Online Extra: Genentech's CEO on Big Pharma's Issues

Arthur Levinson tackles drug pricing, patent disputes, consumer marketing, and stem-cell research

Arthur Levinson, who began his career 23 years ago as one of Genentech's (DNA ) first scientists, was named CEO of the biotech pioneer in 1995. Since then, he has refocused its research efforts in three areas -- cancer, immunology, and vascular biology -- and increased sales from $918 million in 1995 to $2.7 billion last year. In a series of interviews at his suburban San Francisco home and his office in South San Francisco, the Levinson offered his views on some of the controversial issues facing the pharmaceutical and biotech industries today. Following are edited excerpts from his discussion with BusinessWeek Los Angeles Correspondent Arlene Weintraub.

Q: What's your opinion about the controversy over whether Americans should be able to import prescription drugs from Canada, where drugs are sold at much lower prices?

A: This is a tough issue. The U.S. is the only country that has a free market in terms of pricing [for prescription drugs]. Governments in other countries just won't let a drug be sold unless they approve its price. So what pharma companies will typically do is price the drug higher in America so they can still make a profit.

The American consumer is subsidizing the rest of the world. Is it fair? No. But if you allow parallel importation of drugs, it could be devastating to the pharmaceutical industry. Profits fuel discovery. If you take that away, it would be the death knell of new drug development.

Q: How important is it for the government to establish a prescription drug plan for the elderly?

A: We're a proponent of it. But we'd like to see it implemented in a way that preserves as much of the free-market approach as possible. If the government is the provider, the government will be able to set prices. That could put the drug industry in a tough spot. We'd like to see this done in a way where buyers and sellers can meet in a competitive setting.

Q: The biotech industry is rife with patent disputes. What's your approach to defending Genentech's patents?

A: There are a lot of squabbles in this industry, and many of them end up in court. It might take two years or more to settle them. Our approach is to be as open to negotiation as possible. I would much rather pay someone a 3% royalty than to pretend their patent is invalid and just march ahead.

We had an intellectual-property dispute with Tanox (TNOX ) over our new asthma drug Xolair. We felt there was some ambiguity on the intellectual property side, so we decided to enter into a three-way collaboration with Tanox and its partner Novartis (NVS ). We're all working together. To me, that's a better scenario than each of us going our own way and fighting at every step.

Q: There has been a huge increase in the amount of direct-to-consumer advertising for prescription drugs. Why hasn't Genentech jumped in?

A: Our products are focused on relatively small patient groups, so there aren't a lot of opportunities for a direct-to-consumer approach. That might change with a product like Xolair for asthma. But at this point, it would be a big bet for us to make, and I'm not sure it would be an appropriate bet.

Big pharma spends a lot on advertising. Is it really advancing patient care? I don't think so. And it might be taking away some of the money that could be going into research and development.

Q: What's your position on stem-cell research?

A: There's a tremendous future in stem-cell biology. Discoveries could ultimately lead to cures for Parkinson's disease and other illnesses. For the government to block research based on the belief that it violates some ethical standard is hard for the industry to take. The government is preventing research that could save lives.

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