The partnership between Genentech and the University of California developed recombinant DNA in 1979 and 1980. Image: Dan McCoy/Science Faction/Corbis

Will Genes Ruling Prevent the Next Genentech?

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June 20 (Bloomberg) -- By ruling last week to restrict the ability of companies to own human genetic sequences, the Supreme Court may have also called into question thousands of biotechnology, agricultural and drug patents.

The court’s decision that naturally occurring genes can’t be patented, though so-called synthetic ones can, may have another unintended consequence: It could undermine a precious relationship between academic scientists and the private sector by making businesses less eager to fund cutting-edge DNA research. Such ties, which have been a vital source of support for innovation in genetic engineering, rely on a model that was first developed by the iconic biotechnology company Genentech Inc. in 1976.

Genentech -- which developed Herceptin and Avastin -- was a pioneer of commercial biotechnology in the 1980s, when for-profit research was largely confined to Big Pharma. The company was founded in South San Francisco by Robert Swanson, a venture capitalist, and Herbert Boyer, a professor of microbiology at the University of California, San Francisco.

Recombinant DNA

Three years earlier, Boyer and Stanford professor Stanley N. Cohen had invented a technique for joining pieces of DNA in a test tube, copying it in living cells and producing the DNA code as a protein. Recombinant DNA, as it came to be called, quickly became a universal technique of genetic engineering.

Boyer immediately realized that the method could be used in bacteria to produce large quantities of pharmaceuticals at low cost. In the early 1970s, however, academic biologists rarely had direct ties with industry, and universities, with few exceptions, didn’t encourage faculty members to patent or engage in commercial activities. Boyer needed a business-savvy guide.

Swanson was just the man. He had been lured to the San Francisco Bay area by investment opportunities in Silicon Valley, and became a junior partner at the newly formed venture-capital firm Kleiner Perkins Caufield & Byers. He then decided to start a company of his own. He cold-called Boyer and offered to go into business with him. Swanson then managed to convince his former employer that he was on to a highly profitable new way to make drugs. The firm provided a modest $100,000 -- venture capital’s first stake in recombinant DNA technology.

In 1976, a partnership was formed between the University of California, which provided Boyer and his laboratory, and Genentech, which provided the funding. The company benefited from Boyer’s pioneering advances in recombinant DNA research, along with the service of two postdoctoral students and access to rare organisms and enzymes that weren’t available commercially.

In 1977, Boyer demonstrated for the first time that recombinant DNA could be programmed to make specific proteins in bacteria and Genentech became a leader in the emerging field of genetic engineering.

Yet Boyer’s dual status as faculty member and company co-founder and adviser unnerved some of his university colleagues, who said his ties to industry violated the conventions of academic biology (even though it was Swanson, as chief executive officer, who handled the company’s day-to-day business).

After the successful proof-of-principle experiment, Genentech moved on to make recombinant human insulin (1978) and recombinant human growth hormone (1979).

Patentable Matter

In June 1980, the Supreme Court gave the industry a boost in Diamond v. Chakrabarty, which declared that “anything under the sun made by man is patentable subject matter.” It created the possibility of private ownership of all kinds of living things and their components. It is unclear whether the court’s ruling last week will rein in Diamond v. Chakrabarty’s indefinite scope.

That year, Tom Perkins, chairman of Genentech’s executive board, began to push for an initial public offering. While Swanson argued that an IPO was premature because Genentech had no products on the market and only the slimmest profit margin, Perkins convinced the board that “all the planets were lined up.”

On Oct. 14, 1980, Genentech offered 1.1 million shares for sale. A minute after the opening bell, the price rocketed from $35 to $80 -- the fastest gain in Wall Street history at the time. The share price closed at $71, and Genentech had raised more than $36 million. Swanson and Boyer became instant multimillionaires, each reaping a one-day profit of almost $70 million. The company was acquired by Roche Holding AG in 2009 for about $47 billion.

Genentech’s public offering signaled the arrival of a new way of making money from the life sciences that has made the U.S. a global leader. It would be a shame if the high court inadvertently made such invaluable collaboration between scientists and business more risky and rare.

(Sally Smith Hughes is a historian of science at the Bancroft Library at the University of California, Berkeley. She is the author of “Genentech: The Beginnings of Biotech” and “The Virus: A History of the Concept.”)

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