Sally Smith HughesGenentech: The Beginnings of Biotech (Synthesis)

My reading of Genentech follows my reading Science lessons abotu Amgen and this is a review I published elsewhere (my blog) os apologies for any inconsistency...I have to admit I had never heard of the Bancroft Library’s website (http://bancroft.berkeley.edu/ROHO/pro...) for the Program in Bioscience and Biotechnology Studies, “which centerpiece is a continually expanding oral history collection on bioscience and biotechnology [with ] in-depth, fully searchable interviews with basic biological scientists from numerous disciplines; with scientists, executives, attorneys, and others from the biotechnology industry.”The invention of new research and business practices over a very short periodSwanson was captivated: “This idea [of genetic engineering] is absolutely fantastic; it is revolutionary; it will change the world; it’s the most important thing I have ever heard.” [… But Swanson was nearly alone.] “Cetus was not alone in its hesitation regarding the industrial application of recombinant DNA technology. Pharmaceutical and chemical corporations, conservative institutions at heart, also had reservations.” [Page 32] “Whatever practical applications I could see for recombinant DNA… were five to ten years away, and, therefore, there was no rush to get started, from a scientific point of view.” [Page 32] “I always maintain” Boyer reminisced, “that the best attribute we had was our naïveté… I think if we had known about all the problems we were going to encounter, we would have thought twice about starting… Naïveté was the extra added ingredient in biotechnology.” [Page 36]The book shows the importance of scientific collaborations. Not just Boyer at UCSF but for example with a hospital in Los Angeles. A license was signed with City of Hope Hospital with a 2% royalty on sales on products based on the licensed technology. “[…] negotiated an agreement between Genentech and City of Hope that gave Genentech exclusive ownership of any and all patents based on the work and paid the medical center a 2 percent royalty on sales of products arising from the research.” [Page 57]Even if in 2000, City of Hope had received $285M in royalties, it was not happy with the outcome. After many trials, the California Supreme Court in 2008 awarded another $300M to City of Hope. So the book shows that these collaborations gave also much legal litigation. [Page 58]In a few years, Genentech could synthesize somatostatin, insulin, human growth hormone and interferon. It is fascinating to read how intense, uncertain, stressful these years were for Swanson, Perkins, Boyer and the small group of Genentech employees and academic partners (Goeddel, Kleid, Heyneker, Seeburg, Riggs, Itakura, Crea), in part because of the emerging competition from other start-ups (Biogen, Chiron) and academic labs (Harvard, UCSF).“On August 25, 1978 – four days after Goeddel’s insulin chain-joining feat – the two parties signed a multimillion-dollar, twenty-year research and development agreement. For an upfront licensing fee of $500,000, Lilly got what it wanted: exclusive worldwide rights to manufacture and market human insulin using Genentech’s technology. Genentech was to receive 6 percent royalties and City of Hope 2 percent royalties on product sales.” [Page 94] They managed to negotiate a contractual condition limiting Lilly’s use of Genentech’s engineered bacteria to the manufacture of recombinant insulin alone. The technology would remain Genentech’s property, or so they expected. As it turned out, the contract, and that clause in particular, became a basis for a prolonged litigation. In 1990, the courts awarded Genentech over $150 million in a decision determining that Lilly had violated the 1978 contract by using a component of Genentech’s insulin technology in making its own human growth hormone product. [Page 95] Perkins believed that the 8 percent royalty rate was unusually high, at a time when royalties on pharmaceutical products were along the lines of 3 or 4 percent. “It was kind of exorbitant royalty, but we agreed anyway – Lilly was anxious to be first (with human insulin)” […]The big company – small company template that Genentech and Lilly promulgated in molecular biology would become a prominent organizational form in a coming biotechnology industry. [Page 97]The invention of a new cultureYoung as Swanson was, he kept everyone focused on product-oriented research. He continued to have scant tolerance for spending time, effort, and money on research not tied directly to producing marketable products. “We were interested in making something usable that you could turn into a drug, inject in humans, take to clinical trials.” A few year before his premature death, Swanson remarked, “I think one of the things I did best in those days was to keep us very focused on making a product.