Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion.

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Professors Felda Hardymon and Tom Nicholas prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2012, 2019 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

F E L D A H A R D Y M O N

T O M N I C H O L A S

Kleiner-Perkins and Genentech: When Venture Capital Met Science

When we hit a home run it’s a big one.

— Tom Perkins1

Market risk is inversely proportional to technical risk. — Perkins Law

Established in 1976 by Herbert Boyer, a biochemistry Professor at the University of California at San Francisco and Robert Swanson who had been a venture capitalist at the firm Kleiner-Perkins, the idea behind Genentech was to develop the new science of recombinant DNA into viable therapeutic products with mass market appeal, something that most scientists agreed was at least a decade away. It presented an opportunity to make one of the most significant advances in biological science since the 1950s when James Watson and Francis Crick had discovered the helix structure of DNA. It also represented a chance for the venture capital industry to influence the structure of financing in this industry (Exhibit 1).2

Boyer and Swanson had limited financial resources, so venture capital backing was required for experimentation and commercialization. Swanson turned to his previous employer for seed money. Tom Perkins, the co-founder of Kleiner-Perkins, agreed to buy 25 percent of the equity for $100,000 to fund a pilot study with a view to investing more in the event of a successful outcome. Four years later an IPO valued Genentech at $300 million. In 2009 it was fully acquired by the Swiss-based healthcare company, Roche, for $47 billion. Roche had held a majority stake in the company since 1990.

Genentech was one of Kleiner-Perkins most successful investments and Boyer became one of the first “star scientist” multi-millionaires. How could the commercial development of DNA result from a strong union between ostensibly contradictory scientific and venture investment mindsets? How did Boyer, Swanson and Perkins achieve what most biotech startup firms struggled to do—create and capture value by balancing the objectives of basic and commercially viable research?3

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Three Wise Men

Herbert Boyer

Boyer was born and raised in Derry in western Pennsylvania. Following studies in biology and chemistry at St. Vincent’s College in Latrobe, the University of Pittsburgh and Yale, in 1966 he took up a faculty position at the University of California at San Francisco and became a full Professor in 1976. There his research focused on Escherichia coli bacteria, more familiarly known as E. coli and specifically why it was so resistant to viruses. Scientists had observed that E. coli either replicated by splitting in two, or by the exchange of genetic information between cells. Boyer conjectured that if different genes could be introduced into E. coli cells then he could gene-engineer the bacteria. This idea would later set the stage for genetic engineering and the harvesting of human proteins.4

The first step in this process related to Boyer’s discovery that E. coli enzymes were able to cut DNA into smaller fragments with “sticky ends,” a necessary precondition for DNA splicing, which had first been discovered by Stanford University scientist Paul Berg. The next step was developed by Stanley Cohen, also from Stanford, who was working on small rings of DNA called plasmids that helped to pass genes between bacteria. Boyer and Cohen met at a conference in Hawaii in 1972 and together their joint efforts were integral to pushing the research program forwards. Boyer’s DNA fragments could be joined together with Cohen’s plasmids such that genetic material could be manipulated and reproduced with the structure of the new DNA. The upshot of their findings was the basic science underpinning the biotechnology industry.5

Robert Swanson

At the time Herbert Boyer was experimenting in his San Francisco laboratory, Robert Swanson was employed by Kleiner-Perkins in Silicon Valley where he began thinking about entrepreneurial ideas and pursuits, especially in relation to microbiology and the newly emerging field of gene technology. Swanson was educated at MIT in the late 1960s and graduated with degrees in chemistry and management. Prior to his career in venture capital he worked for four years as an investment officer in New York with First National City Bank (later Citibank).

