Pharmaceutical companies strategy

Curious about how Covid tests are produced, the initial distribution struggles, and how drug prices are set in different countries? Wonder why the biggest pharma companies are Swiss, what a workday is like for a pharma executive, what regrets he has, and what advice he would give graduating students? Maik Rutschmann, Head of Strategic Finance, Roche, joined this International Competitiveness lecture and responded to 13 such questions. Feedback was exceptional. Students loved how he explained things in a way that was easy to understand. Professionals who joined indicated they become interested in joining the pharmaceutical industry. Roche is the largest pharmaceutical company in the world and more successful than Amazon. Below are some key excerpts.

How coronavirus tests are produced

"First, you get the virus's genetic material, sequence it, tear it apart, and analyze it. Then you take a human sample, separate the genome from any other, sequence it, and duplicate it. Then you match the genome of your sample with the genome of the virus. If there is a match, then your test needs to signal it. The primary challenge is the science behind that; next is the ability to make it at a large scale, and third is infrastructure. At university hospitals and private clinical practices around the world, there is already installed equipment from Roche. It comes down to scientific know-how, the ability to quickly get behind the science of the virus and then translate it into the existing diagnostics equipment."

How pharmaceutical companies set drug prices in different countries

"Prices for pharmaceutical treatments are negotiated with public healthcare systems or private insurances, while the beneficiaries of our treatments are patients. The prices are determined based on the value that our treatments are bringing – value to patients and to healthcare systems, e.g. by way of avoiding other therapy costs. In determining the value that treatments are generating, our experts prepare so-called health economic assessments to determine the scientific and societal benefit that the treatment brings. Take breast cancer, which 10-15 years ago in most cases was a death sentence for patients. If you have a specific type of breast cancer today, detect it early and treat it early, you have a very fair chance to survive long term. We use the scientific data about the health benefit of treatments, which is the basis for discussions with payers. Public institutions then say, 'Okay, based on that improvement of life or prolongation of life; this is how much we are willing to pay.' Almost every country has separate discussions and negotiations."  

Initial struggles with Covid test distribution

"The first struggle was far more demand than what we could produce. Every country felt they should get the tests first. If the tests were made in Germany, should Germany be first? If components are coming from the US, should the US be first? You would love to help the whole world, but you're limited. How do you ethically allocate those tests? It’s not an easy thing. The other thing was a logistical challenge because, with all the air traffic down due to Covid, many of our logistical pathways disappeared. We had to charter 747s all around the world, flying tests around the world, to ensure patients, doctors, and nurses would get tests in their hands as soon as possible."

Why was Roche first to receive FDA approval for the Covid test

"Roche is the world leader in in-vitro diagnostics. When you go to a doctor, and your blood is taken, there's a very high likelihood that these tests run through Roche’s diagnostics equipment. We have tremendous in-house know-how. I don't think we were the quickest ones, but we were the first with a high-quality test that can be scaled up in terms of quantities. We need hundreds of millions of tests, so it's not only the science to get a test at appropriate quality but also to have the manufacturing capacity to make enough of them."

Roche is more financially successful than Amazon

The last five years' annual return on investment was 23% for Roche, higher than for Amazon, Microsoft, Intel, Costco Wholesale, PepsiCo, Pfizer, and Johnson & Johnson. Are decentralization and long-term thinking the main drivers? This is how he responded:

"We make decisions with a very long-term horizon. The family is not thinking about the next quarterly result. Their concern is to ensure that the company is still successful in 30 years when they hand it over to the next generation. Another element is the level of humbleness at Roche. I mean, you said George that you were not aware of how big we are; I think many people aren’t either. We have a purpose-driven organization. We are coming to work because we believe in our company purpose. Of course, we are not a non-profit organization. We're also here to generate value for shareholders, but our primary goal is to make better treatments and cure deadly diseases for patients today and tomorrow."

Did Roche consider working on a vaccine?

"Roche’s expertise is in diagnostics and treatments, not in the vaccines business. We have supported the fight against Covid by providing testing. In addition, we have screened our pharmaceutical compounds for potential effect against the virus. For example, some patients are actually not so much struggling from the virus but from the virus's consequences, an overreaction of the immune system. One of our medications against rheumatoid arthritis has been tested for safety and efficacy in patients with the coronavirus and there are indicators that this medication can help some of the patients. We also have partnerships with other pharmaceutical companies related to the development and commercialization of potential treatments against the virus. For example, we are partnering with Regeneron on a neutralizing antibody cocktail that is already approved for use in the US and hopefully soon in Europe." 

Benefits of being a Swiss company

In the pharmaceutical industry, two of the three largest companies are Swiss. What are some of the intangible benefits of being based in Switzerland?

"Switzerland is not only home to Roche, but also to other large-, mid-and small-sized pharma and biotech companies. Switzerland has become one of the biggest biotechnology hubs worldwide, which attracts talent from all over the world. Companies in Switzerland are also benefitting from its great infrastructure and education system."

 As a business leader, what did you learn from Covid?

