First-Hand:A Real First-Hand Account of the Startup Phase of Cetus
This First Hand History is a response to Starting Up Cetus, the First Biotechnology Company - 1973 to 1982
Submitted by Calvin B. Ward
After reading Roy Merrill's "First-Hand" account of the startup of Cetus, I feel compelled to set the record right. Much of the material he reports with respect to me borders on libel. Further, he could not have first-hand knowledge of most of the "facts" that he reports. Merrill was not involved with the startup phase of Cetus. Cetus started in 1971. By his own admission, he was hired two years after the company started; although he implies that the company was started in 1973 with 20 employees. In addition, even after he joined the company, he occupied an office that was remote from the management offices of the company in Aquatic Park in Berkeley, and was not involved in the various management meetings that determined the course of the company or which dealt with the day-to-day problems of the company. During the time I was involved with Cetus, Merrill was just one of a number of engineers who did support work for the screening system. Hence, most of his “First-Hand” information about this period is really second-hand information that he is repeating or embellishing and then repeating. Since Merrill does not provide sources for this information, it is impossible for the reader to determine the credibility of the information. But the factual discrepancies discussed below put most of his document in question.
Setting The Record Straight
1. According to Merrill, I "was an Australian immigrant … who was not accustomed to having steady employment, let alone making the salary of a professional scientist. With this new found wealth, one of his first purchases was a shore line lot in Sea Ranch …".
First, I was born in Los Angeles in 1941. I do have relatives in Australia who moved from the US while I was in college, but I have never resided in Australia. I also have relatives in the UK and Israel. Merrill’s anti-immigrant mentality speaks for itself.
Second, at the time Cetus started, I had been paid as a full time professional scientist for more than 5 years. When I filed my Ph.D. thesis at UCLA, my salary was raised to that of a full time research physicist. I then moved to a tenure tract faculty appointment at UC Irvine, another full time professional scientist position. When I came to UC Berkeley, I was a fellow of the Miller Institute and paid a full time salary that was more than I made at UC Irvine. Prior to starting Cetus, Don paid me as a full time research bio-physicist with a salary that was yet another raise. Finally, my initial pay at Cetus was the same as the pay I received in Don’s laboratory. During my pre-Cetus employment in Berkeley, my wife, who was an elementary school teacher, and I purchased a home in Kensington and the Sea Ranch property mentioned by Merrill. All of this was purchased without any money derived from Cetus.
2. Merrill's account of the now famous shark attack at Sea Ranch has almost nothing in common with the facts of that event. According to Merrill, I started diving without my buddies, who he describes as "Oakland Garbage Collector friends", because I was impatient. Once again, Merrill attempts to denigrate me by suggesting that my friends were somehow inferior. My diving buddy was a partner in Sunset Scavengers which had the waste pickup contracts for Pacifica. While he was not college educated, he ran a crew of several men and made more money than I made as a full time professional scientist. The other member of our group that day was his wife.
In Merrill’s view, I was waiting for them on the ocean bottom when I "was grabbed about his thighs and violently dragged through the water at break-neck speed. He was sure he had been attacked by a Killer Whale. He looked down at his legs and saw the sea monster’s jaws. He immediately, began jabbing the creature’s nose with the point of his fishing spear. After what seemed to him like minutes, the creature spit him out and disappeared. He quickly bobbed to the surface where his buddies found him, dragged him ashore, and called the Coast Guard for help. Fortunately, his neoprene wet suit was still in tact and held his deep thigh wounds together, squelching the blood flow until the medics arrived". This account is factually challenged. Needless to say, Merrill was not at the dive site, and hence, could not have seen the events he reports. Furthermore, I never told a story of the attack that is remotely close to this fantasy. So whoever made this up had a good imagination.
The real story is as follows. On the fateful day, we had selected a new cove to explore based on its relatively easy access from a car park area to the water. We hauled our dive boards down to the cove, suited up, and paddled to a location on the edge of the cove that appeared to have a rocky bottom. We tied off the dive boards to the kelp, put on our tanks, and submerged together. We explored the portion of the cove along the shore which was quite rocky and full of abalone. We noted the area as a possible abalone diving spot. Unfortunately, the cove did not have many caves, and hence, was not a good place to go spear fishing for lingcod, which was our goal for the day. There was one kelp bed that was obviously attached to some rocks that were off shore by about 50 yards. In a last ditch effort to find some caves, I swam out to investigate the kelp bed in question. The kelp was attached to a big rock with no caves. I surfaced, signaled by buddies not to bother coming out and proceeded back to their location under water.
I was crossing over some sand on my way back when something grabbed my legs from behind. At first, I thought it was my diving buddy trying give me a hard time. He knew that I was nervous when diving over sand, as we often encountered sharks over sandy stretches when we dove at the Channel Islands off of Santa Barbara. I wrenched myself around to confront him, and realized that it was not Johnny joking around. At this point, my legs were free and I realized that I had been attacked by a very large fish. The visibility was quite limited, so I did not get a good look at it when it swam away. However, from what I could see, I thought it must have been a killer whale from its size. The visibility that day was about 15 feet, and I could not see the head and tail at the same time as it headed off into the cloudy waters.
