value and opportunity

As I currently own a 5% poisiton in  (special situation) Biotech company Actelion, I thought it makes sense trying to learn at least a little bit about Biotech.

By chance I came across the book “Genentech – The Beginnings of Biotech” which recounts the history of Genetech from the very early beginnings in the 1970s until the company went public in October 1980.

• In 1974, two US scientists (Cohen & Boyer) who met more or less by coincidence developed a method how to cut DNA into pieces by using enzymes and reassemble them into new structures.
• Those structures could then be inserted into Bacteria who would then  “manufacture” complex DNA when the reproduced themselves
• The company got started when a Venture capitalist called Bob Swanson with no job decided to get started in Biotech and talked a Biotech pioneer (Herb Boyer) into joining him to start a company. They invested 500 USD each
• Venture capital was just getting started back then and was a tiny industry
• Still they managed to get funding from the now iconic VC firm Kleiner Perkins without having an actual product
• One of the said an interesting sentence: “If we would have know how difficult it would going to be, we would not have tried it”
• A lot of coincidences were required to get the company started
• Novo Nordisk was contacted early with regard to insulin but was not interested (tehy seem to have caught up later on…)
• Johnson & Johnson looked at the company in 1979 but thought 80 mn USD was too expensive
• the press complained during the IPO that the 3-year-old company made only a tiny profit (compare this to IPOs right now)
• the stock “popped” from 35 USD to 80 USD on the first day, back then the biggest day 1 increase in history (market cap at that day 530 mn USD)
• Later on Genentech encountered many problems. the founder was forced out among others.
• Roche acquired 60% of the company in 1990. Interestingly, Roch floated part of Genentech in 1990. Ultimately in 2009 Roche purchased the remaining 40% of the company for 47 bn USD. 

Some learnings from an investment perspective:

• things that are obvious later are never obvious in the beginning. Just look at this article from the IPO day in the Chicago tribune which clearly shows that the company had about the same reputation as Snap has today (and as we can see on the title, interest rates were at 14% back then….). The stock even went down to around 26 USD two years later.
• even experts (in this case all big major pharmaceutical companies) failed to understand the significance of this breakthrough

Overall I found it was in interesting and inspiring story how the Biotech revolution got started in the 1970s.

P.S.: if some readers know some interesting books about this topic then please let me know.