MCI | Distinguished Guest Live Talk | Severin Schwan

Thank you, Andreas, and thanks for having me.

I am, yeah, actually I am.

I always wanted to work in a more international environment, and that's why I applied at Roche. I started as a finance trainee. One reason I joined was they told me, 'If you join this program and don't go abroad after a short time, we have to fire you.' I wanted to see the world. I never thought I'd stay for my entire career, but one opportunity after another came. I worked in finance, diagnostics, pharma, general management in Belgium, Germany, Singapore, and then back to Switzerland. Eventually I became CEO.

It was rather unusual, but it started during my studies. I studied in the UK when Austria was not in the EU, so it was an effort to organize studying abroad. I got great support from professors in Innsbruck. I went with my girlfriend, now my wife. That experience made me want an international career.

At Roche, it's about improving patients' lives. We do that through pharmaceuticals and diagnostics. We are market leader in in-vitro diagnostics. Our strategy is personalized healthcare, targeting medicines to patients who benefit most. This is possible with modern diagnostics. It's important in heterogeneous diseases like cancer. By working across pharma and diagnostics, we make medicines more effective and efficient for the healthcare system. Digitalization is now an important component.

My focus is digitalization in healthcare, which lags behind other industries. The opportunity is in real-world data. Clinical trials remain important but are limited in scope. Now healthcare data can be recorded digitally. For patient care, you need identifiable data, but for research, you need de-identified data. The pharma industry handles data privacy responsibly, unlike tech companies. An example: our medicine alectinib for a specific lung cancer mutation. We couldn't recruit enough patients for a traditional trial, so we used a virtual arm with retrospective data from Flatiron Health. This showed a strong signal, regulators gave conditional approval, and later a full trial confirmed it. That shows the value of real-world data. On Austria: it has excellent healthcare and the ELGA system, but execution is poor. Three issues: the good data regulation is not implemented due to missing administrative orders; data privacy laws go beyond EU rules, hindering telemedicine; and there is no reimbursement for digital solutions. These need fixing to attract industry and improve care.

The key bottleneck is the complexity of the human body and disease biology. Understanding that is the basis for developing medicines. Every new insight offers opportunities, like the ALK mutation. That's why cutting-edge science and close collaboration with academia are essential.

I would argue that a lot of innovation comes from basic research in academia. Academia excels at basic research with a long time horizon, which industry cannot do. If you want to attract the life science industry, invest in basic research. That attracts the best people and creates talent hubs. The successful ecosystems like the Bay Area and Boston are centered around top academic institutions. In Austria, there is a misguided focus on applied research. Put money into basic research, give institutions autonomy, and the ecosystem will develop. Subsidies for industry are wasted; I never made an investment decision based on a subsidy.

You use real-world data that sits in hospitals. That's a big issue in Europe, not only in Austria but also in Switzerland and Germany. Typically, the academic institution is separate from clinical operations. It's like the easiest people and the butchers, the operating people. You have lots of discussions about how they can work together, and you end up with triangular relationships with industry. As you would expect, a triangular relationship is much more difficult than a bilateral one. Very often, we act almost like a catalyst or matchmaker between hospitals and academic institutions because they have infights and compete and don't like each other. So that's a structural disadvantage we see in Austria.

It depends on which area you are working. I would argue that if you want to get ahead of research and development in the pharmaceutical industry, there is so much specific expertise. At Roche, you would typically have people who had a career in R&D, scientists or clinicians. It's very difficult for an outsider to take such a career path. But in other areas, that's not necessarily the case. I guess I'm the best example: I am an economist and lawyer. I love medicine and science, and I've had the opportunity to work with lots of scientists and learn from them, but my knowledge is superficial. I have no clue beyond a feel for the environment scientists need to thrive. So it shows it's possible to take a leadership position in this industry coming from another industry or without being a scientist or clinician. But if one day my successor is a clinician or scientist, that would also be great. It's not mutually exclusive.

