Fruitful and Prosperous

EVERYONE KNOWS THAT ROCHE WAS, AND ARGUABLY STILL is, the driver of Genentech's success. But not everyone knows that Roche owns a majority stake in the biotech behemoth, as it does in Japanese powerhouse Chugai. And that's by design. Roche's management has long held that the best way to derive good and lasting results from its smaller partners is to let them do what they do best and leave them alone while they do it. That philosophy has served them well, especially when revenues of some of their codeveloped and comarketed blockbuster products are considered. Just two, Genentech's Herceptin (trastuzumab) and Chugai's Epogin (epoetin beta), have earned billions.

Peter Hug is global head of pharma partnering at Roche’s headquarters in Basel, Switzerland.

Roche's business model continues to emphasize strategic partnering to boost its R&D and global marketing efforts. The company is particularly proud of its continuing relationship with Memory Pharmaceuticals, which specializes in developing therapies for neurological and psychiatric disorders such as Alzheimer's disease and schizophrenia. In this Q&A, two leaders share their visions of what has made their alliance so successful.

Q What is the most important thing your partner is doing to make the alliance work?

Hug

Memory is giving the compounds the very best chance of success. Its excellent development process and expertise in CNS allows us to have trust and faith in its work. Memory is aware that the trust is there, and this is very important for making the alliance work. Each side can feel confident and positive about the alliance and its potential. Memory is very open and communicative. This ensures that any issues are brought out early and up-front so they can be dealt with quickly. Memory shares our philosophy on partnership. This means that we know each side is genuinely acting in good faith and that every action taken will be for the benefit of the collaboration. At the prediligence meeting, it emerged that Memory shared our philosophy on rigorous testing and analysis at all stages of development.

Gardiner Smith is vice-president of business development at Memory Pharmaceuticals in Montvale, New Jersey.

Smith Roche has consistently delivered on its commitments to our alliance, which is based on the development of two CNS drug targets. The commitment starts with Roche dedicating scientists and business staff to support the progression of Memory's novel compounds. Roche has a long-standing presence and deep expertise in the CNS field. Access to Roche's people and extensive R&D infrastructure complements the capabilities that Memory brings to the alliance. In addition, the Roche commitment importantly includes providing the financial resources required for joint R&D efforts. In these agreements, Roche concentrates on thoroughness and flexibility to ensure that we are able to generate the novel molecular approaches and robust data needed to move products forward. Roche has also built a leading business development and alliance management group. This enhanced aspect of its commitment greatly benefits operational processes, from initial negotiations to product development and through to commercial considerations. What's notable about the alliance is that both companies have approached the collaborative activities with a spirit of openness, and they are willing to put in the extra effort to resolve technical and business issues in a timely manner. In a business that is regulated by technical complexity and patent life, it is critical to have consistent support, progress and rapid problem-solving to maintain a competitive advantage.

For example, in our 2002 PDE4 collaboration for indications including Alzheimer's disease and depression, Roche provides up-front payments, R&D support, and potential milestone payments and royalties on worldwide sales. Research activities under this agreement were extended and expanded in August for an additional two years to continue work on new compounds and new indications. In September 2003 we announced a second deal with Roche for the nicotinic alpha-7 target, initially addressing schizophrenia and Alzheimer's disease. This agreement includes licensing fees, R&D support, potential milestones, and royalties and an option for Memory to co-promote in the United States. In conjunction with the agreement, Roche made a strategic equity investment in Memory. Both agreements are governed by a matrix approach of informal and formal information systems, making communication a priority. Roche's commitment of global pharmaceutical capabilities to the alliance is an excellent fit with the Memory strategy.

Q What is the most important thing you’re doing?

Hug

We are approaching the partnership with a "light touch." This is a philosophy we use in the way we manage our alliances around the world. What this means is that we allow our partners the space and autonomy to pursue their goals while adding our support and expertise where it is needed. In this case, we structured the deal so that Memory is responsible for the development of the nicotinic alpha-7 compounds through to Phase II a. This aspect of the alliance works for both partners: the risk is balanced for each side, and Memory is able to further enhance and develop its own infrastructure. The knowledge that each side is winning in this alliance means everyone can feel very positive and enthusiastic about it and feel determined to make it work. We ensure that the channels of communication are always open. There are no surprises, and we ensure absolute transparency. It helps that we have excellent chemistry between our people and theirs. We also have a communications framework in place that includes close and regular contact among alliance directors, project teams, and oversight committees, for example.

