Dr. William J. Rutter (born 1927)

Dr. William J. Rutter, circa 1980, Source : Digital resource published by the Regents of the University of California. Item featured on the website "A History of UCSF" - history.library.ucsf.edu.Image : [HE006A][GDrive] / Metadata : [HE006B][GDrive]

Wikipedia 🌐 William J. Rutter

Saved Wikipeida (Nov 19, 2021) - "William J. Rutter"

https://en.wikipedia.org/wiki/William_J._Rutter

2021-11-19-wikipedia-org-william-j-rutter.pdf

Born

August 28, 1927 (age 94)

Nationality

United States

Alma mater

Brigham Young University, Harvard University, University of Utah, University of Illinois

Scientific career

Fields

Biochemistry

Institutions

University of California, San Francisco; Chiron Corporation

Doctoral students

Robert G. Roeder

William J. Rutter (born August 28, 1928)^[1] is an American biochemist who cofounded the early biotechnology company Chiron Corporation together with Edward Penhoet and Pablo DT Valenzuela. As Chairman of the Department of Biochemistry and Biophysics of the University of California, San Francisco, Rutter helped establish that department as a leader in the academic side of the biotechnology during the San Francisco Bay Area biotech boom of the 1980s.^[2]

Rutter spent a short time in the United States Navy and one year Brigham Young University, before completing a B.A. (1949) in biochemistry at Harvard University. He earned an M.S. (1950) from University of Utah and a PhD (1952) from the University of Illinois with a dissertation on galactosemia. Between 1952 and 1968, Rutter held positions at the University of Wisconsin, the Karolinska Institutet, University of Illinois, Stanford University, and University of Washington. In 1969, he moved to the University of California, San Francisco (UCSF), where he led the Department of Biochemistry and Biophysics until 1982. From 1983 until 1989, Rutter was Director of the Hormone Research Institute at UCSF.^[2]

In 1996, Rutter won the 2nd Annual Heinz Awards in Technology, the Economy and Employment and in 2003, he received the Biotechnology Heritage Award, from the Biotechnology Industry Organization (BIO) and the Chemical Heritage Foundation.^[3][4][5]

References[edit]

^ "Biographical Information - William J. Rutter". William Rutter oral history on Calisphere, University of California archive site. Retrieved August 11, 2012.
^
Jump up to:
^a ^b "Biographical Statement", Register of the William J. Rutter Papers, MSS 94-54, Archives & Special Collections, UCSF Library & CKM. Accessed March 8, 2009.
^ "Biotechnology Heritage Award". Science History Institute. Retrieved March 22, 2018.
^ "Chemical Heritage Foundation and BIO give Biotechnology Heritage Award to William Rutter". ScienceBlog. 2003. Retrieved February 5, 2014.
^ "Heinz Awards - William Rutter".

External links[edit]

William J. Rutter Papers, MSS 94-54, Archives & Special Collections, UCSF Library & CKM

https://search.ancestry.com/cgi-bin/sse.dll?indiv=1&dbid=2228&h=89865&tid=&pid=&queryId=c211005d81a4b73c1f489b79bdffa7a5&usePUB=true&_phsrc=llt1293&_phstart=successSource

Name:

Wm J Rutter

Birth Date:

28 Aug 1927

Birth Place:

Malad, Idaho

Father:

Wm H Rutter

Mother:

Eliza Cecelia Rutter

Age:

Military Service Year:

1945

1927 - definitely birth year ... https://search.ancestry.com/cgi-bin/sse.dll?indiv=1&dbid=1277&h=5951516&tid=&pid=&queryId=c211005d81a4b73c1f489b79bdffa7a5&usePUB=true&_phsrc=llt1297&_phstart=successSource

1972 - Special Virus Cancer Program funded research

See 1976-08-the-virus-vancer-program-progress-report-13. pdf

CALIFORNIA, UNIVERSITY OF, SAN FRANCISCO (NOl-CP3-3332)

Title: Hormonal Control of Gene Expression in Tumor Viruses

Contractor's Project Director: Dr. William Rutter

Project Officer (NCI): Dr. Edward Scolnick

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Objectives: To determine the mechanisms by which hormones control the

expression of murine mammary tumor virus and to establish a transcription

system utilizing purified provirus DNA.

Major Findings: A line of mouse mammary carcinoma cells has been investigated

in which glucocorticoids stimulate the accumulation of mouse mammary tumor

virus (MMTV) RNA by 10-20-fold. Glucocorticoid-specific receptor molecules

are present in these cells and have been shown to be indistinguishable from

other mouse glucocorticoid receptors with respect to sedimentation, activation

and DNA binding properties. Since the hormone concentration required for

half-maximal receptor binding and for the increase in viral RNA concentration

were identical, and since MMTV RNA accumulation was blocked by compounds

which inhibit receptor binding, it was concluded that the response is a

receptor-mediated process.

The increased accumulation of viral transcripts (measured by hybridization

to MMTV cDNA) appeared to be a primary effect of hormone action. Increased

levels of viral RNA were detected with virtually no lag after hormone

addition, and no changes in the synthesis of cellular proteins were seen.

In addition, inhibitor studies indicated that accumulation of viral RNA

requires RNA, but not protein or DNA, synthesis. At least part of the hormone

effect was due to increased rates of specific RNA synthesis, since pulse

labeling experiments showed a rapid 3-4 fold stimulation. However, there

were also some indications from inhibitor and de-induction studies that

decreased rates of RNA degradation were also involved in the net stimulation

at Steady state.

A cell-free transcription system is being developed utilizing both nuclei

and chromatin, with the long-term goal of reconstructing the hormone response

in vitro. Preliminary attempts suggest that transcription of chromatin

from homone-treated cells, using endogenous RNA polymerase, yields more MMTV

RNA than that from untreated cultures.

Significance to Biomedical Research and the Program of the Institute: There

is considerable evidence that the entire genome of both DNA and RNA oncogenic

viruses may be integrated into the chromosomes of host cells, whether or not

such cells show evidence of their presence. A major aim of viral oncology

is to understand the biological factors which regulate virus gene expression.

Hormones are tissue-specific effectors which selectively control gene

expression in a variety of cell types. Understanding hormonal regulation of

viral gene expression may ultimately aid in understanding human cancer

etiology and control.

Proposed Course: This contract will be terminated on April 25, 1976.

Date Contract Initiated: April 25, 1972

https://oac.cdlib.org/view?docId=tf5k40083c&chunk.id=bioghist-1.8.3&brand=oac

Finding Aids > UC San Francisco > Special Collections

Register of the William J. Rutter Papers

Brought to you by the Online Archive of California (OAC),

an initiative of the California Digital Library

http://www.oac.cdlib.org/findaid/ark:/13030/tf5k40083c

Biographical Statement

[This biographical statement is based primarily on information in extensive interviews with Dr. Rutter conducted in 1992-1993. Editing in progress; transcripts to be deposited in the Molecular Biology and Biotechnology Archives, Special Collections, UCSF Library.]

Born on August 28, 1928, William J. Rutter received a B.A. in Biochemistry from Harvard University in 1949, after a year at Brigham Young University and a stint in the Navy. He went on to get an M.S. in (?) from the University of Utah (1950) and a Ph.D. in (?) from the University of Illinois (1952).

After post-doctoral work at the University of Wisconsin (1952-1954) and the Nobel Institute in Sweden (1954-1955), Rutter joined the faculty at the University of Illinois (1955-1963). In 1962-1963, he went to Stanford on a Guggenheim Fellowship, and then returned to Illinois as a full professor for two years (1963-1965). He held a joint professorship in genetics and biochemistry at the University of Washington from 1965-1968, before becoming Hertzstein Professor of Biochemistry and Chairman of the Department of Biochemistry and Biophysics at UCSF in 1969.

Chairman of the department until 1982, Rutter became the Director of the Hormone Research Institute at UCSF in 1983. In addition he held numerous extramural appointments, including serving on advisory committees for various national and international laboratories and scientific organizations. He also held offices in various professional societies and served on a number of journal editorial boards. Rutter became an emeritus professor in 1991.

Among Rutter's diverse research contributions are, discovery and characterization of the three RNA polymerase transcription systems operating in eucaryotic gene expression, cloning and structural and functional analysis of the insulin gene, nucleotide sequencing of hepatitis B virus, and development (with Chiron corporation and Merck) of the first commercial genetically engineered human vaccine, for hepatitis B.

Though an innovative researcher, Rutter is best known at UCSF for his leadership as chairman and his encouragement of a collaborative, interdisciplinary approach to research. He transformed a mediocre department into a vital and groundbreaking research facility that has become a foundation for the biotech industry centered in the San Francisco Bay Area. Another of his contributions is the promotion of biotechnology and the fostering of cooperative research efforts between industry and academia. In 1981, he and two colleagues formed Chiron Corporation, where he remains as chairman of the board of directors.

Education and Early Career

Rutter became interested in parasitic diseases in high school after listening to his grandfather's descriptions of the tropical diseases he had observed as a British Military officer in India. He graduated from Harvard intending do go on to medical school, but after auditing medical school classes at the University of Utah, he decided to concentrate on the research sciences. He received a master's degree from Utah in 1950 and then a Ph.D. in 1952 at the University of Illinois. At the University of Illinois, Rutter completed a dissertation on galactosemia, a metabolic disease.

Rutter began his post-doctoral studies in enzyme chemistry with Henry Lardy at the Institute for Enzyme Research at the University of Wisconsin, Madison (1952-54). An interest in enzyme mechanism took him to Sweden for another year of post-doctoral work with future Nobel Prize winner, Hugo Theorell at the Nobel Institute (1954-55).

Returning to the University of Illinois, Urbana 1955 to take a tenure track position in the chemistry department(1955-65), Rutter continued his research on enzyme mechanism, concentrating on aldolase. During the mid-1950's, he became interested in biological problems and initiated studies of the regulation of RNA transcription. Fostering this interest, Rutter went to Stanford in 1962 on a Guggenheim Fellowship and worked with Clifford Grobstein, head of Biology, on embryonic development of the pancreas.

Returning to Illinois in 1965 with his new biological focus, Rutter found his position in the chemistry department less attractive. In 1965, he accepted a professorship in the Departments of Biochemistry and Genetics at the University of Washington (1965-69). He chose Washington because of its strong genetics department and modest teaching load which allowed him to concentrate on research. While continuing his work on defining the molecular basis of the pancreatic system, he also began to focus on the mechanisms of DNA transcription, using the simple eukaryotic systems (yeast) that the department, under Herschel Roman, had developed.

University of California at San Francisco

In 1965 UCSF began attempts to recruit Rutter as chairman of the biochemistry department. Worried that administrative duties would restrict his research, he hesitated for four years. At the time, medical schools were not considered ideal settings to pursue research in molecular biology. However, in the mid 1960's, Holly Smith, head of Medicine, J. Englebert Dunphy, head of Surgery, and others decided to improve basic science at UCSF, and saw Rutter as one who could lead this endeavor. Rutter was also attracted by a large number of open positions in the department which would allow him to shape its direction.

Rutter finally accepted the chairmanship in 1969, committed to creating a eukaryotic biology program based on cooperative multidisciplinary research. He had the department renamed the Department of Biochemistry and Biophysics and began to recruit promising researchers interested in a molecular approach using the latest technology. Gordon Tomkins, recruited from the NIH in 1970 to be vice-chairman, was in partnership with Rutter, a vital force in restructuring the department until his untimely death in 1977.

Rutter and his large laboratory group conducted a diverse research program initially centered on gene structure and expression. Among the highlights are the cloning of the rat insulin gene in 1977, conducted against the backdrop of the recombinant DNA controversy and a fierce race with other laboratories. In 1977, Rutter and Herbert Boyer (of UCSF), co-inventor with Stanley Cohen of recombinant DNA technology, were asked to testify before the U.S. Senate regarding alleged misuse of a plasmid used in the cloning process.

He and his group later studied the structure of genes for other peptide hormones, including several growth factors, glucagon, and somatostatin. In the early 1980's, his laboratory turned to the problem of the regulation of gene expression in specific differentiated cells. Genetic engineering techniques were also applied to the analysis of hepatitis B virus. Collaborating with a group at the University of Washington, Rutter and coworkers at UCSF and Chiron cloned the gene for the outer viral coat, the component of the virus that induces an immune response. Largely because of the promise the hepatitis work had for the development of a vaccine, Rutter and two colleagues founded Chiron Corp., in Emeryville, CA, in 1981.