Swanson met Boyer by way of an informal interview in January 1976, which he had arranged to inquire about the commercial opportunities of genetic engineering. Most academics in the field Swanson had previously spoken to had suggested that a marketable product was at least a decade away and Boyer was only somewhat more optimistic about applications stemming from the nascent science. Yet, he admired Swanson’s energy and enthusiasm and together the two decided to sketch out the outlines of a business plan for using gene engineering to produce biological products.6

Tom Perkins

Tom Perkins, the venture capitalist that first provided Boyer and Swanson with funding, was born in Oak Park Illinois in 1932. He graduated from MIT in 1953 with a degree in electrical engineering and worked for Sperry Gyroscope until 1955. Perkins then entered Harvard Business School, graduating in 1957. The same year he joined Hewlett-Packard and then worked for Booz Allen Hamilton from 1959 to 1960. Between 1960 and 1963 Perkins worked at Optics Technology Inc., a startup in which David Packard and William Hewlett had a personal investment interest.

Perkins returned to Hewlett Packard from 1963 to 1972, first as an administrative manager of HP Laboratories, second as General Manager of HP’s nascent computer business reporting directly to Packard and finally as Director of Corporate Development reporting to Hewlett while Packard was

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running the Department of Defense in Washington DC. Notably, in 1965 Perkins established his first startup, University Laboratories Inc., (ULI) in Berkeley, at the same time as he was building HP’s computer business. Packard had strongly encouraged Perkins’ entrepreneurial ambitions. ULI held intellectual property rights on lasers Perkins had developed and it became immensely successful. ULI was acquired by Spectra Physics in 1970 giving Perkins a net worth in seven-figures.7

In 1972 Perkins established a venture capital firm with Eugene Kleiner who had worked at Shockley Semiconductor Laboratory and was one of the “traitorous eight” who left to start Fairchild Semiconductor, an innovator in transistor and integrated circuit technologies.8 By the following year Perkins and Kleiner had raised an $8 million fund. Their second fund, of $15 million, was raised in 1978 by which time they had added two additional partners, Frank Caufield and Brook Byers. A third fund was raised in 1980 amounting to $55 million and at the time of the fourth fund of $150 million in 1986, Perkins made the decision to retire. Kleiner-Perkins became one of the most successful venture capital firms in Silicon Valley as a consequence of investments in firms like Genentech. Perkins was Chairman of Genentech between 1976 and 1990.9

The Early Years of Venture Capital and Biotech During the early 1970s, venture capital was a much smaller business than it is today. Venture capital

commitments amounted to around $10 to 20 million dollars per year and the total pool of funds was no more than a couple of hundred million dollars. The supply of funds into venture capital increased during the decade because of success stories like Genentech and also due to government reforms affecting the supply of funds into alternate assets classes. Specifically, a 1978 reform to the Employee Retirement Income Security Act in effect permitted 10 percent of the capital in pension funds to be invested in venture finance. By the late 1980s commitments of pension funds to the venture industry exceeded $4 billion dollars each year.10

By the mid-1970s Kleiner-Perkins was still a small concern, composed of the two founding partners plus Swanson, a secretary and a bookkeeper.11 With limited capital from other investors available for funding startups, Kleiner-Perkins was frequently the sole investor in the first phase of financing rounds. Unlike many traditional venture firms, they took an active role in managing the firms in which they invested. They were also typically concerned with early-stage investments compared to many East Coast firms that tended to invest in later-stage enterprises.

Biotech did not become an industry until the late 1970s and early 1980s when the first wave of companies, including Genentech, was established. Opportunities for venture capital investing in the related pharmaceuticals industry were non-existent due to the preponderance of large established firms, some of which, like Ely Lilly, could trace their origins back to the nineteenth century. Most of these had their own internal cash flows or “deep pockets” with which to fund research and were fully integrated operations (Exhibit 2). Pharmaceutical companies made profits by using intellectual property rights to protect and license their inventions, and they also made simultaneous investments in R&D, organizational, production, marketing, and regulatory capabilities.12

Although science was being conducted extensively in universities and not-for-profit foundations there was little interaction between proprietary and “open science” worlds. In the not-for-profit sector, scientists focused on grant-funded basic science and research output was disseminated through peer- review publications. Few patents were ever filed.13 Companies such as Genentech in the emerging biotechnology industry offered the promise of challenging the “Big Pharma” model. They would do this principally by changing the structure of the industry by inducing interactions between large incumbents, entrepreneurial entrants and not-for-profit enterprises.14

