This notebook is for disclosure outside of Genentech, and it can be removed from the premises without authorization. Other organizations and companies can read it and eat our dust.

A New Adventure

Laying the Groundwork for a New Industry

A Revolution in Biology

Employees

Second Generation

Genentech Jolts Wall Street

HO HO HO...

something

Making Medicines

Beyond Genentech, Beyond [1996]

I'm rummaging through my things and I just found this little booklet that came with my Genentech employment:In a "We're Awesome" Way, this booklet goes through how Genentech came to be. In fact, inside the front cover, it says:So for those interested in biotech and how it started, I present the GenenLab Notebook:In 1976, the United States was celebrating its birth as a nation. Technological change was in the air, and increasing attention was being paid to Silicon Valley. At the time, few people noticed that a different kind of company was being born - Genentech. As events transpired, its founding led to the creation of an entire new industry - biotechnology. Silicon Valley was about to have a new neighbor: Biotech Bay.This was not a formal history of what happened. Rather, it was a series of snapshots, drawn from the memories of some of those who were part of the start of the first two decades.It all began with an experiment conducted by a team led by Dr. Herbert W. Boyer of the University of California at San Francisco (UCSF) and Dr. Stanley N. Cohen of Stanford University. They proved that DNA could be recombined, meaning, in theory, that genetic material from one species could be successfully introduced into the gene of another species.Boyer says, "I seem to recall it was a Friday... We lined up the gels on the black boxes... The bands were lined up and you could just look at them and you knew... it had been successful. We had recombined.... I was just ecstatic... I remember going home and showing [a Polaroid] photograph [of the bands] to my wife.... You know, I looked at that thing until early in the morning... When I saw it, and knew it could be done, I knew that you could do just about anything.... I was really moved by it. I had tears welling up in my eyes because it was sort of a cloudy vision of what was to come.In January 1976, Robert A. Swanson , who had been a partner at the venture capital firm of Kleiner & Perkins, telephoned Boyer. Swanson believed that recombinant DNA technology (rDNA, for short) could be employed to create commercial products in a relatively short time, but it seemed that nobody - including the overwhelming majority of scientists - agreed with him. Everybody he talked with said it would be 15 - 20 years before that happened.Swanson persuaded Boyer to meet with him for a few minutes. In fact, the meeting lasted two or three hours because Boyer agreed with Swanson on the commercial feasibility of genetic engineering, not in the distant future, but now.The previous year, Boyer had told an interviewer, "I think [rDNA] has a lot of implications for utilizing the technology in a commercial sense; that is, one could get bacteria to make hormones, etc.""When Bob came along," Boyer says, "I thought it was great It was an opportunity for a new adventure, for me, personally...""Genentech was a result of the combination of chance and necessity. When Bob and I got together, there was a need out there, a necessity for the things this technology could do. Chance, and our mutual desire to go somewhere with this technology, provided the other ingredient."By the time their initial meeting was over, the two had agreed to organize a new company. They each put up $500. Boyer also came up with a name for the company, derived from GENetic Engineering Technology. (Good thing, because Swanson's suggestion was the HerBob Company.)With no assets (as accountants define them), rented offices, rented equipment, and a part-time secretary, they launched the enterprise. It was incorporated April 7, 1976.At first, Swanson says, "I was working without a salary and collecting $410 a month in unemployment [through insurance]. I was sharing an apartment and my half of the lease cost $250 a month. The least on my car was $107. The rest I lived on."And not very well. Tom Kiley, who later became Genentech's vice president for Legal Affairs, was with a Los Angeles law firm representing the company. To save Genentech money, he often slept on the couch in Swanson's apartment. "Bob was living in a rather nondescript apartment, although in a good neighborhood. He had a black and white television sitting on a steamer trunk and his mattress sat on a plywood box he used in lieu of a bed frame and springs. In the dining room, instead of a dining room table there was a ping pong table under which bicycles were stored."In June, on the basis of an eight-page business plan, Kleiner & Perkins agreed to provide $100,000 in venture capital funding, which lasted Genentech nine months. At least Swanson could now take a small salary.By September of 1978, Genentech had signed contracts with Kabi AB, the Swedish pharmaceutical firm, covering human growth hormone (hGH) and with Eli Lilly and Company covering human insulin.But it was still questionable whether the courts would permit the patenting of life forms such as microorganisms whose DNA had been recombined with a human gene to express a human protein: And without patent