“ His goal-directed management style differed markedly from that of Genentech’s close competitors. [Page 129]But at the same time Boyer would guarantee a high quality research level by encouraging employees to write the best possible scientific articles. This guaranteed the reputation of Genentech in the academic world.A culture was taking shape at Genentech that had no exact counterpart in industry or academia. The high-tech firms in Silicon Valley and along Route 128 in Massachusetts shared its emphasis on innovation, fast-moving research, and intellectual property creation and protection. But the electronics and computer industries, and every other industrial sector for that matter, lacked the close, significant, and sustained ties with university research that Genentech drew upon from the start and that continue to define the biotechnology industry of today. Virtually every element in the company’s research endeavor – from its scientists to its intellectual and technological foundations – had originated in decade upon decade of accumulated basic-science knowledge generated in academic labs. […] At Boyer’s insistence, the scientists were encouraged to publish and engage in the wide community of science. [Page 131]But academic values had to accommodate corporate realities: at Swanson’s insistence, research was to lead to strong patents, marketable products, and profit. Genentech’s culture was in short a hybrid of academic values brought in line with commercial objectives and practices. [Page 132]Swanson was the supportive but insistent slave driver, urging on employees beyond their perceived limits: “Bob wanted everything. He would say, If you don’t have more things on your plate than you can accomplish, then you’re not trying hard enough. He wanted you to have a large enough list that you couldn’t possibly get everything done, and yet he wanted you to try.” […] Fledging start-ups pitted against pharmaceutical giants could compete mainly by being more innovative, aggressive, and fleet of foot. Early Genentech had those attributes in spades. Swanson expected – demanded – a lot of everyone. His attitude was as Roberto Crea recalled: “Go get it; be there first; we have to beat everybody else… We were small, undercapitalized, and relatively unknown to the world. We had to perform better than anybody else to gain legitimacy in the new industry. Once we did, we wanted to maintain leadership.” […] As Perkins said “Bob would never be accused of lacking a sense of urgency. “ […] Even Ullrich, despite European discomfort with raucous American behavior, admitted to being seduced by Genentech’s unswervingly committed, can-do culture. [Page 133]New exit strategiesInitially Kleiner thought Genentech would be acquired by a major pharma company. It was just a question of when. He approached Johnson and Johnson and “floated the idea of a purchase price of $80 million. The offer fell flat. Fred Middleton [Genentech’s VP of finance], present at the negotiations, speculated that J&J didn’t have “a clue about what to do with this [recombinant DNA] technology – certainly didn’t know what it was worth. They couldn’t fit it in a Band-Aid mold”. J&J executives were unsure how to value Genentech, there being no standard for comparison or history of earnings.” [Page 140]Perkins and Swanson made one more attempt to sell Genentech. Late in 1979, Perkins, Swanson, Kiley and Middleton boarded a plane for Indianapolis to meet with Eli Lilly’s CEO and others in top management. Perkins suggested a selling price of $100 million. Middleton’s view is that Lilly was hamstrung by a conservative “not invented here” mentality, an opinion supported by the drug firm’s reputation for relying primarily on internal research and only reluctantly on outside contracts. The company’s technology was too novel, too experimental, too unconventional for a conservative pharmaceutical industry to adopt whole-heartedly. [Page 141]When Genentech successfully developed interferon, a new opportunity happened. Interferon had been discovered in 1957 and thought to prevent virus infection. In November 1978, Swanson signed a confidential letter of intent with Hoffmann – La Roche and a formal agreement in January 1980. They were also lucky: “Heyneker and a colleague attended a scientific meeting in which the speaker – to everyone’s astonishment given the field’s intense competitiveness – projected a slide of a partial sequence of fibroblast interferon. They telephoned the information to Goeddel, who instantly relay the sequence order to Crea. […] Crea started to construct the required probes. […] Goeddel constructed a “library” of thousands upon thousands of bacterial cells, seeking