Engineered For Success

For a man who has piloted the world's largest and most successful independent biotechnology company through its most dynamic period to date, Amgen Inc. Chairman and CEO Gordon Binder chooses surprisingly humble terms to describe his management philosophy. "I think the boss' primary job is to help his subordinates do their jobs," says the CEO, a Harvard Business School M.B.A. whose economy of speech reflects his upbringing in the mountains of the West. "It's not their primary job to help him do his," Binder adds, although he believes this is how many managers view their position in relation to those they supervise. Granted, such pronouncements are easy to make. But while many corporate honchos merely pay lip service to concepts such as employee empowerment, Binder has been putting his beliefs into action for more than a decade at Amgen, where he served as chief financial officer before being named CEO in October 1988. In mid-1989, for instance, the CEO pulled an all-nighter packing boxes alongside some 20 other staffers to ensure that Amgen's first product hit the market before a competitor could hit the company with an injunction. The injunction never came. But employees did get the drug into distribution just one day after it was approved by the U.S. Food & Drug Administration (FDA) -- the industry standard at the time was one month. As a reward, Binder had Amgen's Thousand Oaks, Calif., headquarters decorated with red balloons and gave everyone the day off. Since then Amgen has had other reasons to celebrate. With 1998 sales of nearly $1.4 billion, the company's flagship product Epogen, which helps patients with end-stage kidney disease combat anemia, currently ranks as the fourth largest-selling prescription drug in the U.S., where it improves the quality of life for 200,000-plus dialysis patients. Perhaps equally dramatic is the impact Epogen's success -- along with that of subsequent Amgen offerings including Neupogen, which stimulates the growth of infection-fighting white blood cells in patients undergoing cancer chemotherapy -- has had upon Amgen. A seat-of-the-pants start-up in 1980, the manufacturer has taken less than two decades to become one of the U.S. stock market's top 100 companies and the world's 14th-largest pharmaceutical company in terms of market capitalization. Along the way, the manufacturer has earned numerous accolades. Most notably, Amgen in 1994 became the first biotech company -- and one of only five corporations ever -- to be awarded a National Medal of Technology, which represents the highest Presidential tribute for the commercial application of technology. The company was No. 1 in a 1997 investment survey for posting an average annual return to investors from 1986 to 1996 of 67.8%. Amgen also has appeared on IndustryWeek's list of the world's 100 Best-Managed Companies, and the manufacturer has been named one of the 100 best American companies to work for in two surveys. Undoubtedly, the company, which was started with an $80,000 venture-capital loan, has made substantial progress during Binder's tenure. But the CEO is the first to admit that he inherited a strong foundation upon which to build Amgen's fortunes. Still, the company owes much of its position as a leader in the $8.5-billion-and-growing worldwide market for biotechnology -- a field in which manufacturers use cultured microorganisms to produce medicines and related products -- to the clarity of Binder's strategic vision. "A lot of people have criticized Gordon in the past for not using the profits from Epogen and Neupogen to acquire other products or companies that have been successful in biotech through the '90s," says Jay Silverman, senior biotechnology analyst with BancBoston Robertson Stephens, New York. "On the other hand, Gordon has stuck with his knitting," a task that has entailed expanding the use and penetration of Amgen's existing products. Silverman also praises Binder for instituting a "brilliant" stock buy-back program. Under its terms, Amgen repurchased $1 billion worth of its own stock in 1998 and plans to do the same in 1999. Whereas Binder might have spent this money on mergers and acquisitions whose outcomes were far from guaranteed, Silverman states that "if you analyze how much he's paid for his stock over the past several years and where it is today, it's been a good use of cash." Analysts aren't the only people applauding Binder's apparent prescience in matters relating to Amgen's direction. Thanks to the CEO's 30 years of business experience, says colleague George Morstyn, "He knows where he's heading [with Amgen] and, more often than not, he's been proven right." (Morstyn began working with Amgen in 1987 and currently serves as the company's vice president of product development and chief medical officer.) "Sometimes you've got to make the unpopular decision," states the CEO, who did just that in championing a relatively new Amgen product called NESP (novel erythropoiesis stimulating protein). Essentially a modified version of Epogen, this recombinant protein is designed to cut patients' required treatments from three Epogen injections weekly to one or fewer. In April Amgen announced that preliminary data from 522 dialysis patients suggest the drug is safe and effective. The project might never have left the laboratory, however, had not Binder decided early on to commit Amgen's resources to it. Initially, NESP enjoyed little internal support, partly because it represented a new and difficult area of research for the organization. Binder was the first member of Amgen's senior management to recognize NESP's medical and financial potential, or at least to appreciate that the project merited further exploration. "I didn't know it was going to work -- you never know that," recalls the CEO, who credits his undergraduate studies in electrical engineering with instilling in him a systematic approach to decision-making. "But I guess I saw that it didn't take a lot of money to go to the next step and get an answer." As Binder's comments suggest, even the most advanced biotech companies find that identifying and developing successful product candidates is like looking for a hypodermic in a haystack. Of the organic-chemical drugs that reach the human-testing level, the proportion that succeed is a mere 15%. Of these, only about 30% ever will recover their R&D costs, which easily can top $500 million. Once a product has been introduced, manufacturers frequently spend still more money to develop additional uses for it. In fact, expenditures at this stage can surpass initial development costs, as was the case with Epogen. Thus, it's no surprise that R&D represents the largest single cost item on Amgen's balance sheet. Last year, the company spent a whopping $663 million -- or 26% of its product revenues -- in this area. In previous years, this figure has climbed as high as 29%. By contrast, the average American research-based (as opposed to generic) pharmaceuticals producer spends 20.8% of its sales on R&D. The percentage for all manufacturers is just 4%. Those figures come from a 1999 industry profile published by the Pharmaceutical Research and Manufacturers of America (PhRMA), a Washington-based trade association. For many companies, spending 26% of revenues on R&D easily could create a tendency toward scapegoating when projects fail. No such thing occurs at Amgen, however, largely because Binder's understanding of the risks involved in undertaking potentially groundbreaking scientific research has fostered an atmosphere that emphasizes forgiveness and flexibility over finger-pointing. Should an Amgen project fizzle, explains Morstyn, "We move on to the next thing [at any given time, the company has approximately 12 products in development, with scores of other prospects in preliminary phases]. We don't try to lay blame or make people suffer." For Amgen, the advantages of this approach are obvious. Perhaps the biggest one, Binder says, is that "if people bring their problems to their bosses, then they can get their boss' help in solving them" rather than addressing them in isolation or ignoring them. In keeping with Amgen's approach to problem-solving, the organization also relies on workers to present management with opportunities. Binder says "Amgen as a company is much more bottom-up than top-down," a philosophy that is most evident in the manufacturer's research network. It incorporates relationships with approximately 300 universities, any of which can help Amgen tap into government spending on medical research that this year will include approximately $14 billion from the National Institutes of Health alone. More important from a managerial standpoint is the fact that Amgen allows any of its scientists to propose working with or funding researchers at any of these institutions. In contrast, many companies in biotech and other industries depend upon senior management to make most decisions about how subordinates will spend their time. "The proposal may or may not be approved," Binder says. "But it's wide open. We tell anybody who knows of a professor who's doing something interesting to please come forward." Another unusual element of Amgen's drug development: It's common in the biotech industry for team-leadership responsibilities to be passed to others in an organization as a project progresses through clinical testing and other phases. However, Amgen finds that keeping a drug's discoverer in charge of a product throughout its life cycle allows the company to avoid delays and other glitches that can result from leadership handoffs. The tactic also helps ensure that projects remain consistent with the clinical intentions of their creators. In its unwavering commitment to patients' welfare, Amgen clearly takes its cues from its CEO. Under his direction, the organization has set up a program to provide free Neupogen treatments for life to about 1,000 children nationally who suffer from severe chronic neutropenia, a condition characterized by an absence of white blood cells. Although this market is far too small to be commercially attractive, Amgen pursued the application to approval and subsequently set up a registry to gather data on this disease for future researchers because it seemed the right thing to do. Conversely, the manufacturer last year jettisoned more than five years' investment in a potentially lucrative product candidate called MGDF with hardly a backward glance. Despite the fact that this drug had shown early promise in boosting the platelet count of patients undergoing chemotherapy, later research revealed that one in 100 test patients experienced a side effect that actually cut their platelet counts. Upon learning this, Amgen pulled the plug on the program in a matter of days. In contrast, says Morstyn, "I think other companies might have had trouble coming to that decision as quickly as we did." Patients aren't the only people in whose well-being Amgen takes an intense interest. "Amgen expects a lot from its employees," Morstyn says, "and it gives a lot back." Perks include a fitness center and photo-processing services, both of which are available on Amgen's 30-building campus. Also located at this site are a floral shop and a day-care center, plus a cafeteria that employees can count on to produce family-sized take-home dinners when needed. Amgen employees can flex their own culinary creativity by participating in the company's annual chili cook-off, in which some 30 teams compete. Other company-sponsored