Contrary to Merrill's account of the incident, I was not dragged through the water at break-neck speed and I did not see my leg in the “sea monster’s jaws”. Furthermore, I did not jab the shark in the nose with my spear gun. The Coast Guard was not called, and no one ever recovered a shark tooth in my wet suit.
The fish merely decided that I was not the meal that it had anticipated and released me. Note that had I jabbed the monster repeatedly with my spear gun as Merrill claims, I would have seen it’s head and known that it was a shark and not a killer whale. Furthermore, if the Coast Guard had been called and the paramedics had attended to my wounds, there would have been a report in the local papers, and I would have been interviewed by the press. I have never seen any such report in the press and certainly was not interviewed by any reporters.
After the fish left, I was both conscious and lucid. I discovered that I had a large gash on my left leg and a minor wound on my right leg. My shin bone was exposed through the large gash on my left leg. However, I was not bleeding badly because, by some miracle, the shark missed my main arteries. So I proceeded to the surface and signaled my buddies that there was danger. Johnny and Jackie came over and looked at my leg under water. I still remember the look on Jackie’s face as she jumped on her dive board and paddled as fast as she could for shore without even removing her tank or weight belt. Johnny, who was fearless, and one of the best diving buddies that I have had in my 45 years of diving, helped me up on my dive board and helped me tourniquet my leg using some elastic tubing that we used to tie our boards off to the kelp. With the bleeding controlled, I managed to paddle myself back to the shore. Johnny helped me up the trail to the car, and we preceded to the house of a local doctor at Sea Ranch. The doctor spent the next two plus hours sewing up my wounds. He stopped counting at 90 stitches. Johnny meantime loaded the boards on the car and drove me home. In hindsight, I was just incredibly lucky in that the shark managed to miss all of my main arteries and did not severe my Achilles tendon. The wounds healed relatively quickly, and I was back diving in Santa Barbara by the end of lobster season that year.
The true nature of the “beast” that attacked me was determined a week or two after the attack when I had my wounds dressed. The UC Berkeley campus diving officer, who was a good friend of mine, had come along to view the wounds. He immediately pointed to one triangular shaped cut next to the main wound and proclaimed that the "big fish" was not a whale but a great white shark as evidenced by that tooth cut. I became one of the reported shark attacks on the California coast.
3. The motorcycle accident reported by Merrill did not occur because I bought the biggest BMW motorcycle on the showroom floor and ignored the sales people advice about getting some professional training before riding it. According to Merrill's account, I lost control of the bike while going over some railroad tracks as fast as the bike could go from a standing start. In his fantasy, I laid the bike over pinning my right leg and skidded 50 yards. According to Merrill, this occurred at Cetus' warm room warehouse where Heinz Street crosses the Southern Pacific rails about 200 yards beyond the Cetus parking lot.
First, the accident in question could not have occurred at the location reported by Merrill. The Cetus warm rooms were located in a warehouse on 4th Street at this point in time. The Cetus corporate offices were located at Aquatic Park with a parking lot accessed by Bolivar Drive. The railroad tracks in question do not cross either 4th Street or Bolivar Drive. Furthermore, the railroad tracks do not cross Heinz, which is miles from the Cetus parking lot. This inconsistency would have been obvious to Merrill if he had taken the time to look at the Google Map of this section of Berkeley. The streets in this section of Berkeley are still in the same locations as they were at the time of the accident.
Second, it should be noted that the only point at which the railroad tracks in question cross a street in the vicinity of the Cetus facilities is on Addison Street between Bolivar Drive and 4th Street. That location is not visible from either Cetus facility; hence, it is highly unlikely that any Cetus employee at either location could have witnessed the bike sliding on the railroad tracks as reported by Merrill.
Third, I have never owned a BMW motorcycle or even driven a BMW motorcycle. In addition, the motorcycles I have owned were not purchased from any showroom dealership.
The facts of this accident are as follows. The motorcycle was a 175cc Honda that had been modified to fit in the back of my Piper Cherokee airplane. When my wife and I flew to remote locations that lacked rental cars, we would use this bike for transportation. After the accident, I had the bike repaired, and I still have this motorcycle in one of my storage buildings; although I no longer ride motorcycles. The bike was purchased from an outfitter that modified motorcycles for use with small airplanes. There was no “showroom”. Furthermore, I had been using this motorcycle for at least a year at the time of the accident.
In addition, I was an experienced motorcycle rider having driven a 300cc Honda during most of my graduate student days, including nightly trips between Cal Tech and UCLA during my Ph.D. research. At the time of the accident, one needed a motorcycle endorsement on your driving license to drive a motorcycle on public streets. This endorsement required that you pass a driving test. Hence, I could not have been legally driving a big BMW bike without lessons, unless Merrill is accusing me of breaking the law and the sales people of encouraging such law breaking, which would leave them with significant legal liability.
I used to ride this "suitcase cycle" periodically between my house and the office to keep it "exercised" between trips to remote locations where it provided transportation. The accident occurred while I was heading home on the bike after work one night. I collided with a car at an intersection while traveling north on either 4th or 2nd Street. I took this route home when riding the bike, because it avoided the freeway and had very light traffic. The intersection in question was on the north side of University Avenue, and nowhere near the Heinz Street location reported by Merrill or Cetus’s parking lot. I am sure that there is a Berkeley police department report describing the accident, as one would have been required by law given my injuries.