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Kleiner-Perkins and Biotech

Genentech was not the first biotech venture in which Kliener-Perkins held an equity stake. Cetus Corporation, a start-up company established in Berkeley, California in 1971 proposed to automate certain functions that laboratories performed. Nobel Laureate, Dr. Donald Glaser, had developed a machine capable of simultaneously screening large numbers of microbial cultures, which offered the potential to revolutionize productivity in the pharmaceutical industry. Glaser headed a prestigious scientific advisory board that included Stanley Cohen. Ronald Cape and Peter Farley acted as CEO and President respectively.

Perkins recalled investing approximately $500,000 in the company and soon thereafter having significant reservations about the direction in which Cetus was moving and its governance structure.15 Consequently, Swanson was given the task of ensuring that Kleiner-Perkins would receive a satisfactory return for its investment, which also involved exploring alternate revenue development possibilities to Glaser’s machine. Notably, Swanson offered to set up a separate division of the company to develop recombinant DNA technology, but the proposal was rejected unequivocally by Cetus’ eminent board of scientific advisors. Kleiner-Perkins became disillusioned with their investment in Cetus. They also counseled Swanson to seek employment elsewhere.

Emerging Regulation Issues

Concurrently with these commercially-related events, a fierce political debate emerged with respect to the safety of experimenting with gene technology. The National Academy of Sciences established a committee headed by Paul Berg to advise them on potential concerns. Some scientists were alarmed by the use of viral genes in recombinant DNA experiments and the susceptibility of laboratory workers and the environment more generally to biohazards. In 1974 Berg’s committee produced an open letter to the scientific community urging a moratorium on experiments with potential transmission risks. Guidelines for DNA recombinant research were established by the National Institutes of Health (NIH) as regulations in 1976 applying to any research funded by the federal government.

Founding Genentech

Pitching the Idea

While searching for alternative employment to Kleiner-Perkins, Swanson had contacted Boyer to determine the feasibility of commercializing the science behind recombinant DNA. Together, Swanson and Boyer prepared a six page document outlining their objective “to engage in the development of unique microorganisms that are capable of producing products that will significantly better mankind.”16 In essence they proposed to develop DNA based therapeutics (specifically they chose insulin because of the large worldwide market and the potential for high margins) and license the technology to pharmaceutical firms because these had the necessary financial resources to fund the clinical trials process and full scale production. Swanson estimated $500,000 for setup costs.

The political controversy over genetic engineering and the investment experience with Cetus should have made Perkins hesitant to invest in yet another science-based startup. But he agreed to discuss investment possibilities with Swanson. Perkins recalled of the first meeting:

A week or so after they had put together the nucleus of a business proposal to do genetic engineering, Bob brought it to me for financing. It was very conventional in that I would put up the money, they would hire the people, and it would be a straightforward venture. I took the

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view that the technical risk was so enormous. I remember asking, “Would God let you make a new form of life like this?” I was very skeptical.17

To make a more informed decision about investment potential based on the underlying scientific ideas, Perkins met with Boyer later that week. Of this meeting he noted:

[W]e sat down in our conference room for about three hours. Of course I have a background in physics, electronics, optics, computers, lasers [but] biology was never a strength for me. I really didn’t know what kind of questions to ask. So I said, “Let’s just got through it step by step. Tell me what you are going to do. What equipment you’ll need. How will you know if you’ve succeeded? How long will it take?” I was very impressed with Boyer. He had thought through the whole thing. . . . I concluded that the experiment might not work, but at least they knew how to do the experiment.18

Perkins agreed to invest $100,000 for 20,000 shares of preferred stock of the new startup, which was incorporated as Genentech in April, 1976. Swanson had suggested calling the firm “HerBob” (Herb from Herbert and Bob as the shortened version of Swanson’s first name). Instead, and probably fortuitously, Boyer suggested a derivative of the words, “genetic” “engineering” and “technology”. As President and Treasurer, Swanson received an annual salary of $30,000 (about $100,000 today) whereas as Vice President and Secretary, Boyer’s salary was $12,000 (about $40,000 today). Both were allocated 25,000 shares of Genentech stock and took board seats. Perkins was the Chairman.19

