Richard Barker, President and Chief Executive of Chiron’s Diagnostics Business

Diagnostic Insight, 1998 Interview conducted by Robert Bauer

Richard Barker, who was raised in the suburbs of London, holds an Oxford undergraduate degree in chemistry and a doctorate from that institution in biophysics, with a specialty in magnetic resonance. He began his career in the oil industry and later joined McKinsey, a management consulting firm, where he worked for 13 years, advancing to the position of European practice leader for health care. During his career, he has worked in Asia and most of Europe as well as in the United States. He joined IBM about four years ago, heading its Health Care Solutions business — the sales, marketing, and solution-development activities of IBM in the worldwide health care sector. The business encompassed everything IBM supplied to the sector, from mainframe computers to consulting services and network technology. Key to his role at IBM was developing health-care-specific information solutions, including data networking and voice recognition systems for radiologists. Barker joined Chiron in mid-1996 as president of the corporation's diagnostics business, providing him with an opportunity to lead an enterprise engaged in research, development, manufacturing, marketing, and sales in a wide range of technologies. In running this business, he practices a principle honed at IBM—the importance of creating solutions for customer problems, not simply supplying customers with hardware. "If you think about it, that's what a diagnostic system is -- a health care information solution," Barker explained. "I believe strongly that we need to move our company from being just a very fine product company to one that provides our customers with solutions — solutions that really solve problems rather than simply represent technology breakthroughs," he said. Barker indicated that his organization must also shift in emphasis from selling effectively to a wide range of customers to securing long-term relationships, particularly with its large diversified customers. "I want to create a high-performance organization where the best people are attracted and we advance their careers in exciting ways, and where we encourage people to think globally," he said. "There aren't many organizations — either US or European — that truly think globally, and one of the challenges for my first year at Chiron was to encourage everyone to think of all markets when designing marketing programs and products, rather than thinking from the US outwards." Barker, who lives in Boston, has three grown children living in the United Kingdom — two out of college and one preparing to attend. When he's not on the job, Barker enjoys outdoor activities such as trekking up mountains, kayaking, skiing, and traveling. Besides his responsibilities at Chiron, he has a directorship on a health care information systems company board and is involved in two Massachusetts industry associations. Here, Barker talks about Chiron's upcoming plans as well as happenings within the diagnostic industry.

A Strategy That Integrates Prevention Products, Diagnostics and Therapeutics

Bauer: As the second largest Biotechnology company behind Amgen, Chiron has a very different business profile with fairly large investments in non-therapeutic products. What is Chiron’s general strategy, and how does diagnostics fits into it?

Barker: Ours is a tripartheid strategy, which looks at therapeutics, prevention products such as vaccines, and diagnostics to manage particular disease states. We believe that being involved in all three areas for particular disease states brings us strength that we would not have in just one area. Because we are a science-driven organization, we focus on areas such as infectious and viral diseases, oncology, and cardiology, therefore getting some scientific synergy by incorporating preventative, diagnostic, and therapeutic approaches to the diseases. For example, with Hepatitis C, we are working in all of those areas to tackle a disease that in fact Chiron was the first to identify -- the non-A, non-B Hepatitis C. Linking the tripartheid logic to basic science holds the three businesses together.

I think that in the past Chiron has sometimes spread its wings too far. In the vision products business, for example, which we sold in late October, we believed that our science would give us some advantage, but in fact it was not a reason to be in that downstream, broad-based business. Recognizing that, we sold it. We are trimming the portfolio, but the core of the portfolio is involvement in diagnostics, vaccines, and therapeutics.

Bauer: Are there other significant synergies other than R & D to be realized from this approach?

Barker: Yes. There are some particular synergies at the sales level. For instance, when we call on HIV physicians we can talk to them about the potential of some of our immunological therapeutics and diagnostic products. When we call on oncologists we can talk about bone and breast cancer markers that we make diagnostically as well as the Arida™ anti-cancer drug that we market on behalf of Novartis. We can also build a common global infrastructure to support a series of businesses. We have a substantial diagnostics business in Japan -- it makes it that much easier to jump-start our new products in other areas.

Evolution in DNA and RNA Technology for the Detection of Viruses

Bauer: Chiron's Branched DNA probe products are selling at an annualized run rate in excess of $50 million and sales almost doubled from the first to second quarter 1997. There’s a lot of discussion in the industry about the sensitivity advantages of amplified probes vs. the practical advantages of the non-amplified probes. How does Chiron see this market evolving?