Finally, according to Merrill, I skidded with my right leg pinned under the bike for 50 yards, which is clearly inconsistent with the fact that was my left leg that was broken.
4. Merrill needs to provide the sources for these fanciful stories. Merrill reports on events for which he could not have had first-hand knowledge; so it is clear that he is repeating stories that were told to him by others. As a matter of intellectual honesty, I would think that he owes his readers the identity of the sources of these stories.
A History Of The Early Days Of Cetus
To understand the early years at Cetus, one must first understand the relationships between the five individuals who founded the company. The five founding members were Ron Cape, Pete Farley, Don Glaser, Moshe Alafi, and me. Ron, Don, and I met through our relationships at the Virus Lab at UC Berkeley that preceded Pete's entry into this group by a period of at least a year or two. Moshe knew Don from another startup company that involved both Moshe and Don prior to my coming to Berkeley. It is my understanding from conversations with Ron that Pete and Ron met while each of them was trying to find a way to start a company in the Bay Area. Contrary to Merrill's story, Pete was not the center of the group or the motivating force behind starting the company. If anyone deserves that role, it was Ron Cape.
If Pete and Don had an earlier meeting over the thermometer application recited by Merrill, neither Don nor Ron ever mentioned it to me. In addition, the bubble chamber operates on liquid hydrogen that is being held at a temperature and pressure near the boiling point of liquid hydrogen. This is not a supersaturated solution that undergoes a phase change as a result of a temperature change. The bubbles are formed as a result of a pressure change on the fluid. Furthermore, one would not even consider using liquid hydrogen in a hospital setting. If Pete really suggested such a thermometer, it was the first of a number of impractical ideas that he put forth over the early years of Cetus.
I joined Don's research group in the summer of 1967. My formal training was in physics, having received my Ph.D. from UCLA in 1966. After graduate school I accepted a position of Assistant Professor of Physics at UC Irvine and taught during the 1966-1967 academic year, in addition to my research work. Don knew that I wanted to switch from physics to molecular biology; however, he also knew that I was not willing to take a pay cut to make the switch. Hence, Don nominated me for a Miller Fellowship at the Miller Research Institute at UC Berkeley. This prestigious fellowship paid more than I was making at UC Irvine, so I decided to come to Berkeley.
Don's group was the natural place to make the switch in fields, as Don was a physicist who won the Nobel Prize in physics for inventing the bubble chamber and then decided to switch to molecular biology. When I joined Don's group, the group had two relatively separate sub-groups. The first was a conventional microbiology group that was studying control mechanisms in DNA synthesis in bacteria. This group's work involved numerous experiments that resulted in petri dishes having colonies growing on them. The experiments often required the researchers to count the number of colonies on these dishes at the end of some phase in the experiment. The work of counting the colonies and performing other manipulations on the dishes was tedious. In addition, Don believed that one could ascertain information about bacteria from the shape of the colonies on the petri dishes and the rate the colonies grew.
Don set up the second group to work on automating petri dish experiments. Bubble chamber physics benefited from the automated processing of pictures of events in the chamber; hence, Don thought that this type of automation seemed a natural fit for the biology world as well. Unfortunately, automating the microbiology was more challenging than Don had originally thought. Don had been promising the biologists that the automation would be counting colonies for them for two years when I arrived. In fact, it had become the lab joke. Initially, I had no interest in working in the engineering group and was content to do classical microbiology and publish my research.
The engineering group that was working on automating the petri dish biology manipulations and data processing contributed very little to the classical microbiology group. The engineering group did have a large computer which I found helpful in reducing my microbiology data. However, I was the only biologist who used the computer, as the other members of the biology group lacked programming skills.
At Don's request, I became involved with the engineering group, as that group was having some significant problems in executing the automation program, and I had a significant amount of instrumentation and numerical analysis experience acquired during my Ph.D. research. In this split role, I did "classical" microbiology experiments and published papers on that research. I also took on the task of working on the optical pattern recognition programs when the programmers who had been doing this task failed to get a system working that could even count as few as 10 colonies on a petri dish correctly after more than a year’s effort. As a result of my success in getting the colony counting programs to work, Don asked me to stay on when my fellowship finished at the end of my second year in Berkeley. I agreed to stay because I was assured by Don that I could stay on at the Virus Lab as long as he could get research funding. Were it not for those assurances, I would have returned to UC Irvine which had been kind enough to keep my faculty position open for my return.
Don's engineering efforts were directed to two large material handling machines that were to perform operations on colonies growing on the surface of agar plates as well as the optical pattern recognition efforts. One system was supposed to take pictures of the colonies on conventional petri dishes and use a large computer and scanner to process those pictures to determine the number of colonies in the field of view and various optical properties of the colonies. The other system was going to do all of the classical manipulations on "petri dishes" that were 1 meter square and lived in a special incubator known as the “dump waiter”.