When he was later asked why he was willing to fund such a risky venture, Perkins recalled, “I figured better than 50-50 we’d lose [our investment] . . . but [i]f it worked, the rewards would be obvious.”20 Equally he noted, “What was different about Genentech was the astonishing amount of capital required to do all this. I know on day one that if anyone had whispered into my ear that ‘For the next twenty years, you will be involved in raising literally billions of dollars for this thing,’ I might not have done it.”21

Financing

Although Swanson had asked for $500,000, Perkins agreed to invest only one-fifth of that amount. He explained:

I got together with Swanson and I took the view that I’m willing to go along with this thing, but that we’ve got to figure out a way to take some of the risk out of it—something instead of me giving you all of the money, then you renting the facility, buying the equipment and hiring the people. With that approach you’ll have spent maybe a million dollars by the time you get to actually performing the experiment. Then if it doesn’t work it’s all over and all that money is lost.22

As a resolution to this issue Perkins questioned: “Can’t we figure out some way to subcontract this experiment to different institutions, each of which already had a part of these capabilities.” Moreover, in order to move Boyer and Swanson towards that strategic goal he tied funding cycles to outcomes. “In order to give some incentive to subcontract the work . . .,” he said “I would be willing to finance the thing in phases, to put up less money up front. If things started to work then I’d put up more and more money at higher and higher prices. Otherwise, Perkins stated: “I’ll want to own most of the company if I’m going to take all of that conventional risk.”23

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Subcontracting

Boyer and Swanson agreed with the subcontracting strategy and Genentech began negotiating contracts with the University of California in San Francisco, the City of Hope, a private research institution and hospital in Duarte, California (close to Los Angeles) and Caltech. Each was to perform a distinct function. Boyer’s laboratory had expertise in gene splicing and he had developed a good network of scientists working there, City of Hope had capabilities in the area of gene synthesis, and two strong specialists, Arthur Riggs and Keiichi Itakura, and Caltech was a first-rate testing facility.

The contract with the University of California at San Francisco stipulated that Genentech would pay $35,000 and the university in return would own any resulting patents with Genentech being an exclusive licensee paying royalties back on sales. The contract with City of Hope provided Genentech with a stronger intellectual property rights position. It would own any patents and pay a 2 percent royalty on sales. Finally, a sponsorship agreement was established with Caltech including monetary payments and 1,500 shares in Genentech stock to a graduate student called Richard Scheller who was proficient in the area of DNA. He remembered of the inducement, “I had a ponytail halfway down my back. I smoked marijuana every day. I didn’t give a damn about money or stock or anything. I was a scientist.”24 (Scheller joined Genentech in 2001 as senior vice president of Research.)

Prior to establishing these contracts Swanson had unsuccessfully approached the Technology Licensing Offices at the University of California and Stanford with the aim of securing an exclusive license to make recombinant therapeutics, based on a DNA-related patent the universities were pursuing following Boyer and Cohen’s research.

Eight months after Genentech had been established, the nucleus of a strategy was in place, but nothing more. In December 1976 Genentech reported losses of $88,601 on assets of $88,421.25

The First Experiment Between December 1976 and February 1977 Genentech raised a second funding round with Kleiner-

Perkins investing an additional $100,000 and a further $750,000 coming from other investors for a total of 25 percent of the equity.26 At the nascent startup stage, Boyer, Swanson and Perkins realized that Genentech’s fate rested on making scientific breakthroughs.

