Genentech A series in the history of chemistry, broadly construed, edited by Angela N. H. Creager, John E. Lesch, Stuart W. Leslie, Lawrence M. Principe, Alan Rocke, E. C. Spary, and Audra J. Wolfe, in partnership with the Chemical Heritage Foundation Genentech The Beginnings of Biotech SALLY SMITH HUGHES The University of Chicago Press Chicago and London Dedicated to the memory of Janet Wentworth Smith (1910–2007) and to my children, Dylan, Amy, and Casey Contents PROLOGUE ix ACKNOWLEDGMENTS xiii 1 ͉ INVENTING RECOMBINANT DNA TECHNOLOGY 1 Two Scientists on Converging Paths 2 The Collaboration 11 Patenting and Politics 20 Steps toward Commercialization 24 2 ͉ CREATING GENENTECH 29 Bob Swanson 29 Founding Genentech 34 Legal and Political Obstacles 44 A Full Business Plan 47 3 ͉ PROVING THE TECHNOLOGY 49 A Portentous Experiment 50 Switching Targets 52 Negotiating Research Agreements 55 Making Somatostatin 59 Wider Issues 66 4 ͉ HUMAN INSULIN: GENENTECH MAKES ITS MARK 75 Seeking Corporate Contracts 76 Procuring a Facility and Staff 77 Genentech’s Human Insulin Project 86 The Eli Lilly Contract 94 Publicity and Expansion 98 5 ͉ HUMAN GROWTH HORMONE: SHAPING A COMMERCIAL FUTURE 107 Competing for Human Growth Hormone 108 Moving toward Corporate Integration 120 Scaling Up Insulin and Growth Hormone 122 Corporate Expansion 127 An Emerging Culture 131 6 ͉ WALL STREET DEBUT 137 Biomania 137 Exit Strategies 139 Interferon: The New Wonder Drug? 142 Run-Up to an Initial Public Offering 146 Legal Impediments 148 The IPO 158 EPILOGUE 165 Notes 171 Bibliography 195 Oral History Bibliography 203 Index 207 Prologue Genentech: The Beginnings of Biotech is the story of a pioneering genetic- engineering company that inspired a new industrial sector, trans- forming the biomedical and commercial landscapes ever after. Yet the enormous success of Genentech—today an icon of a worldwide bio- technology industry—appears to confi rm an industrial myth: that the company’s achievements and the industry it fostered were straight - forward, pre ordained, and inevitable events. This interpretation is far from the mark. Genentech was by almost any measure an inauspicious and improb- able enterprise. The fi rm arose in the spring of 1976 as the unlikely vision of two naive entrepreneurs: Herbert Boyer, a professor of microbiology at the University of California, San Francisco; and Robert Swanson, an un- employed venture capitalist. Its name, a contraction of genetic engineer- ing technology, captured its extraordinary agenda: to apply the radically new technology of recombinant DNA in engineering bacteria to make insulin, growth hormone, and other important pharmaceuticals. But no one had ever employed the technology as an industrial process, much less built a business upon it and tried to make a profi t from it. Could the company produce, before the money ran out, the novel therapeutic sub- stances Boyer and Swanson had in mind? Prominent molecular biolo- gists thought not. The making of Genentech was in fact racked by problems, internal and external. The science did not always work. Swanson and Boyer strug- gled to raise and sustain venture-capital backing and to forge contracts with a skeptical pharmaceutical industry. Scientists, managers, and attorneys needed cajoling and incentives to abandon university and cor- porate positions to join a company broadcasting risk at every level. In a tumultuous period of science politics, pending government regulation and adverse public opinion threatened substantial interference. Swanson and Boyer had to devise corporate structure and erect intellectual prop- erty protection, giving Genentech a chance to compete against far larger and well-established companies with vastly deeper pockets. He needed to somehow balance a freewheeling, university-like culture against the dire need to eke out a profi t, fi le for patents, and above all make market- x able products. The cards appeared stacked against the venture’s success. PROLOGUE External conditions likewise menaced Genentech’s agenda to put genes to work. The fi rm struggled to get off the ground during a time of soar- ing public apprehension over biology’s new power to engineer bacteria of possible threat to human health and safety. As if the deepening scientifi c, political, and cultural ferment were not enough, the infant company had to also navigate federal guidelines for recombinant DNA research, face the threat of restrictive legislation, and run the gauntlet of legal un- knowns in patenting living things. Genentech’s future rested on technological innovation, business acumen, human dedication, and a freewheeling, can-do culture strik- ingly different from anything the pharmaceutical industry offered. Its handful of irreverent scientists captured a swiftly expanding audience as they cloned and expressed three medically signifi cant genes in three successive years: human insulin, human growth hormone, and human interferon—the latter a supposed miracle drug predicted to cure cancer and other ills. Genentech’s come-from-behind scientifi c contests against prestigious university teams led