Hormone Research Institute

Suggestions of conflict of interest due to of his ties with the biotechnology industry prompted Rutter to step down as chairman in 1982. In 1983 he became director of the Hormone Research Institute (HRI), one of UCSF's independent research units. Succeeding Choh Hao Li, as director, he reoriented research to a molecular approach based on advanced technology. He relinquished the directorship 1989, but remained a member of the institute and head of a lab group. He retired from the university in 1994.

Biotech (Hana, Chiron, etc.)

Rutter played an active role in the development of the Biotech Industry. His most successful business venture was the establishment of Chiron, founded by Rutter and his former Stanford colleague, Ed Penhoet, in 1981. Chiron became one of the major biotechnology firms in the San Francisco Bay Region: In 1991 Chiron merged with Cetus, another local biotech firm. Rutter's success with Chiron placed him on a list of "Molecular Millionaires" issued by Genetic Engineering News in 1987, which reported him as holding Chiron stock worth over 20 million dollars. Rutter has been Chairman of the Board since the company's founding.

In addition to his Chiron activities, Rutter attempted in 1981 to help establish the Harbor Bay Isle bio-tech business park in Alameda, CA. Rutter's first Bio-tech venture, with his partners Michael Urdea and C.K. Chang, was the short lived company called Biopolymer. Rutter also served on the boards of Meridian Instruments (1982-1988) and HANA Biologics (1980 to 1983), which absorbed Biopolymer in 1981. Since 1995 he has served on the Board of Directors of Ciby-Geigy and the Board of Trustees of the Carnegie Institution of Washington. He acted as a consultant to Abbott Laboratories (1960-1975), Eli Lilly Co. (1977-1980) and Merck and Co. (1977-1981).

Other

Rutter also served as Treasurer of the American Society of Biological Chemists (1970-1976), as President of the Pacific Slope Biochemical Conference (1975-76), and as President of the American Society for Developmental Biology (1975-1976). Elected to the National Academy of Sciences in 1984, and the American Academy of Arts and Sciences in 1987, Rutter also served on Advisory committees for National Laboratories (Los Alamos, Oak Ridge, the Naval Biosciences Center, and Scripps), International Laboratories (Hagedorn Research Laboratory of the Nordisk Labrotorium, Zentrum fur Molekulare Biologie, and International Centre for Genetic Engineering and Biotechnology) and Foundations (Cystic Fibrosis, March of Dimes, Keystone Life Science Study Center, and California Council on Science and Technology). Service on Boards or Committees also links him to the National Institute of Health and the National Science Foundation.

As of 1995 Rutter had well over 300 publications to his name.

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Oral History Center University of California

The Bancroft Library Berkeley, California

William J. Rutter

Co-Founder and Chairman, Chiron Corporation

Interviews conducted by

Sally Smith Hughes

in 2004 and 2005

[HE0069][GDrive]

William J. Rutter Co-Founder and Chairman, Chiron Corporation Interviews conducted by Sally Smith Hughes in 2004 and 2005

