CEO Of The Year -- Medicine Man

Can Amgen CEO Kevin Sharer's formula for success invigorate your company?

Consider what the world must look like to Kevin Sharer.

In 2000 he became CEO of Amgen Inc., the world's largest and most well-known medical biotechnology company. Eight years earlier, he had joined the Thousand Oaks, Calif., company, then 12-years-old, when it employed about 2,000 people and had revenues around the $1 billion mark. Amgen had two notable drugs at the time: Epogen (anemia therapy for people on dialysis), FDA-approved in 1989; and Neupogen (infection-fighter for chemotherapy patients), approved one-year earlier.

This was all before the mapping of the human genome. The Internet and World Wide Web were unknown to all but a few fringe techies. Beepers were more commonplace than mobile phones. People with cancer, kidney disease, heart disease and other grievous illnesses were dying at a higher rate than today, and they were suffering more from symptoms and treatments.

About Kevin Sharer
Kevin Sharer was elected Amgen's CEO in May 2000. He is Amgen's third CEO and became the company's third chairman of the board in January 2001. Sharer joined Amgen in October 1992 as president and COO and a board member.

Prior, Sharer was executive vice president and president of the Business Markets Division at MCI Communications. Before MCI, he served in several posts at General Electric Co. and was a consultant for McKinsey & Co.

Sharer received a bachelor's degree in aeronautical engineering from the U.S. Naval Academy in 1970, a master's degree in aeronautical engineering from the U.S. Naval Postgraduate School in 1971, and also earned an MBA in business administration from the University of Pittsburgh in 1982. Sharer served on two nuclear attack submarines following graduation from Annapolis.

Sharer sits on the board of directors of 3M Co., Northrop Grumman Corp., UNOCAL and the U.S. Naval Academy Foundation. He is chairman of the board of trustees of the Los Angeles County Museum of Natural History and a member of The Business Council.

Biotechnology was a relatively new field, and it touched few lives outside of the patients taking a limited number of approved drugs and those working in the dense web of a research and development in California and a few other hot spots. It was a time when the world knew that technology would give birth to new solutions, but the most dramatic of those solutions and the speed with which they would become available was beyond the comprehension of most. Sharer came to Amgen from MCI Communications and had no experience running a biotech company.

Fast-forward to 2004: Medical biotechnology has come of age. It now produces 40% of the drugs the U.S. Food and Drug Administration approves. Amgen employs more than 14,000 people worldwide; annual revenues have surpassed $8 billion, up about 500% from the early '90s; the company's stock price, which debuted at $18 a share in 1983, is selling around $60 per share; and the company has seven well-known drugs on the market (five selling more than $1 billion a year) and more than 20 products in the pipeline.

"With the industry's largest revenues and market valuation, Amgen is a bellwether, one of a handful of firms people think of when they hear the word biotechnology," says Morrie Ruffin, vice president for business development at the Biotechnology Industry Association, a trade group based in Washington, D.C.

Kevin Sharer has seen it all happen. He has been a frontline eyewitness to the eye-popping technological leaps of the past decade that have forever changed the landscape of drug-treatment and global manufacturing. And, yet, when describing the innovations of his company and how it keeps those innovations coming, he ends with a humble truism that goes hand-in-hand with leading such a company: "Mostly," Sharer says, "we struggle."

Sharer embraces many of the philosophies IndustryWeek has identified as essential for modern manufacturing leaders, and for this reason, we've named him CEO of the Year.

Some might say that Amgen is different from traditional manufacturing because it is a "technology-driven" company. And yet, what successful manufacturers are not driven by technology? Indeed, today's manufacturing executive should emulate Sharer because he understands:

  • The value of employees and employee development.
  • The necessity of creating a culture of innovation.
  • That achieving success involves risk-taking and, at times, failure.
  • That operations and manufacturability are key elements of a successful "technology" company.
  • How to meld science and capitalism to make profitable products that deliver new, valuable solutions.

While as recently as five years ago, CEOs at companies the size of Amgen received rave reviews and ample compensation for cutting costs, streamlining processes and building supplier and customer relations, today these are givens, not stellar achievements. The successful CEO of today, like Sharer, not only must build and maintain an efficient machine, but also must focus sharply on the fuel that powers it -- the right mix will lead to innovate products that drive success. "If you can hit it big in this business," Sharer says of medical technology. "The financial rewards are enormous."

