Organizing for breakthrough innovation

Schwan-1Here is a brief excerpt from an interview of Severin Schwan by for the McKinsey Quarterly, published by McKinsey & Company. Schwan talks about Rcohe’s R&D structure, tough decisions, and long-term mind-set. To read the complete interview, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Roche, the worldwide pharmaceutical and diagnostics group based in Basel, Switzerland, has enjoyed an innovation run that would make most other large companies envious. On the back of an impressive record of scientific discoveries, the company is today the acknowledged leader in the industry’s most profitable category, cancer drugs. Over the past decade, its shares have been among the best performing in the sector. CEO Severin Schwan declares that Roche’s continued success will depend on its ability to replenish its pharma and diagnostics pipeline through further innovation breakthroughs. In this wide-ranging interview, he talks with McKinsey partner Joel Claret about how Roche structures its R&D, why he prizes employees who make tough decisions, and what investors with a long-term mind-set bring to the party.

You’ve often said you think of yourself as Roche’s chief innovation officer as much as its CEO. Why is that?

Looking back over the past 100 or more years, all our periods of strongest growth were driven by breakthrough innovations. This started off with medicines like the heart tonic Digalen,1 one of the most important medical innovations of its time. Later—between the two world wars, a time of rising concern about public health—we were the first company to synthesize vitamin C. The ability to make it artificially and in industrial quantities, rather than extracting it from plants, transformed the business in the 1930s. Then in the 1960s, we took a major stride forward by developing benzodiazepines, such as Valium, for the central nervous system. This was a true breakthrough innovation because other anesthetic medicines, at the time, had serious side effects. If you took too much of them, you could die.

Over the past decade, the growth of Roche has come from different areas—new targeted therapies for cancer and biologics. Our US company Genentech was searching for new antibodies when most people in the scientific community did not believe that compounds such as those that became known as Herceptin and Avastin could treat major diseases, like cancer. The emphasis on breakthrough medicines, which has characterized our history, remains core to our strategy today. If we fail in innovation, we fail as a company.

Why do you emphasize science-driven innovation so strongly?

Other companies take a broader approach, encompassing activities such as generics, biosimilars, and over-the-counter products, but we have consciously focused on the most innovative areas of pharmaceuticals and diagnostics. There’s so much potential here. Two-thirds of diseases in the world still can’t be treated, and many others are not treated well. When I became CEO, I thought hard about what makes us distinctive. The first step was to choose which playing field to be on—“soccer” or “basketball”—because I believe it’s hard to be good at both. Then the question quickly becomes “How do you win if you play soccer?” Our differentiation is cutting-edge science. The rest we have to do well, though not necessarily much better than others. But on the dimension of science, we must have a real competitive advantage.

On top of this, I believe our combined capabilities as worldwide leader in diagnostics and the largest biotech company give us an important edge to drive a more personalized form of healthcare. We know that different patient groups react differently to the same medicines. A better understanding of the heterogeneity of diseases—and of the differences in people’s genetic makeup—will be vital to the future of healthcare.

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Here is a direct link to the complete interview.

Joel Claret is a director in McKinsey’s Geneva office. McKinsey Publishing’s Tim Dickson is based in the London office.

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