I mean, it's invaluable. I am privileged, I can just summarize it like that. This is such an advantage, it's incredible. As a CEO, you really feel it. I never felt it really when I was at Roche, but when you become CEO, you get to the interface with the outside world, you face pressure from investors and media, and you learn to appreciate what it means to have a strong shareholder who thinks in the long term. If you talk with members of the founding families, the Hoffmanns and the Oeris, they say what they really care about is that this company makes a contribution to society and that they hand it over in a good state to their children. They literally mean it. It's now handed over from the fourth to the fifth generation; we are celebrating 125 years at Roche this year. That means they think 20 or 30 years, exactly the time span of a generation. It's a privilege. I could give you examples no end. For instance, during the financial crisis of 2008-2009, investors were extremely reluctant to invest in R&D. We happened to have interesting opportunities, and we invested counter-cyclically, over-proportionally into R&D. Investors were mad. I remember my first full-year presentation in 2009, in the midst of the crisis. We said we would invest more in R&D, and investors were unhappy. One analyst said we were spending money like a drunken sailor. My blood pressure went up, and I said, 'If you don't like it that we invest in R&D, take your money and invest it somewhere else.' The share price went down. I'm not sure I would have survived that as the CEO of a public company without the backing of our shareholders. But it was the right thing to do; a lot of innovations were funded then that are launching now. I could only do that because I had the backing of the shareholders. Many of my peers at the time said they had no choice but to cut R&D and raise dividends. They were fired five years later because there was no pipeline. So it's a huge privilege if you can do the right thing in the long term with the backing of your shareholders.

Excellent question. This idea is in the making. We have done a number of acquisitions in the United States, where the environment allows us to develop these kinds of solutions. That has become a business, not yet profitable, not yet big, but we are heavily investing. If we meet again in a couple of years, and I have in my initial slides a presentation where we have three areas—pharma, diagnostics, and something we internally call 'insights'—too small to get above the surface at this time, I would be very happy. I truly believe for Roche it's an enormous opportunity to bring the synergies together between pharma, diagnostics, and digital. The tech companies go into healthcare a lot, but they lack domain knowledge of how the healthcare system works and depth in disease biology. The diagnostics companies don't seem to care about this question, and pharma companies typically look at it as just another tool for drug development. But if we succeed in building three businesses and bringing the synergies together, that could be a combination that brings us to the next level strategically and allows us to drive even more personalized healthcare and better solutions for patients.

Yeah, it's a very important point. From a pure medical point of view, it's very important to have a diverse group of patients as part of your trial, both for traditional clinical trials and when you analyze real-world data. Diversity is important because regulators will ask if it works in a specific sub-population. That can be gender, ethnic differences, age, etc. It's often a regulatory need, and we are a global company. If you want to go to China and there are no Chinese in the trial, they won't let you launch. If there were no women in the trial, we would get trouble with regulators. There is a big debate now in the pharmaceutical industry about whether diversity is sufficiently high, triggered in the U.S. by Black Lives Matter because minority groups are often underprivileged and have less access to medicine. We have an initiative underway to ensure better diversity for underprivileged populations, and the same is true for emerging markets where healthcare structure makes it harder to conduct trials. It's a very valid question and very relevant for us.

On the one hand, it is really important to protect data security and data privacy in a sensitive area like healthcare. We must build trust with stakeholders and the public. But what I experience, more in Europe than anywhere else, is a lot of irrational, emotional discussion. There is a fear that is not really defined. In the U.S., data is a neutral word, like paper or a chair. In some European countries, data is like the devil coming out of hell. It's seen as a threat, not an opportunity. We have to manage risks, but we should not forgo the opportunities. The reality is if Europe doesn't do it, the Americans and Chinese will do it according to their regulations. I strongly advise European policymakers to have a good framework that is in line with our culture and values, but then enable these new technologies. Otherwise, we will end up like in the tech industry where everyone complains about Google, Microsoft, Apple, Alibaba, Tencent, but we all use them, and Europe has no big tech companies. In healthcare, we still have the opportunity because it's just starting now. Europe has a huge hub of life science industries, know-how, and a good healthcare system. But if we don't speed up, we will miss the boat. The U.S. is already ahead, and China is working hard. So we have to enable it while having a solid framework. As a European, it hurts me; as a company CEO, I go where I can do business—to the U.S. primarily, and we have some projects in China. Europe is losing out, I'm afraid to say.