The pieces of the material handling hardware and the large computing facility dedicated to Don's work that were in existence at this point were impressive to look at, but never really worked as envisioned in the time I was involved with Don or Cetus. The first machine that was to take pictures of conventional petri dishes using stacks of dishes in "cartridges" was abandoned after about two years of engineering effort due to mechanical problems, and the realization that the time it took to take pictures manually was not the limiting step in most of the experiments in which it was to be used.
The carriage system for the big petri dishes was being developed during my tenure in Don's group; however, the incubator and other material handling pieces were still just at the drawing stage. Don did eventually get a couple of components of the dumb waiter system working and published a paper using this system around 1977.
I did succeed in training the computer to process the pictures of conventional petri dishes and in making a simple manually operated photographic system that allowed us to do some interesting research in the absence of the large scale material handling systems. That research and my other research in conventional microbiology occupied my time from 1968 to the summer of 1971, and was the subject of a number of publications.
During my tenure at Don's lab, I met Ron Cape who was a post doctoral fellow in another research group, and we, and our spouses, became good friends. When Ron's position terminated in 1970, there were very few academic jobs available in microbiology, and certainly, none in the Bay Area. Ron had the luxury of having some money from his family’s pharmaceutical business in Canada, so he decided to stay in the Bay Area and try to start a company rather than pursue a career in academia. Ron had observed that a number of successful companies had been created to automate procedures in chemistry. He looked at Don's efforts and reasoned that the next field to be automated was microbiology, particularly, pathology laboratories. However, beyond this sort of broad concept, he did not have any specific ideas about equipment that could form the basis of a new company.
During his search for an automation project, Ron would often come by my lab and bug me about inventing something that could be used to start a company. But I was not really interested at that point, because I had a secure job, lots of "toys" to amuse me, and could spend my weekends scuba diving on the north coast or more pleasant locations such as Santa Barbara and French Polynesia.
It was during this time that Ron met Pete Farley who was an M.D. and also had a MBA from Stanford. Pete was also interested in starting a company. So Ron and Pete started consulting for various venture capitalists who were considering investing in particular companies. In addition, Ron started to bug Don about finding some commercial use for Don’s automation work.
At this point, two events conspired to upset my plans. The first was a ruling by the head of the Virus Lab that no post doctoral position could continue for more than four years. Hence, my secure fun job was about to evaporate, and I was forced to look for another job. Second, I was asked to review a grant proposal that had been submitted to the NIH for developing a device for automating an antibiotic sensitivity test that was used to decide what drugs to use to treat a patient's bacterial infection. The proposed system was unimpressive and overly expensive. I panned the proposal. But it started me thinking about a simple change to the test that would allow the test to be both more sensitive and trivial to automate. I suggested this simple approach to Ron as a candidate for the invention he had been seeking.
My own job search turned up three academic positions that I would have been happy to take, as they were in locations in which I could pursue my interest in scuba diving as well as my microbiological research, and two of them were tenured faculty positions. In addition, the IBM research labs on the East Coast were pursuing me to join the labs and do optical pattern recognition research. Unfortunately, my wife had fallen in love with the Berkeley area and was not keen on relocating more than 45 minutes from Berkeley. So I began to explore leaving academia.
Ron latched onto the antibiotic resistance "toy" and he paid for the parts to build a prototype that worked as expected with the help of one of Don's technicians and machine shop. Don agreed to become involved with the new venture if I would manage the research and development side of the operation. Don knew Moshe Alafi, who was a venture capitalist who had started several successful scientific startups. Moshe agreed to get involved if Don was involved, since Don's Nobel Prize gave the startup a certain degree of scientific credibility.
Hence, we started what was to become Cetus. It was now the summer of 1971. One of the first tasks was deciding on a name for the company. At this point in time, the Andromeda Strain movie was in production, and Don's automated biology efforts had caught the attention of the producer who sent writers to the lab to get ideas for dialog. So we initially thought that we would name the company Andromeda Scientific Labs. However, the fear of being sued nixed that name.
As noted above, prior to the period in which we were trying to settle on a name, I had purchased some property at Sea Ranch, and hence, gained access to some relatively under dived part of the coast. On the fateful day described above, I was attacked and I thought a killer whale had done the deed.
Ron had been making lists of possible other company names by looking at the names of other constellations. According to Ron, the constellation Cetus was next the constellation to Andromeda in the star charts, and Cetus was also the genus of whales. Since we thought a killer whale attacked me, Ron decided that was an omen, and we named the company Cetus Scientific Labs. We later shortened the name to just Cetus.
From a marketing point of view, Pete thought that this was the perfect name. It did not contain any letters that were hard for the Japanese to pronounce. It had a great story that nobody could forget. By the time we learned that it was a shark and not a whale, we had a name, so the mistake did not matter.
The original funding for Cetus was put up by the founding group, not outside investors, and was a relatively modest $50K. Pete Farley had taken on the role of marketing director for the new test and automated reader that became known as the Cetus Fetus. It should be noted that, contrary to Merrill's assertion, no outside money was raised based on the Cetus Fetus. Initially, Pete was convinced that this new test would be a gold mine. We would just keep raking in the money on the disposables for the test. Pete was really very good at spinning fantastic tales of wild successes and incredible riches.