to biotechnology’s fi rst research and de- velopment contracts with pharmaceutical companies. By 1980 the fi rm was setting scientifi c and business standards that a handful of fl edg- ling biotech companies and academic entrepreneurs would attempt to emulate and adapt to their specifi c needs. Molecular biology was be- coming practical, profi table, and controversial in a manner never before experienced. Remarkably, just four years after its creation, Genentech became the overnight darling of Wall Street. Its public stock offering raised over $38 million, as share price rocketed from $35 to $89 in a wild fi rst few minutes of trading. It was the largest gain in stock market history, making headlines around the world. To the investment and business communities and a riveted public, agog at what they were witnessing, the company confi rmed that genetic engineering could build a business, attract major money, and promise lifesaving pharmaceuticals as well. Genentech’s spectacular success launched a period of speculative frenzy over biotechnology as a revolutionary approach for creating novel prod- ucts, generating incalculable profi ts, and fashioning a new industrial sector. This intimate and people-centered history traces the seminal early years of a company that devised new models for biomedical research, xi business, and culture, in the process introducing a novel creation—the entrepreneurial biologist. As a prime instigator of a mounting commer- PROLOGUE cialism blossoming in biology of the 1970s, Genentech in large measure recast the aspirations, direction, and culture of life science and set the stage for the formation of a biotechnology industry. Acknowledgments The long journey to a published book began in 1992 with a modest proj- ect at the University of California, San Francisco, to interview a few of its movers and shakers in molecular biology and biotechnology. Signifi - cantly, Herbert Boyer and William Rutter were among them. Little did I then know that this was not just another fascinating project in my many years of interviewing in and writing on recent science and technology. The interviews with Boyer and Rutter brought to life important themes: the contingent process of making a basic science practical, patentable, and profi table; the impact of political controversy and monumental legal questions; and the historical signifi cance of captivating personalities, sometimes at odds with one another. Whether I fully realized it or not, seeds for a historical work had begun to germinate. When I returned in the late 1990s to the Bancroft Library at the Univer- sity of California, Berkeley, Daniel E. Koshland Jr.—a prominent Berkeley biochemistry professor, Lasker Award winner, and former chief editor of the journal Science—made a generous donation to inaugurate an oral history and archival project documenting bioscience and biotechnology in the San Francisco Bay Area. I am inordinately grateful to him for his support and friendship. To my sorrow, Dan died in 2007 without seeing this book, a tangible product of his benevolence. In 2001 the baton was even more generously taken up by the Genen- tech Foundation in sponsoring an oral history and archival program on its foundational period. The rich trove of original oral and written doc- umentation assembled over the next few years became a central source for the present book. Bob Swanson, Genentech’s cofounder and fi rst CEO, permitted me access to documents in his private possession and in corpo- rate archives at Genentech—documents that had never before been avail- able to outsiders. The history recounted in these pages is far richer as a result. It was with great sadness that I learned of Bob’s premature demise of a brain tumor in 1999. A small comfort is the eight hours of interviews on Genentech’s early years that he recorded with me in 1996 and 1997. Aside from the colorful personalities and working lives of Genentech’s fi rst generation—a carrot for an author fascinated by human agency— participants’ enthralling accounts of erecting a novel company upon xiv controversial basic science were an immediate draw. As I moved along in the oral history project, even more so were the insights I gathered regard- ACKNOWLEDGMENTS ing the wider meanings of Genentech’s early history for science, indus- try, and society. I am deeply grateful for the support and especially for the free rein the company gave me to conduct research and interviews as I saw fi t. The company’s sole condition was to submit draft interview transcripts to its legal department for review exclusively for legal mat- ters. The attorneys never once responded; the oral histories appear in fi nal form as the Bancroft Library alone produced them. The entire inter- view series on Genentech and on science and technology more generally is available in searchable format at http://bancroft.berkeley.edu/ROHO/ projects/biosci/. One incalculable benefi t of the oral history process was the personal relationships created that allowed me later in the course of writing to return time and again to Genentech folks with questions and requests.