Barker: I believe that we have seen a lot of evolution in technologies for the detection of viruses using DNA and RNA -- and we’ll see a lot more evolution. With our DNA technology, we have taken the sensitivity from 10,000 viral copies to our new product that will arrive early in the new year with the ability to detect 20,000-50,000 copies. At the same time, PCR and target amplification have advanced rapidly and Roche has invested very heavily in that process.

If I look ahead, we will need both technologies in one form or another and we will need them in ways that can be readily automated to take the labor intensity out of processes of viral load and other gene probe measurements. Many would like to believe that it’s the underlying chemistry that's important, but in fact, users usually don’t care about that -- they want an accurate result quickly. The winning companies will be the ones that are there first with a well-automated, user-friendly, information-integrated solution -- and that's where we're putting our investments.

Chiron's Immunodiagnostic Business

Bauer: Chiron's new Centaur™ System is a major advance for the company in immunoassay automation. This market segment has historically been Abbott's stronghold. What are the keys to competing against Abbott in the long term?

Barker: The Centaur will be the highest-throughput, most automated immunoassay system that exists. It will take immunoassay into the same level of automation as chemistry. I think it’s a major step forward in that respect. We've placed some instruments with customers, and the high-throughput laboratories already are very enthusiastic about both the throughput and the potential breadth of menu. Competing against Abbott requires us to be fast, because we believe we have a lead on the new generation of Abbott instruments -- the Architect line. We’ll also build on the reputation that Chiron, and Ciba-Corning before it, had for great, solid customer relationships and quality instrumentation, as well as high levels of technical support and service.

Customers in immunodiagnostics want a choice -- they don’t want to have only one place to go for the core of their immunodiagnostic needs. With the Centaur™ not only do they have a choice, but they have a choice of capabilities not available anywhere else.

Chiron's Point of Care Testing Business

Bauer: Chiron has a significant business in Point of Care and continues to invest with products like RapidLink™ Information Systems. Yet, the company sold its interest in the Biotrack coagulation product line a couple of years ago. What's your opinion of the coagulation point of care market?

Barker: The company learned a lot from its former investment in Biotrack. It learned the key differences that exist between point-of-care markets and laboratory markets in terms of who the customers are, what they want, and the kinds of people needed to market these products. I don’t think we will make the same mistake twice. We are bringing critical care specialists into our Rapid Link and Rapid Point marketing programs so we can relate as well to the clinical decision makers as we have to the laboratory decision makers.

The trick is not taking just anything to point of care -- the trick is taking those analytes that have real time differentiation, real urgency. We've already begun blood gases, sodium potassium, blood electrolytes, metabolites like lactate and glucose. But close behind those we have cardiac markers; when someone presents in the emergency room with chest pain, it’s time critical to know whether the person has had a heart attack or bad indigestion. We’ll be bringing to market instruments with the capability to assess that. I also think there will be other coagulation-based tests.

Bauer: Chiron has been very active in the area of therametrics, using a diagnostics as a metric for the selection of patients, the management of the course of treatment, and so on. Where do you think we’ll see initial breakthroughs in "therametrics?

Cancer Markers, Genomic Technology and Pharmacogenetics

Barker: We've had minor breakthroughs -- viruses and cancer markers that were discovered. I think the next major breakthrough will come in two principal areas. The first is taking some of the established technologies to the point of care, so that physicians get responses within minutes or even seconds rather than sending tests to labs overnight. This will be gated by the readiness of physicians and other clinical staff to use such instruments on an ongoing basis. We're investing heavily in this with our rapid point-of-care instrument.

The second major area is opening the potential of genomic technology in diagnostics. We are already beginning to see very exciting markers emerge that compare, side by side, the genetic and biochemical situation in a tumor vs. normal tissue of the same type. You get a lot of very rich information that will lead inevitably to new markers that will enable us to identify cancers earlier in the course of disease.

Bauer: Will therametrics emerge as a way to differentiate or direct therapy toward specific drugs?

Barker: Absolutely. I think there is substance behind the idea of pharmacogenetics. I don’t have any doubt that we are going to be able to pinpoint the use of certain drugs because of information that we get on the genetic patent and predisposition of patients. It may be five years before we have a lot of impact to this but I think it will be relatively soon.