Smith Memory brings a focus and entrepreneurial drive to discovering and then developing novel compounds for the treatment of a broad range of CNS conditions that exhibit significant impairment of memory and other cognitive functions. The CNS impairments range from neurological diseases associated with aging, such as Alzheimer's disease, vascular dementia and mild cognitive impairment, to psychiatric disorders such as depression and schizophrenia.

Although therapies for treating Alzheimer's disease, depression and schizophrenia have been available for a number of years, many of the approved drugs for these disorders are not effective in a large number of patients and can produce significant side effects. Our CNS drug candidates are designed to address biological targets within the cellular pathways that we believe are critically involved in memory formation and other cognitive functions. The relative specificity of these biological targets provides an opportunity to develop drugs with reduced side effect profiles. Our drug discovery programs are designed to yield effective and safe drug candidates in a shorter time frame relative to industry norms. By performing benchmark safety and efficacy tests early in the process and only advancing the most promising drug candidates, we believe that we are able to accelerate the overall drug development time line and provide higher-quality drug candidates.

We are able to bring novel drug candidates to our Roche alliance through the efforts of our interdisciplinary drug discovery and development approach. Our target screening, CNS chemistry, behavior, preclinical development and information technology departments are headed by accomplished pharmaceutical scientists working together in a single facility. The teams are driven by the high growth requirements of a biopharmaceutical company, in which achievement of R&D milestones is linked closely to the company's success.

We put an emphasis on communication and decision-making processes with our partner, to enable the alliance to benefit fully from Memory's R&D capabilities. Using a variety of real-time information formats, Memory and Roche address the key issues and share current thinking. Optimal coordination of the resources and assets in true partnership is a key factor for success in the alliance.

Q What’s the biggest challenge your company presents to your partner?

Hug

Whenever Big Pharma works with a developing biotech company, there are the issues of bringing together two companies of very different size and culture. The smaller company will have a sense of urgency, sometimes to which a bigger company, with its various processes, might not be able to respond. What eases the challenge in our case is that the management team at Memory has Big Pharma experience, so they're aware of the way we operate. In turn, it's good for us to respond to this sense of urgency. We believe that the challenges of bringing together different cultures creates a really dynamic and beneficial partnership.

Smith Memory brings a vision, an organization and a unique capability to address some of the largest and fastest-growing markets in medicine. According to the WHO, more than 180 million people worldwide suffer from CNS disorders that exhibit significant impairment of memory and other cognitive functions. These disorders include neurological diseases associated with aging, such as Alzheimer's disease, vascular dementia and MCI, and certain psychiatric diseases, including depression and schizophrenia. The cognitive deficits associated with these disorders result in symptoms ranging from mild impairment of short-term and long-term memory to the inability to engage in cogent conversation and perform routine tasks. We expect the market for drugs treating these diseases to grow significantly over the next several decades as the baby boomer generation ages, life expectancies increase, and improved drugs and diagnostic techniques become available.

The challenge for Memory and Roche is to do everything we can to dedicate the right people and resources to our projects through the preclinical and clinical drug development cycle, to offer improved CNS medicines to patients.

Q What is it about your relationship with this partner that leads you to believe it’s better than merging?

Hug

We don't believe that mergers are what necessarily create value. A merger was not appropriate in this case. Our approach to innovation is based on the belief that bigger is not necessarily better. Mergers can stifle innovation, and our aim obviously is to allow it to flourish. We have such faith in Memory's capabilities that we believe a strategic approach is much better. This ensures that we keep its entrepreneurial spirit alive and allow the company to develop its own capabilities as is wishes. We are creating a high-growth environment in this way, and Roche benefits as Memory becomes more innovative. Memory gains excellent validation of its business model, and it is free to partner with other companies. That means that we, in turn, gain access to a wider hub of innovation.

Smith It is our policy not to comment on matters like this.