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It's a real pleasure today to speak with a friend, Dr. Jeremy Levin. Jeremy has worn so many hats that it would take half of our podcast to describe them.
Maybe that's why it's going to smooth this head a little bit.
A few pertinent ones for today's discussion. He's been CEO of Teva, chairman of BIO, and is the author of a book that I recommend, Biotech in the Balance. For decades, along with leadership positions in large and small biopharma companies, he's challenged the biopharma industry to live up to its ideals, to fulfill the social contract that makes it possible to turn science into medicine.
And so I want to talk to him about the biotech industry and about the future of the biotech industry. But Jeremy, I want to start with something else, something personal. Who are your heroes in biotech and beyond?
In biotech, it's absolutely straightforward. Henry Temian. Henry was not just somebody who was a teacher to me and a mentor, but somebody who actually taught me some fundamental principles that I thoroughly, thoroughly engaged with. And literally brought me in, sat me down, and said, 'There's only one thing that counts, it's passion.' And then having worked with him, I learned a tremendous amount.
Beyond, there are many. I am extraordinarily, incredibly impressed and deeply inspired by President Zelensky. Somebody who I find stands up for commitment, bravery in the face of enormous odds. Nelson Mandela was a total hero to me and my family. We knew him, at least my father knew him. And we supported his ideals and his thinking.
And then when you look beyond that, when that's the sort of social political environment, and there are very few people who stand at the level of these people in the recent history. You then have to turn to some of the patients. Honestly, outside of our industry as a doctor, I've met extraordinary people who've, any number of them. There's a whole patient body, Steve, who every day that you sit with them, whether they're dying and they want to talk to you, or whether they are simply a parent willing to put their child into your hands in a clinical trial or in a medical moment. Those, those are my heroes.
But I think that's, I think that's a good way to start. I think it's a good way to start our discussion, you know, thinking about the patients, thinking about Henri Termeer. I also knew Henri not as well as you did, but, you know, he's one of my heroes also.
So I want to start then with more specific about biotech. So the way I look at it, the success of the American biotech industry rests on four legs. Generous support for basic scientific research, strong IP protections, an independent science-based regulatory system, and pricing that rewards innovation. And maybe a fifth that isn't so specific to life sciences, which is an immigration system that welcomes the best and the brightest to study and work in the United States. How strong are these legs today?
Steve, every single one of those is rattling. Those legs are not firm. They were. And in fact, if you go back, they didn't just appear. They arrived with deep thought starting in 1947 when the NIH was created. And from there, this enormous ecosystem gradually built out. The foundations of it were very, very thoughtful. It wasn't some grand view that there was going to be a biotech industry. There was a grand view that innovation mattered and that America would lead with innovation. And a concept behind that that said, 'This is what we're going to need in order to build it.'
Those legs are all under assault. And they have different reasons for that, but I think we should pick them one by one and ask the questions, 'What is rattling them?' But that's exactly why I wrote the book now. It's exactly why we need to internalize this moment, and it's exactly why we as an industry should stop being self-content and absolutely focus on the possibility that this industry will not look anything like it did today in 5 years' time.
And, you know, one of the things that strikes me, and I alluded to it in my introduction, is that you haven't hesitated to speak out about these issues when you've been at big companies, small companies. But a lot of your peers, especially those in the biggest companies, who are the ones who are the most politically influential, don't speak out.
You know, so a recent example, the Trump administration, to be specific, the OMB director Vought's proposals to politicize and I would say really to just decimate American science. I wrote an editorial calling for the leaders of the biggest multinational pharmaceutical companies to speak out because I think they're the people who have the most influence with President Trump who could overrule this. They didn't. They put out a statement through the trade association PhRMA, which in my view wasn't very bold and didn't meet the moment. Why do you think that others don't speak up? What are the consequences of that?
There are many reasons why each individual doesn't speak up. But at its core, there are really two legs. One, fear of retribution personally, and two, failure to understand their critical role in society. Let me deal with the second of these and then let's go back to the fear.
