acquisitions in 2018 could prove particularly fruitful. One is Foundation Medicine, a genetic sequencing company that can identify cancers from DNA in blood samples, instead of tumor biopsies. The other is Flatiron Health, a specialist in cancer health records that generates real-world patient data, completing clinical trials. Both produce what Roche calls cancer insights. Like his diagnostic activity, they not only help him to pursue his own drug development; they also sell services to competitors, making them full-fledged businesses. They are not yet profitable, but one day, says Schwan, the insights business could be a third pillar for Roche, as important, if not more, than diagnostics and pharmacy.
There are potential pitfalls. Biology is as messy and unpredictable as nature itself. Data analysis may not be as useful in biotechnology as it is in other industries. Roche will not have the land to himself. Silicon Valley tech giants are already getting started. And Europe, where Roche is based, has long been reluctant to collect data and privacy. If this continues to apply to medicine, it will hamper the region’s healthcare industry.
That said, Roche has a reputation for doing the unexpected. Stefan Schneider of Vontobel, a Swiss investment firm, notes that it accomplished the rare feat of sustaining profits even as patents for its three largest cancer drugs, which had record annual sales of $ 21 billion, have expired. Its immunotherapy drug, Tecentriq, recently showed promising results in the care of early-stage lung cancer, which could be a big breakthrough. And he’s a master of the art of buying trendy biotech companies without spoiling their innovative fizz.
Indeed, its success warrants long-term thinking and shows that shareholders’ attention to notions such as sustainability can coexist with commercial success. Despite all the influence of the Hoffmann family, Mr. Schwan is no slack. He defends the high drug prices in America. He believes in strong intellectual property protection. When the U.S. government this year supported patent waivers for covid-19 vaccines, it compared it to the Communist nationalization of drugmakers by East Germany. Rock can be unusual. As one of the few world-class mega-companies in Europe, it is also temperamental. ■
This article appeared in the Companies section of the print edition under the headline “The Company That Saw the Future”