iiSince 1954 the Oral History Center of the Bancroft Library, formerly the Regional Oral HistoryOffice, has been interviewing leading participants in or well-placed witnesses to major events inthe development of Northern California, the West, and the nation. Oral History is a method ofcollecting historical information through tape-recorded interviews between a narrator withfirsthand knowledge of historically significant events and a well-informed interviewer, with thegoal of preserving substantive additions to the historical record. The tape recording istranscribed, lightly edited for continuity and clarity, and reviewed by the interviewee. Thecorrected manuscript is bound with photographs and illustrative materials and placed in TheBancroft Library at the University of California, Berkeley, and in other research collections forscholarly use. Because it is primary material, oral history is not intended to present the final,verified, or complete narrative of events. It is a spoken account, offered by the interviewee inresponse to questioning, and as such it is reflective, partisan, deeply involved, and irreplaceable.*********************************All uses of this manuscript are covered by a legal agreement between TheRegents of the University of California and William J. Rutter dated August 26,2005. The manuscript is thereby made available for research purposes. All literaryrights in the manuscript, including the right to publish, are reserved to TheBancroft Library of the University of California, Berkeley. Excerpts up to 1000words from this interview may be quoted for publication without seekingpermission as long as the use is non-commercial and properly cited.Requests for permission to quote for publication should be addressed to TheBancroft Library, Head of Public Services, Mail Code 6000, University ofCalifornia, Berkeley, 94720-6000, and should follow instructions available onlineat http://bancroft.berkeley.edu/ROHO/collections/cite.htmlIt is recommended that this oral history be cited as follows:William J. Rutter “William J. Rutter: Co-Founder and Chairman, ChironCorporation” conducted by Sally Smith Hughes in 2004 and 2005, OralHistory Center of the Bancroft Library, The Bancroft Library, Universityof California, Berkeley, 2015.iiiWilliam J. RutterivThis series of interviews documents William J. Rutter’s view of his years, 1981-1999, as cofounderand chairman of Chiron Corporation, a San Francisco Bay Area biotechnology companyspecializing in vaccines and blood-screening technologies. These interviews explore the theme ofcommercializing basic science, introduced by the earlier oral history with Dr. Rutter on hiscareer at the University of California, San Francisco. That interview can be viewed here:http://content.cdlib.org/ark:/13030/kt7q2nb2hm/vTable of Contents—William J. RutterIntroduction by Edward E. Penhoet and Pablo D. T. Valenzuela xiiIntroduction by Sally Smith Hughes xivInterview 1: September 11, 2004Tape 1, Side A 1Founding California Institute for Genetics Research in the late 1970s —problematic “halfway house” status as neither commercial nor university entity:“Halfway houses never truly deal with the problem.” — government funding foruniversity research, benefits to university and public — Chiron’s original name:Therapeutic BiopolymersTape 1, Side B 4More on Therapeutic Biopolymers, championed by postdocs Mickey Urdea andC. K. Chang — collaborating with Hana Biologics — forming Chiron — CharlesCrocker’s early investment in Chiron — 1977 or 1978 conversation with BobSwanson and Kleiner Perkins [Caufield & Byers] about possibly joiningGenentech — Genentech’s insulin programTape 2, Side A 7More on Genentech negotiations — speculating as to why negotiations wereunsuccessful — Genentech’s management and staff — Amgen’s origins,invitation from entrepreneurial scientist Winston Salzer — erythropoietin work —George Rathmann replaces Salzer as Amgen CEOTape 2, Side B 11Parting ways with Amgen’s scientific advisory board — continuing interest inhepatitis B — proposals to divide Amgen into North and South — the race todevelop a hepatitis B vaccine and long-time partnership with Pablo Valenzuela —decision to form an independent company with Pablo Valenzuela and Ed Penhoetwith Merck backing — writing the business plan with Ed Penhoet Easter weekend1981 — establishing a lab in Emeryville — figuring out how to raise the money,meeting venture capitalist Jean DeleageTape 3, Side A 14Deleage’s investment in Chiron and contacts in France — renaming TherapeuticBiopolymers Chiron — recruiting staff — operating as a research group — hiringHana scientistsviTape 3, Side B 17The contract with Merck — cooperative program with Ben Hall at the Universityof Washington to do protein expression in yeast — negotiations with Ben Hall,50:50 UC:UW split of hepatitis B vaccine royalties — Chiron’s involvement,break-through in hepatitis B research — competition from Merck’s hepatitis Bprogram championed by Maurice Hilleman — impact of the discovery of HIV —decisions to sell technology or keep it proprietaryInterview 2: September 18, 2004Tape 4, Side A 22The business strategy — beginnings: research was Chiron’s “competitiveadvantage” — organic growth, focus on infectious disease and diagnostics —“The leveraging of the research was to develop intellectual property in all thingsthat were important relative to a particular health problem and then build abusiness around that intellectual property and the new knowledge.” — developinga new kind of vaccine, based on molecular mimicry — stagnation and historicrisks in the vaccine business, the Cutter Laboratories disaster in which poliovaccines contained live virusTape 4, Side B 25Influence of Amgen science board experience — keeping intellectual propertyprotection in mind — the Diamond v. Chakrabarty Supreme Court decision aboutpatenting living organisms — relative risk tolerance: small companies’ use ofpotentially controversial recombinant DNA technology, big pharmaceuticalcompanies’ aversion — help from Merck — partnership with Pablo Valenzuelaand Ed PenhoetTape 5, Side A 28More on Ben Hall, collaborations — negotiations with Merck over royalties,lessons learnt: “High tuition, but a great lesson.” — comparing Chiron’s start withAmgen’s and Biogen’s: the advantages and disadvantages of big-name venturecapitalists — working with Jean Deleage — writing into the business plan a fulltimecommitment to Chiron — from the 1982 business plan: “Chiron is not ascientific startup” explainedTape 5, Side B 31Attorney Bill Green — choosing Chiron’s first consultants: seeking specificadvice rather than general advisors or a scientific advisory board — consultantsJeremy Thorner, Ira Herskowitz — balancing Chiron and remaining UCSFcommitments, promising Chiron shares to UCSF — worries over professors inbusiness, the corrupting influence of profit — more on consultants: Ed Lennette,viiSy Fogel, Harold Varmus — Dan Santi and his spin-off Protos, 1984 or 1985 —herpes specialist HymanTape 6, Side 35The disastrous complexity of the herpes virus — yeast and secretion specialistRandy Scheckman — choosing partnerships in vaccines, therapeutics, anddiagnostics — partnership with Ortho (a subsidiary of Johnson & Johnson): 50:50royalties split but Ortho controlled sales of product — vaccine partnership withCiba-Geigy, especially Jack Nüesch, Richard Williams, and chairman AlexKrauer — pressure from Ciba-Geigy and Max Wilhelm to focus on herpessimplex 2 — the difficulty in negotiating 50:50 deals with companies which wereused to a controlling shareTape 6, Side B 38Ed Penhoet as CEO, Pablo Valenzuela running the lab: “It was truly a trio.” —approaching venture capitalists Burr, Egan, Deleage & Co for more money andreceiving an unattractive offer — timely interest from aerospace company MartinMarietta, meeting Kenneth Jarmelow — partnership with Martin Marietta, withChiron to advise on purchase of several small companies in the agriculturesciences — IPO in August 1983 — IPO road shows looking for investorsInterview 3: April 17, 2005Tape 7, Side A 42Chiron’s tripartite structure: vaccines, diagnostics, therapeutics — hopes that thethree divisions would inform and financially support one another, with thefundamental research underlying all three — partnerships with Johnson &Johnson, Ciba-Geigy, limited by resources — focus on small molecules —historic diagnostic focus on “big iron instruments” and moving the field towardthe test itself and the components of the test — Chiron’s development ofproprietary HIV and hepatitis C diagnostics — the challenge of protectingdiagnostic intellectual property — “Diagnostics turned out to be a profitablebusiness and a real contribution to healthcare, but it was undervalued in themarket.” — success creating hepatitis B vaccine using recombinant DNAtechnology gave a false sense that future vaccine development would beunproblematic — traditional vaccine strategies — Cutter Lab polio vaccinetragedy and the resultant fears that vaccine science was too risky — focus onyeast scientist Ira Herskowitz who opposed commercial undertakings at UCSF —more on using recombinant DNA in vaccines — arguing for the science of thedeal in partnerships — a deal not made: MerieuxviiiTape 7, Side B 52More on the 1981 deal with Merck — Maurice Hilleman’s non-recombinanthepatitis B vaccine developed internally at Merck, competed with Chiron forMerck’s resources — negotiating with Merck over royalties, a disappointingoutcome — “We probably could have made a better deal, and we should have.”— learning the hard way how to make strong collaborative agreements — theweak deal with Burr, Egan, Deleage & Co, the strengths and weaknesses ofvarious 50:50 deals — the Johnson & Johnson deal, Ron Gelbman’s maneuveringto minimize Chiron’s advantage — other partnerships: “In the vaccine business,we couldn’t have had a better partner than Ciba.” — excellent partnership withJack Neusch and Richard Williams at Ciba-Geigy — ill-conceived and ultimatelyunsuccessful decision to focus on a herpes vaccineTape 8, Side A 60More on the difficult Merck negotiations — on Merck taking more than theirshare of the credit for the hepatitis B vaccine — the difficulty in obtaining thepromoter, alcohol dehydrogenase, to move forward on yeast-based recombinantDNA vaccine research — partnership with Ben Hall — competition from similarprograms at other biotech firms — efforts at a partnership with Versaggi and apublic relations campaign to claim Chiron’s credit for the hepatitis B vaccine —competition from SmithKline’s parallel development of a hepatitis B vaccine thatwas more easily produced on a large scale — Rutter’s management style:interactive, vigorous, driving, forceful — comparing management of UCSF laband Chiron — on deciding when to cut losses and when to accept the bestpossible outcome — the California Foundation for Biomedical Research andensuring UCSF benefited financially from technology transfer — staying out ofthe way during the formation of Genentech while Herb Boyer was still at UCSFTape 8, Side B 69Compartmentalizing jobs at Chiron and UCSF, giving up UCSF chairmanship toprevent conflict of interest — more on the tripartite structure (research,diagnostics, vaccines) of Chiron: “We evolved into a structure such that acommon research organization fed all three.” — the relative strength of theresearch division — 1999 Sean Lance takes over Chiron and changes thecorporate structureInterview 4: May 7, 2005Tape 9 73Novo Nordisk background, Chiron’s 1982 deal with Nordisk InsulinLaboratorium — support from Eli Lilly to close insulin — Eli Lilly’s 1978contract with Genentech to clone insulin — Eli Lilly’s reluctance overcontroversial use of plasmid pBR322 — more on Ely Lilly insulin collaborationix— collaborative work on Factor 8 — partnership with Martin Marietta —investigating biological companies for Martin Marietta: Calgene, Plant Genetics,Advanced Genetic Systems, PhytoGen, Native Plants — 1985 Chiron withdrawsfrom the consortium — Chiron’s scientific advisors, but no scientific advisoryboard — patent and timing advantages of Genentech and other earlier biotechpioneers — hiring intellectual property lawyers in the earliest years of biotech —patent and publication strategy: “ I’ve always had the view that telling what’sgoing on doesn’t provide a disadvantage. Quite frankly it’s an advantage.”Interview 5: July 16, 2005Tape 10, Side A 89Partnering with Johnson & Johnson’s Ortho Diagnostic Systems — intricacies ofthe fifty-fifty deal in which Johnson & Johnson controlled sales and Chironcontrolled technology — challenges of the international market — “With thediscovery of hepatitis C in 1989, the strength of our program became obvious.” —need for diagnostics in blood banking — emerging awareness of viral load in thelate 1980s — Chiron’s strategy of focusing on viral load — resistance to viralload concept: took 13 years to become universally adopted — the unavailabilityof Roche-owned PCR technology — Mickey Urdea’s branched DNA research todevelop viral load diagnostics — PCR and branched DNA as competitorsTape 10, Side B 95More on Chiron’s diagnostic work, signal amplification method — theprofitability of diagnostics, and huge value to public health — Chiron’s view thatdevelopment of diagnostics leads to development of therapeutics — Johnson &Johnson’s unwillingness to invest in viral load tests, Ciba-Geigy diagnosticspartnership offer in the mid 1990s — acquiring Ciba-Geigy’s share of the vaccinebusiness establishing Chiron Vaccines — Ciba Diagnostics run as an investmentrather than a for-profit business — 1990s changes in diagnostic economics andcompetition between large instrument manufacturers — Chiron’s hunt for mergerprospects as the industry consolidates to survive — consultant Jack Schuler —strategy of licensing Chiron’s intellectual property: “What if we licensed it toeverybody and then let the field decide which instruments were best?” — sellingbDNA methodology to Bayer, retaining IP diagnostics — development ofGenProbeTape 11, Side A 101More on the Johnson & Johnson deal, partnership with Ciba-Geigy — currentstate of Chiron’s vaccine research — Sean Lance takes over as CEO of Chiron,moves vaccines to back burner — complications of the vaccine business: politics,lengthy FDA approval — public health obligations here and abroad do not alwaysmean profit-loss — modern vaccine business complexities — rethinking publichealth and disease as global issues — success with hepatitis B vaccine gave axfalse sense of optimism about developing subsequent vaccines — difficulties ofdeveloping a herpes vaccine — Chiron’s decision to abandon herpes developmentefforts — lengthy FDA approval process for vaccines — Chiron’s 1983 IPO —more on the vaccine collaboration with Ciba, work with Richard Williams —unsuccessful bidding war for Connaught Laboratories in Canada — negotiationsto acquire Schavo in Italy — negotiations to acquire German vaccine businessBehringwerkeTape 11, Side B 113More on acquiring Behringwerke — challenges of managing collaborative butcompeting businesses in the U.S., Italy, and Germany — continued work todevelop HIV and hepatitis C vaccines, successful development of meningococcusvaccine — 2004 flu vaccine contamination and damage to Chiron’s standing inthe vaccine business — use of eggs in flu vaccines creates a high risk forcontaminationInterview 6: July 30, 2005Tape 12, Side A 117Division of labor between Rutter, Ed Penhoet, and Pablo Valenzuela — CEO EdPenhoet handled external communications and investors — Penhoet’s positiveeffect on company morale — Chiron’s culture — Rutter’s involvement inChiron’s early days, while still at UCSF — comparing Rutter and Genentech’sHerb Boyer — drawing on consultant experience at Merck and Abbott, limits ofthat experience — more on negotiations, the importance of the fifty-fifty deal —different types of fifty-fifty deals: Johnson & Johnson, Ciba-Geigy — more onthe Chiron division of labor: diagnostics, ophthalmic, biopharmaceuticals —biotherapeutics program — Rutter and Penhoet’s lack of business experience —advantages and disadvantages of being unfocused — the wrong timing andunfulfilled potential of Chiron’s OphthalmicsTape 12, Side B 127More on Chiron’s apparent lack of focus, rDNA was a common thread —Chiron’s contributions to blood supply safety through development of the viralload concept and testing — more on the Ciba deal: “intense, and urgent, and wemissed a strategic opportunity to