protection, what company could afford to engage in the costly research and development that genetic engineering required? Representing Genentech, Kiley filed a "friend of the court" brief before a federal appeals court, arguing with General Electric, against the U.S. Patent Office, that a patent should be granted to a GE-developed microorganism that was said to "eat" oil, an application that held the promise of cleaning up after oil spills. Eventually, the U.S. Supreme Court agreed with GE and Genentech, holding that life forms were patentable.That cleared the way for Genentech, and the biotech industry as a whole, to move forward rapidly.Genentech contracted with universities to do the early research. By 1996, the exclusive marketing rights Genentech received would generate royalty income to the universities of more than $160 million.The first product Boyer and Swanson wanted to develop was human insulin. But when they talked to Arthur Riggs and Keiichi Itakura, biologists at the City of Hope National Medical Center in Duarte, California, Riggs and Itakura said they wanted first to synthesize the human gene for somatostatin, a brain hormone, and insert it into bacteria, to see if the bacteria would then manufacture the hormone. In fact, they had applied to the NIH for a grant for such an experiment, but the NIH had turned them down. The NIH thought the chances of success were too slim. No one had ever before produced a human hormone in a microorganism.Swanson and Boyer agreed that Genentech would fund the somatostatin experiment. Their reasoning in Boyer's words: "It can be done very quickly. We can show that this technique is feasible, and that's what we really wanted to do. We can always do insulin later." If the experiment succeeded, it would demonstrate that human proteins could indeed be manufactured in commercial quantities using bacteria.One day, the dual research team, in San Francisco and Duarte, thought it was done - the gene had been made and inserted into a microorganism. Then apparent disaster: "We couldn't see any difference," Swanson says, "I could see my whole career going down the tubes. That microorganism, E. coli. was supposed to produce the protein, but we couldn't see any."Further investigation indicated that the protein was being made, but the microorganism "was chewing up the peptide as quickly as it was being made." After a month or two, the scientists hit upon a trick, making the somatostatin part of a bigger protein and then clipping it off."During that period," Swanson says, "everybody was on pins and needles, not knowing whether this was going to work. But it did! That was it!" They had succeeded before the deadline set by the company's initial financing.On December 2, 1977, national news media reported, as The Wall Street Journal put it, "Scientists Create a Useful Protein Through Genetics... Synthetic May Be Produced in Bacteria More Easily for Research Medical Use." But the Journal got the name of the company wrong: it said, "The study was funded by Genetech, Inc."Dr. Philip Handler, President of the National Academy of Sciences, told a U.S. Senate committee that the somatostatin demonstration was a "scientific trump of the first order." Science, the journal of the American Association for Advancement of Science, said it ushered in a new "revolution in biology"Less than a year later, in August 1978, Genentech was able to announce that it had successfully employed the new technology to produce human insulin. The following year, a similar announcement was made about human growth hormone. Then gamma interferon, and tPA - the stream of new rDNA products was underway.But it wasn't easy. Scientist Herb Heyneker recalls that under the agreement between Genentech and Eli Lilly and Company, which would manufacture and market human insulin after Genentech developed it, Genentech had to meet specified benchmarks by certain dates. "Ron Wetzel [then in protein chemistry at Genentech] was really a hero to make it happen," Heyneker says. "On New Year's Eve, he demonstrated that we could make 1 mg of recombinant insulin, so that Genentech made the deadline, literally with only hours to spare." It had been, he says, a very tense day.It was not until November 1977 that Genentech felt that it could afford to sign a 2-year lease for office, lab, and miscellaneous use. The lease covered 8,437.5 square feet in the northwest corner of what is now Building 1. Before long, Genentech occupied half of that building, then the entire building. And still it kept on growing and consuming space. By 1996, the company would occupy close to 3 million square feet in 17 buildings.Heyneker had worked as a post doctoral fellow in Bayer's lab at UCSF. He had gone back to the Netherlands, to the University of Leiden, and Boyer and Swanson went there to persuade him to return. In 1976, Heyneker became the first employee of Genentech.Then came Dennis Kleid, who brought with him David Goeddel . Like the many scientists who followed, all were highly competitive, driven to do the best work they are capable of doing.To accept an offer from Genentech was not an easy decision for scientists in the early years. Art Levinson , who left UCSF to join the company in May 1980 and has gone on to become president and CEO, recalls, "It was considered almost shameful in the academic community at that time for anybody decent