"These are two examples: congresses are a critical touchpoint with physicians, where we engage in discussing treatments, scientific data, and the benefits for patients. We thought these meetings are an absolute must-have. We realize now that you can engage very well virtually. Many barriers that existed in the past, at least mentally for us, were not real. The second example is business travel. We are learning that there's a much more efficient way to meet."

What do you like about working internationally?

"It's a joy. I get a lot of energy from learning from other people; I think it’s a recipe for success. The diversity of thought and variety of people drive innovation. I enjoy being part of an international crew or almost family where you have colleagues and friends from all over the world working towards a common purpose. I find that quite cool."

How global is Roche?

"My team sits in San Francisco and Basel. It includes colleagues from Italy, Argentina, Ireland, China, the US, and Germany."

What lessons did you learn in your career, any regrets?

"The importance and value of empowerment. It’s one of the core values at Roche. The firm believes that it's not the people at the top who know everything. It's important to empower and trust the organization's people because the real business action happens in the affiliates. I worked for two years in the Italian affiliate. If I could turn back time, I would join Roche earlier and spend more time in different local markets across the world."

A typical workday for a Pharma executive

"Frequently, I don’t know what's happening tomorrow. I have an agenda and meetings planned, but the environment is fast-changing, and we need to hop on the question or business challenge of the moment. Most of the time, I used to be in meetings sitting together with other people. Now it's a lot about being in front of a screen. We realize you need to create a little space to sit back and work on something by yourself, but it has become very rare. I’m trying to reserve little islands during my day to have a little headspace to think about whether I am doing the right things, are some of the things better placed with others, or I should be doing different things."

Advice to graduating university students

"Think first of what a meaningful career is. In the old days, it used to be how do you climb the hierarchical ranks, lead a small team, bigger teams, and even bigger teams. These times are over. The future has smaller and smaller teams where you are a network contributor. Find what your passion is. I wouldn’t decide by how sexy the name of a company is or whether it’s in the Fortune 500. You're looking for a career that's probably going to last 40 years, so you need to find something that's thrilling. Think of a company purpose that gets you up in the morning fully energized and charged, and you will do a great job. Everything else, the financials, and all of that will follow. My advice is to look for meaning, look for your passion, and try to marry that."

Reactions to Maik Rutschmann’s chat

The feedback shown below was received anonymously.

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Why we bring speakers to a Finance class

At a school with constant innovation, the best thing we can do for our students is to have them speak with real-world leaders to become inspired. It's mutually beneficial. Teaching this class is a highlight of the week for me. I frequently use for my "day job" ideas about pricing and product launches I learned from my students. For example, I didn't know Roche was the largest pharmaceutical company and one of the most successful until a student suggested we picked Roche for this lecture. Read more about these classes.

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Other speakers

Georgia Garinois-Melenikiotou, FRM Executive Vice President, Corporate Marketing, Estee Lauder. Read about it here.

Karthik Natarajan, Regional CFO, Asia-Pacific, Procter & Gamble. Read about it here. 

Alexandra Trower, Executive Vice President, Corporate Communications, Estee Lauder. Read about it here.

Umit Subasi, FRM President, International Markets, Campbell Soup. Read about it here.

This semester, we are hosting speakers from Nike and Apple. Participation in the speaker's sessions is always free. See the updated speaker's list here.

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Questions Maik Rutschmann responded

Over 100 questions were received. The following ones were selected, representing what most participants wanted to hear about. Please continue sending us questions for future events, preferably in advance.

How do you make a COVID test? What are the critical barriers? A patent, expensive equipment to manufacture it, expensive equipment to process it, or people’s know-how? 1 George Benaroya

How does Roche decide at what price to sell the same products in different countries? What goes into those decisions, and what kind of analysis do you do? 2 Alex Gould

What were some of their initial struggles upon distribution of the Covid test? 3 Dianna Cardenas

Roche was first at obtaining FDA approval for a COVID test. What factors contributed to it, and why was Roche faster at making COVID tests? ? Umi Santillan

Roche’s annual return on investment in the last 5 years was 23%. Higher than Amazon (7%), Pfizer (13%), Johnson & Johnson (15%), as well as Microsoft, Intel, Costco, and PepsiCo. Roche’s founding families hold most of the votes for the voting shares. Are Roche's long-term focus and decentralization the reason why Roche is more successful? ? George Benaroya

Did Roche ever consider working on a covid vaccine with any of the biotech firms it owns or has relationships with? Or did the company quickly focus on testing? ? Robbie Lowther

Two of the three largest pharma companies are Swiss. What are some of the intangible benefits of being a Swiss company? ? George Benaroya

As a business leader, what did you learn from COVID? ? George Benaroya

What is the most enjoyable and difficult thing about working in the international arena? ? Alex Gould

How many international employees does Roche have? 1? George Benaroya

What were the biggest challenge/s you’ve encountered and the most valuable lesson/s you’ve learned? 11 Umi Santillan

What does a typical workday look like for you? 12 Umi Santillan

What advice would you give graduating students who will be entering the workforce soon? 13 George Benaroya