clarify some ensuing problems” — weighing thesale of the diagnostic division — developing a model for running a researchbusiness: “none of the small biotech companies at the time knew how to convertto a business” — more on Chiron’s important viral load contribution — impact ofacquiring Cetus — superoxide dismutase research — thoughts on Genentech’ssuccess through collaboration — business decisions and impediments to Chiron’ssuccessxiTape 13, Side A 135Relationship with Burr, Egan, Deleage, & Co — biotech’s reliance on publicinvestment — 1990-1991 Cetus merger — negotiations with Ron Cape and FredFrank — Cetus’ leadership structure — attempts to retain Cetus researchers;formation of Onyx — lessons learned about mergers — valuable Cetus productsBetaseron and Interleukin-2 — deciding which Cetus programs to continue —Cetus’ advisors: Stanley Cohen, Don Glaser, Carl DjerassiTape 13, Side B 141Focus on intellectual property and working with IP attorney Bob Blackburn —corporate attorney Bill Green’s responsibility for protecting the IP — challengesof a large IP portfolio — early HIV research collaboration with UCSF professorJay Levy — Kathy Steimer’s work to sequence HIV — the Robert Gallo-LucMontaignier controversy over priority discovering HIV — hepatitis non-A andnon-B research became an all-company project — the Protos program with DanSanti from UCSF — negotiating Protos as a separate company — the end ofProtos and beginning of a program with peptide — chemistry/biology withpurchase of Mimotopes from Australian company Commonwealth SerumLaboratories — sale of Mimotopes to MitoKor — closing thoughts on Chiron’scontributionsWilliam J. Rutter Curriculum Vitae 148xiiInterview History by Edward E. Penhoet and Pablo D. T. ValenzuelaWhat you are about to read is a personal history of the founding, growth and ultimate success ofChiron, one of the small groups of companies which pioneered the biotechnology industry. Weare fortunate to have this oral history by one of the most important figures in the history of thefield. It is Bill Rutter’s story but it is also our story, the story of all of us who helped him buildChiron and by so doing helped build an entire industry which has grown to thousands ofcompanies with enormous impacts on business and medicine.To all who joined Bill Rutter in the effort, Bill was an inspiration, a mentor, a partner, aconsummate recruiter, a friend, an ever-present colleague, a fount of knowledge scientific andgeneral, a seemingly tireless worker, a man who led by example, a brilliant negotiator, and,perhaps most striking, an individual deeply committed in every way to success for theorganization. Finally, in the pursuit of any worthwhile goal, Bill was not always successful butnever, ever, gave up. This list may seem far-fetched to many, but having observed Bill in actionand having worked with him on a daily basis for almost twenty years, we can assure you that it isall true.Chiron started as a trio but grew to an orchestra of thousands. The two of us were fortunate to bemembers of the trio and to work with Bill to build the enterprise from its humble beginnings inthe abandoned labs of the Shell Development Company in Emeryville, CA. As indicated in thehistory which follows, we divided up the work and responsibilities among ourselves. Bill thechairman, Ed Penhoet the businessman, and Pablo Valenzuela the research director. We neverhad any illusions about who the senior member of the trio was, but we also enjoyed a workingrelationship with Bill that was based on mutual respect and collaboration, which we deeplyappreciated then and still do thirty five years later.How did these qualities of Bill Rutter influence the development of Chiron? Let us list the ways.Inspiration: Bill always had lofty goals and generated enthusiasm in all those around him tostretch to achieve those goals. The goals were sometimes more than lofty, even seen by some asoutrageous, but always serious: invent a hepatitis B vaccine, discover hepatitis C, make humaninsulin to treat diabetics around the world, sequence the genome of HIV, quantitate minuteamounts of virus in infected patients, etc. These goals were embraced by Chiron colleagues andled them to work extraordinarily hard to achieve them. Many of them ( including us ) did theirbest work as scientists under Bill’s leadershipMentorship: Throughout Bill’s career, he has made himself available to anyone with a seriousinterest in science and/or its application to health. At Chiron, Bill was available almost literally24/7. Colleagues found him approachable, an engaged listener, and active advisor. Hisenthusiasm was infectious and his encyclopedic knowledge of the fields of biochemistry andmolecular biology was readily shared.Partnership: Although he always had a point of view and was clearly the senior executive atChiron, Bill always treated us and other senior members of our team as partners, taking the timeto hear our points of view and discussing issues thoroughly before coming to conclusions—xiiiwhich to be fair were most often what he wanted to do in the first place but achieved without“pulling rank”.The consummate recruiter: This skill of Bill’s has been a major factor in his success at bothUCSF and at Chiron. These abilities were one of the keys to Chiron’s success. His first majorrecruiting effort in building Chiron was to recruit us. One of us (EP) was a tenured professor atUC Berkeley and the other (PV) had a very attractive offer from a competitor biotech company.Nevertheless, we both took the risk to join a company which at that point existed only in themind of Bill. This was followed by the recruitment of many people to Chiron, and Bill alwaysplayed a key role in the effort. The results of this effort were clearly demonstrated by the successof the company and by the fact that many Chiron alumni went on to be leaders throughout thebiotech industry—CEOs, COOs, CSOs, CMOs all grew up in the Chiron organizationFriendship: A person who gives assistance, a supporter. Bill has always been extremely loyal tohis colleagues and has supported and helped all those close to him, including us among others.People throughout Chiron never had any doubt that Bill was there to help and support in manyways.Ever present and tireless worker who led by example: Bill’s work ethic is legendary. It is noexaggeration to say that he has worked harder in his career than most people can imaginethemselves doing. This work ethic is infectious and his leadership by example has manifesteditself both at UCSF and Chiron. In both environments, there was literally never a time when avisitor could not find someone at work at 3AM, on Sundays, on holidays. People did this becausethey were motivated to succeed and knew that the chairman was likely to be at work himselfwhenever they were.Brilliant negotiator: One of us (EP) was deeply engaged in almost all the major transactions ofthe company and can say that he was often amazed at some of the negotiating positions Bill took.Much to many people’s surprise, however, Bill frequently got what he wanted or somethingclose to it, sometimes by the force of his arguments and perhaps often by simply wearing downthe other side!Commitment: When Bill decides to do something, he is “all in”, as they say, and he never givesup on his goals. In the case of Chiron it was clear from the beginning that he would do whateverit took on his part to be successful, and this commitment was evident and animating to all thosearound him. Do that extra experiment, write that paper today, file that patent application thisafternoon, and on and on—the things that come with commitment that people in nine-to-five jobswould never understand.Hopefully this short introduction gives you, the reader, an insight into the life of the remarkableman whose history is recorded here and allows you to understand the influence he had on thecompany. Chiron was an amazing experience for all of us on the inside and a huge contributor tohuman health around the world. It is no exaggeration to say that millions of lives have beensaved by the work Chiron did and also to say that none of this would have happened without thevisionary and determined leadership of William J. RutterxivWilliam J. Rutter Interview HistoryWilliam J. Rutter, co-founder and chairman of Chiron Corporation, an early biotechnologycompany formerly located in Emeryville in the San Francisco Bay Area, provides a first-handaccount of the complexities of founding, funding, and administering an entrepreneurial companybased on new genetic and biochemical technologies. A major theme is the acceleratingcommercialization of bioscience beginning in the mid- to late 1970s. An earlier oral history onRutter’s years (1968-1982) as chairman of the University of California, San FranciscoDepartment of Biochemistry introduced this theme and the resulting tensions that the first stepsin industrializing the basic science of molecular biology provoked within academia.http://content.cdlib.org/ark:/13030/kt7q2nb2hm/Entrepreneurial at heart, Rutter predictably could not sit idly by as he watched colleaguesforming companies grounded in the new technological breakthroughs and graduate students andpostdocs leaving universities to join the new startups.The present oral history, continuing the commercial theme, begins with Rutter’s account of hisassociation with three pre-Chiron entities seeking to profit from the practical applicationsassociated with genetic engineering. He gained further business experience on the scientificboard of Amgen, a biotech firm founded in California in1980. From these experiences, hedeveloped ideas about how small entrepreneurial firms might be organized and managed,whetting his desire to forming a company of his own. In the spring of 1981, Rutter invitedEdward Penhoet and Pablo Valenzuela, former members of his UCSF lab, to discuss founding astartup. Captured by Rutter’s vision, they sketched out a business plan centered on producinghuman insulin and a hepatitis B vaccine and including a projected effort in diagnostics.It was a risky proposal. None of the three had formal business training or knew anything muchabout venture capital as a source of startup funds. Furthermore, vaccines in the aftermath ofCutter Laboratory’s disastrous experience with a defective polio vaccine prompted thepharmaceutical industry to label vaccine manufacture as an area prone to liability issues.However, the threesome felt that the prospective company could circumvent the liability problembecause their vaccine was built upon a noninfectious recombinant particle. With Rutter aschairman, Penhoet as CEO, and Valenzuela as director of research, and scientists recruitedlargely from Rutter’s lab and the earlier companies, Chiron, as it came to be known, beganoperation in 1981. Bowing to academic unrest over his corporate interests, Rutter resigned asdepartment chairman in 1982, becoming director of UCSF’s Hormone Research Institute where,with less controversy, he continued to keep close tabs on the company. In 1989, he joined Chironfulltime.As a participant in virtually every major decision, he is in a prime position to describe key eventsin the ups and downs of Chiron’s history. And downs there were in the fierce competition amongbiotech firms to patent, license, and capitalize on the potentially lucrative products of geneticengineering. Chiron did not always win out despite Rutter’s strategic sense and innatecompetitiveness. But as the oral history documents, the highlights were memorable, among them,development of path-breaking blood-screening technology, establishing the importance of viralload in measuring the severity of infectious disease, and isolation of the hepatitis C virus. Inxv1991, Chiron bought Cetus Corporation, its next-door rival in biotechnology but could not affordto purchase its PCR technology which went instead to Hoffmann La Roche. Chiron itself wasacquired by the Swiss pharmaceutical giant Novartis in 2006, seven years after Rutter had leftthe company. An era had ended. But Rutter went on to fund and advise a handful of smallcompanies, an activity he continues at the age of 87 at the time of writing.But what about the man himself? The following exchange reveals Rutter’s management style andsuggests his commanding personality:Hughes: …if you were asked to characterize your management style, what would yousay?Rutter: Interactive, vigorous, and driving, forceful.Hughes: Authoritarian?Rutter: Perhaps a bit, in the end.Hughes: So you would consult, but then make the decision on your own?Rutter: Well, I honestly don’t think that I dismissed other people’s ideas, and frequently Ienthusiastically accepted other people’s ideas. But I took responsibility of making thedecision in the end, taking into account, hopefully, all the various points of view. I wascognizant of the competition we were in, and I don’t like to lose competitions. I don’tthink I was directive, but I like things to happen. Not always was it my decision, notalways was it my idea going in, but when it came to making a go, no-go decision, yes,then I could make a decision. And that was my role.The five interviews compiled herein were recorded between September 2004 and July 2005 inChiron’s Office of the Chairman of the Board. A man who keeps himself insanely busy, Rutterevery now and then would re-visit the task of reviewing the transcripts. The process took tenyears to complete. A stickler for precise English and clear prose, he edited heavily, oftenrephrasing as well as adding pertinent information. The result is something less than an exacttranscription of the original interviews and something more in terms of its deeply informativecontent.This oral history is one of six in the Bancroft’s series on Chiron which features interviews withearly administrators and scientists.http://vm136.lib.berkeley.edu/BANC/ROHO/projects/biosci/oh_list.htmlThose interested in the early history of commercial biotechnology may wish to consult theinterviews on Genentech, Cetus, and Amgen, also available at the link above. The eclipse ofChiron, Cetus, and Genentech through acquisition by pharmaceutical corporations makes thisand other oral histories in the biotech series all the more important as chronicles of their historiesas independent entities.xviThe Center for Oral History is a division of the Bancroft Library and is under the direction ofNeil Henry. Special thanks to Julie Allen for creating the table of contents and preparing thetranscripts for online presentation.Sally Smith HughesHistorian of Science and Project DirectorBerkeley, CaliforniaNovember 2015xvii1Interview with William J. RutterInterviewer: Sally Smith Hughes[Note: The narrator has substantially edited these transcripts. They do not closely match theoriginal sound recordings.][Interview 1: September 11, 2004][Tape 1, Side A]Hughes: Your UCSF story is pretty well covered in the first series of interviews, I feel.1So the point of this next series is to do a similarly comprehensive history ofChiron. But before we get to Chiron, I’d like to hear about your earliercommercially related ventures, setting aside the relationships you’ve had as aconsultant, which we have discussed previously. Let’s start with the CaliforniaInstitute for Genetics Research, which was founded in the late ‘70s.Rutter: Yes. When it became obvious that there were many projects of commercialrelevance, for both the technology and for the members of the Department ofBiochemistry and Biophysics at UCSF, I sought general mechanisms todevelop some kind of coherent approach to the use of the technology. Oneapproach was to set up a development lab, a technology transfer lab, that wasaffiliated with the university. I patterned it conceptually with the labs thatwere set up at universities for the development of radar and other defenserelatedsubjects in World War II. Those programs were extremely useful andefficient. They had the advantage, I thought, of developing a generalapproach, which would then build on the technology itself and provide manyof the aspects (components) of the technology which were not availablecentrally for each of the programs at UCSF—like the synthesis of nucleicacids and so on. And it would keep the highly integrated scientific and culturalsystem that we developed at UCSF intact.To that end, we explored the foundation of an institute which could operateside by side with the university, and in that way develop applications andtechnology that had started in Herb Boyer’s