Online Extra: Biotech, Then and Now

Amgen's George Rathmann explains how Big Pharma's role has evolved from detractor to investor, and why R&D needs more respect

George Rathmann, 77, co-founded Amgen (AMGN ) in 1980. Today it's the world's largest biotech company, with more than $10 billion in annual sales. Now retired and serving on the boards of several biotech startups, Rathmann recently spoke with Arlene Weintraub, BusinessWeek's Science editor. Following are edited excerpts from their conversation:

How far would you say the biotech industry has progressed in 25 years?

The biotech industry has established itself as a credible enterprise. In the early days, there was a lot of cynicism on the part of Big Pharma. They called it "hype" and a "flash in the pan." Then we developed bona fide products, and suddenly we got respect.

Now Big Pharma is one of the biggest investors in biotech, forming licensing deals and acquiring many startups. What are the risks and benefits of that for the biotech?

I had a lot of fear eight or nine years ago that Big Pharma would own the biotech industry. It was hard to predict that the market value of Amgen would be bigger than that of Merck (MRK ), 3M (MMM ), and Abbott (ABT ). It turned out a lot better than we had thought. And biotech has become fertile ground for Big Pharma.

But a lot of the money is being spent in fields where the payback is instant. They're looking around for companies that are in late-stage clinical development. That doesn't help build good R&D. They need to take a gamble and respect R&D.

For early-stage biotechs, raising capital is still quite challenging. You did it by forming partnerships with many companies, including Japanese beermaker Kirin (KNBWY ), and by scraping together a $42 million initial public offering. Why is it still so hard for startups to raise cash?

Gaining credibility is not simple. To get financing, you have to try to tell people how good something is going to be.

We went out on tour and could barely get interviews with pharmaceutical companies, despite that Genentech (DNA ) was already a success. It was hard to get people to listen to us.

We realized that [the anemia treatment drug] Epogen fit the profile of a very successful product. But we didn't say it was going to be a $3 billion product. We used $100 million to be very safe.

Among the companies you advise as a board member is Cellerant Therapeutics, which is working on stem-cell therapies. What do you believe are the prospects for that field of research?

Stem cells may be able to do wonders in regenerating tissues. There are a number of applications in the clinic, but it's going to take four or five years to get the promise out the door.

It's similar to what happened with monoclonal antibodies. [Monoclonal antibodies are proteins that attack specific targets on the surface of diseased cells. A successful recent example is Genentech's blockbuster Avastin, which cuts off the blood supply to tumors by inhibiting a protein that causes blood vessels to grow.]

The idea was around in the 1970s, but only in the last six or seven years has it resulted in commercial products. Now everyone is optimistic about them. It's a huge change. Stem cells are like that. There's skepticism there now, but the potential is just enormous.

As a kidney dialysis patient, you've been taking Epogen, a clone of a naturally occurring protein that stimulates the production of red blood cells, alleviating anemia. After having spent so much of your energy getting that drug to market, what's it like to experience it from the patient's perspective?

It's perfect. It's restored my red blood cell count. I spend a lot of money on it. But when the doctor suggested I cut back, I said, "To heck with that." I want to be 100%. Nature doesn't screw up.

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