Amgen exemplified the dreams and aspirations of biotechnology’s first generation. By early 2008, the global market capitalization of the entire biotechnology industry was around $500 billion. Of this, Amgen represented 10 percent. Back in 1982, however, when Gordon Binder, who was then 46, got a call about joining the California startup, he says he nearly blurted out, “What’s biotechnology?” He would learn quickly. By the time he retired in 2000, Amgen had become the world’s largest and most successful biotech company. Its “financials ascended so sharply,” Binder says, “that you could strain your neck trying to follow the trajectory on a line graph.”
The firm was founded in 1980 by six venture capitalists who put up $81,000 each. Their strategy was, by today’s standards, incredibly broad: to exploit the new science of genetic engineering for human health. They had the good fortune to recruit as CEO George Rathmann, a scientist who headed Abbott Laboratories’ diagnostics division. Shortly after the brilliant, charismatic Rathmann signed on, in October 1980, a four-year-old San Francisco firm called Genentech became the first biotech company to float an initial public offering (IPO). The result astonished Wall Street, tripling in value during the first day of trading, generating $35 million. Genentech’s success enabled Rathmann to raise millions, even though, Binder notes, Amgen then consisted of just three people and “couldn’t point to any products or patents, only a plan.”
Binder’s account of this history, less a narrative than a series of snapshots and vignettes, reveals the inside story of Amgen’s rise, as hectic as it was spectacular. One of the book’s central lessons is that there’s never enough money. By 1982, when Binder moved to Thousand Oaks as chief financial officer, Amgen had burned through much of its $19-million war chest and was running out of cash. Fortunately, biotech pioneers Cetus and Biogen recently had managed highly successful public stock offerings. So, unable to raise another round of funding from Amgen’s original investors, Binder persuaded his board to pursue an IPO. Since the company was many years away (Rathmann had no idea exactly how many) from actually producing and selling a product, there were no standard metrics for valuing the business. “Some early analysts valued companies at $1 million per PhD,” Lehman banker Fred Frank remembers, calling that method “rather idiotic.” As it happened, Amgen timed the IPO market perfectly, raising $42.3 million before the “window came down like a guillotine,” cutting off companies from public equity financing.
In its quest for technology to develop, Amgen made forays into various fields, from porcine growth hormone to detergent enzymes. None panned out. The company’s central focus, however, remained human therapeutics, where it had five potential products. Of these, Binder describes erythropoietin (EPO) as “the runt of the litter.” The EPO challenge was to find the gene responsible for the hormone that stimulated red blood cell production. Amgen was not alone. Cloning the EPO gene was, Binder notes, “one of the Holy Grails of the nascent biotechnology industry.” In October 1983, pressured by Rathmann to succeed or shut down his research, scientist Fu-Kuen Lin finally isolated the EPO gene, then cloned it using ovarian cells from a Chinese hamster.
In the United States the potential patient population for EPO was the some 400,000 individuals suffering from end-stage renal disease (ESRD). They underwent regular kidney dialysis, which depleted their red blood cells and left them with chronic anemia. Many required blood transfusions. By increasing patients’ red blood cell counts, EPO dramatically improved their lives. Once the Food and Drug Administration approved EPO, it would become standard treatment. And with payment for the drug underwritten by the federal government (which covered ESRD treatment under Medicare), the market was both large and profitable. As competitors came to realize just how valuable EPO would become, Amgen found itself embroiled in a patent lawsuit with Genetic Institute. This was resolved in Amgen’s favor. Subsequently, however, the company fell into a series of legal battles, remarkable for their duration and bitterness, with its business partner Johnson & Johnson.
In the fall of 1988, Rathmann called Binder into his office and unexpectedly announced, “Congratulations, Gordon. The board has elected you CEO.” The reasoning—that Rathmann wanted to cut back on work, that bringing in a fresh CEO on the eve of introducing Amgen’s first product would provide momentum—strikes one as partial and incomplete. One senior manager is quoted: “At first, there was a sense of panic over George’s leaving. But then we though, ‘Wait it’s OK—it’s Gordon. Always very reasonable, always willing to listen. We’re going to be all right.’” The trouble was, the new organizational structure called for Harry Hixon to become chief operating officer. Binder compares their tense relationship to “two porcupines mating.”
Binder calls the period from 1993-1996 Amgen’s “nuclear winter.” In the latter year, based on EPO and a drug to stimulate white blood cell growth, called Neupogen, the company’s revenues exceeded $2 billion. But Amgen failed to produce a major new drug during that bleak period, leading critics to say that its pipeline was dry and future uncertain. The greatest failure was leptin, a gene for a hormone that regulates body weight. When Amgen licensed the technology from Rockefeller University in 1994, The New York Times wrote that it could be the magic bullet for the weight loss market: “It could turn out that Amgen has bought a license to print money.” Leptin, to the company’s dismay, worked well enough in mice, but not in humans.
Reflecting on his years at Amgen, Binder ultimately suggests that the culture he fostered and the principles that inspired his managerial vision were less about science than a powerful moral compass. He recounts an incident in the 1990s, when Amgen’s management team debated whether or not to test EPO in infants who suffered from a rare form of anemia. Commercial logic argued against it. The market was tiny; the study would be costly; finding mothers willing to test their babies was difficult. At length, Dan Vapnek, the head of research, said, “We have to do this trial.” The patients needed the product, and pediatricians needed accurate information to know the right dosage. “I looked around the room,” Binder writes. “No one said a word. Decision made. . . . I was never prouder of Amgen than at that moment.”
With respect to his legacy, Binder quotes Kevin Sharer, who succeeded him in 2000 as CEO. “He was probably at his best when things were at their worst,” Sharer said. It’s no secret that in recent years, concerns about drug safety have roiled the biopharmaceutical industry and have tested Amgen’s management; Sharer recently called the year 2007 “the most difficult in our history.” Biotechnology, creating medicines modeled on human proteins, is undoubtedly the toughest, most complex business there is. As Binder shows, discoveries come by unexpected paths, the time horizons are long, the risks enormous. Yet there is no other path to the breakthroughs we demand. That finally is the moral of Science Lessons.