ones with interferon gene. Using the partial sequence Pestka retrieved, Goeddel cloned full-length DNA sequences for both fibroblast and leukocyte interferon. […] In June 1980, after filing patent protection, Genentech announced the production in collaboration with Roche.” [Page 145] Genentech could consider going public and after another fight between Perkins and Swanson, Genentech decided to do so. Perkins had seen that the year 1980 was perfect for financing biotech companies through a public offering but Swanson saw the challenges this would mean for a young company with nearly no revenue or product.New role modelsThe 1980-81 period would see the creation of a fleet of entrepreneurial biology-based companies – Amgen, Chiron, Calgene, Molecular Genetics, Integrated Genetics, and firms of a lesser note – all inspired by Genentech’s example of a new organizational model for biological and pharmaceutical research. Before the IPO window closed in 1983, eleven biotech companies in addition to Genentech and Cetus, had gone public*. […] But not only institutions were transformed. Genentech’s IPO transformed Herb Boyer, the small-town guy of blue-collar origins, into molecular biology’s first industrial multimillionaire. For admiring scientists laboring at meager academic salaries in relative obscurity, he became a conspicuous inspiration for their own research might be reoriented and their reputation enhanced. If unassuming Herb – just a guy from Pittsburgh, as a colleague observed – could found a successful company with all the rewards and renown that entailed, why couldn’t they? [Page 161]*: According to one source, the companies staging IPO were Genetic Systems, Ribi Immunochem, Genome Therapeutics, Centocor, Bio-Technology General, California Biotechnology, Immunex, Amgen, Biogen, Chiron, and Immunomedics. (Robbins-Roth, From Alchemy To Ipo: The Business Of Biotechnology)

“Genentech: The Beginnings of Biotech,” by Sally Smith Hughes, University of Chicago Press, Chicago, 2011. This 213-page paperback tells the story of Genentech, the best known of the early biotech companies. The story begins in 1976 when Herbert Boyer, professor of microbiology at Univ of California San Francisco and Robert Swanson, an unemployed venture capitalist, founded the company to exploit newly discovered recombinant DNA technology. That made it possible to manufacture human insulin, human growth hormone, and interferon in a fermentation tank. The stock became a darling on Wall Street.Hughes begins with the background of inventors Boyer and Stanley Norman Cohen. Boyer is from Derry, PA. He majored in biology and chemistry at St. Vincent College in Latrobe, PA. He wanted to attend medical school, but was not admitted. Instead he did graduate work in bacteriology at Univ of Pittsburgh receiving a PhD in 1963. He did post doctoral work in microbiology at Yale. He became interested in restriction enzymes that could sever DNA.Cohen is from Perth Amboy, NJ. He attended Rutgers University and then medical school at University of Pennsylvania. He did an internship at National Institutes of Health. He post doced at Albert Einstein College of Medicine in New York. He studied plasmids. He accepted a position as Asst Professor at Stanford in its clinical Div of Hematology. He was not part of the biochemistry department but was a frequent visitor.Boyer became Asst Professor at UC San Francisco. His lab isolated EcoRI, a restriction enzyme that cut DNA predictably. He was invited to a conference in Honolulu organized by Cohen to discuss plasmids. They realized the potential to use EcoRI to sever plasmids, insert genes and then incorporate them into bacteria. They agreed to collaborate. The first experiment was completed in March, 1973. The technique was extended to other genes beginning with a frog gene.Stanford became interested in patenting the technology after Cohen shared possible uses in a New York Times article. Patents on biologicals was a new idea but the inventors and their universities decided to try. Patent applications were filed in November. Next came discussion of the bio-hazzards and its possible misuse. The National Academy of Sciences called for a moratorium on some recombinant DNA research.The two inventors soon went their separate ways. Cetus Corporation offered Cohen a position on their scientific advisory board. Boyer continued his research and considered possible uses including synthesis of hormones and enzymes. He approached several drug firms but found little interest.Robert Swanson was born in Brooklyn, NY, but grew up in Florida. He majored in chemistry at MIT. He entered a graduate business program at Sloan School of Management and received a joint degree in chemistry and a master of science in management. He joined Citibank’s