It was decided that Genentech should experiment with producing the human protein somatostatin in E. coli. Although the ultimate objective was to clone human insulin, somatostatin was a systematic step along the way. Boyer explained:

Somatostatin is a small protein. It’s only fourteen amino acids long. It would be easy to synthesize the gene for that. At that time, it was still a laborious and time-consuming thing. And also, we would make it as a part of a larger protein which we could chemically cleave away from the majority of the protein, and there was a very sensitive radioimmunoassay for the protein. So it was much more straightforward as a model than doing insulin. What we needed to do was to show that we could actually make a human protein in bacteria, and that was key to the next level of funding, to get an independent laboratory, and hire people and so on and so forth.27

Perkins reiterated this viewpoint:

We decided to do a proof of principle first, with the smallest gene that, we hoped, could be expressed. It might have some use but basically it would be a proof of principle. It was a gene to express a protein called somatostatin. Somatostatin had not yet found a commercial use, but it

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could someday. It wasn’t an utterly useless exercise. The gene went together more or less as planned and was delivered up to UC where it was spliced and expressed, then tested. And it worked.28

While the process of developing somatostatin was considerably more fraught with difficulties than Perkins’ description suggests, it was an important iterative step and it also produced intellectual property rights and scientific articles that signaled Genentech’s commitment to world class basic research (Exhibits 3, 4 and 5). Furthermore, Perkins pointed out that the experiment had done something critical, which was to “remove much of the risk from the entire venture. . . . For next to nothing we had removed a world class question about risk.”29

Perkin’s sentiment was passed on to investors. Noting the significance of the success of the somatostatin experiment Swanson stated in his address to shareholders in April, 1978:

I am pleased to point out that the two year start-up of the company, including the completion of our first research goal, the production of the human hormone somatostatin, and the first commercial demonstration of our new technology, was accomplished for a total of $515,000. We plan to approach future growth in the same lean but effective manner.30

Developing Insulin

Exploring Partnerships

Swanson knew that somatostatin had limited commercial applicability and he realized that experimenting with human insulin, a hormone used to treat diabetes, was the next priority. The global pharmaceutical powerhouse, Eli Lilly held 80 percent of the U.S. market by deriving human insulin from the pancreas of animals. So the potential payoffs from replicable recombinant insulin were enormous. Perkins recalled:

Insulin had always been Swanson’s primary target. Somatostatin was just a way station on that quest. He and I both agreed on this. We didn’t have to do market research to convince ourselves that if we could make human insulin—literally human insulin—with this genetic engineering approach that the market would be tremendous. Whether we developed the product ourselves or licensed it, it would be a valuable thing.31

Swanson’s preferred solution was to partner with a pharmaceutical firm. This strategy to mitigate risk was analogous to what Genetech had done by subcontracting out its first experiment. He approached the Danish firm Novo Industri, the German firm Hoechst but none agreed to a partnership.32 Eli Lilly, did however engage with Swanson. While Lilly was keen not to invest in-house in the new science of recombinant DNA given the uncertainty of the payoffs, it was also fearful of being displaced. In June 1978 Lilly agreed to provide $50,000 a month to Genentech in support.33

Investing in Plant, Equipment and Scientists

Having raised a third round of financing of $950,000 for 8.6 percent of the equity in March 197834, Genentech began to build out capabilities at a 10,000 square feet warehouse in South San Francisco. Swanson attempted to recruit scientists from research institutions that were working independently on cloning genes for insulin. Swanson attempted without success to extend contracts to star scientists at the University of California at San Francisco and at Harvard. Stanley Cohen refused to join Genentech on conflict of interest grounds, given that he was already employed at Cetus.

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Eventually Swanson’s recruitment efforts (with help from Boyer) paid off when two scientists Dennis Kleid and David Goeddel from a contracting research institution, Stanford Research Institute (SRI), agreed to join Genentech. Swanson had learned about talent at SRI from Dutch star scientist Herb Heyneker who had joined the firm in September 1978 on a salary of $40,000 (about $130,000 today). Heyneker had been a postdoctoral fellow in Boyer’s laboratory. Together these scientists formed the nucleus of Genentech’s research team and they worked with Boyer at the University of California at San Francisco and with Riggs and Itakura of City of Hope.

