Way back in the 1991, George Rathmann contributed a chapter to Biotechnology—The Science and the Business, one of the first scholarly examinations of an industry that traced its roots back to 1971 with the founding of Cetus Corporation as a “biological engineering” company. The publication was timely, as the industry was figuratively on the cusp of leaving adolescence for adulthood.
There was probably no more knowledgeable person in the world to write the chapter on biotech start-ups. George Rathmann—who Forbes described as the “Bill Gates of Biotechnology”—had just retired as chairman of another biotech pioneer, Amgen, where he had served as CEO from the company’s inception in 1980 until 1990. When considering a range of inevitabilities for biotech, Rathmann addressed the topic of hostile takeovers:
Without question, hostile takeovers have been largely prevented by stock prices (market valuations) which fully reflect the intangible assets of scientists, the management and the dynamics of small biotechnology companies. Hostile investors could hardly expect to realize return on their investment in the absence of assets ‘who go home each night in tennis shoes.’
We fast-forward nearly another two decades from George Rathmann’s original observation, and today we find that the hostile takeovers have, indeed, become a reality. The pioneering biotech companies have been hostilely acquired—or are being stalked—by larger pharmaceutical companies and activist investors. Swiss pharmaceutical giant Roche acquired Genentech (founded in 1976) for $46.8 billion. Another Swiss pharmaceutical colossus, Novartis, acquired Chiron (founded in 1981 and successor organization of Cetus). Legendary investor Carl Icahn has waged several proxy fights against Biogen Idec (founded in 1978). Obviously, life-changing discoveries of drugs like Avastin, Avonex, and Rituxan put some very tangible assets on biotech’s balance sheets.
So whatever happened to the “tennis shoes”? Well, according to Steven Burrill, chief executive officer of a San Francisco life sciences venture firm, they’re still on the feet of those biotech scientists. And his message to Big Pharma: respect the cultures of those biotech companies you’ve purchased, because tennis shoes are made for walking … especially when spurred by hefty profits from the sale of stock and stock options. As Burrill observed in the San Francisco Chronicle, “The assets of Genentech walk out in tennis shoes every night, and you hope they walk back in, in the morning.”
Having worked with a number of pioneering biotech companies over the years, I think it’s wonderfully refreshing to see that, despite the fact that many of biotech’s visionary founders have been replaced by “suits,” and the pressure to “hit the numbers” has become as intense in biotech as in Big Pharma, the heart and soul of the companies—its research scientists—are as idiosyncratic and as valuable as ever. These are the folks who are not only passionate about their science, but they are also nobly idealistic about the benefits they can bring to humankind. They’re also the same group who relish Friday afternoon beer bashes, locking colleagues in storage closets, and wearing goofy costumes to work. They celebrate both brilliant science and low badge numbers. They embody what true corporate culture is all about.
When Novartis launched its takeover of Chiron in late 2005, the company’s leadership called in The History Factory to ask how quickly we could capture and publish the history of Chiron. Having just witnessed Chiron’s entire workforce band together to successfully overcome the corporate near-death experience of a major product recall, they wanted to take one shot at documenting Chiron’s remarkably resilient history and culture before it was lost forever. I’m proud to say that, working against the countdown of the takeover clock, we were able to produce the rich story of the people of Chiron. And to Novartis’s credit, the book was published and distributed after they had taken over.
The recent spate of biotech takeovers is probably only the beginning. As the economy improves, and equity markets provide new currency for acquisitions, we’ll no doubt see more combinations. When representatives of pharmaceutical companies tour the labs of their newly acquired biotech firms, I suggest they take note of the tennis shoes in order to gauge the vitality of their property. And to all the research scientists and lab techs out there: just keep on truckin’.