laboratory, but also in otherlaboratories too, particularly Howard Goodman’s, which was interested innucleic acid synthesis and the fundamental technical approaches to cloning.That would fuse then with the more focused interests of not only mine butmany other people in the faculty. So the California Institute for GeneticsResearch was a result of that line of thinking. It was an exploration with adistinguished attorney, and I took on this obligation by myself, paid for hisservices. We actually did set up the institute. On the other hand, the universitysaw no easy way to support the institute. It didn’t have available space. It was1 The earlier interviews with Dr. Rutter are found athttp://content.cdlib.org/ark:/13030/kt7q2nb2hm/2difficult to imagine that the institute would be incorporated directly in thespace of the department. It wouldn’t have been appropriate.Hughes: Because it was a commercial entity?Rutter: Well, it was a halfway house. It wasn’t commercial per se. But we would havehad to pay salaries competitive with commercial companies in order to retainthe key personnel. They were discrepant to the university’s salary.Hughes: And how were departmental personnel expected to interact with the institute?Rutter: Well, the general idea was, they could participate in any programs that werethere. The institute itself would have central facilities, and we’d work on thedevelopment of a project up to the point where it could be transferred to anexternal commercial organization, presumably a pharmaceutical company, achemical company, or whatever.Hughes: And would the faculty receive an additional salary, or would this just be anenhancement of their own research agendas?Rutter: They could receive additional salary, but salary was not a major issue, I didn’tthink at the time. Immediate remuneration of the faculty and staff was not anissue. But in the context of a contract and consulting in relationship to acontract, they would have had the ability to accept an additional stipend.Hughes: The fact that the university might put a stamp of approval on this conceptcould avoid the turmoil that was surrounding Herb Boyer and others who hadwholly commercial ventures as well as their academic positions?Rutter: Well, in principle it would have because it would have put everybody in thesame boat, and the technology transfer wasn’t a commercial operation initself, that is, a commercial enterprise by standard criteria. The CaliforniaInstitute for Genetics Research was established prior to the very vibrant anddivisive controversy over commercialism in academic biology which occurredin the department and in the university at that time. But yes, I did believe itwould have dissipated many of the concerns or antagonisms concerning thistechnology and its relevance to industry. The university, the dean andchancellor, supported the concept— that is, they were permissive. But Ibelieve they only supported it halfheartedly. They could provide no resources,either in terms of facilities or financial resources to start the institute. It had tobe self-funded totally. Given the other complexities that I mentioned—salaries—and the fact that we already had a key figure [Herbert W. Boyer]starting a company, the California Institute for Genetic Research was a nonstarter.Frankly, looking at it thirty years later, it probably was not a goodidea. It could not have been competitive and would have been competitive tothe vibrant extrinsic support which was to fund the emerging biotech industry.3Hughes: Why do you say that?Rutter: I say that because I believe that halfway houses never truly deal with theproblem. The issues that are best handled in an academic environment shouldbe developed within the academic environment. When it becomescommercial, and you have an explicit problem to solve, it’s best to developthe resources and the team that’s going to execute, and focus the team onmore than just the short-term development. The ebullience of the wholebiotechnology industry is a testament to that. I don’t believe there’s anyuniversity that has set up such a development lab, save in wartime for defenseoriented projects. It was a dream I had because of my involvement and mycommitment to the UCSF biochemistry department and the school ofmedicine.Hughes: Was it also your feeling that much of this science and technology had beendeveloped in academic labs but then was being skimmed off by the corporateworld without adequate compensation to the universities?Rutter: Well, I don’t see it that way. I don’t see the university as a profit-makingorganization. Universities’ research programs were developed from fundssupported largely by the U.S. government and other agencies. So theuniversity does not “own” the technology by virtue of the investment of itsown resources. Through the largesse of the government, via the Congress, theuniversity was able eventually to gain the rights to the technology derivedfrom research grants from the government (NIH, primarily). This representeddecentralization of the management of the research enterprise and also anincentive to the universities to engage in practical research to the benefit ofsociety—a remarkably farsighted and in hindsight, effective strategy fordevelopment of an industry based on discovery and technical innovation andsupport of science education.Hughes: Through patenting, you mean?Rutter: Through patenting, know-how, transfer—all of those things. That created avery great source of revenue for both individuals and for universities.However, in the grand scheme of things, the government’s role is developingtechnology in order to produce businesses which in turn pay taxes and hirepeople and create a livelihood for people—that’s the way our society works. Ido not see that the university as an organization is treated unfairly. In fact, theuniversity is treated immensely fairly, because the university doesn’t havethose resources to begin with; they are in this case provided by thegovernment.Hughes: Meaning the federal government or whatever.Rutter: Mostly the federal government or foundations. So fundamentally, all thatresearch is carried on on behalf of, largely, the taxpayer. And so creating an4industry and the wealth associated with the industry, creates a source of taxesand a source of employment which helps the entire population, hopefullydecreasing in the end healthcare costs or increasing the quality of life.Hughes: Therapeutic Biopolymers was how Chiron was originally incorporated.Rutter: That’s right.Hughes: Well, tell me about Therapeutic Biopolymers.Rutter: That company was originally championed by two of the more inventive andentrepreneurial postdocs, namely Mickey Urdea2 and C.K. Chang, who was anunusual person. C.K. ran the stockroom at UCSF. He was a member of aChinese trading family and with some [financial] resources. So the firm wascatalyzed by both C.K. and Mickey. The aim was to provide nucleic acidpolymers, which in their absence were a roadblock to doing geneticengineering.[Tape 1 Side B]Rutter: There were no companies that synthesized nucleic acids, and Mickey knewthe technology well. We set up a small group to produce nucleic acids, notonly for the lab and the university on a commercial basis, but also for othersas well.Hughes: Was this company using the method for synthesizing DNA that began withGobind Khorana and then got modified as it was passed down through hisstudents?Rutter: Well, there were various methods of making nucleic acids, but Gobind wasclearly a pioneer in that field, for sure, and there were better methodologiesthat were coming along, chemical methodologies. This was not a discoverybasedtechnological company; it was a service company based on available,published for the most part, chemical methodologies. It was a situation wherethere was a specific need for the efficient production of nucleic acids. Wecouldn’t do that within the university. So we made a proposal, and I agreed tosupport it, because I thought it was important, and I also particularly admiredMickey and C.K.’s entrepreneurial spirit. So, the three of us set up thecompany. It operated for some period of time, with about a half-dozen people.Hughes: Where was it?Rutter: It operated in a space contiguous with Hana Biologics, which is a smallcompany controlled by Charles Crocker, a son of the Crocker banking family2 The Urdea oral history is found athttp://bancroft.berkeley.edu/ROHO/projects/biosci/oh_list.html5and an investor. But Hana also had other investors, an Italian company,Riccordati, which also was interested in technology, and others. Hana wasfocused on biology, that is to say, the commercial aspects of cells—cellculture, media, that kind of thing. Our labs were contiguous. We met CharlesCrocker, that is to say, I met Charles Crocker on various occasions. He was aclassmate of Ed Penhoet’s wife, Camille. We thought that their company,Hana, and Biopolymers could aggregate services and therefore make astronger company. Gordon Sato, a friend of mine from UCSD and adistinguished cell biologist, was the major contributor on the cell side.Gordon’s subsequent career shows how entrepreneurial he really is, anextraordinary person, for sure. He was kind of the scientific figure andimpetus for forming Hana, and he contributed the name, as well. (Hana isJapanese for flower.) So, after a period, the two were integrated in the samecompany. It became evident that the company itself was complex. Thebusiness model for services was a difficult one, and there were strongercompetitors out there. Eventually, when we formed Chiron, we purchased thatgroup from Hana, because we needed the synthetic capability within Chiron.Hughes: Just that group?Rutter: Just that group.Hughes: Were there others?Rutter: They included, besides Mickey, James Merriweather, who worked for Chironfor many years, and several other people who worked for them, particularlyCathy Steimer, a very fine cell biologist and important scientist at Chiron, andtwo or three other people. Because of our setting up Chiron, also in somewhatcontiguous space in the same old buildings in Emeryville, we were be able toattract many of the best people from Hana, including Tony Brake’s wife, whowas a key employee at Chiron for many years. As a result of that, I soonbecame persona non grata with Hana—Hughes: For stealing people, you mean.Rutter: --and left the board unceremoniously.Hughes: You left or were you given a little shove?Rutter: It was not a shove—a shove is a de minimus term. We didn’t at all take theircore technology or usurp their research or business plans, but the business, itwas already evident, was in trouble. So people began to come to us foremployment, and they were good people.Hughes: Genentech was up and running, and they were working hard on somatostatin.One of the technologies that got them to their goal was their synthetic DNA6capability, first from [Arthur] Riggs and [Keiichi] Itakura, and then RobertoCrea came on board. Is that what Hana had, that same capacity?Rutter: No, Hana had no ambitions for creating a gene factory. They had no ambitionsfor getting into molecular biology, to my knowledge. They had a small servicebusiness which was associated, as I said, with mammalian cells. Gordon Satowas a mammalian cell biologist. So no, Hana did not have that kind of anambition. On the other hand, Chiron, for its own work purposes did have thatambition, and I’d say any biotech company that was interested in DNA/RNAtechnology had to have synthetic capability because those compounds werenot available commercially at the time.Hughes: And did that technology come from the group that you had bought fromHana?Rutter: Yes, both Mickey Urdea and Jim Merriweather came, but we hired others aswell. Now incidentally, Charles Crocker was a founder of Chiron, so weweren’t disadvantaging Charles Crocker; we were advantaging him. As itturned out, he was ostensibly supposed to provide commercial know-how,financial and business know-how, to a couple of acolytes. That transfer ofknowledge never occurred; he never played a role.Hughes: Wasn’t that self-defeating if he had invested in Chiron?Rutter: Well, he certainly made a lot of money out of that initial investment in Chiron.A lot of money! So, I don’t know how he thought about it. He had only themost superficial understanding of anything we were trying to do and didn’treally try to find out.Hughes: My understanding of one of the roles of the VC [venture capitalist] is toprovide business knowledge for the initial years of a company. And since hewasn’t doing that, he was taking a certain risk, I would think, just in terms ofhis own investment. The company was run by two scientists [Rutter andEdward E. Penhoet], and what did they know about business, one could argue.Rutter: He might have felt he had a conflict of interest with Hana, which was, afterall, an ongoing commercial organization with other investors. I don’t knowwhat he told them. He wasn’t just a VC; he was a founder—he participated inthe initial founding of the company! He invested $100,000, as did Ed and I.Hughes: So he had founder’s stock?Rutter: Yes, he had founder’s stock. So I was disappointed, truly disappointed.Honestly, it was quite a learning experience. In retrospect, we didn’t definehis role and our expectations in legal terms.7Hughes: Well, there are two more steps as I see it. One of them is the interestingconversation that you had with Bob Swanson and Kleiner Perkins [Caufield &Byers] about the possibility of joining Genentech. Can you tell us that story?Rutter: This occurred in parallel to Genentech’s program on insulin. They wereworking on a project to synthesize insulin in bacteria via syntheticoligonucleotides coding for the amino acids of the two peptide chains, (whichwere known). Simultaneously, our labs, that is Howard Goodman’s and my[UCSF] labs, were involved in the cloning of the complementary DNA of theinsulin gene, which is derived from the natural sequence of the insulinmessenger RNA. This sequence potentially could be translated to form proinsulin,the natural precursor of insulin, with its own intrinsic foldingcapabilities—a very efficient, first-order reaction. It seemed perfectly obviousto us that synthesis of insulin via the two peptides which comprise insulinwould require them to fold in a second step, and that process was likely to beinefficient, as in a second-order reaction. The chemical process itself also hadmany problems. So when the cloning was proceeding well, and after it wassuccessful, then we had serious discussions with the Genentech group aboutjoining them.Hughes: This was rat insulin, right?Rutter: Rat insulin, yes, but human insulin would come very quickly after that.Hughes: The cloning of rat insulin by the Rutter-Goodman team was announced inMay of 1977.Rutter: That’s correct. It occurred that spring.Hughes: Do you think that was probably a prompt to get Kleiner Perkins’s attention?Rutter: Well, for sure it was an important signal because then it was obvious thathuman insulin could be obtained by similar methodology, though significantbarriers still existed.Hughes: So probably it was in that 1977-78 time framework that these negotiationswith Kleiner Perkins were going on?Rutter: That’s right. And they weren’t exactly negotiations. Well, I guess they werenegotiations. That is to say, we were trying to establish some kind of basis forworking together collectively.