Genentech’s policy was to allow scientists to publish their academic findings, so long as the research results had been included in a patent application first. All employees were required to sign contracts assigning the right to their inventions to Genentech.35 This norm was essential to balance Genentech’s basic and applied objectives, but it required significant adjustments on the part of scientists who were less orientated towards thinking through the relationship between science and commercial research. Swanson also offered scientists stock options, something which was standard in new startups but not in the pharmaceuticals industry.36

Perkin’s believed Swanson’s efforts in building infrastructure and capabilities and recruiting scientists were instrumental to developing Genentech’s tradition of scientific excellence. He stated:

Bob Swanson deserves tremendous credit for putting Genentech together. I think the next most important thing he did was to realize—and Herb Boyer helped him come to this conclusion—that to build a world-class scientific research corporation he had to hire world class scientists. To do that he had to establish an academic-like environment, but even better than an academic environment. In academia the researchers spend a huge amount of their time writing research proposals to get funding. Genentech eliminated that while encouraging some pretty basic work.37

The Big Discovery

With contract agreements with the City of Hope still in place and Genentech’s own scientists arriving at the firm around the middle of 1978, work on recombinant insulin began in earnest, especially given parallel efforts taking place at competing research institutions. In fact a team of scientists at Harvard soon announced that it had produced insulin in the laboratory, albeit only rat insulin as opposed to the human kind.

Furthermore and unbeknownst to Genentech, Eli Lilly had also hedged its risks by contracting with the University of California to license the technology in the event that academic scientists were able to develop insulin first. In effect, Genentech, still a small startup at the time, was involved in a race with competitors with arguably much stronger resources and capabilities. Fortunately for Genentech, they largely operated outside of the constraints of federal regulations governing NIH funded DNA research, which quickened the pace of their experimentation.

Scientists working at Genentech’s facility and City of Hope eventually managed to synthesize the insulin gene and clone it in bacteria. Although the process was inefficient and the yield was low, on August 21, 1978 they produced the world’s first genetically engineered form of human insulin. This was to be Genentech’s first commercial product. Commenting on the breakthrough, Perkins noted:

The announcement of insulin was a world news event. The day we announced, it was the headline in the San Francisco Examiner. That woke up the world to what we now call gene engineering. It put Genentech on the map. It went from essentially nothing to a very interesting and viable enterprise. Thus began the real fundraising for Genentech. We were able to raise

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money at much higher prices. So high that Kleiner and I made only token investments ever after, because Kleiner-Perkins already had a significant ownership of Genentech.38

Commercialization

Once the process for creating human insulin had been refined and patent applications filed, Genentech faced key decisions about how to make money from it. Perkins recollected:

After two or three years of work at Genentech we had some strategic questions to ask ourselves. Should we attempt to use our patents as a barrier to other companies? Or should we license our patents broadly? I persuaded Swanson to follow the licensing strategy. Otherwise our technology was just so absolutely basic that we would be in endless patent litigation. We would spend every resource defending patents and it would be years before we had an income stream from products to pay for that. It would be better to license and shoot for royalties.39

Genentech’s first licensing agreement was signed with Eli Lilly in 1978. For an upfront fee of $500,000 and commitments to fund further milestone-based R&D, Lilly received an exclusive worldwide license. Genentech would receive a 6 percent royalty and City Hope a 2 percent royalty on sales. The agreement stipulated that Lilly could only use Genentech’s technology to manufacture human insulin, not other products, and Genentech retained full ownership of the intellectual property rights. Hence, it received a large injection of capital for R&D without diluting its equity and this was a large payoff for a firm that still had only 26 employees. Lilly, on the other hand, could deploy its strong production and marketing capabilities to maximize the sales potential of the new product and equally importantly to gain regulatory approval.40 In 1980 recombinant DNA insulin was trialed on humans for the first time. In 1982 Lilly launched the prescription medication Humulin and sales reached approximately $300 million by the mid-1980s.