to go into industry. Good people almost never did that. When they did, it was considered to be an act of selling out. When it became known that I was considering coming here, the almost universal response among academics was partly disdain, partly scorn. Some just thought I was confused and tried to talk me out of it, arguing that I was making a big mistake. It was so bad that when I returned a telephone call to one of the people at Genentech before I left the university, I didn't feel comfortable making the call from my laboratory, so I went outside to a pay phone."But it was a decision made by many of the best and the brightest - the most venturesome, risk-taking, "outside-of-the-box" thinkers - and very early on Genentech acquired a reputation for doing some of the finest science in the world."There was a group of thoroughbreds at Genentech," says Dave Martin, Jr., a medical doctor who was the VP of Research for several years. The level of scientific confidence and intelligence was extraordinarily high."When I moved from academia to Genentech, one of the things I had been concerned about was whether my scope of exposure to science would be narrowed or restrained. To my pleasant surprise, I found quite the opposite. And I worked! I thought I had worked hard in academia, but I worked harder at Genentech. It was a very intense, competitive atmosphere. Saturday mornings the parking lot was as full as it was on a Friday morning. I would usually leave at 7:00 or 7:30 in the evening, and there were still lots of people there."Lots of post docs. One of the things that Genentech did was to popularize the importance of having post-doctoral fellowships in industry. There had been almost none in industry before that. And we had about 50 post docs."Genentech always was a different kind of company. Swanson and Boyer had the same philosophy: hire the best people, give them the freedom to do the best they can, trust them, give them the credit."It's an incredibly driven group of people," says Laurie May, who came to work in June 1979 and is now a project manager in Product Development. "After 17 years here, I still notice how hard people work... There's tremendous pride in working for this company..."From the beginning, Genentech's environment was conducive to real commitment. Although many company heads pay lip service to the contribution of their employees, Laurie says, people believed Swanson meant what he said. "He designed this company around the employees as its most valuable asset," she believes.Norm Lin, a senior scientist now, was responsible for fermentation. One day,he recalls, he told Swanson that the freedom the employees enjoyed was right for research scientists, but now that the company was moving into production, "We need discipline... Have [production] people come in, punch a time clock, like a real production site." Lin laughs, "Swanson says, 'No way, I'm the boss, and there'll be no punch cards. You've got to trust everybody to do their jobs.' That's his philosophy."Swanson's determination to make Genentech an ideal working environment led him to what turned out, rather unexpectedly, to be a highly controversial proposal, but one that he had had in mind from the beginning: to start a day care center for the children of employee. Linda A. Fitzpatrick, who was then in HR at Genentech, points out, "The average age at the company at the time was late 20's, early 30's..., a time when many employees were having children and really wanted to have an option for day care."But the day care center, which came to be called Second Generation, would cost quite a bit of money to establish, and the proposal was put forward in a year when finances were rather tight. The company proposed to lease space and furnish it for an initial cost of $100,000. But if the company were to subsidize it an an annual rate if 50%, which it intended to do, there would be still more money spent on it. Genentech's financial commitment for the first year's operating budget, Fitzpatrick says, was about $500,000 - "in [1996] terms close to 1.5 to 2 million."Dave Martin says that he "and the majority of the people on the management committee didn't want to do it... Bob persisted and stood up against the pressure not to do it. [In retrospect] he was absolutely right..."Martin says establishing the day care center enhanced the company's reputation and helped in recruiting the best people to work at the company.At the time the day care was opened, there were very few company-run facilities like it in the Bay Area. Now there are many, but non as large as Genentech's, which is licensed to serve up to 256 children. In fact, it's one of the largest in the U.S. Genentech's Second Generation is one of the many important factors to Genentech having been named one of the top 100 companies for working mothers by Working Mother magazine six times."Genentech wrote the book on creative financing," Heyneker asserts. The initial alliances with universities were followed by strategic pacts with pharmaceutical companies that produced licensing fees. As R&D costs rose, Genentech created R&D partnerships, which generated a great deal of money. Money was raised from VCs, private placement with corporate investors, and finally by public offering of stock and convertible debt.On October 14, 1980, Genentech stock was offered to the public for the first