Unfortunately, Pete's initial assessment proved to be flawed for two reasons. First, the profit margins on the test strips were low. According to Pete, the pharmaceutical companies basically gave them away to promote their antibiotics. This was not, however, a crucial flaw, since we could have patented the improved test and gotten the companies to buy the strips for the new test geometry from us, or at least pay us a royalty. In addition, it would be in their interest to buy the automated reader and give it to the labs. The correct analysis here would have been to look at the marketing budgets for the antibiotics and base our royalty stream models on what the companies would pay to have a marketing advantage. However, that level of analysis did not exist at this point in the company.
There was a second, however, more important problem that Pete had not foreseen because of his complete lack of knowledge with respect to the health care business. We were proposing a change in the geometry of the test strips which meant that we were, in essence, proposing a new test that would be used in the treatment of patients. That test would have to be validated in clinical experiments before anyone would consider using it. In the meantime, no one would buy the instrument or test strips, except the labs doing the validation tests, and we would need to provide those items to the labs for free along with the personnel costs associated with the studies. We did not have the funds to support that effort, no less the company for another year. The validation tests alone would cost at least $1,000,000 at that point in time and would require a year to complete.
So we began look at other possible instruments that would find favor in pathology labs and not require regulatory approval. However, each time we would put forth an idea, Pete would initially see it as a gold mine only to discover that it was not going to fly. We hired consultants with pathology expertise, but no one could come up with the kind of big money maker that Pete thought we needed to attack real funding for the company.
Contrary to Merrill's account, the company did not collapse at this point and then Pete's backers encouraged him to make a third try based on Don's screening system. If Pete had any financial backers, they did not provide any significant fraction of the money raised by Cetus in its first and second private rounds of funding. Furthermore, Don's proposed screening system did not exist at this point in time. It was still some pieces and a design on paper.
We had now been at it for about four months, and the money was running out. At this point, the Vice President of R&D of Schering and some of his scientists came to visit Don's lab in hopes of finding some automated procedure that would help them with a desperate problem they had in increasing the productivity of the microorganism that made the antibiotic Gentamicin. This drug was their big money maker at the time, and they needed to increase their manufacturing capacity. They had tried all of the usual routes to find mutants that made more of the antibiotic, but none of these routes led to improved strains that could solve their production problems. They were desperate and, and more importantly from our desperate point of view, cost was not likely to be an issue. Don did not see any solution to their problem using his material handling machines; although they appeared to have been impressed by his machines, which gave Cetus some credibility. Don sent them down to Cetus to see if we had any ideas.
Over the next few weeks, I flew back to New Jersey and toured their labs. They educated me as to how they were searching for improved strains and why this particular organism presented some unique problems. I brought this newfound knowledge back to Cetus and had a number of discussions with Don and a scientist that we hired by the name of Robert Bruner. We determined that they really had three problems. The first related to separating out the mutated organism after a culture was exposed to appropriate chemical mutagen. The organism grew in connected strings of cells rather than as a single celled organism; hence, even if we introduced a mutation into one of these cells, we still had to deal with the non-mutated cells that were connected to that cell and which would mask the effects introduced into the mutated cell. While we knew very little about this particular organism, I had considerable experience in mutating bacteria and selecting mutants that had some desired property. Bob Bruner and I devised a relatively simple solution to this problem and eventually received a patent covering our method. When the patent issued some years later, Schering was very unhappy about our revealing this important technique to their competitors who would use it when their patent on the drug ran out.
The second problem related to the sensitivity of the assay used to measure the concentration of the drug in a culture. If we were to identify mutants that made more of the antibiotic, we needed an accurate assay to compare the production capabilities of the various mutated strains that we were about to generate. We reasoned, and they agreed, that most of the mutants would only have a slightly better production level; hence, a highly accurate assay was needed to detect the improved strain that would then be used as the parent strain in the next round of selection. They had an automated assay for the antibiotic; however, it lacked the required sensitivity and would not scale up to level of samples that we were anticipating. Bob Bruner and I eventually developed an assay that was more sensitive than the one they used, and was much easier to automate. We kept that assay as a trade secret. Bob's contributions to this project were significant and under appreciated at the time.
The final problem related to the automation of the screening of various mutated strains. We were looking for a needle in the haystack. Improved strains probably occurred at a frequency of one in 10,000 or less. So one had to measure the production potential of literally tens of thousands of individual cultures. In the system they used, the cells were first spread out on petri dishes after being subjected to the mutagen, and individual colonies selected for testing after some incubation period. Each colony was manually transferred to a flask having growth media and allowed to incubate on a shaker table for several days. At the end of that period, a sample was removed manually and assayed.
Automating this procedure presented some real challenges in material handling, particularly if the large flasks that they used were to be the fermentation containers and the entire process was to be done automatically. Don's machinery was not working and was not likely to work in any time frame that would help with the project. Furthermore, it was not really adapted to the type of procedure we had to implement.