Last fall, Sharer was keynote speaker at a summit for medical-product manufacturers at the Cleveland Clinic Foundation (CCF) in Cleveland, Ohio. C-level executives from the largest medical equipment makers in the world were there. As Sharer spoke, the audience of 800 was silent, scribbling, learning, leaning in.

"In terms of innovation and commercialization, Amgen and his [Sharer's] leadership clearly are a model for others," says Chris Coburn, head of the CCF's technology commercialization division. "He brings a combination off career and life experience that make him perfect to be an innovation leader."

No. 1 on Sharer's must-do list for executives managing innovation: people -- and their unending link to new ideas. More than 10% of Amgen's employees are scientists with medical degrees. The company puts such a high premium on nurturing innovation, that its investment in R&D has grown faster than its revenues during the past decade; and in 2004, when Amgen opened its newest R&D center to date, $625-million "Helix" in Seattle, scientists and researchers had a hefty role in designing its layout and features in order to make their time there more fruitful.

Although Sharer keeps an extremely tight schedule, he makes time to nurture the engine of innovation residing within his employees because he understands and reveres its connection to Amgen's success.

"[You] have to give special nurturing guidance to that group. One way you don't do it is not be at home. You have to be there -- setting up reviews, encouraging people, setting up the metric system."

In addition to atmosphere and attention, innovation demands cash. Manufacturers who skimp on R&D should take this lesson away from Amgen if nothing else -- innovation is like blood -- when you look at a person, you don't see it, but you'd sure notice if it weren't there. Whatever it takes, keep the blood flowing.

"We try to create an environment where there's no such thing as a budget for innovation," says Sharer. "We'll find the money. As CEO, that's my job."

Innovation is a management strategy, not just a tactic at Amgen. Sharer says the company "follows the science," meaning new product development is the cart, and new discovery is the horse. (In listing barriers to fostering innovation at a company, Sharer identifies capital market volatility, rigid organizational structures that limit room for initiatives and high burdens of proof to fund products.)

In order to foster innovation at Amgen, Sharer encourages a high tolerance for failure but also practices speed and decisiveness when it comes to cutting off ideas that aren't going to perform to expectations.

"You've got to understand that most of what you do won't work," he says. "So you've got to be prepared to decide early on what's worth pursuing and what's not."

Case in point: In the late '90s, Amgen invested in research and development of weight-loss therapy using leptin, a hormone that humans make. Although leptin drugs helped people whose bodies fail to produce the hormone lose weight, and research has continued on it, it was a commercial flop for Amgen. But Sharer says if he had it to do over again, he would because it furthered the company's knowledge of obesity treatment. Today it has four drugs in the pipeline for metabolic disorders.

In addition to the value placed on internal innovation, Sharer has championed several smart acquisitions that have added valuable products, people and facilities to his company. In 2002, Amgen completed the $16 billion acquisition of Seattle-based Immunex, adding Enbrel, an inflammation treatment, to its portfolio. In 2001, the drug had $762 million in sales. In 2003, Enbrel sales were $1.3 billion. In the third quarter of 2004, the drug had sales of $496 million, a 45% increase over the same quarter in 2003.

Recently, Amgen purchased Tularik Inc., a San Francisco-based company with extensive knowledge in gene regulation.

At the end of Sharer's presentation to medical innovators at the Cleveland Clinic Foundation, he summarized his thoughts on managing innovation: Systematic support is vital as is support from the top; it's expensive, challenging and takes time; most things don't work; and finally, the view is worth the climb.

"Managing innovation at an industrial level is the most complicated industrial management task I know. You have to do 20 things simultaneously well, and you have to be a little bit lucky."

**********

Amgen's Innovation Equation

As Amgen's revenues have increased. . .
Annual Revenues (year ended Dec. 31)
In $ billions

Year Revenues
1993 $1.4
1994 $1.6
1995 $1.9
1996 $2.2
1997 $2.4
1998 $2.7
1999 $3.3
2000 $3.6
2001 $4.0
2002 $5.5
2003 $8.4

So has its investment in R&D. . .
Annual R&D Expenditures (year ended Dec. 31)
In $ millions

Year R & D
1993 $255.3
1994 $323.6
1995 $451.7
1996 $528.3
1997 $630.8
1998 $633.3
1999 $822.8
2000 $845.0
2001 $865.0
2002 $1,116.6
2003 $1,655.4

And intellectual capital
Worldwide Employees


Year Employees
1993 3,065
1994 3,352
1995 4,046
1996 4,646
1997 5,372
1998 5,494
1999 6,342
2000 7,300
2001 7,700
2002 10,118
2003 12,800
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