venture capital unit in San Francisco. He moved to Kleiner & Perkins, a venture capital firm. They invested in Cetus where Swanson learned of recombinant DNA technology, but K&P didn’t see the potential. They advised Swanson to seek employment elsewhere. From cold calling he found Boyer who thought his venture capital ideas interesting. They formed a partnership. Swanson set out to identify small protein hormones of interest. Insulin was soon identified as a target. Swanson put together a business plan and presented it to K&P. They agreed to invest $100K in start-up funds. In short order Genentech was incorporated, April 7, 1976. Meanwhile, Boyer moved to the Dept of Biochemistry and was promoted to full professor in July, 1976. Next Genentech approached Stanford’s technology office for a license under their patent (when or if issued) for 4000 shares of stock, but the university refused an exclusive license.Work on insulin proceeded in steps. The technology was extended first with synthetic DNA, then with somatostatin. The research was done in Boyer’s lab and at City of Hope funded by Genentech. UC got title to any patents and received royalties for products sold. Genentech got exclusive license under the patents and paid royalties. A similar agreement followed at Cal Tech. Synthetic DNA fragments for somatostatin were purified by newly developed high performance liquid chromatography.An initial experiment for insulin produced no product. They surmised that bacterial enzymes had destroyed it as produced. Next they coupled product to a larger bacterial protein. The City of Hope team succeeded in August, 1977. The work was announced on Dec 2 after publication was accepted by Science magazine. Pharmaceutical companies soon began projects. The ethics of Genentech research done under contract in Boyer’s university lab was questioned.Genentech contacted pharmaceutical companies for possible development contracts. Novo Industri, an insulin supplier in Denmark considered the venture but declined. So did Hoechst in Germany. Eli Lilly with 80% share of the insulin business in the North America was interested but cautious. To engage the best scientists (who might be reluctant to leave academia) they preferred alliances with universities. In May 1976, they sponsored a symposium on genetic engineering of insulin and concluded that Harvard and UCSF were the leaders.After a third round of financing, Genentech set up its own research labs south of San Francisco. Their first scientist was a fermentation expert from Squibb hired as VP of manufacturing. Tenured faculty were unlikely to accept but post docs were hired. Key scientists were signed to consulting agreements that included stock as compensation.At Harvard, Wally Gilbert’s group was a competitor working on insulin, but their work was delayed when the Cambridge City Council issued a moratorium for fear of bio-hazzards. He resumed work and was rumored to have insulin but it was rat insulin. Lilly attempted to license his technology but instead it went to Biogen. Bio-hazzard labs suitable for DNA work were few. Gilbert’s group used the British military lab but due to contamination made rat insulin.Genentech avoided this problem by coupling insulin precursors to other proteins making the product inactive until cleaved. Four days after coupling the precursors, Lilly signed an exclusive licensing agreement. Soon it was learned that Lilly had also signed an agreement with UC for human insulin and human growth hormone–covering their bases. A press conference soon followed and the flood gates were opened. The Lilly contract required Genentech to reach a series of milestones to continue the contract. By the end of 1978, Genentech had 26 employees including administrative staff and technicians.Competitors entered the race for profitable products. Monsanto bought stock in Genex; International Nickel and Schering-Plough in Biogen. Lubrizol invested in Genentech and joined the board. An article in Nature named players as Cetus, Genentech, Biogen, Genex, and Bethesda Research Labs. Others soon followed including Hybritech and Chiron.Human growth hormone used to treat dwarfism was next. KabiVitrum, owned by the Swedish govt was the only supplier. It was extracted from the pituitary gland of human cadavers making it rare and costly. Kabi signed a letter of intent with Genentech in Dec, 1977 followed by a research agreement in 1978, three weeks before the Lilly contract for insulin. Work began immediately but issues of material ownership developed. Purity of the Kaba product was a limitation. Success demonstrated the broad utility of the Genentech technology. Genentech also decided to become a drug company developing and marketing its own products.In 1980, Genentech got a license from Kabi to