Trillions In Biotech Stock Gains Trace Back To This Financier

Genentech, the first biotech company in the world, was a pioneer of breakthrough treatments from cancer to multiples sclerosis. Genentech would not exist if it wasn't for Fred Frank, who was neither CEO nor officer.

Frank (1932-2021), pioneer financier in biotech investments and Wall Street’s first pharmaceutical analyst, negotiated deals to help innovative medical companies receive funding. His efforts helped to build the biotech sector, which is now worth $1.4 trillion based upon the iShares Biotechnology ETF members (IBB).

Frank's greatest success was saving Genentech in the late 80s from financial ruin. Frank brought together Hoffman-LaRoche, a Swiss pharmaceutical company, and South San Francisco-based Genentech to negotiate a buyout. What was the goal? The goal?

Frank's perseverance in closing a deal was successful despite the egos involved. Roche bought Genentech for $494 million in February 1990, a deal that was a landmark for biotech investors. Roche (RHHBY), eventually, bought the remaining Genentech stake in 2009. It is still referred to as "Fred’s deal" by many. In many ways, the deal proved that biotech investment is not only investable but profitable.

Bill Haseltine said that this deal "put biotech on its feet early and showed the world it could prove to be a good investment" in a video by the Science History Institute honoring Frank. The institute presented Frank with the Richard J. Blote award for leadership in chemical & molecular science.

Biotech Investing: A Look Into the Future

Frank started his career as an analyst in the rubber industry on Wall Street. He rose to prominence in New York as the man who was trusted for big health care deals.

"I realized the life sciences industry would shift dramatically from a chemical to a biotechnology-based base. Frank: "I saw this as a massive change."

Frank pioneered numerous financings and pivotal deals during his five-decade tenure on Wall Street. Cetus' 1981 IPO was one of them. The company raised $122 million, making it the largest IPO ever. It was eventually sold to Chiron (now part of Novartis NVS). Cetus' co-founder was a birth control pill inventor at Syntex. William O'Neil, the founder of IBD, made a lot of money on the stock market when he founded IBD.

Frank was the main advisor in Marion Labs' acquisition of Dow Chemical (DOW) Pharmaceutical arm. He was the main advisor for Marion Labs in its acquisition of Dow Chemical's pharmaceutical division. Frank led the IPO for Israel's Teva Pharmaceutical after realizing that the generic drug market had a huge potential. Teva's value peaked at $79 billion in July 2015.

How did one person end up in the middle so many crucial deals?

Tap Your Origin like Fred Frank

Frank was born in Salt Lake City on May 31st, 1932. He was the son of Simon and Suzanne Frank. He was a young man when he realized the importance of innovative ideas. Frank's grandfather Arthur started The Leader, a successful chain of clothing stores. The chain grew to 12 stores in the state.

Frank learned the importance of financing by watching his grandfather struggle to get cash. David Ewing Duncan wrote in "A philosopher on Wall Street: how creative financier Fred Frank forged the future" that during the Great Depression Salt Lake City's income per capita dropped from a peak of $537 to just $276.

Arthur received a favorable loan from his bank. This allowed him to keep his stores fully stocked as if everything was fine. Frank, a teenager at the time, helped his family's business. During the Christmas holidays, he earned a sales commission of 6%. He also hired two of his friends to launch a car wash in the neighborhood.

Frank was accepted to Hotchkiss School, Lakeville, Conn., after reading an article in Fortune magazine about the top boarding school on the East Coast. Frank earned a Yale University college degree and an MBA from Stanford University. Frank joined Smith Barney as a trainee in 1958. After nine months, he moved to the Research Division. Frank observed that most trainees chose industries where Smith Barney had a good reputation.

It was, in his opinion, the easiest way out.

Biotech Investment: Choose Your Own Path

Frank didn't want to just copy the work of other analysts. He wanted to make his mark. As a result, he stood out.

Frank stated that "They (other analyst) took all of the information collected by our firm and kind of copied it." He chose the rubber business. Frank did not stay long. Bill Grant, Smith Barney's head of research, covered the chemical and pharmaceutical industries. After a few weeks, Frank went straight to Bill Grant. Frank convinced Grant that he should cover drugs, and become Wall Street’s first pharmaceutical analyst.

What was the source of Frank's courage?

Frank wrote the preface to Duncan's book: "My focus was how transformational changes resulting from new technologies make stocks more valuable and when such a change makes an investment concept for risk-oriented and ambitious investors." Others followed the bank. Frank moved to Lehman Brothers after an 11-year tenure at the firm. He served as vice chairman until the firm's demise in 2008 during the subprime market meltdown.

Use Your Skills to Leverage your Potential

Frank's abilities were put to the test in 1980 when Genentech was on the brink of bankruptcy. This included not only his financial expertise, but also his people skills.

Genentech was in desperate need of a lifeline. Genentech stunned the world of investing on Oct. 14, 1980 when it became the first biotech company to go public. Genentech was a pioneer in recombinant-DNA technology and raised money to deliver three products including insulin and human hormone growth. It needed more capital for the next phase of its growth. Wall Street was also concerned; by summer 1989, shares had dropped from over 50 per share to just 21.

Armin Kessler, a Roche executive, lit a Cuban in the meeting while buyout discussions continued at a Zurich Hotel. Robert Swanson, Genentech's CEO and cofounder, snapped: "Nobody smokes in my presence," Duncan reported.

Swanson made matters more difficult when he demanded a seat in the Roche board. This was an unavoidable demand for the Roche side. Frank persuaded both sides to meet up in New York.

Both companies were full of doubts. Roche, the century-old creator of Valium and expert in developing lifesaving drugs based on chemistry and its chemistry-based tranquilizers, would Roche destroy Genentech’s entrepreneurial spirit and culture? A buyout would make sense? What would be the price? Who would be the leader of the new company if the two companies merged?

Frank was on both sides of Roche’s epic deal. Kirk Raab, the president of Genentech and Swanson's successor as CEO following the deal at the time, seemed to be unconcerned. Frank was praised by Raab during his time as Abbott's manager.

Raab stated, "I liked and respected Fred." "Fred was very informal. He never used a limo, only rented a vehicle, stayed in the Westin Hotel at San Francisco's airport, and didn't like fancy restaurants. He was jogging long before the term jogging ever appeared."

Protect Yourself

Frank was one of the best employees at Lehman. He did not like the way CEO Richard Fuld managed the bank during its twilight. Frank did not like the move to earn huge commissions from debt offerings, and he was against using excessive leverage.

Sandy Robertson, the founder of Robertson Stephens Investment Bank, met Frank in New York a few days after Lehman declared bankruptcy. He expressed his sympathy for the bad news, and assumed that Frank had lost all of his money on Lehman's stock. Robertson was stunned by Frank's response.

Robertson remembered that he said "No, each time I received an allocation of stocks, I shorted them against the box." Robertson was referring to the short sale, which defers tax payments on held securities until the following year. "So, I am fine. I have sold stocks whenever I can over the years... and covered shorts when they come. "

Fred Frank's Keys

Lesson: In investment banking, the ability to wait patiently is key. One must often wait until the market, fundamentals and "the numbers" all come together.