time. It was quite a day. The main front-page headline in the final edition of the San Francisco Examiner read: "Genentech Jolts Wall Street." Genentech's stock had opened at $35 per share, rose to $88, and closed at $71.25. The newspaper called it "the most spectacular new stock offering in at least a decade." and all the other media agreed.Genentech's philosophy, from the beginning, was that all employees ought to be stockholders, too.Scott Hoag, a construction project manager, like many Genentech people, had received some shares of stock as reward for good work. "My attitude - and the attitude of a lot of people at the time - was, 'Gee, this is real nice, a piece of paper, not worth anything...' You throw it in the drawer... The day we went public I came in real early in the morning, about 6:00. Around 6:30, the telephone was ringing off the wall and nobody else was there. [It was 9:30am on Wall Street.] For a while I just ignored the phones, but they kept ringing, so finally I thought maybe I'd better start answering. People on the phones start asking me, 'Does the company have a statement to make? Can you say anything about the performance of the stock?' But I didn't know what the stock was doing."One day, after the company went public, Swanson received a note from Nita Knox, one of the office staff. In it she said, "Today, Bob, I had to sell some shares. I hated to do it, but I got a chance to put a down payment on a new house. If I hadn't worked here at Genentech, I would never have been able to do that. I want to thank you for allowing us to be shareholders."Through option grants and stock purchase plan, Genentech continued its tradition of enabling its employees to benefit from the company's success.Such intensity had to find a release, and it did, often in high jinks and practical jokes. Some of them started at the weekly Ho-Hos, held every Friday. The Ho-Ho tradition began simply with refreshments for employees every Friday afternoon. At the end of one particularly hectic work week, a manufacturing VP said, "Oh, another Friday afternoon, ho, ho, ho, ho." And the name stuck. As individual departments got involved in their production, the Ho-Hos grew in scope and complexity - and in fun.The Ho-Ho was an occasion for play and absurdity. One time Swanson and Boyer came dressed up as Tweedledee and Tweedledum - the "dumbest thing I ever got talked into," Buyer recalls with a laugh.But from the start, Ho-Hos were more than just fun. To Swanson, the Ho-Ho was "a wonderful idea, because you need a place where people at all levels of the organization, from the president on down, can get together in their shirtsleeves and talk about the issues, as equals... One of the things you worry about, as you get higher in an organization, is whether people are comfortable telling you the truth about the way they see the needs of the company - where are we screwing up as a company?" Even the silly outfits had a purpose."A lot of crazy things we did, like running around in tutus or hula skirts, was to say, 'These guys are really kind of nuts. They can't be all that stuffy that I can't approach them with an idea.'"At least one Ho-Ho ended up in a custard pie fight, like a silent comedy from the 1920's. Another hosted pigs, which each had the name of a current VP printed on its shanks. Mary Lynn Bell (then Lee), Swanson's assistant at the time, said of the swine guests:"It wasn't really a big deal. Nobody chased them. They just milled around and joined the crowd. They meandered through people's legs. They didn't seem particularly nervous because the farmer was there.Then came the practical jokes. Some of the true stories are the stuff of legends: many a GNE employee has heardabout a pink car...The most elaborate joke involved an old car, a rusty Honda Civic that Scientist Mark Mattucci owned. Mattucci had played many a prank on his associates, and they decided to pull a practical joke on him. Once when he was away on a trip, then Senior Research Associate Mark Vasser and some of his other colleagues had it painted pink, with a "Mary Kay Cosmetics" labeled on the door.Unfazed, Mattucci went on driving the car after his return. The next time Mattucci was out of town, the prankster got another car - same make, same model, same year - painted it pink, took it to a junkyard to be compacted and trucked the crushed car to the Genentech parking lot. They towed Mattucci's car away, hid it safely, and put the crushed car on the spot where Mattucci's had been parked. Mattucci fell for it. "This time they've gone too far," he said, very seriously, but then discovered that his old pink car remained intact nearby.The playfulness was merely a safety valve, to release the pressure from working very hard at the cutting edge of science. Dennis Kleid recalls, "The biggest day for me was the day we got growth hormone expressed. The concept of making a human protein in a bacteria and then having the bacteria fold it up right was just absolutely astounding." He points out that a good had already been known about the structure of somatostatin and insulin, "but the growth hormone was a [much more] complicated molecule."The human growth hormone project had special meaning for Herb Boyer. "When my oldest son, Doug, was growing up," he recalls, "the pediatrician said, 'Doug's in the short stature profile, so I'd like to run some tests