THE SCIENCE OF THE DEAL
George Rathmann of ICOS knows how to pump life into biotech
By Seanna Browder in Bothell, Wash.
11/30/98
Business Week
Page 102
George Rathmann is a nut for games. Back in the late 1970s, when he was the research chief for Abbott Laboratories, a co-worker left a Rubik's Cube sitting on Rathmann's desk. Entranced by the seemingly simple challenge, Rathmann proceeded to spend ''night and day'' on the puzzle until he finally solved it--three days later. Even so, that's no easy feat: Out of 43 quintillion possibilities, there is only one correct combination.
These days, as the 70-year-old CEO of ICOS Corp., Rathmann is absorbed in solving another arduous puzzle. Rathmann joined ICOS shortly after its founding in 1989. Ever since he has been working to distinguish the Bothell (Wash.) company from hundreds of other biotech startups struggling to turn cutting-edge research into commercial drugs. Finally, it looks like the years of hard work may pay off: Two months ago, Rathmann persuaded Eli Lilly & Co. to pump at least $75 million into the development of a new ICOS anti-impotence drug.
The Lilly deal was a huge coup; executives there believe ICOS may be close to coming out with the next Viagra . They've got good reason for their vote of confidence. Rathmann has had plenty of coups in his long career as a biotech pioneer. After leaving Abbott in 1980, he spent 10 years building Amgen Inc., based in Thousand Oaks, Calif., from a tiny startup into a $2.4 billion dynamo. Sales of two key drugs developed under Rathmann made Amgen the biggest biotech company in the country. ''COMPASS.'' Although Rathmann is little known outside the biotech world, within the industry, he has made his name spotting hidden treasure in ongoing research. ''He's like a compass, pointing in the right direction,'' says David Milligan, former chief scientist at Abbott and now a biotech venture capitalist who sits on the ICOS board. Adds James D. Watson, former head of the Human Genome Project to map human genetic code: ''George is a survivor. He's still using his mind to shape science.''
But unlike many other scientists, Rathmann is a master of raising the capital needed to develop new drugs. Years ago, friends and associates dubbed the burly and affable Rathmann ''Golden Throat'' for those money-raising abilities. And it was Rathmann's smooth salesmanship that got ICOS rolling back in 1990 at a dinner with Microsoft Corp. Chairman William H. Gates III and ICOS' two founding partners, Robert Nowinski and Christopher Henney. By the time coffee was served, Gates agreed to write a check for $5 million. ''Bill liked the idea'' of ICOS, says Henney. ''Having George there helped.'' In 1994, Gates put in an additional $10 million, becoming the largest shareholder with 13% of the company.
Rathmann won over Gates the same way he has persuaded so many others to invest in his companies. The plainspoken Wisconsin native can make even the most complex mysteries of human DNA research comprehensible. At the same time, he doesn't mince words about the risks of investing in biotech, including the dangers for a small company like ICOS in dealing with giant drug companies. ''You must protect your research instead of selling off ideas...too early in the game,'' warns Rathmann. ''You hold on almost to the point of desperation, and then you get some sort of breakthrough.''
If living close to the edge drives Rathmann, he has picked the right industry. Although bioengineering is producing radical new drugs, developing one can cost up to $500 million. And ICOS, even with its Lilly partnership, faces daunting hurdles.
The company burned through $42 million last year for trials on four new drugs. Profits are still years away. IMPATIENT. It wasn't money that drew Rathmann to chemistry when he was growing up in Milwaukee. As a teenager, he used his grasp of chemical reactions to create spectacular explosions in the neighborhood. He now says his early pyrotechnics display was mostly intended to impress his high school girlfriend, Joy. It worked: The couple have been married since 1950. An impatient youth, Rathmann completed his BS in chemistry at Northwestern University by age 18. But he was so irate when the university denied him entry into medical school that he huffed off to Princeton University to get a PhD in chemistry instead. He landed his first job with 3M Co. as a plastics researcher.
