Genentech: the Beginnings of Biotech – An Investor’s Review

Books,

Genentech Founders Statue
Genentech Founders Statue [flickr]
I read this Genentech book after reading the Amgen book (my review: Science Lessons: What Amgen and Gordon Binder Teach Us About Biotech Investment). I had three questions in mind:

  1. What is and what made the difference between Genentech and Amgen?
  2. What happened in the early days of biotech history?
  3. What do Genentech's hyped IPO and subsequent stock performance teach us about investment?

Background: A book written by historian

The author of this book is Sally Smith Hughes, a historian of science at the Bancroft Library at the University of California. according to the UC Berkeley link, she "has conducted close to 150 archival quality oral histories for the Program in Bioscience and Biotechnology Studies". She interviewed numerous important life scientists in the Bay Area over the decades. These first hand material provides important details in this book.

Thus, this book has quite different style than the Amgen book.

In Science Lessons, the author, former Amgen CEO Gordon Binder, wanted to focus on "management" of a biotech company instead of a "legacy" record of Amgen company history. He also avoided technical or scientific details. He wants to teach new generation biotech executives what he did and what he learned about the "management" of high-tech biotechnology company.

Instead, in this book, much is focused on the people and events happened in the early days of biotech. Hughes tries to connect the dots that led to a multi-billion dollar industry, as truthfully and as clearly as happened in history. So it includes lots of details. As a historian, she could not give much discussion on management or business, beyond portraying and commenting on the characteristics of key people involved.

Written after 2009 Acquisition of Genentech by Roche

Most of this book covers events from the year of 1972 to 1980, as its title suggests, the beginnings of biotech. In 1972, a collaboration between Steve Cohen and Herbert Boyer invented the recombinant DNA technology. In 1980, Genentech went public.

However, It is important to put into context that this book is written in retrospect around 2010 after 2009 complete acquisition of Genentech by the Roche Group. That's 30--40 years after the events described in book occurred. Some details are memories that may not be truth. Some judgements might have been called in hindsight. Nonetheless, Hughes tried her best to re-present the distant history with carefully collected material and references.

The Content: From invention of technology to Genentech IPO

The book has 6 chapters and 1 epilogue.

Chapter 1: Invention of recombinant DNA (rDNA) technology:

  1. Steve Cohen and Herbert Boyer: two personalities and two fates.
  2. With the accumulative knowledge of molecular biology, a breakthrough was imminent. But both Cohen's plasmid and Boyer's restriction enzyme technologies were disregarded by peers in the academia as low science.
  3. Introduced the patent, politics, and commercialization climate of the time. Hint: much more cloudy than today.

Chapter 2: Founding Genentech

  1. Bob Swanson: as board director representing Kleiner & Perkins, failed to convince Cetus to embrace rDNA, so lost his job. But truly fascinated by the technology and its potential in changing the Medicine, he assembled a list of scientists and called them one by one. Only Boyer, who was also keen to commercialize his tech but didn't know how, agreed to meet for 15 min. 15 min became whole afternoon, then they moved to a local pub and agreed there to found Genentech. They each chipped in $500.
  2. Genentech's initial business plan was phenomenon, considering that no previous company could be used as a template. Swanson envision the potential of rDNA, what medicine it could make, how Genentech will proof the tech step by step, first collaborate with big pharma, eventually become a fully integrated pharmaceutical company. It really reflected Swanson's vision and business talent.

Chapters 3-5: one success/product per chapter as major technical achievements:

  1. Chapter 3: Somatostatin (easy short peptide for proof of concept)
  2. Chapter 4: Insulin, a bigger peptide with known established market
  3. Chapter 5: human growth hormone. A truly challenging product with even bigger market potential.

Along with these three products, Hughes told many stories depicting the intense competition, hard working scientists, patent dispute, political and ethical debates.

Chapter 6: A truly unprecedented (which also means hyped) IPO.

My reflections

  1. New transformative technology are so often disregarded in the beginning. Nobody believed in recombinant DNA technology until Genentech made it work. Cedar Sinai's Somatostatin NIH grant application was trashed by reviewers as "mere academic exercise with no practical value"; so Genentech teamed up with them.
  2. Genentech created many new things:
    1. New pharmaceutical culture with strong collaborative tie with academia
    2. High quality collaborative in-house research with focus on profitable product
    3. New role model for scientists: "we can not only make life-saving drugs, but also get rewarded financially along the way."
  3. Venture capital industry was still emerging at that time. Kleiner & Perkins later became KPCB.
  4. Pioneers faced much uncertainty: patent, political, commercial, even ethical. Nonetheless, they were pioneers, so they blazed through.
  5. Competition was intense. Genentech hired highly motivated, hard-working, well-trained expert scientists. It got ahead because of them.
  6. J&J had its chance to buy Genentech for $80 mil, but decided it was too expensive. History always repeats itself. People cannot think out of box and appreciate unconventional things.
  7. Later, Genentech could not fulfil its IPO hype
    1. therapeutic proteins are limited. It is not until the rise of monoclonal antibodies that Genentech finally started to realize its potential.
    2. Genentech made many investment mistakes, wasted financial resources, and its drugs missed expectations.
    3. Thus, it had to sell 60% ownership to Roche in 1990.
  8. Two things I don't like about this book:
    1. sometimes the author mixed events together, and it then became hard to keep track the timeline.
    2. The author attributed the highly motivated and hard-working culture as testoserone-driven. I think many would disagree this nonsense sexist view.

Answer to My 3 Questions:

  • What is and what made the difference between Genentech and Amgen?
    • Amgen enjoyed its late-comer advantage. Its management consisted highly disciplined and well-seasoned George Rathmann and Gordon Binder. They also benefitted from watching Genentech's mistakes.
  • What happened in the early days of biotech history?
    • See above.
  • What do Genentech's hyped IPO and subsequent stock performance teach us about investment?
    • Never buy into hyped IPO; you will for sure be disappointed and better chance will come after the hype settle itself, even if it's a ledendary company like Genentech.

Overall, this is a great book for anyone who wants to know how the biotech industry was established in its very early days. The history can very well inform us on what is happening today and going to happen in the future. After all,

"If you watch close, history does nothing but repeat itself." - Chuck Palahniuk, Survivor