[Tape 2, Side A]Rutter: In the end, we wanted equal shares for the two of us. We discussed a modestshare of the company, five percent I believe at that stage. Of course, we didnot know the percentages held by Bob [Swanson] and Herb [Boyer]. We even8attended a Kleiner Perkins business meeting involving all of the companiesthey supported—everything from tennis shoes to biotechnology.Hughes: Was Swanson there?Rutter: Oh, of course. Swanson and the whole crew were there. Herbert Boyer,Keiichi Itakura, Arthur Riggs, Howard [Goodman], and I. Subsequently, thosetalks drifted, with no real action taken by Bob, and I think the decision wassimply not to go ahead. We honestly never spoke about it after that with Bobor Herb.Hughes: Do you think the crux of the matter was that in their opinion you were askingfor too much money?Rutter: I have no idea about that. It wasn’t money per se; it was equity. But it was amodest amount of equity, I thought. I don’t think it was extraordinary, andfurther there was no negotiating. I think they simply didn’t want thecomplication. Genentech was about more than insulin. But our (my) interestswere broader as well. I think it might have been an organizational issue. I wasused to running the department, and was pretty strong-willed. Nevertheless, Iwould have willingly supported Bob as the CEO. Howard was also verystrong-willed.Hughes: It may have been at a time when Swanson and crew knew that their way ofgoing about the synthesis of human insulin was going to work, and so why didthey need you with the complementary DNA approach.Rutter: Well, that could have been one of the reasons, but the advantage of theapproach via proinsulin was obvious.Hughes: There was still growth hormone to come.Rutter: Well, growth hormone would have been part of the deal. That would havemeant including John Baxter.Hughes: That’s what I mean. You and Goodman still would have been attractive, onewould think, from the science you could bring to Genentech.Rutter: Plus all the rest of the projects. So it would have made a very significantaddition to the technological competence and biological and medicalperspective. On the other hand, I believe that the relationship of Bob Swansonand Herb Boyer was very strong, and they managed the company. I believethat that simple, coherent management would have been altered by theaddition of Howard and me, no question at all about it. My guess is that that’sthe part that didn’t work for those guys.9Hughes: Well, I can see how to a twenty-eight, twenty-nine-year old Swanson, youwould appear as a considerable threat.Rutter: I didn’t necessarily think of it as a threat, but it’s for sure that I wouldn’t havebeen pushed around, and his authority was virtually a hundred percent underthose circumstances. That kind of coherent management is good in acompany—just take a look at what he accomplished. So no doubt, KleinerPerkins, particularly Tom Perkins, raised those issues with Swanson andBoyer: do you want this complexity or not? That’s my guess. All of thosemeetings occurred after the cloning of rat insulin, not before. As I testifiedbefore the Adlai Stevenson committee of the US Senate, they asked explicitly,“Did you have commercial intent doing those experiments?” The answer wasno, absolutely not. At least, I had no commercial intent; the experiments hadto do with my interest in the pancreas. But on the other hand, once the cloningwas done, it was obvious there was a commercial intent since severalcompanies came our way wanting to acquire the technology. So there wascommercial interest and quite a transforming experience. So yes, it was anepiphany.Hughes: By late 1978, early 1979, the two postdocs, Axel Ullrich and Peter Seeburg,had agreed to join or were already at Genentech. So another argument couldbe that in these two individuals Genentech had part of the technology thatUCSF had developed.Rutter: Well, yes. I think Genentech developed a clever strategy of bringing in youngpeople. I’m sure that was under discussion, too: why not just bring in the guysthat really do the work? They [Genentech] felt under the circumstances,probably with the acquiescence of Ullrich and Seeburg, they could justtransfer the technology, and everything would be hunky-dory, and therewouldn’t be any consequences. The subsequent history reflects that,obviously. They thought they were getting everything for one million dollars,and the university (and I) thought they weren’t.Hughes: This situation much later became a basis for a huge law case.Rutter: Yes.Hughes: Is Amgen the next step in the story?Rutter: Well, yes indeed. That is to say, any commercial development of Rutter-Goodman technology through Genentech was essentially put on hold, becauseobviously it was going to go nowhere. And since the development lab wasimpractical, I had too many interests, non-insulin interests, that were of acommercial nature. These included hepatitis B. We started immediately onthat program, and there was an intense program supported in the university byMerck. Eli Lilly supported an independent program on insulin in UCSFbiochemistry, obviously a backup program from their standpoint in which10they wanted to essentially obtain whatever they could from the university,playing both sides to win [ie. supporting both Genentech and UCSF researchon human insulin]. At that point, I had no interest to set up a company bymyself—that would have eventually taken away my commitment to UCSF. SoI accepted the invitation to join the scientific advisory board of Amgen.Hughes: Did that invitation come from George Rathmann? Was he on board yet?Rutter: No. Amgen was a unique company started by investors. The invitation camefrom— [pause]Hughes: Salzer?Rutter: Winston Salzer, who had obviously been thinking in these [commercial]terms. He was an entrepreneurial scientist who had not contributedfundamentally to the technology but understood its future. So he had beenchosen to lead that company, and he persuaded a lot of good people to comeand be advisors. It was a great group. I joined that group enthusiastically andintroduced them to my interests and general ideas about targets, which weregrowth factors and hepatitis B. Both became programs at Amgen, and Istrongly supported the people in the company. I had known the work on afactor called erythropoietin, as it originated at the University of Chicago inEugene Goldwasser’s lab. I was quite friendly with Gene and had spoken withhim many times about this interesting project. He had no ability whatsoever toisolate a large enough amount of the compound to really define the range ofits biological activities or its chemical structure—let alone use it for treatmentof human beings. So I strongly urged Amgen in the area of growth factors totake a look at Gene Goldwasser’s program. Interestingly, Gene was neverconsidered to be “distinguished” enough to be a member of the scientificadvisory board. Incidentally, I remember that people were very skepticalabout the market for erythropoietin. Most of the people thought that it had toosmall a market and therefore was not an attractive target.Hughes: How could they think that?Rutter: Well, it’s like many novel products; you never really know what the value ofthe target molecule is until you find out what it does in people, and then youdiscover all kinds of uses and also unwanted side effects.Hughes: At that stage, erythropoietin’s use in connection with cancer wasn’tparticularly thought about?Rutter: Yes, I think that’s right. But the work on hematopoiesis was well known as aresult of the work of Till and McCullough and collaborators in Toronto, sothis was a real rich field. So I was really hot on that, plus other growth factorsand hepatitis B. Eventually Winston was replaced by George Rathmann.11George brought a lot of wisdom and dynamism—wonderful guy and a greatCEO, a great future for Amgen .3Hughes: Would you say when you look at the biotech pioneers that he was unique inhaving almost equal measures of scientific and business experience andsagacity?Rutter: Well, I don’t know about equal, but he was very unusual in being a wellroundedscientist. I believe he got his degree in physical chemistry.Hughes: Yes, he did, from Princeton.Rutter: He worked at 3M. He had this physical-chemical background, and it wasquantitative, so he had a very sound scientific background, and he coupled thiswith great personal skills and savvy.Hughes: George told me that Amgen’s Epogen program eked along for a number ofyears, with his personal endorsement and the Amgen scientist [Fu Kuen Lin]doggedly pursuing the project.[Tape 2, Side B]Hughes: What happened to the invitation to join Amgen’s scientific advisory board?Rutter: I was on Amgen’s science advisory board, as I mentioned, but was not totallyhappy because of my own scientific and medical interests. Well, it came downto the fact that Amgen was involved in so many things that they were unableto focus on the projects that I liked, projects that I was committed to. HepatitisB was one of them, and it was probably the precipitating factor [for mydeparture]. But in addition to that, I was interested in IGF-1 [insulin growthfactor-1], still interested in insulin, but in other growth factors as well, EGF[epidermal growth factor] and nerve growth factor (NGF) among them. Ithought a whole range of growth factors were important. At that time, Amgenwas pursuing projects as diverse as the synthesis of indigo, recapturing ofprecious metals from mining, commercial bacteriology, and so on. At thesame time, they had a program with Marvin Caruthers on nucleic acids, priorto the spin-out of the group that eventually ended up as ABI [AppliedBiosystems] with Sam Eletr. Lee [Leroy] Hood was also a member of thescientific advisory board, and because of his wide interests, there wascontention over how much technology and programs would be inside Amgenand how much would be developed external to it. I was personally aproponent of keeping the company integrated, because at that time thetechnological diversity and scientific strength was the best in the industry, in3 Rathmann’s oral history in this series is found at:http://digitalassets.lib.berkeley.edu/roho/ucb/text/RathmannBook.pdf12my view. But the VCs in their wisdom decided on making a separate company[ABI], and I could see in the end that was also a wise decision.Hughes: You mean Amgen North?Rutter: No, I’m talking about the split off of Sam Eletr and the DNA technology withMarvin Caruthers in Colorado.As I mentioned, Amgen had a diverse range of projects with only limitedfinancial resources. Of course, each one of the projects had their ownproponents. I naturally wanted to become directly involved in some projects,because some of the projects faced heavy competition, particularly hepatitis B.So I made the proposal to set up Amgen North. George explored thispossibility vigorously. He came up to San Francisco and visited with Ed[Penhoet]4 and Pablo [Valenzuela], whom I’d introduced separately ascandidates for director of research of Amgen. George was interested inrecruiting them to Amgen. I am not sure at this point which he preferred, butthe prospect of losing either of these colleagues gave me heartburn. This wasparticularly acute with Pablo, with whom I had worked for a decade. We hadformed a great productive team. I knew that if Pablo left, the productivity ofmy [UCSF] lab would suffer.While that process was maturing, the competition in hepatitis B wasaccelerating. Pablo played a major role in that project. I think the turning pointcame when I attended a Battelle [Memorial Institute]-sponsored meeting inWashington, D.C. To my surprise, it was a meeting that was attended as muchby venture capitalists and bankers and commercial people as scientists. I feltthat we didn’t have sufficient resources to be competitive in our projects,particularly hepatitis B. So I called Roy Vagelos at Merck in Rahway, NewJersey and asked him if I could come up and see him. I outlined the reasonswhy it was important to move our hepatitis B project out of the university ifwe wanted to win the race of characterizing the hepatitis virus and developingthe vaccine. Otherwise, I thought it was quite likely we would lose Pablo. Hewas crucial to our scientific productivity. I wanted to keep the UCSF hepatitisB team together, and we could do this independently, perhaps moreeffectively, than with Amgen South. In the context of forming a strongpartnership with Pablo, I agreed to split with Pablo any personal revenuesobtained from patents derived from the UCSF research on the hepatitis Bproject. The proposed budget for Amgen North was not large enough tosupport this group and my favorite projects. So that made the decisionsimple—if Merck would agree to sponsor an arrangement in a separatecompany.4 Find an oral history with Penhoet at:http://digitalassets.lib.berkeley.edu/roho/ucb/text/regional_char_of_bio.pdf13In the prospective company, I wanted to have Pablo and Ed Penhoet. Ed was avery bright, articulate person, one of the most talented teachers at Berkeleybut whose research projects were perhaps not as distinguished as he and theBerkeley Department of Biochemistry would have liked. Ed was a naturalcollaborator—a person who loved to work with others, and one who supportedand enhanced the research of those around him. In that sense, he was a bornleader of a research organization. Those talents were not fully appreciated orutilized at Berkeley, and Ed told me he was enthusiastic about consideringanother career.Of course, George was not blind. After I introduced him to Pablo and Ed andmentioned their respective talents, he actively tried to recruit each of them toAmgen. Of course, Amgen was an ongoing concern with considerablefinancial and research resources and could make a compelling offer. Icountered by suggesting that the three of us found a new company, anchoredby the hepatitis B program and the insulin programs. By this time, HowardGoodman had accepted an offer to be head of a research institute at Harvard,funded by a German pharmaceutical company, and he no longer was a factorto be considered. Happily, Merck became enthusiastic about the concept. WithRoy Vagelos’s support, we looked rapidly to find out if there was some spacein one of Merck’s companies. There was a local one, a little chemical facility,which was not acceptable, and another chemical plant in San Diego, whichwas not appropriate either. So we had to start in a new facility. Merck agreedto underwrite this hepatitis B project with a contract. With that, we decided togo ahead and not further negotiate with Amgen.Hughes: You mean, go ahead and found a company of your own?Rutter: Go ahead and form a company and not further negotiate with Amgen, whichobviously was going to take a long time and resources and a big timecommitment. Prior to that, as I mentioned, I’d suggested both Ed and Pablo ascandidates for director of research, and George had met them both and wasvery strongly positive to both of them. So it became obvious as well that if Ididn’t coalesce the group to form this company, one or both of them wouldleave. That led to several meetings between the three of us. I’d known Ed formore than fifteen years and Pablo for more than ten, and I had worked withPablo all that time, so they were people that I knew well, trusted, respected,had great affection for. Ed was a Ph.D. student of mine, and Pablo began as apostdoctoral associate.So over Easter weekend [1981] Ed and I got together to write a business plan.I wrote the draft, I still have the pages in my handwriting. Ed and I talkedabout the concepts. It was really not a business plan; it was a research plan,outlining projects. That was the basis for the start of the company. Weinitiated it on capital put in by Ed, and later by me, and still later by CharlesCrocker. I think we each put in a hundred thousand dollars. That’s howChiron got started.14Hughes: How did [Jean] Deleage come into the picture?Rutter: Well, three hundred thousand dollars doesn’t do too much, and we werescrewing around trying to get labs on the most economical basis possible. Westarted in the same building as Hana, but soon found an old dilapidatedbuilding that had been part of the Shell Research complex [in Emeryville], butlong since abandoned and inhabited by owls, piles of bricks, and an itinerantor two. We constructed our own laboratory benches in a quite basic butserviceable facility. As I mentioned, we needed resources, and none of usknew very much at all about business. How is that for a beginning?Hughes: Had Crocker also put a hundred thousand in?Rutter: Yes.Hughes: That was all that he ever did?Rutter: That’s all he ever put in. Smartest move he ever made. I honestly believe that.Ed had a respected family friend who worked for Spinco, I believe. His namewas Morris Hannefin. We went out to see him. He was kind of an advisorabout how to set up companies and what you had to be worried about, stufflike that. We went through the process: it was simple to set up and easy toinitiate, and we decided to move forward.That was the easy part. We tried for some time to learn about sources offunding. Neither of us knew anything about venture capitalists or venturecapital. We eventually had some discussions with Sutter Hill Ventures, withLeonard Baker and David Anderson. I think they weren’t awed and didn’tseem too enthusiastic, or at least they were kind of negotiating a low value, asI recall.But we met Jean Deleage in another way. At some point, when I was withAmgen, there was a meeting with potential investors in San Francisco. Georgecould not make it for some reason and asked me to represent the company.After the presentation, Jean walked up to me and said something like, “If youever want to start a company, come and see me.” I decided to look into it. Oneof the people in my lab, Raymond Pictet, who was Swiss-French, also knewJean Deleage and brought him to the lab to “get acquainted.”