It's a huge mindset shift. We live in the physical world; we know how to build diagnostics instruments, we have top engineers, biologists, chemists. But if you are a young student and a coder interested in AI and machine learning, who thinks of Roche? You think of Google, Microsoft, the tech players. So it's about positioning ourselves to get the right talent. There are cultural elements: in the pharmaceutical world, we think about proprietary data from clinical trials. We own the data, it's a proprietary model. But when you enter real-world data, you cannot own it; it's owned by the patient, with hospitals and doctors having a say. That requires open platforms and ecosystems, being completely open. That is a huge mental shift. You need the technology and capabilities, but it's also about attitude and how you work with the rest of the world.

I guess this is about traditional Chinese medicine, TCM. We as a company are not directly active in this, but the underlying thought of looking at the human being holistically is the right approach. There are many interdependencies; you cannot just look at one organ. The placebo effect shows we don't know enough and we should be open. On the other hand, we can only bring a medicine to market and convince regulators if we have data. If it's just tradition without scientific insights, it's difficult for us to leverage. It might be simply not true, or we don't yet understand it. Either way, it wouldn't help us bring new solutions to patients. We focus on what you would call traditional medicine. But you should also see that the Chinese are catching up in life sciences, copying the Western world and putting a lot of money into classic data-driven R&D. Traditional Chinese medicine has a cultural role, but the bulk of investment goes into the same R&D we do in Europe and the U.S. So don't underestimate the innovation coming from that part of the world.

I know the background of the question. I would answer in two ways. First, the underlying assumption is that with more targeted medicines, your patient scope gets smaller, so you might develop thousands of medicines for small groups. The concern is that healthcare will become better and better but more expensive. My first answer: a dead patient is the cheapest patient—funeral costs and that's it. Yes, healthcare has a cost, but if we have better solutions, we live longer and hopefully healthier lives. Think about our grandparents' healthcare and life expectancy. You could say it's cheaper if people die earlier, but that's the price of a longer, better life. Society has to decide how much to invest. In the Western world, it's about 12-13% of GDP. I think it's worth it. The last bottleneck in life is health. Spending 15% of GDP on health seems okay to me. What is the value of life? Medicines make up about 10-15% of total healthcare costs, maybe 1-2% of GDP. I think it's worth it. The alternative is shorter lives with less quality. Second, what is often forgotten is that after patents expire, medicines become available forever at very low cost. We need 10 years to develop a medicine, then about 10 years of commercialization. Beyond that, it's a good investment for mankind. But politicians think in 3-4 year cycles. We should not be unwilling to invest in innovation; it benefits our children, just as we benefited from our grandparents' investments. That's my case, but it's a judgment call.

My first answer: for a well-established process with high volumes and standard processes, it's not critical to be close to research. It becomes almost a commodity, and you go where you find the right people at reasonable cost. Where it is critical is in developing a new manufacturing process where cooperation with research is still important. For those early scale-up activities, we have them very close to our R&D sites, like in our research site in San Francisco, and in Basel. It's expensive but worth it. By the way, in Penzberg we also have R&D, so there is synergy. Penzberg is about half an hour from Munich; in America that would be a district of a big city. Munich is an area with a lot of R&D. For routine manufacturing, you can put the factory anywhere.

I would focus on two things. One is curiosity and being open-minded. The world is changing so much; what is true today may not be true tomorrow. You have to adapt and find your way. That requires genuine curiosity and a desire to see and learn different things. Don't be afraid of not specializing too early; explore the world like children do—they ask questions, play, try things. Never lose that curiosity. Second, I experience this almost daily: you have great talent, and there is always a scarcity. When we offer people opportunities, they often have thousands of reasons why they don't take them. It's fear, or lack of courage. When an interesting goal comes up, they have to leave their comfort zone. Taking a leadership role, going international—these can be frightening. When it becomes real, the courage is gone. People make excuses like 'my grandmother is ill.' In reality, it's a lack of courage. You only live once. Hopefully one day you lie on your deathbed, reflect, and regret not taking chances. My strong advice: remain curious and have the courage to put your dreams into action. Give it a chance. If you fail, try again. But if you don't give it a chance, you will never know.

Thank you, Anthony. It was a pleasure to join. Thank you very much, and lots of luck for the next years and all the challenges to come.