At that point, Don and I had a meeting in which we realized that we could do the entire procedure in a single vessel from selecting the colony to be tested and fermenting a culture based on that colony. Basically, the idea was to put the "petri dish" in the bottom of the vessel. We would put an agar pad in the bottom of the vessel and inoculate this "dish" with a solution that would have at most only one organism in the amount that we placed in the vessel. At the end of an incubation period, there would be a one colony on the bottom of the vessel growing on an agar pad. There would also be a number of vessels with no colonies and some with multiple colonies. But these later cases merely reduced the number of usable vessels, and the vessels we were considering were cheap. We would then add the fermentation media to the vessel and shake it for the appropriate number of days. At the end of that period, we would remove a small amount of the liquid and assay it by transferring it to an assay tray having the same geometry.
The whole procedure could be automated by making trays that had approximately 200 wells in each tray. Each well was about an inch in diameter and two inches deep. All of the filling and transfer operations could be done with some manual handling and a single filling apparatus that consisted of an array of pipettes connected to a common reservoir. To fill a tray, the pipettes were lowered into a reservoir and filled by using a plunger to evacuate the reservoir to which the pipettes were attached. The pipettes would then suck up the same volume of liquid into each pipette. The pipettes were then raised and a tray placed over the reservoir in position to receive the contents of the pipettes. The plunger was then run in the opposite direction and the contents of the pipettes were expelled into the wells. The entire fill cycle took less than a minute, and the apparatus could be run manually. The first machine was manually cycled and had more than enough capacity to process cultures at the million cultures per year rate we were targeting. Once again, a semi-automated solution won the day.
The entire procedure was as follows. After the agar was placed in the wells and hardened, the trays were returned to the dispensing machine and a dilute solution having the mutated organisms was dispensed into each well, so that, on average, there was less than one cell per well. The trays were then sent to the warm room to incubate and develop colonies. After the colonies developed, the trays were again returned to the filling machine and fermentation media added using the same apparatus. The trays were covered and sent to the warm room to shake. At the end of the shake period, a small sample was removed from each well using the same apparatus and the samples were injected into corresponding wells of an assay tray in which each well was filled with a target organism whose growth would be inhibited by the antibiotic made in the fermentation. The degree of growth of the assay organism was monitored using a pH indicator dye so that wells in which the antibiotic concentration was too low would turn color before those in which inhibition took place. By timing the reading of the assay trays, the cultures in each tray that produced the most antibiotic could be identified. Those cultures could then be purified and examined in a more conventional shake flask arrangement. We tried out the procedures using small glass vials in racks, and it appeared to work.
Having conceived of this system, our problem was now one of selling it to Schering without telling them how it worked, since nothing would stop them from setting up such a system in their labs. Furthermore, their scientists were likely to try to shoot down the ideas, since they did not conceive of the system. Their scientists were not really keen on taking our word for the fact that we had a system that could screen a million candidates a year, particularly since they had not succeeded in designing a system with that capability. Even with Don's Nobel Prize on display and his endorsement of the system as being capable of doing what we said, the negotiations were at an impasse. The process went on for a number of meetings in a smoke filled conference room with no progress, when something really amazing occurred.
During all of the negotiations, Moshe would sit in the back of the conference room and just listen to the discussions without talking. Finally, at one critical point in the negotiations, Moshe looked Pres Pearlman who was the VP of Research for Schering in the eyes and proposed a series of quarterly meetings in which we would abstract the data on the strains that we isolated in a manner in which they could view the progress as if we were doing conventional screening. They would have an opportunity to make suggestions and question our overall strategy, and hence, have some continuing role in the program. In addition, we proposed a somewhat unusual screen strategy that would shorten the time between successive experiments. In that moment, Moshe and Pearlman had a meeting of the minds and formed a bond that would last well past the days in which Schering was involved with Cetus. At the end of that meeting, Schering had agreed to give us a contract for a million dollars a year for two or three years. The contract was extended for some period of time toward the end.
Based on that contract, Moshe went out and raised $2,000,000 from the venture capital community at a $10,000,000 evaluation for the company in early 1972, and Cetus was off and running. It is worth noting that because of Moshe's involvement, the offering was oversubscribed in less than two weeks.
We spent several months getting the trays made by a plastics molder and working out a sterilization system. All of this activity was done under a shell company that was created to make it difficult for anyone to know what Cetus was doing. We built and tested the filling machine and everything was ready within a few months. The initial group of engineers and technicians did a really great job given the resources at their disposal and their lack of experience in biology. The filling machine was actually the forerunner of the handheld pipette banks used in many modern biotech assays. All of this took place before Merrill joined the company, and hence, he could not have first-hand knowledge of these events.
The first run of the system appeared to work; however, the following runs of the system were fraught with problems. The biggest problem was contamination. Occasionally, a well would be populated by a spore of a fungus and that well would have a "furry" fungal colony covered with spores. In an effort to save money, the engineering group had constructed warm rooms by taking a conventional room, painting the walls with a paint that could be washed, and putting a thermostatically controlled heater in it. We were working in warm rooms that were constructed in old warehouse space that was far from sterile, and were almost impossible to thoroughly clean as spores were in the walls and could leak out around the base boards. After the first run of the system, we had thoroughly contaminated the warm rooms.