[Tape 3, Side A]Rutter: I remember well—I think it was on a weekend because no one else was in thelab—Jean Deleage came over, sat down on a laboratory stool. We talkedabout projects that interested us, what the business plan was, and so on. Hemade a decision to support us in a couple of days. I think he invested a millionor a million and a quarter dollars.15Hughes: Had he invested in biotech before this, or anything biological?Rutter: He was part of an investment partnership, Burr, Egan, Deleage & Co, that hadbroad interests. But Jean was interested in biotech. They frequently investedin concert with other French investors. Part of the pitch they made was thatthey had call on a lot of French money and it would be easy for them to getmoney and establish business contacts in France. So in this sense, theysupplemented our own contacts, and they could help develop the business.Along those lines, they certainly facilitated many trips to France, and we metwith key figures in the pharma industry and the oil, petroleum industry—many wonderful dinners.Hughes: Did any business result?Rutter: No contracts, no contracts.Hughes: Why do you think that was?Rutter: Well, there were several reasons, mostly related to the fact that this [biotech]was a novel, unproven field. But we came dangerously close to getting acontract with Sanofi. There was an internal fight between two sectors of thecompany. One group wanted to produce a product by bacteria, the other bymammalian cells. We could do it with yeast. So the general idea was, insteadof choosing one group or the other, they would choose still a third—that wasthe reason for our negotiation! [laughter] I think they didn’t know quite whatto do with biotechnology. They were so involved with their own structure. I’mnot sure whether there was any strong collaboration by any biotech companywith a French company.Hughes: No?Rutter: Not that I can recall. So I think maybe it was just a characterization of theFrench industry as it existed at that time.Hughes: Therapeutic Biopolymers was the original name, but within days there was aname change to Chiron. Do you want to tell the story of how the name Chironarose.Rutter: Yes. Well, in the industry there was a tendency to use technical names insteadof a heuristic name or an iconic name. There was Genentech, and there wasAmgen, and so on. I think I had come up with this name TherapeuticBiopolymers, but it sounded very uninteresting. I think that someone said,“That’s a kind of stodgy name. What are we going to do about it?” I agreedimmediately, I believe, because I recall suggesting that we search in the Latinor Greek for one of the legendary figures that had something to do withmedicine. We were discussing that kind of approach, I think, at Ed’s kitchentable or in some kind of home environment—it wasn’t mine—and we left with16that notion. Then Ed began talking about this with his children, and I thinkBraden, his second son, was in high school and studying Greek or the classics.He came up with the name Chiron, among other alternatives. Of courseChiron was an “a-ha” name; it was perfect in the way we thought of ourselves,and we were delighted with it.Hughes: Let’s talk about the recruitment of staff, maybe first the scientists, because Ipresume they came first. Did the scientists from Hana come immediately?Rutter: No, they didn’t come immediately; they came later.Hughes: Who were there first?Rutter: Primarily the group from my lab, Pablo of course, along with the technicianswho worked with him.Hughes: Graeme Bell?Rutter: We eventually recruited Graeme Bell, who was the person responsible for thecloning of the human insulin gene, a marvelous technical person andextremely intelligent--now a distinguished professor at Chicago. [R. A.] RobHallewell came from Howard Goodman’s lab.Hughes: Was he a postdoc?Rutter: Yes, he was a postdoc. Leslie Rall was one of my postdocs. Come to think ofit, I honestly don’t remember if Leslie was a student or a postdoc. George Kuowas another very talented researcher that I knew at UCSF. George came fromanother department. He came to see me about a job, and we were delighted tohave him join us. Then Ed began recruiting people from Berkeley. SteveRosenberg was the main person that I recall.5 So the initial group was largelyrecruited from my lab.Hughes: Was Michael Houghton part of that original recruitment?Rutter: No, he came later. He worked at Searle in England, and we recruited him afterwe had some success with the hepatitis B vaccine project and were starting tobuild the research team. He was not recruited for a specific project.Hughes: So that was a little later?Rutter: Yes, significantly later. We worked as a research group, much as I ran my[UCSF] lab, with strong operational leadership by Pablo and strategicleadership from me.5 See the oral history with Rosenberg at:http://digitalassets.lib.berkeley.edu/roho/ucb/text/rosenberg_steven.pdf17Hughes: Do you have any recollection of when the Hana group came over? It wasprobably dependent on when facilities become available because at first youhad only two small labs that you rented from Hana.Rutter: That’s right. So after the money came in from Jean Deleage, my guess is.Hughes: Which was ’82?Rutter: A year, few months, something like that [after founding Chiron in 1981].Initially, there was a separate corporate office in downtown Berkeley. Edworked together with Suzy Sanders, wife of Tom Sanders. Tom Sanders alsowas a previous student of mine and joined us as one of the early employees.Hughes: As a scientist?Rutter: As a scientist. He had been an assistant professor at Princeton but didn’t maketenure there. Then he left to take on a role in a college north of Chicago, andhe left that job to come to Chiron.Hughes: I have a feeling that he took on more than science at Chiron.Rutter: Tom was very bright, multitalented. If we wanted to learn something about asubject or field, any field, Tom was the go-to guy.Ed and Suzy and Pablo looked around, and then we rented some space fromHana and then got our own space in the building across the way which we didhave to renovate. Most of the laboratory benches were constructed simply andextremely inexpensively by a contractor who worked for us. C. K. Chang,who had been head of laboratory resources (chemical stores, etc.) in thedepartment at UCSF and separately an entrepreneur, played a similar role atChiron.[Tape 3, Side B]Hughes: Did you have the contract with Merck yet?Rutter: Merck agreed on a contract, and contemporaneously with this developmentwe negotiated that contract through Brobeck Phleger & Harrison LLP. Thesenior partner was John Larson, but we worked directly with Bill Green. Ibelieve initially it was for two million dollars. Later, we persuaded Bill Green,who was a friend of Ed Penhoet, to come on full time.6 The contract supportedthe work of half-a-dozen scientists, I think. After we looked at variousalternatives, we set up a cooperative program with Ben Hall [at the Universityof Washington] to do protein expression in yeast. We had tried extensively inmy lab to get significant expression of the hepatitis B surface antigen in6 See Green’s oral history at: http://digitalassets.lib.berkeley.edu/roho/ucb/text/green_william.pdf18bacteria, but failed. We had worked with yeast before, and were convinced itwas a better expression vehicle. We decided to use yeast because we wantedto produce a mimic of the hepatitis B particle, twenty-seven nanometers indiameter, which was seen in the serum of infected patients. Yeast was aeukaryotic organism, and it had similar cellular structures to those inmammals. I had recruited an outstanding yeast biochemical geneticist, IraHerskowitz, to UCSF. (In fact, we asked Ira to be a consultant to us [atChiron], but he declined.)We used yeast in my lab at UCSF but did not have a strong yeast promoterthat could be used to drive the expression of a transgene on a commercialscale. So I sought promoters everywhere in this country, including from aformer postdoc, who was then at UC Davis, who had been studyingexpression in yeast using various promoters for the enzymes used to breakdown glucose to eventually produce alcohol. Mike refused. I talked to all thelikely sources of promoters from various labs all over the country. All refusedto give me their promoters or refused to collaborate; they were all affiliatedwith one group or another. Ben Hall, who had been a colleague at Illinois andalso at the University of Washington, was working on expression in yeast. Wefinally made an arrangement in which he and his colleague Gustav Ammererwould obtain a full 50:50 share of the experimental result from theexperiment. A very tough negotiation, but we finally could get on with it.Hughes: Their system included a promoter?Rutter: The key ingredient was the promoter that could be coupled to a transgene—inprinciple. Ben had been working on alcohol dehydrogenase and other yeastpromoter systems along with others at UW. Incidentally, he also had beenworking with Genentech. So Ben was negotiating with both Genentech andourselves, and he insisted on being a major player in our hepatitis B programfor having provided a promoter, a component of the expression system. Thecombined project was carried between his lab and my lab, that is to say, thework was carried out by Pablo and Ben’s colleague Gustav Ammerer.Hughes: Genentech dropped out of the collaboration?Rutter: Genentech was never in collaboration.Hughes: It was just a possibility—Rutter: It was a possibility for Ben Hall to work with them. Then Ben, unbeknownstto me, established a relationship with Merck, tried to get Merck to support hisprogram at UW and a company. For the first time in my life discussions on acollaboration started with a telephone call with attorneys and ended withattorneys. So we made an agreement between the University of California andthe University of Washington on the first experiments. After Chiron wasformed, another agreement with UW was formed. We did the key experiments19in Chiron, but they were anticipated by the work at UCSF, and the University[of California] and the University of Washington get royalties.Hughes: Yes, tremendous royalties, right?Rutter: From what I gather, the hepatitis B royalties have been the highest of anypatents in the UC system for about a decade.Hughes: I’ve never seen that agreement with Merck. Do you remember in outline someof the parameters?Rutter: This was a specific agreement in which the royalties would be shared fiftyfiftybetween the two institutions [UC and the University of Washington]. Theroyalty is a couple percent for both institutions, so both institutions have reallydone very well.That agreement had occurred just prior to Chiron getting started, so a majoraspect of this was the role of Chiron in the further development. Of course, itwas a very significant project within Chiron. The two universities had aresearch agreement with Merck, and with Chiron it was a contract. The aimwas to produce particles that mimicked the hepatitis B particles. The firstexperiments at Chiron, carried out in the first few months after we hadlaboratories, demonstrated that we produced in this system hepatitis B antigenas detected immunologically, and we also could see particles in themicroscope! These were amazing results—the first complicated structurenaturally made in humans but produced by genetic engineering in a foreign—microbial—cell! We were all elated by these results obtained in such astraightforward experiment! I specifically remember the conversations withBen—both of us were conservative in drawing conclusions—saying that wewould really know what we have only when we see the electron micrographs.Sure enough, there were particles, beautiful particles—smaller than theparticles that were normally produced in humans—twenty-two nanometers,instead of 27 nanometers—probably due to the size of the surface antigenemployed and also perhaps the less adventitious binding of other molecules.In the end, despite its complexities, we had a successful collaboration, afundamental lesson in getting things done in a competitive and personallycomplex environment.Hughes: The particles worked as well as the natural ones?Rutter: Oh, they worked beautifully in the production of neutralizing antibodies.They’re the basis for all the hepatitis B [vaccine] made in the world today, andstill [using] the same basic technology. The results were so clear cut that itresulted in a major project within Merck. At first, it was controversial becauseMerck had their own hepatitis B project, developing a vaccine based on thenon-infectious particles from infected individuals. Maurice Hilleman hadchampioned that project.20Hughes: He was a forceful individual, was he not?Rutter: He had a very forceful personality and managed projects with great intensity. Ihad a really nice letter from Maurice a couple days ago, and if I can find it I’llshow it to you. But, at that time, he was defensive of his own program andskeptical of ours, so it required Roy [Vagelos], at that time head of MerckSharp and Dohme (Merck Research) and later Merck CEO, to support thisproject. Subsequently, Pablo participated directly in the development of acommercial process at Merck laboratories. Ed Penhoet adroitly managed therelationship.Hughes: Was there already worry about Hilleman’s method, which depended onhuman sera, and the potential for infection?Rutter: No. All this was prior to the discovery of HIV, and infected serum was not abig worry at that time. However, the use of serum from infected patients forcontrol of an infectious disease was of its own nature a self-limiting process.However, the discovery of HIV did totally transform the project. It completelyeliminated the other [Hilleman’s] way of doing it, and of course exacerbatedthe need for such a vaccine that totally eliminated the possibility of infectionfrom the vaccine itself .Hughes: Did the Hilleman method disappear before HIV was isolated [1983]? Therewas evidence before that, of course, that people were getting AIDS fromblood transfusions.Rutter: Well, yes, indeed. But still, at the time of the development of this in the earlyeighties, that was not very well known or established. Indeed , the bloodbasedvaccine was developed and sold for a time, but it was completelysuperseded by the yeast vaccine. Pablo went numerous times [to Merck] andtransferred the laboratory process to the relatively small facility used forscaling up the process at Merck. I believe that facility was used for severalyears for commercial manufacturing.Hughes: Was it always Chiron’s expectation to sell the technology? Could Chiron havekept the technology and supplied just the particles, for example?Rutter: We had no capability of manufacture on a large enough scale at that time,though if there were no Merck contract, we could have developed the process.However, the facility itself would have taken considerable time and resourcesto build, and of course after that there would have been the problem ofobtaining FDA approvals.Hughes: I know that. But you could have been worried that Merck would appropriatethe technology.Rutter: What technology?21Hughes: The actual manner of producing the particles.Rutter: We demonstrated how to do it in the laboratory. And we transferred it toMerck.Hughes: I asked the question, thinking of what earlier had happened with the insulinand growth hormone projects. One claim in the lawsuits was that Genentechhad never intended to supply Eli Lilly with the technology; it was only tosupply them with the two insulin clones for the A and B chains. In otherwords, Genentech wanted to hold onto the technology and supply just therudiments of the product.Rutter: The rudiments of the product, meaning in this case the peptides?Hughes: Yes.Rutter: So they were doing manufacturing?Hughes: Genentech wasn’t going to do manufacturing. My point is, Genentech wasstruggling to hold onto the technology itself, and only supply the rudiments ofthe insulin product. You couldn’t do that in the case of hepatitis B?Rutter: I didn’t quite understand that, Lilly had to manufacture, and in order tomanufacture, they