Although highly regarded, he was never considered a star during his 21 years at 3M. Still, Rathmann doesn't regret his time there. He helped develop Scotchgard, one of 3M's most successful products, and managed its medical-imaging business, according to Milligan. ''There is no better culture than 3M to learn about risk-taking and translating science and technology into commercially successful products,'' says Rathmann.
When Litton Industries Inc. offered him the chance to head its newly formed medical-systems unit, Rathmann, by then the father of five, went for it. It was the worst decision of his life, he now says. During the early 1970s, Litton was buying businesses left and right to boost sales. The result: chaotic management and little coordination among divisions. Lacking management training and in the dark about what was expected of him, Rathmann floundered. In 1974, he says, ''I left before I was escorted out.''
But Rathmann landed on his feet as the head of diagnostic research at Abbott Labs, where he developed tests to detect pregnancy and certain diseases in early stages. It was a big break. Discovering his ''golden throat,'' Rathmann lured top scientists from competitors and academia and put them to work on projects that have since propelled the division into Abbott's most profitable. But Rathmann also sternly cut dead-end projects. ''He's got all the right ingredients in one complete package,'' says BioGen Inc. Chairman James Vincent, who hired Rathmann at Abbott.
In 1980, Rathmann took a leave to study molecular biology at the University of California at Los Angeles. But when he got to California, a UCLA professor impressed with Rathmann's business background invited him to head Amgen, then a tiny new biotech startup. ''I was stricken,'' says Joy Rathmann of the move west. ''But it was the best thing we ever did.'' On his way out the door, Rathmann even talked Abbott into investing $5 million in the startup.
Once at Amgen, Rathmann quickly raised an additional $14 million. After its launch, the company grew so fast that Rathmann moved his office into a trailer in the parking lot to make space for lab work. But it was three nerve-racking years before the company hit pay dirt. In fact, Rathmann says he was on the verge of pulling the plug on research to discover the protein responsible for stimulating red blood cell production when his team made its breakthrough. Then, Rathmann had to fight off a series of patent disputes with rival Genetics Institute. In the end, the research led to Epogen, which has become a billion-dollar drug by improving the lives of hundreds of thousands of dialysis patients. GOOD READING. Rathmann, by then wealthy, quit Amgen in 1988 to spend more time with his family and ''let the younger generation run things.'' But two years later, he was back at work, wining and dining Gates and other investors. ''It was the science that drew him back in,'' says his wife. ''He just couldn't leave it alone.'' Still, the Rathmanns make a point of taking the time to hop around the country in their private jet for regular visits with their five grown children and eight grandchildren. Always the proud dad, when his daughter Peggy recently published a popular children's book, he sent copies to dozens of investors.
They would have been happy even without the book. Since ICOS went public at $8 in 1991, it has outperformed most of its peers. Shares traded as high as $25 last August and are now at about $20--largely on expectations that ICOS will eventually hit it big with a new drug. Rathmann wants to be around when that day comes. ICOS, he says, ''is like reading a great book. You want to see how it comes out.''
But the clock is ticking. ''Everyone would love to have George right in the thick of things forever,'' says Janice M. LeCocq, CEO of Gryphon Sciences and an ICOS board member. But unless there is a genetic breakthrough in the aging process, Rathmann will soon have to turn his attention to finding a successor. And that will no doubt prove a lot tougher than solving a Rubik puzzle.
RESUME: George Rathmann
BORN 1928, Milwaukee
EDUCATION BS, chemistry, Northwestern University; PhD, chemistry, Princeton
UNREALIZED AMBITION To become an Olympic skier
BIGGEST PROFESSIONAL ACHIEVEMENT Developing Epogen, a red-blood-cell stimulant that has provided huge benefits to dialysis patients
WORST CAREER MOMENT Resigning from Litton Industries after failing as head of its medical systems division
CURRENT PROJECT Developing a new anti-impotence drug
BEST THING ABOUT BEING AN ENTREPRENEUR Freedom to pursue promising ideas
FAMILY Married, five children
HOBBIES Avid Seattle Supersonics fan; skiing at second home in Vail, Colo.; chess; Scrabble
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