Conclusion

Genentech’s scientists were buoyed by the success of insulin and they engaged in further research and development, cloning human growth hormone in 1979. But despite this momentum some non- scientific constraints remained to be overcome. With the evolving regulatory side of recombinant DNA, Genentech was the subject of intense ethical discussions in the media. According to Perkins:

There were two streams of hostile press. One was the . . . anti-technology stream. At the root of it was the genuine fear that we’d make Frankenstein monsters, poison the atmosphere, and everything else. The other stream of it was whether it was morally correct for academicians like Boyer to make so much money.41

In 1980 Genentech underwent an IPO raising $35 million with a first-day price spike from $35 a share to a high of $88 (Exhibit 6). Perkins recalled, “we were the hot guys, with the best this, the most aggressive that, the best science, the best patents, the best financial relationships, the best publicity.”42 Genentech subsequently became a multi-billion dollar company.

Looking back Perkins reflected on the success of a venture where science and venture capital had become inextricably bound together:

I honestly think that if we had to do it all over again, we’d do it the same way. I don’t think we made a single strategic error. We might have done a few things different tactically, and we should have spent more time tightening all these agreements, though they seemed so tight at the

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time. But I still think the strategy of the way we did it—subcontracting the experiments, then licensing to Lilly. . . . I don’t think we could have done it better.43

 

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Exhibit 1 Venture Capital in Biotech, 1978–2005

 

Source: Compiled by the casewriter from data in ThomsonONE, Private Equity module.

 

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Exhibit 2 R&D and Sales by Members of PhRMA, 1970–2005

 

 

Source: Compiled by the casewriter from data in “Pharmaceutical Research and Manufacturers of America,” PhRMA Annual Membership Survey, 2008.

 

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Exhibit 3 Front Page of An Early Genentech Patent

Source: Patent document from the United States Patent and Trademark Office.

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Exhibit 4 Front and Back Page Sections of an Early Genentech Scientific Publication

 

 

 

Source: This article was published in Science, New Series, vol. 198, no. 4321 (December 9, 1977), pp. 1056–1063.

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Exhibit 5 Publications in Science and Nature, 1976–1987

 

Source: Data provided courtesy of Simcha Jong. See further “Academic Organizations and New Industrial Fields: Berkeley and Stanford after the Rise of Biotechnology,” Research Policy vol. 37 (2008), p. 1274.

Notes: The data were obtained using the following queries in ISI Web of Science citation database: Journal: Science OR Nature; Publication type: Article; Years: 1976–1987; with separate searches in the address field for: Berkeley AND Biochem, Stanford AND Biochem, Genentech.

 

 

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Kleiner-Perkins and Genentech: When Venture Capital Met Science 813-102

17

Endnotes

1 Thomas J. Perkins, “Kleiner Perkins, Venture Capital, and the Chairmanship of Genentech, 1976-1995,” an oral history conducted in 2001 by Glenn E. Bugos for the Regional Oral History Office, The Bancroft Library, University of California, Berkelely, 2002, p. 75.

2 Gary Pisano, “Can Science be a Business: Lessons from Biotech,” Harvard Business Review vol. 84, no. 10, 2006, pp. 114-24. See also Gary Pisano, Science Business: The Promise, the Reality, and the Future of Biotech (Harvard Business School Press, 2006).

3 For further analysis on this tension see, Iain Cockburn, Rebecca Henderson, Scott Stern, “Balancing Incentives: The Tension Between Basic and Applied Research,” NBER Working Paper (1999).

4 A.J. Nair, Introduction to Biotechnology and Genetic Engineering (Jones & Bartlett, 2008).

5 Sally Hughes, Genentech: The Beginnings of Biotech (Chicago University Press, 2011).

6 Hughes, Genentech.

7 “Kleiner Perkins, Venture Capital,” p. xvii; Tom Perkins, Valley Boy: The Education of Tom Perkins (Gotham, 2007).

8 The traitorous eight are Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts, who had resigned their positions at Shockley Semiconductor Laboratory in 1957 following a conflict with the founder William Shockley.

9 “Kleiner Perkins, Venture Capital,” p. xvii.