sell recombinant growth hormone in the US. Improving the yield of insulin and growth hormone became a priority. Scale increased and NIH guidelines limiting volumes were revised. FDA approved Humulin insulin in Oct, 1982. In 1990, Hoffman-LaRoche acquired 60% of Genentech. The company became well known for its very personal management style. That included Friday afternoon “Ho-hos” where employees enjoyed a glass of beer and took time to mingle and relax. Women noted Genentech was very macho in style. No prank too outrageous, no poker bet too high, no woman part of the inner circle. A place with pinups on the walls.A chapter describes taking the company stock public. In August, 1979, EF Hutton arranged a seminar on biotechnology including talks from Genentech, Cetus, Biogen, and Genex. It was well attended mostly by institutional investors. A govt report estimated that 100 companies were considering DNA projects. “Biomania” followed. To encourage investment, in 1978 Congress reduced taxes on long-term capital gains and allowed pension funds to invest in higher risk ventures. As people became more comfortable with DNA technology, NIH relaxed its guidelines and worries about govt regulations faded.K&P considered exit strategies so their investors could cash out. The company was offered to Johnson & Johnson and Eli Lilly but neither was willing to buy. Next choice was a public stock offering. An agreement was signed with Hoffmann-LaRoche to develop a method for interferon, a potential cancer treatment drug. Roche would be responsible for marketing. Soon Biogen announced a competitive product, but controversy over use of a university lab followed. Genentech continued their work and made both fibroblast and leukocyte interferons. In spite of investor excitement, the products failed to become miracle cures. The family of interferons proved large. Some became orphan drugs but they were not blockbusters.Although K&P was eager to take the company public, they had to wait for profits. Finally the Supreme Court ruled in June 1980 that bio-organisms could be patented. In 1980 Univ of California sued Genentech for patent infringement. The suit might have blocked Genentech’s IPO, but they settled for a payment of $350K. The SEC accepted the company prospectus and set the price at $35/share and Oct 14, 1980 as the date for one million shares–later raised to 1.1 million shares (after a dust up over info disclosed during the silent period). On opening day, the price peaked at $89. On Dec 2, the patent for the Genentech process was issued. By 1983, eleven other biotech companies had IPOed.Genentech became the model for biotech companies; many followed the same path. But insulin and growth hormone proved to be the low hanging fruit. Investors expected steady growth but additional products proved difficult to make profits on schedule. Swanson was forced out. In 1990, Hoffman La Roche rescued the company with a 60% buyout and an option to buy the rest.Those interested in biotechnology as investors or as future professionals will find this an informative read. Its presentation is moderately technical. You learn the names of early players, the importance of training at the best universities and landing a post doctural fellowship in one of those labs. Investors learn much of the opportunity and the risk. Now we have crysper technology that further advances the opportunities. DNA science remains one of the most attractive fields for future scientists and investors.

Loved reading this book. It's quite remarkable to hear the inside story for such a modern-day behemoth. Humble beginnings indeed!Highly recommend to any aspiring biotech founder as well as anyone interested in science who loves a riveting read.

The story of Genentech is pretty astounding. I have followed this company for a number of years. This company warranted the book, duly named. It was somewhat sensationalized, but easy to read and understand, even for someone with no ties or connection to the industry. I literally read it on a flight from la to san francisco including the time spent in the airport before takeoff. It was a great flight.

A lot of cool and previously unknown (to me) information. Though the author did touch upon some of the later years of Genentech, I would have enjoyed if they had finished the book at a more present state of the company.

The title pretty well explains the subject of Genentech. Hughes does not spare scientific detail, but she writes about it deftly, blending the science into the narrative. Readers with even the most basic understanding of genetics will hardly notice that they have gotten a short lesson on recombinant technology along with a great story.

Informative, entertaining look at the interface between science, business and academia.