events include Amgen's popular Friday-night beer blasts, along with trips to nearby attractions such as the Santa Barbara Zoo. Amgen's heady social schedule isn't entirely about fun and games, though. Many of its celebrations commemorate team-based successes. Also, the company has found that encouraging new hires to bring their spouses to orientation sessions tends to make the spouses more accepting of their mates' occasional scheduling conflicts. As important to workers as Amgen's sensitivity to their families' needs is the investment the manufacturer makes in the advancement of their careers. In this area, the company offers in-house training in subjects such as computer programming, time management, and public speaking. And unlike similar courses that many other manufacturers offer, Amgen's classes are available to any of its 5,500 employees, whether or not they relate directly to a person's job. Furthermore, the organization provides each of its workers with one course yearly in a completely unrelated discipline such as art history. In explaining the rationale behind Amgen's generous benefits package (which also includes 15 days' vacation for first-year employees), Binder says that "if somebody comes to work here, we owe them continuing education and chances to grow and develop as a person." Providing these commodities has made it easy for Amgen to attract the biotech industry's brightest minds. When selecting employees, Amgen seeks characteristics such as intelligence and integrity. What's unusual in the manufacturer's hiring practices, however, is that the company casts a wide net. "We want to see somebody who's been successful before, and that success can be in whatever they chose to do," explains Binder, who is said to play a mean game of tennis. "If they played the violin, we want to know if they were a really good violin player. If they played football, were they on the starting team or did they sit on the bench?" Call it pluck, perseverance, or whatever, perhaps no one at Amgen embodies the quality that allows a person to prevail no matter what the endeavor better than Binder. "He clearly has a view that organizations often give up too quickly on a project," PhRMA President Alan Holmer says of the CEO, who in 1996 spearheaded a PhRMA team devoted to the FDA. More specifically, Binder's group was responsible for securing renewal of the 1992 Prescription Drug User Fee Act, under whose terms the FDA received $327 million over four years, an amount that helped it slash its average drug-approval time from 30 months to 15. Binder's team also was charged with achieving additional FDA reforms. "A lot of people thought that those two things couldn't be done at once," Holmer states. The Amgen CEO headed a similar committee within the Biotechnology Industry Organization (BIO), Washington, which represents 850 companies and institutions. With Binder leading the charge, both measures -- which together make up the FDA Modernization Act of 1997 -- passed with near-unanimous House and Senate support. In recognition of this achievement, Binder this year became the first CEO of a biotech company to win the PhRMA chairmanship. "Years from now," says Carl B. Feldbaum, BIO's president, "the industry will look back on this period and probably still say that this was our greatest legislative accomplishment." It provides an additional $600 million for the FDA while mandating what Feldbaum calls "the first real reform" of the FDA's biotechnology guidelines in decades. With Binder at Amgen's helm, it's little wonder the company has become what one analyst calls the "800-pound gorilla" of the biotechnology sector. Amgen competes in this arena with an estimated 1,400 others -- including pharmaceutical-industry giants SmithKline Beecham PLC and Glaxo Wellcome PLC. However, its revenues are roughly twice those of its largest biotech-focused rival, South San Francisco, Calif.-based Genentech Inc. As for other competitors in the pure biotechnology field, their yearly revenues rarely exceed $500 million, if they're making money at all. But with all the R&D they have underway, potential threats to Amgen are plentiful. Amgen must face additional pressures, including those being created by the manufacturer's attempt to become one of the top 10 pharmaceutical companies in the world in terms of market capitalization and sales during the next decade. As part of Amgen's growth strategy, the manufacturer three years ago began building an organization within its headquarters facilities that will focus its efforts on small-molecule-based drugs. Although Binder admits that completing the small-molecule organization will be a challenge, Amgen already has overcome obstacles that once loomed at least as large. Last December, for instance, an 18-month arbitration between Amgen and Johnson & Johnson, New Brunswick, N.J., regarding the rights to NESP was resolved in Amgen's favor. This decision gave the company exclusive rights (except in China and Japan) to market a product that Binder believes could well succeed on the order of its first two blockbusters. From a broader perspective, John Lindsey, an investment representative at Edward Jones Investments. Simi Valley, Calif., says Amgen's biggest problem was that the manufacturer was "guilty of being a biotech company" in the late 1980s and early 1990s. During this period, failures throughout the sector caused it to lose luster in the investment community and beyond. "However," Lindsey adds, "Amgen overcame that fairly early in the game and actually did it quite nicely" by being proactive in all areas of its business, whether they involved product development, community relations, or anything in between. Plainly, this kind of approach could give any company a shot in the arm.