The fungal colony that invaded a well would have spores by the time the fermentation media was added. The addition of the media to the well would disperse the spores into the air over the well and contaminate the other wells in the trays not to mention the rest of the room. When it came time to assay the trays, most of the wells would have been contaminated by fungi, and the tray would be useless. This problem effectively shut down the operation for a period of months while we tried to device a cleaning scheme that would remove the spores from the facility and a growth media that would not support the fungus or other contaminants. We were, finally, able to solve the problem by use of the new growth media and procedures that were put in place by one of the scientists that we hired from the pharmaceutical industry. The new agar media; however, required that Gentamicin be added to prevent bacterial contamination and an antifungal agent was also introduced. These compounds altered the final fermentation medium, which probably caused other problems.
We then had what looked like a success in the sense that we isolated one strain that was somewhat better at producing the drug by maybe 10 percent when measured in conventional shake flask tests. Schering was predicting that we would get millions in royalties under the agreement if the strain worked in their big fermenters. The Board of Directors and the investors were happy. So while Schering was working on scaling the strain for production, Moshe raised another $3,000,000 from the venture capital community at three times the original evaluation for the company. In addition, the management team all got a big raise.
Unfortunately, our strain did not scale in production. The antibiotic was really a mixture of three component compounds. These compounds had to be in specific relative concentration ranges to satisfy the conditions of the FDA approval of the drug. The improved strain had the wrong ratios, and hence, was effectively useless for human treatment. Luckily, by the time this was discovered, we had the additional money in the bank and were not asked to give back our raises.
The company now had a working business model and Pete had set a task for himself as our marketing person to sign up other pharmaceutical companies for strain improvement. However, Pete was unsuccessful in getting anyone to put up any money. Unlike Schering, none of the other companies were desperate. He did land one contract in which we would be paid if we succeeded in finding an improved strain of a penicillin or erythromycin producing organism. However, Cetus had to bear the costs of running the programs and would be paid based on the cost savings achieved with the improved strains. These contracts did, however, allow Cetus to claim that it had multiple clients in the strain improvement business. When asked how many contracts we had, Pete would reply that we had three “projects”. Unfortunately, the new projects as well as the Schering contract did not generate any further successes, and the money was running out.
During this period of time, the environment within the company became quite toxic. The company was being run by managers who had no organizational skills and training in getting people to work together as a team toward a common goal. Ron had hired a number of scientists with little organizational skills and had promised each one that he would be able to do science at Cetus without the burden of hustling for grants. In addition, the scientific advisory board was expanded to include famous scientists who put forth ideas that were even less practical than Pete’s.
In addition, Ron and Pete did not undertake to teach such management skills to the scientists. As a result some of these individuals began fighting over turf and power within the company. My relationship with Pete had also become problematic because I was in the position of shooting down some his ideas for new business as being divorced from reality. In addition, I opposed one big management decision of his at the Board of Directors and won. Hence, any time one of the scientist or engineers took aim at me, Pete saw it as an opportunity to reduce my role in the company.
At this point, it was 1975, and I was injured in the motorcycle accident described above. As a result of the accident and Kaiser's inability to pin the bone back together, I was off line for six weeks in the hospital in traction and two months in a body cast. During the time in the hospital, I sat in on meetings by phone. When I was finally released in the body cast, I went to work and used a drafting table as a desk. However, my absence provided Pete a further opportunity to undermine my position at the company.
By 1976, the company was clearly in big trouble. It had not performed on any of the contracts. The Schering contract was coming to an end, and Schering had no interest in pursuing any further relationship with Cetus. Contrary to Merrill's report, the company never delivered an improved strain of any antibiotic producing organism to Schering that Schering could use to make the antibiotic. If we would have had such a success, we would not have been running out of money. In addition, as of the time I left the company, the company had not provided any improvements in the other antibiotics that were the subject of Cetus financed improvement programs.
The company's problems were clear even to the lower level employees. Some of these employees had stock in Cetus that was given to them in the early days of the company as incentive bonuses. We never educated these employees with respect to the limitations of what they could do with their stock, so some of them tried to sell their stock by placing ads in one of the local periodicals. By the time we became aware of this activity and explained that they were breaking the law, a money manager who qualified as a sophisticated investor under the SEC rules had noticed the ads and began to purchase some of this stock for his account and some of his investors. At this point, there was a small market in Cetus stock, and people were selling some of their stock.
In addition, there were rumors that some of the outside investors in Cetus also started to sell some of their stock.
Given the hostile relationship that had developed between Pete and myself and the tenuous condition of the company, I moved to protect my family by placing a significant portion of my stock into a charitable unitrust which ensured that someone outside the management group would look after my family's interests. Shortly after the trust was created, I told the trustee that I would not be unhappy if they succeeded in liquidating that stock. When Ron and Pete got wind of the deal they went ballistic. The thought that I would make money from the company before they would was just unthinkable. However, they could not afford to fire me given the state of the company at that time. If I left to join one of the other companies that was starting up to exploit the new gene splicing technology, the true state of Cetus would become public; and they would have little chance of raising more money. However, I knew that it was only a matter of time until my relationship with the company would be terminated or the company would be liquidated. In fact, Don warned me that they were planning to fire me.