to check his growth hormone levels.' It turned out his growth hormone levels were normal and everything was fine. As a teenager, he reached normal height.But I remember the physician saying to me, if he had a growth hormone deficiency, there was not much that could be done about it, because there was only enough growth hormone to treat kids in the most pathological states of growth retardation. I said at the time - we had just had the breakthrough with recombinant DNA technology - we could make that stuff with this new technology."It takes varied talents and skills - in science, scale-up process, engineering, production, quality control, law, regulatory liaison, marketing, sales, and many more - to get medicines to patients and for the company to succeed. For example, before Genentech could get any of its products to market, it had to be able to carry the technology from laboratory to the manufacturing plant. "This was a little company with no established infrastructure," now VP of Process Sciences Rob Arathoon points out. "And yet we accomplished scale-ups that nobody had achieved before. As one of many examples, in 1985 we developed serum-free 12,000-liter cell culture processes, 50% greater than anybody had done before. The first day that we successfully worked at that level was tremendously exciting - the whole thing came together then. Genentech is still the world leader in this area."In selling human growth hormone, start-up Genentech's small, newly formed sales force had to compete head-to-head with Eli Lilly's sales force - one of the biggest and most respected sales organizations of the well-established pharmaceutical companies. The result: Genentech won about 75% of the market, which it would maintain into 1996.In the end, of course, it came down to creating products that would serve humanity. Diane Pennica worked 9 months without taking a day off during the successful attempt to clone tPA ; her name is first among the authors of the research paper published in the scientific journal Nature. But the full implications of what her team had accomplished didn't really come home to her until the day that one of the Genentech marketing people stopped her in the hall. he introduced her to Steve Birnbaum, the first heart attack patient who was treated with tPA. "Birnbaum just grabbed me and hugged me and said, 'Thank you. Your drug saved my life.' That was the high point of my whole career."Steve Shak, who led the Pulmozyme (dornase alfa) inhalation Solution project from its inception, had a similar experience. During the first clinical study of the drug, he visited a young woman with cystic fibrosis in the hospital. She had just received a dose of Pulmozyme."I asked her what it was like, how she felt. She said 'I take a breath now and it feels as though the air goes all the way down to my toes.'"Though Pulmozyme had not yet been proven to be safe and effective (the FDA licensed it for marketing in December 1993) this experience made Shak realize that this protein might really work for CF patients, just as he anticipated.Genentech's most important impact has been on its patients. But it has also had a tremendous impact on the biotechnology industry that it founded. Dave Martin observes, "Genentech has really seeded the biotech industry around the Bay Area and California as a whole... Those people who were drawn to Genentech were initially different, more intense, more on the edge.... The number of spin-offs from Genentech is at least an order of magnitude the number of spin-offs from [another company that is larger than Genentech].... Many biotech companies - not all, but many have stemmed from Genentech. In fact, the number of companies spun off from Genentech is about 25.By 1996, at the 20th anniversary of its founding, Genentech reported 1996 assets of more than 2 billion, revenues approaching $1 billion (with the passing of that milestone anticipated for 1996), and net income approaching $150 million. It was marketing six products, and five additional products stemming from its research were being marketed by licensees. It had a dozen very promising products undergoing clinical testing, targeting many serious medical conditions, from cancer to asthma to diabetes. It was providing nearly $26 million worth of pharmaceuticals yearly free of chart to those qualified patients who were uninsured or under-insured. And it continues to provide a challenging and rewarding opportunity for more than 2,800 employees.And the biotech industry that sprang from Genentech's success has also shown astonishing growth. The industry as a whole had 1995 sales revenues of about $10 billion, and increase of nearly 800% in just the past 10 years. As Genentech turned 20, there were more than 1,300 biotech companies employing some 108,000 people.In 20 years one start-up company, with initial capital of $1,000 revolutionized pharmaceutical science and the interaction of academia and industry, created an entire new industry with exciting employment opportunities, and helped hundreds of thousands of sick people. Many people contributed along the way. As a result, many children breathe easier, get sick less often or grow to normal heights. Many adults get a second chance at life. Where will the next 20 years lead?This was published in 1996. I joined Genentech in 1999.2016 is coming up, so we'll know the answer shortly ;)