By Steve Sternberg
Special to BioWorld Financial Watch
When Genentech Inc. opened for business in 1976, founders Robert Swanson and Herbert Boyer had ambitious plans. The venture capitalist and the geneticist hoped to fulfill the promise of an entirely new scientific field called recombinant DNA technology.
That was the goal. The details still needed to be worked out.
It was a heady time. Although detractors initially challenged Genentech's commercial viability, Swanson and Boyer who with Stanley Cohen had pioneered innovative ways of manipulating genes had faith in their vision of a new kind of pharmaceutical firm, one that relies not on chemistry but genetics to produce human therapeutics.
Still, Boyer knew he would have to prove naysayers wrong. Within one year, Genentech produced the first human protein, somatostatin, in a microorganism, turning E. coli into microscopic protein factories. Other successes followed. In 1977, Genentech scientists cloned the gene for human insulin. In 1978, they cloned the gene for human growth hormone. Genentech, which today boasts more than 3,900 employees, with revenues last year of $1.4 billion and 14 products marketed worldwide, soon became a model that other biotech start-ups would emulate. It also served as an incubator for a biotech baby boom that spawned a new generation of firms that are hoping to replicate Genentech's success.
Some firms, including VaxGen Inc., Tularik Inc. and Sugen Inc., were direct spin-offs established with Genentech backing. Others, including COR Therapeutics Inc. and Cell Genesys Inc., were started by former employees. Genentech alumni have gone on to other biotech firms, started or joined venture capital firms, law firms and many other biotech-linked enterprises.
Joseph McCracken, Genentech's vice president for business development, describes the firm's culture at that time as "very entrepreneurial, very science driven. We didn't have a lot of business activity because we were a developing company and we didn't have products to sell yet. But there was the notion that biotech, which was a broad platform, could do anything."
Genentech, like many firms, set out to do it all. In the beginning, for instance, Genentech, Amgen Inc. and Cetus Corp. all had animal health divisions. Some firms branched out into specialty chemicals. One of Amgen's big projects was to produce indigo dyes for blue jeans and diagnostics. "We were really trying to do everything," McCracken says.
Soon, that began to change, as firms began to build on their successes.
McCracken vividly recalls the day Friday, Nov. 13, 1987 that Genentech stopped trying to do everything and began to narrow its focus. On that day, the Food and Drug Administration approved t-PA, the clot-busting drug used to treat heart attacks and stroke. "From a business point of view, wherever your first product takes you, that's where you focus your business resources," he said. "Genentech focused on heart disease because t-PA was the firm's second product and its first potential blockbuster."
Amgen, in contrast, has focused more intensively on cancer and kidney dialysis, McCracken says, because the firm's first major successes were erythropoietin and GM-CSF.
Swanson Kept Focus On Key Strengths
Swanson, the firm's financial visionary, championed the importance of focusing narrowly on the firm's strengths. "One thing Genentech has learned is that we can't do it all," says Roy Hardimen, a Genentech corporate counsel who has acted as midwife in the birth of several spin-offs. "With maturity, we've gained a smarter commercial strategy and focus. Some products are within that focus, some are not."
In some cases, Hardimen says, Genentech has set up companies to exploit research that was promising but outside Genentech's core areas of interest. VaxGen, the firm now developing a model experimental HIV vaccine, is a perfect example. Genentech's Phillip Berman developed the prototype vaccine using gp120, a gene that codes for part of HIV's envelope.
But the firm wasn't really geared up for vaccine development and didn't want to invest resources on the infrastructure it would need to take that step. "Rather than shelving the vaccine, Genentech helped found VaxGen," Hardimen says. "We still have a significant equity stake in the company."
In other cases, McCracken says, Genentech licensed technology it regarded as promising but lower on the corporate priority list than other products in the pipeline. "It costs $500 million to develop a drug. It's a huge investment. You can't do everything," he said. "You have to concentrate on areas where you have a competitive advantage and you can deliver the best value to shareholders."
Scientists With Broader Interests Start New Firms
Some of Genentech's brightest, most talented scientists have ultimately left the company because their interests diverged from Genentech's narrowing focus. Dave Goeddel, Genentech's third employee, is a graduate of the firm's early "clone or die" culture. An accomplished geneticist who helped cloned the genes for t-PA, human growth hormone and human insulin, he was honored as "inventor of the year" for his contribution to t-PA. But Goeddel soon became interested in gene expression, which was a departure from Genentech's core business, protein therapeutics.
Genentech executives did not want to simply give Goeddel a pink slip his track record was far too impressive to simply let him slip away, McCracken said. Instead, the firm helped him establish his own firm, Tularik, which was recently described by the New York Times as "one of the hottest firms in biotech." Genentech retains a stake in the firm, says William Riflin, Tularik's vice president and general counsel.
"Several other Genentech alums work here," he adds.
McCracken notes that he was once a Genentech alum, having left the firm in 1993 after a decade to seek other opportunities. "I wandered in the desert for seven years before finding my way back," says McCracken, who rejoined the firm Aug. 8.
So many talented scientists have passed through Genentech over the years, he said, that one former employee Brian Cunningham, Genentech's former chief counsel, who left to join a law firm formed an alumni organization called Genenex, which held its first meeting in Genentech's cafeteria.
That's an indication of the importance Genentech places on cultivating lasting relationships with the most talented scientists, lawyers, business managers and other key personnel.
"Success is hard to predict," McCracken said. "You need lots of technology and lots of collaborators. One important factor in Genentech's success is networking.
"Unlike the old school, where a person quits and the managers call security to lock his desk and escort him to his car, Genentech says, 'Let's stay on good terms . . . We have scientists who can do things we don't want to do. Why don't we send them off with their bags packed. If they're going to start a new company, let's have equity in the company, or license technology to the company so Genentech can earn a royalty. Why not make it win-win?' That's what we try to do." *