10 Paul A. Gompers, “The Rise and Fall of Venture Capital.” Business and Economic History vol. 23, no. 2, 1994, p. 2.

11 They had also hired another individual, Jimmy Treybig, to help source deals, though his tenure at Kleiner-Perkins did not overlap with Swanson’s. Treybig was one of the founders of Tandem Computers.

12 Iain M. Cockburn, “The Changing Structure Of The Pharmaceutical Industry,” Health Affairs vol. 23, no. 1 (2004), pp. 13–14.

13 Cockburn, “The Changing Structure,” pp. 13–14.

14 Pisano, Science Business.

15 Perkins, “Kleiner Perkins, Venture Capital,” pp. 3–4.

16 Hughes, Genentech p. 38.

17 Perkins, “Kleiner Perkins, Venture Capital,” pp. 4–5.

18 Perkins, “Kleiner Perkins, Venture Capital,” pp. 4–5.

19 Hughes, Genentech p. 41.

20 Hughes, Genentech p. 40.

21 Hughes, Genentech p. 42.

22 Perkins, “Kleiner Perkins, Venture Capital,” p. 5.

23 Perkins, “Kleiner Perkins, Venture Capital,” p. 5.

24 Hughes, Genentech p. 58.

25 Hughes, Genentech p. 47.

26 William D. Bygrave and Jeffry A. Timmons Venture Capital at the Crossroads (Harvard Business Review Press, 1992), p. 116.

27 The UCSF Oral History Program and the Program in the History of the Biological Sciences and Biotechnology, The Bancroft Library, University of California, Berkeley “Recombinant DNA Research at UCSF and Commercial Application at Genentech.”

28 Perkins, “Kleiner Perkins, Venture Capital,” p. 6.

29 Perkins, “Kleiner Perkins, Venture Capital,” p. 6.

 

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813-102 Kleiner-Perkins and Genentech: When Venture Capital Met Science

18

 

30 Hughes, Genentech p. 63.

31 Perkins, “Kleiner Perkins, Venture Capital,” p. 6.

32 Hughes, Genentech p. 77.

33 Hughes, Genentech p. 86.

34 Bygrave and Timmons Venture Capital at the Crossroads, p. 116; Hughes, Genentech pp. 85–88

35 Hughes, Genentech pp. 85–88.

36 Hughes, Genentech p. 90.

37 Perkins, “Kleiner Perkins, Venture Capital,” p. 6.

38 Perkins, “Kleiner Perkins, Venture Capital,” p. 7.

39 Perkins, “Kleiner Perkins, Venture Capital,” pp. 8–9.

40 Hughes, Genentech pp. 85–103.

41 Perkins, “Kleiner Perkins, Venture Capital,” p. 26.

42 Perkins, “Kleiner Perkins, Venture Capital,” p. 12.

43 Perkins, “Kleiner Perkins, Venture Capital,” p. 9.

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  • Structure Bookmarks
    • Kleiner-Perkins and Genentech: When Venture Capital Met Science
    • Three Wise Men
    • Herbert Boyer
    • Robert Swanson
    • Tom Perkins
    • The Early Years of Venture Capital and Biotech
    • Kleiner-Perkins and Biotech
    • Emerging Regulation Issues
    • Founding Genentech
    • Pitching the Idea
    • Financing
    • Subcontracting
    • The First Experiment
    • Developing Insulin
    • Exploring Partnerships
    • Investing in Plant, Equipment and Scientists
    • The Big Discovery
    • Commercialization
    • Conclusion
    • Exhibit 1Venture Capital in Biotech, 1978–2005
    • Exhibit 2R&D and Sales by Members of PhRMA, 1970–2005
    • Exhibit 3Front Page of An Early Genentech Patent
    • Exhibit 4Front and Back Page Sections of an Early Genentech Scientific Publication
    • Exhibit 5Publications in Science and Nature, 1976–1987
    • Exhibit 6Genentech’s Capitalization Table at its IPO
    • Endnotes

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