At this point, I had also made the decision to pursue a career in patent law. I had been an inventor on a number of patent applications by this point and enjoyed the process of writing and filing applications. In addition, I am basically a technology junky, and hence, I would have a job in which I made a lot of money learning other people successful inventions. This course of action would have also benefited Cetus, since I would be at law school and not telling tales of the incompetence of the management. At one point, Pete offered me the chance to stay on and get paid while I went to law school if I would not oppose them at the Board or side with Moshe who, as chairman of the board, was actively seeking their removal for their lack of success. I declined and sided with Moshe, as I did not believe that Pete could be trusted to keep his word. Furthermore, a job at a company that was about to fail provided little security. If the company had any chance for success, the current management had to go.
In the meantime, Pete and Ron were looking to change the company's direction. The new gene splicing advances were not lost on Ron who saw an opportunity to move the company to be one of the early companies exploiting these advances. They actually had a chance to get some funding from the venture capital firm of Kleiner and Perkins to move in that direction if Cetus could execute a rather straightforward test case. Unfortunately, Ron and Pete got greedy and refused to do the project unless Kleiner and Perkins came up with at least $1,000,000 to fund the research. Kleiner and Perkins declined and gave the project to a group at one of the hospitals who did it for $50,000. They then started Genentec. Cetus lost a major opportunity and gained a powerful competitor. However, Ron began to set up a group to do gene splicing and hiring consultants both to help with the effort and give it credibility.
Pete had developed a new business model of his own. He had become interested in pursuing a process for making pure fructose from corn syrup. At that point in time, corn starch was reduced to glucose using an enzyme to produce corn syrup, which was much cheaper than cane sugar. There was also a process for converting the corn syrup to high fructose corn syrup in which half of the glucose was converted to fructose. Fructose is about 1.7 times sweeter than glucose per pound. This was also an enzymatic process that did not require any energy inputs, and hence, did not add much additional cost for the improvement in sweetness, while increasing the "sweetness" of the syrup to 1.35 times that of glucose. One of the scientists at Cetus who came from the pharmaceutical industry had worked on a process that converted glucose to 100 percent fructose as part of his Ph.D. research. The scientist was lobbying Pete to support a research project in this area. Pete reasoned that if Cetus could get that process working on a commercial scale, we could get 100 percent fructose and hence increase the "sweetness" from the 1.35 level of the current high fructose corn syrup to 1.7 times that of glucose, in effect, saving about 25 percent of the sugar needed to sweeten a beverage or the like. Unfortunately, the process required hydrogen peroxide to drive the reaction, and hydrogen peroxide was not cheap. There was clearly a reason that no one had pursued this process; although, the enzyme and system were well known. Pete's scheme involved getting an organism to make the hydrogen peroxide, and hence, removing this cost barrier.
But money was still a problem. The current investors were not even interested in creating a new stock pool to fund stock options for the new scientists that Ron wanted to hire. Luckily, Moshe's early work in setting up the original round of investors paid off, and one of the investors knew that Standard Oil of Indiana was looking to make investments to diversify its chemical business. The oil companies had been making big profits in the aftermath of the first oil embargo that raised oil prices and were flush with cash. Standard Oil of Indiana was looking for a place to invest some of this money in the hopes of diversifying its chemical business. So the company might be able to raise money in a round of financing from Standard. National Distiller also was exploring making investments in biology as a route to commodity chemicals. Pete immediately went into sales mode and spun out projects in which he offered to convert oil to new and wondrous chemicals and Standard Oil bought in. With the money raised, Ron and Pete moved to get Moshe and me fired and consolidate their grip on the management.
As noted above, I had already decided to leave science and to go to law school to become a patent attorney. I proceeded with that course; although, I was offered a job in another biotech startup. Moshe and I sold our stock in Cetus to National Distillers. Ron and Pete tried to block the sale in every way that they could right up to the time the deal closed, but they failed. Moshe went on to start Biogen, another one of his many successful companies. One of the big investors in Biogen was Schering. They made that investment in Moshe's new company in spite of Cetus completely failing on their project. I have been practicing patent law since 1984 and am still enjoying the practice.
To the best of my knowledge, none of Pete's great schemes for new industrial chemicals ever produced anything of value. It is my understanding that he did get Chevron to fund the fructose project, but that process turned out to be economically challenged and nothing commercial ever came of it, as I predicted at the time. Luckily for the company, the PCR discovery provided the money to make the company a success, financially; however, it is worth noting that the inventor received very little from Cetus for his discovery even though it won him a Nobel Prize and made the Cetus investors millions.
Over cocktails one evening in the early days of Cetus, Pete told me that the trick to making a success out of the company was to keep raising money at every opportunity, particularly, if one of those opportunities was a public offering that would allow the founders to sell their stock. According to Pete, if you could invest enough of other peoples' money, you would finally hit something that made your free stock worth something. In retrospect, Pete's model did work for Cetus. They kept finding investors that would put up money based on one scheme or another at ever increasing evaluations for the company, even though most of those schemes did not pan out. He got his public offering, and the company finally did produce something of value, namely PCR.