It is absolutely clear from history that when industrial titans do not speak out at a moment of political change or stress, that in fact they enable, not reduce. They enable the behavior of a leader or an administration that is intent or is by default harming an industry or even a nation. And it means that the industrial titans have failed to understand that they are not shareholder responsive, but in fact they are responsible for stakeholders.
And you're really alluding to the 1930s there.
I definitely am, but not just. You can look across recent changes in Russia. You don't have to go back to the 1930s. You can look what happened in Turkey. Same thing. Turkey, Russia, doesn't matter. Same principle applies across. When titans don't speak up, governments who are dependent upon them for revenues, for taxes, for employment, think that they are complicit.
So, that's one element. And it's a question then of the boards of those companies making a decision whether or not they believe they are part of society and a critical part of it or not. And you can argue in fact this is going to become much more important because while we have three arms of government today, there is an unseen fourth arm, and that is the industrial arm. These giant companies that have the economic power of nations.
And in the absence of a clear decision on the boards that they're going to exercise responsible behavior in a society, you have to ask the question, what is that board's role? What is the CEO's role? And it's not just to shareholders. It's patients, it's families, it's society.
So, number one, I think there's a mistaken understanding of what their role is. Number two is fear. There is little doubt that administrations can be very vindictive. But I would offer you something else. If we do not stand up to that in the courts, then what are we doing? Are we afraid and keeping silent because we don't believe that the courts will defend us? We don't believe in the justice system that we have. Or are we afraid physically?
And as you know, Steve, there have been people who physically threatened me. There have been people who have economically threatened me. And my view on this is this is the price that one pays for being a leader. If you're not a leader and you're afraid to state your views openly and clearly, then you have definitely betrayed your role.
Well, and there's another interpretation, of course, is that they have views that are different from what you think that they ought to be.
And I have another question which kind of follows on that, which is something we talked about a long time ago. I think you wrote something in BioCentury about this in 2016, which was the way that CEOs of large pharma companies are compensated, the formulas that are used to compensate them. You argued back then that it doesn't create an incentive structure that rewards innovation, that rewards the creation of an ecosystem that advances science in the best interests of patients. You still believe that?
100%. Biotech CEOs are incented by equity, by the success of their products. And if their products are successful, if they go through development, they will be rewarded by the equity. They're not rewarded by and large by sales. They're not rewarded by earnings per share. Their entire compensation is about how do you actually get something novel into the market?
If you examine generally the compensation of large company CEOs, the levers that drive their compensation are earnings per share, top line sales growth or maintenance, and sometimes shareholder return over the long term, but mostly over the near term. None of that relates to innovation. Let me walk you through that.
Top line can be achieved by simply price rise. That structure is not carved out in any of the compensation packages of CEOs. Bottom line can be solved extraordinarily simply. You simply buy back some shares. Or if you want to increase the amount of compensation on the bottom line, you can slow down research, cut some costs, and pay out a bigger dividend. This is very straightforward.
There is no incentive for some key elements that are critical to ensure innovation. For example, number one, net new sales of an innovative drug that you've launched. Doesn't happen. Another one, which is incredibly important to sustain yourselves, is increasing the number of patients that are on and retained on your drug. They keep on using your drug. They don't stop at the end of the year. Critically important.
So, my view is very clear. This is what drives many of the large acquisitions that we've seen, endeavoring to keep a top line, endeavoring to keep earnings, and systematically saying, 'Well, we're going to solve for this when we buy another company. We can actually solve for this by so-called synergies.'
This has driven an enormous amount of very good companies to buy all sorts of bad companies or bad proposed bad mergers and result in what we've seen over the years, decades and decades of consolidation, some of which was good 20 years ago, but today represents a direct threat to innovation.
Well, thanks, Jeremy. We're going to take a quick break and we'll be right back. When we get back, we're going to talk about what everybody wants to talk about, China.
