Genentech was the world's first biotech company, with breakthrough treatments for everything from cancer to multiple sclerosis. But if not for Fred Frank — who wasn't CEO or even an officer — Genentech might no longer exist for biotech investing.
Frank (1932-2021), a pioneering financier of biotech investing and Wall Street's first pharmaceutical research analyst, put together deals that helped cutting-edge medical companies get funding. And his efforts largely built what's now the biotech industry — worth roughly $1.4 trillion based on the members of the iShares Biotechnology ETF.
Saving Genentech from financial ruin in the late 1980s stands as one of Frank's top successes. He brought Swiss pharmaceutical giant Hoffman-LaRoche and South San Francisco-based biotechnology startup Genentech together to hammer out a buyout. The aim? Find a way to prevent the latter from going belly up.
Frank's persistence in pulling off a deal won out despite some outsized egos that were involved. In a milestone event for biotech investing, Roche agreed to buy Genentech in February 1990 in a $494 million buyout that paid off handsomely for investors. Roche eventually bought the remaining stake not already owned in Genentech in 2009. Many still call it "Fred's deal." And in many ways, it showed biotech investing isn't just investable, but lucrative.
This deal "put biotech early on its feet and showed the rest of the world it could be a great investment," Bill Haseltine, former CEO of Human Genome Sciences, said in a Science History Institute video honoring Frank. In 2019, the institute awarded Frank the Richard J. Blote Award for leadership in chemical and molecular sciences.
Look Into The Future In Biotech Investing
Frank began his career on Wall Street as a rubber industry analyst. But he rose to prominence as the go-to man in New York for financing big deals in health care.
"I realized that the life science industry was going to shift very dramatically from the chemical base to the biotechnology base. So I saw this as an epic change," Frank said.
Over a five-decade stint on Wall Street, Frank trailblazed countless financings and pivotal transactions. They included the 1981 IPO of Cetus. The company made IPO history by raising $122 million and eventually got sold to Chiron, now part of Novartis. A Cetus co-founder worked at birth control pill innovator Syntex, a big stock market winner for IBD founder William O'Neil.
And Frank brought Marion Laboratories public in another blockbuster deal for drug and biotech investing. He served as main advisor in Marion Labs' acquisition of the pharmaceutical arm of Dow Chemical. Frank also led the IPO of Israel-based Teva Pharmaceutical after realizing the vast potential of the generic-drug market. At its apex in July 2015, Teva reached a peak value of $79 billion.
How did one man land in the middle of so many critical deals?
Tap Your Origin Like Fred Frank
Frank was born on May 31, 1932, in Salt Lake City, Utah. He was the second child of Simon and Suzanne Frank. And he saw early on the power of new ideas in business. Frank's grandfather, Arthur, started a successful clothing store chain, The Leader. The chain expanded to 12 shops within the state.
But watching his grandfather's struggles to find cash also showed Frank the power of financing. During the Great Depression, Salt Lake City's per capita income dropped from the 1929 peak of $537 a year to $276, wrote David Ewing Duncan in "A Philosopher on Wall Street: How Creative Financier Fred Frank Forged The Future."
Yet Arthur got favorable financing from his bank. And that helped him keep the stores fully stocked, as if the economy was going fine. As a teenager, young Frank pitched in to help the family business. He earned a 6% sales commission during Christmas vacations. And he also hired two friends to start a neighborhood car wash business.
After reading a Fortune magazine article on top boarding schools on the East Coast, Frank applied to the prestigious Hotchkiss School in Lakeville, Conn. and was accepted. Frank went on to earn a college degree at Yale University and an MBA at Stanford University. Frank joined Smith Barney in 1958, spent nine months as a trainee, then headed to the research division. There, Frank noticed most trainees picked industries in which Smith Barney held a strong standing.
From his point of view, it was the easy way out.
Biotech Investing: Stake Your Own Path
Frank wasn't interested in just repeating other analysts' work. He wanted to leave his mark. He stood out as a result.
"They (other analysts) just kind of took all the information collected by the firm, kind of plagiarized it," Frank said. So, he chose the rubber industry. Frank didn't stay there long. After a few months, he went directly to Smith Barney's research boss, Bill Grant, who covered both the chemical and drug industries. Frank convinced Grant to let him cover drugs and become Wall Street's first pharmaceutical research analyst.
What drove Frank's boldness?
"My focus was on how the transformational changes coming from new technologies made stocks more valuable, and when such change made for an investable concept for ambitious and risk-oriented investors," Frank wrote in the foreword to Duncan's book. Other brokers followed the bank's move. After an 11-year stint at the firm, Frank hopped to Lehman Brothers in 1969. He eventually served as vice chair until its 2008 demise during the subprime debt market meltdown.
Leverage Your Skills
The make-or-break Genentech buyout talks in the 1980s tapped all of Frank's skills. And that included his knowledge of people, not just money.
Genentech needed a lifeline. On Oct. 14, 1980, Genentech shocked the investing world as the first biotech IPO. Money raised helped Genentech, a master of recombinant DNA technology, deliver three products, including insulin and human growth hormone. But it needed much more capital to fund the next phase of growth. Wall Street shared that concern; shares had fallen from more than 50 a share to 21 by the summer of 1989.
But big egos were involved. While buyout talks continued at a Zurich hotel, Roche executive Armin Kessler lit up a Cuban cigar in the meeting room. Genentech CEO and co-founder Robert Swanson snapped, "Nobody smokes a cigar in my presence," Duncan wrote.
Swanson made things more difficult by demanding a seat on the Roche board. The Roche side felt that was nonnegotiable. To bridge the gap, Frank convinced both sides to meet in New York.
Both companies had plenty of doubts. Would century-old Roche, creator of the first hit tranquilizer, Valium, and a pro at developing lifesaving medicines based on chemistry, destroy Genentech's entrepreneurial streak and culture? Would a buyout make sense? And at what price? If the two merged, who would lead the new enterprise?
Astonishingly, Frank represented both sides of Roche's epic deal. Yet Kirk Raab, president of Genentech at the time and later Swanson's replacement as CEO after the deal, appeared to have no concern. He noted during his days of managing Abbott that Frank had done good work for that company.
"I really liked and respected Fred," Raab said. "Fred was incredibly informal. Never used a limousine, just rented a car, stayed at the Westin Hotel near the airport in San Francisco, and wasn't into fancy restaurants. He was jogging before the word jogging was ever used."
Protect Yourself
Frank was a star employee at Lehman. But he did not approve of how CEO Richard Fuld ran the firm during the bank's twilight years. Frank disliked the shift to earn large commissions on debt offerings and using enormous leverage.
A few days after Lehman filed for bankruptcy, Sandy Robertson, founder of investment bank Robertson Stephens, met with Frank in New York. He expressed sympathy over the bad news and assumed Frank lost all his money in Lehman stock. Frank's reply stunned Robertson.
"He said, 'No, every time I got an allocation of stock, I shorted it against the box,' " Robertson recalled, referring to short selling that defers paying tax on gains in held securities into the next year. " 'So, I'm just fine. I've sold stock whenever I could over the years ... and covered the short when it came.' "
Fred Frank's Keys
- Turned Wall Street into a money engine to fuel the biotechnology industry, leading many mergers, financings and IPOs.
- Overcame: Worked through a childhood stutter and lack of early connections in the investment banking world.
- Lesson: "In investment banking, watchful waiting is often the key to transformational transactions. Often one has to wait for the moment when markets, fundamentals, and 'the numbers' all coalesce."
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