Chiron's R&D Investment, Development Partnerships, and IVD Product Distribution

Bauer: Chiron's product lines are investment and capital intensive. As an organization, how do you keep from diluting your investments?

Barker: All of our businesses are investment-intensive, and the diagnostics business is capital-intensive, because we not only have to design and build major pieces of capital equipment but also finance them in the hands of customers under the reagent rental agreement. I think that requires us to increasingly focus our future product-development activities -- whether that be a chemical entity or a diagnostic system. We are in the process of refining our R & D portfolio to accomplish that. Chiron spends more than $400 million a year on R & D, a ratio that few other companies have been able to sustain. We're seeking to concentrate on areas of real differentiation -- in diagnostics, that means being leaders in automated viral load measurement; particular infectious, oncology, and cardiac panels in immunodiagnostics; and specific point-of-care systems in our critical care arena.

Bauer: One of the notable points about Chiron is that it has a number of different pathways into the diagnostics market -- partnerships with Ortho, direct product distribution, and now a POL distribution agreement with Polestar. What would you say is Chiron’s distribution philosophy?

Barker: Within the diagnostics business it is to take market-leading products to market ourselves. But what is needed to do that is changing around the world: customers are consolidating, major buying groups are emerging, regional health systems are beginning to dominate the U.S. marketplace. Increasingly, taking products to market ourselves means building relationships with these very large health care institutions in an account-management method. Over time, it will become less and less important to have a very large sales force calling on all of the potential outlets. We are in the process of transitioning to a more concentrated model of what marketing is about in diagnostics.

I'd say we are a direct sales organization, but from time to time it’s sensible for us to have somebody else take a product to market. When the Ortho / J & J joint business that we have in blood screening was created in 1989, Chiron didn't have its own diagnostics organization of any scale so it made sense to partner with J & J. The next time we're in a situation such as that it may make more sense to take that product to market ourselves.

Consolidation of In Vitro Diagnostic Manufacturers

Bauer: With the recent Beckman-Coulter, Roche-BMC acquisitions, the market leaders are getting bigger, but we don’t see a lot of reduction in industry capacity. We still have the same number of major competitors in chemistry, hematology, and other areas, and profit margins are reasonably tight. Where do you see the industry going from here?

Barker: There will be a small handful of broad-line majors in diagnostics, and we intend to be one of those. There will be the constant creation of new diagnostic companies that will bring particular markers or point-of-care products to market. There may not be a decrease in the number of total diagnostics companies, but I think at the high investment-intensive end we've seem quite a rapid concentration. Although there may still be a lot of instruments out there, over time a Dade-Behring will have only one chemistry instrument, a Roche-Boehringer will have one narrow line of chemistry instruments. But unfortunately, if you have commoditized a segment, it is very difficult to ‘decommoditize’ it. In chemistry the plan has been very effective in reducing costs to a few cents per test, which is great for the customers but not that good for return on investment. The trick is to have scale but to focus your R & D investments on areas of uniqueness or differentiation, and that's what Chiron is seeking to do.

Bauer: Some recent acquisitions have brought diagnostic and pharmaceutical businesses together. It wasn't that long ago that we saw pharmaceutical companies getting out of their diagnostic interests. Are there benefits to pharmaceutical and diagnostics companies joining forces?

Barker: This synergy between diagnostics and therapeutics is now becoming a reality, so pharmaceutical companies are saying, ‘We need access to the diagnostics business.’ Some of them do that very selectively, by individual agreement for particular products; some have done it in a fairly wholehearted way, such as Roche’s acquisition of Boehringer Mannheim. The dilemma is that if you buy a very large diagnostics company, you buy a lot of capital-investment needs and a commercial infrastructure that is different than the therapeutic infrastructure. Therefore, you're buying a lot for the therametric concept but I believe it is a move in the right direction that should result, over time, in a more specialist, higher-value-added mentality in diagnostics.

For too many years, diagnostics companies left to themselves focused almost exclusively on developing broad-menu, high-throughput instrument systems. But that's only a piece of what diagnostics ought to be thinking about -- it should be thinking about the impact of those measurements on the effectiveness and economics of health care. Perhaps in the hands of pharmaceutical companies we’ll see that shift, and pharmaceutical companies will be more interested in how the diagnostic guides the process of therapy. Maybe we will see some higher-value products and pricing approaches.

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