had to have bacteria.Hughes: Yes, and Genentech supplied the clones that had the two insulin chains.Rutter: So did we. So they licensed the use of those clones for that project. Thetechnology was not licensed, except the ability to produce hepatitis Bparticles.22Interview 2: September 18, 2004[Tape 4, Sie A]Hughes: Dr. Rutter, we have the first business plan available.Rutter: What was it?Hughes: Well, there were two. There’s the handwritten plan that is really more ascientific agenda that you wrote at that Easter meeting. Then sometime later,maybe many months later, there was a formal business plan, which I don’tbelieve had the date, but I’m figuring it had to be 1992. It was written tenmonths after the handwritten version, and it’s quite different. So with that inmind, I thought we should talk about how the business itself was organized.Rutter: It’s strategy, then.Hughes: Well, yes, and also corporate organization.Rutter: So let’s just talk about the business strategy.Hughes: Well, before we talk about that, let’s talk about business models, if there wereany.Rutter: In the industry itself?Hughes: In your mind as you were setting up this company. Were you using any ofyour past experience? Ed Penhoet as well?Rutter: Not really. I’d had experience at Abbott. I knew something about Merck, alittle bit about [Eli] Lilly. But certainly my deepest experience was Abbott.But I would say the evolution of a business model in the context of planningthe ultimate business was not something I knew much about or we knew muchabout and we didn’t do it in that way. That is, we didn’t build the companyanticipating a marketing organization that would work in all parts of the worldor where we would manufacture. Those issues developed over time withopportunities and with accomplishment. In some senses, this company, likemost companies, grew like Topsy. The business of the company initially wasresearch, pure and simple. That was the leverage we had. It was our“competitive advantage.” We had technology that other people wanted, andtherefore the issue was a combination of partnering and evolution to abusiness with our own products which ultimately would be sold by somemechanism. Presumably, the mechanism is still intact.Each one of the companies mentioned here, that is, Genentech and Amgen,also grew organically in different ways. Amgen, at the time that we startedChiron, was trying to cover many different fields. It was a research23organization that was looking for areas that could be approached using theirtechnology. In that sense, ours was much more focused. That is to say, wewere really interested in infectious disease, and we were interested in growthfactors, that is, using natural means to influence both disease and health. Thegoal was ambitious to be sure, but the strategy was clear enough. That is tosay, in the infectious disease field a given line of research could be useful inseveral domains. Diagnostics was one of them, which had shorter termcharacteristics to reach the market, and if we chose the right targets, we feltthat those targets could have a proprietary advantage in the field.Hughes: You had that concept right from the start? Last time, I think it was probablyoff-tape, you spoke of leveraging from a common research base.Rutter: Yes, that was the concept then. And that same kind of research could be usedfor therapeutics or preventatives. We were really describing then what is nowcharacterized as a knowledge-based business. That’s what it was. We had atechnology base, and through that technology, we would accrue specialinformation, knowledge which would allow us hopefully to control a field andthrough that establish a stable and successful business. The argument I madeto myself was that diagnostics by and large was a nonproprietary business. Allthe tests were standard. They were in the public domain. And the business wasbased upon developing instruments to handle the tests more efficiently, withgradual improvement in sensitivity and specificity of the tests. So what effectwould intellectual property have on a field like that? In a certain subset of thefield, if one could get a test that was both high value and everybody wanted it,it would in a sense devalue all the other businesses that didn’t have that testand then allow the ascendancy of a business which had it. So from a strategicpoint of view, the leveraging of the research was to develop intellectualproperty in all things that were important relative to a particular healthproblem and then build a business around that intellectual property and thenew knowledge.The same is true for vaccines. The vaccines which were then apparent werestandard vaccines which had been around for decades and some for nearly ahundred years. If there was a new way of developing vaccines by molecularmimicry, as was the case with hepatitis B, that essentially eliminated allpossibilities of infection by the vaccine itself because nowhere was theinfectious agent present in the process. Only part of the infectious agent waspresent in the process, one gene or two genes or whatever. So that meant thatwith this new use of recombinant DNA technology to essentially provide astructure which mimicked the natural structure, one could obtain animmunological response which would neutralize the natural wild-typepathogen without danger. Well, that concept, a new concept I felt, would drivethe field, and in a sense hepatitis B was the core demonstration of thatapproach.24Hughes: The core demonstration and also the core project upon which Chiron wasformed, right? Without what your UCSF lab had previously achievedregarding hep B, Chiron probably wouldn’t have happened when it happened.Wasn’t your hepatitis B research and seeing its commercial value the push tofound Chiron?Rutter: We discussed that last time, and for sure it was. But at the same time, insulinwas a paradigm for growth factors, and I was working on IGF-1, insulin-likegrowth factor, which is an intermediary in controlling growth, bonedevelopment, and lots of other things. And there were many other factors. Wewere working on nerve growth factor and epidermal growth factor as well,and it was just becoming apparent that these molecules might have powerfulinfluences more or less like insulin had. So using these natural molecules tofacilitate treatment of diseases or the extension of health was what we werethinking of. Each one of those areas, then, was different than the technologyassociated with the current business, so they represented a point of departure.Hughes: The current business being—Rutter: Current business in each one of those sectors.Hughes: Including the fact—was this in your thinking?—that the existing biotechcompanies were not emphasizing these fields?Rutter: Well, starting first with the pharma[ceutical] companies. The diagnosticcompanies were not doing fundamental research. They were simplydeveloping instruments and tests according to a standard protocol, and theywere associated by and large with pharma companies. Pharma companieswere dedicated to small molecules. Nobody was interested in larger moleculesexcept, obviously, those that were associated with diabetes, like Lilly, andthere was a modest industry around growth hormone derived from cadaversand so on. The vaccine business was dispersed. Yes, there were companieslike Merck, SmithKline, and Merieux, but most countries had small publichealth oriented vaccine organizations that had evolved from Pasteur’s time.It’s interesting that roughly a hundred years ago when [Shibasaburo] Kitasatoin Japan, Emil von Behring in Germany, and Achilles Sclavo in Italy startedtheir vaccine programs, they became public health programs. The good thingabout it at that time was that they were adopted by the countries, and each oneof the countries was sort of on its own to develop these approaches to controldisease. But in the ensuing hundred years, these became inculcated into thegeneral activities of the governments, and so there was no novelty. Therewasn’t research going on to improve and change, so they languished. That is,that industry languished. There were only a couple of companies—Merieux inFrance was one—that were avant-garde. They were really trying to advancethe vaccine field and develop an international business.25Hughes: Doesn’t the Salk polio vaccine enter in here, too? My understanding is that inthe wake of the Cutter Laboratories disaster when there were a number oflawsuits against the makers of the vaccine, companies began to be skittishabout a vaccine business because of the potential for lawsuits.Rutter: Oh, absolutely. This was the classical situation which set up the vaccineproblem. Both were trying to solve a high-profile problem of worldwidesignificance. That is, the old way of making vaccines, whether they werekilled or whether they were attenuated, always resulted in some peoplebecoming infected. When the process was faulty, as was the case in Cutter,and large numbers of people got polio, then eventually it led to bankruptcy ofthe company. Some of the Cutter business was eventually taken over byAbbott, but they did not continue the vaccine business. The new strategy fordoing vaccines, as I said before, eliminated that danger, plus the approachitself was general. If one could achieve mimicry broadly at the immunologicallevel, then one could develop new vaccines against nearly everything. Thatwas the general notion.[Tape 4, Side B]Rutter: I was certainly convinced that the methodology was translatable. I was moreconfident than I should have been that it was translatable on a case-by-casebasis. Do you want me to go on with that right now?Hughes: Well, maybe we should go back to the pure business part of the history.Rutter: Each one of those three research areas had a scientific basis coupled tointellectual property for their existence. We thought that the pharmacompanies were weak in this area, both from a technological point of viewand also they were not focused on these areas of opportunity among thebiotech companies, there really wasn’t a company that had focused on eitherdiagnostics or vaccines, although Centocor did some of that.[interruption]Rutter: Most of these companies were project-oriented, that is, they would go afteranything that was approachable. The question was, what was in sight? Whatwere the available targets? I thought at least we had a fundamental strategy.The general idea was that the research program then could be leveraged andwe could find partnerships, and out of the partnerships, the knowledge whichwould accrue would eventually allow us to enter all or a part of those fields.Hughes: How much was your experience on the Amgen science board influencing howyou thought about your own company, positively and negatively?26Rutter: Well, obviously, it was a significant experience, so we were more focusedthan Amgen was at the time. Amgen was supported in a major way by Abbott,and of course those guys knew what they were doing, I thought, and we werewithout significant business experience Still, I felt, just like running a lab,you’ve got to focus on what you’re going to do in order to accomplishanything. We were interested in something broader than simply doing projectsbased on a technology—a specialty research house.So after hepatitis B, we wanted to go further. What are we going to do in eachone of these areas? What is required? What is going to be the next productwhich has relevance in all three fields, which is related to a public healthissue, which would allow us to capture intellectual property and theknowledge associated with it, and therefore develop a sustainable organizationout of it? I certainly didn’t believe that technology per se was going to workfor us. We had to work then to develop business and products that were basedupon the use of the technology in certain fields. So in that sense, I wasconfident about the early strategy. For a research-oriented company, it workedwell.Hughes: You spoke several times of intellectual property concerns, and I know you hadbegun to patent out of your lab at UCSF. But if you were at all like most ofyour colleagues in the biological sciences at that time, you didn’t have a longhistory of dealing with intellectual property concerns or even putting themfirst and foremost. Was it a given that if you formed a company, thatintellectual property concerns had to be right there at the top of yourconsciousness? Or were you getting advice from Jean Deleage or CharlesCrocker or whomever on the business side of Chiron that intellectual propertyprotection had to be a major emphasis of this company?Rutter: We were not getting advice from Charles Crocker or Jean Deleage on thosematters. I would say that we certainly got advice from Merck in relationship tohepatitis B, but more than that, my long experience with Abbott had certainlymade me aware of the necessity and power of patents in establishing aposition based on your own work. It was perfectly obvious. In academicresearch, new findings are immediately repeated by others, who then go on tocompete with you, in some way. The more important the work, the moregroups get involved. Without intellectual property, it was obvious thatresearch-oriented organizations would not be sustainable.Hughes: Did you pay any attention to the fact that by the time Chiron was formed, theDiamond v. Chakrabarty Supreme Court decision was that living, manmadeorganisms were potentially patentable?Rutter: First of all, I thought Ananda Chakrabarty had done a remarkable thing. Hewas and still is a very thoughtful guy, a very imaginative person. But to tellyou the truth, I had never thought of patenting a natural organism. We werealways talking about modifications of an organism for some utilitarian27purpose, and in that context, the utilitarian purpose, the commercial purpose,was the result of a creative act, and it had a right to be patented. That seemedreasonable to me. But for sure I was aware—who couldn’t be aware?—of allthe considerations and concerns.Hughes: Well, the Chakrabarty case could have prompted you to pause and reconsiderwhether the time was right to form a company.Rutter: I thought it was exactly the right time to form a company. It was the right timeto form a company because I had great confidence we’d be able to do thingsthat helped human beings. It was not an issue of damn the torpedoes, fullspeed ahead. This was an issue of understanding the potential of a set oftechnologies. My belief was that once that potential was demonstrated, mostof the concerns would dissolve. To this day I believe if you take a pragmaticapproach to the resolution of human problems via technology, one has to blaston past the issue that some ultimate, as yet amorphous situation may resultwhich is in itself deleterious.I think that there are so many controls that one has over biological systemsthat possible deleterious consequences could be satisfactorily addressed. Therisks of the kinds of things we were doing, especially since they were allcontained [by biosafety measures], were minimal, as compared to theproblems in medicine and healthcare we were trying to address. Therefore thepolitical and social issues were epi-issues to me. It was, however, a majorreason why recombinant DNA technology was not adopted by the majorpharmaceutical companies. They wanted to pay attention but keep it on thesidelines. They didn’t want to become polluted by something that wascontroversial. After all, they were in the public market, and what would theresponse of the market be to these approaches? My guess is, recombinantDNA technology would have been very controversial at the board level. So itwas totally appropriate that the young companies take it over. Well, that hasbeen kind of my game in science and business. I mean, if you are trying to usetechnology to improve humanity, you have to use the most advanced forms oftechnology if it’s appropriate, and not everybody wants to do that. Smallcompanies are a way to make progress, and maybe the only way.Hughes: What kind of outside help were you getting, if any?Rutter: We were getting help largely from people who were interested in ourtechnology. Certainly Merck. Merck was a great help. Despite the fact thatthey were quite distant from us, and we were just a contractor, still I knewRoy [Vagelos] from his academic days, and we had very straightforwardinteractions. I knew my colleagues at Abbott. I got no help from them directlybecause eventually they became involved with Amgen. But nevertheless thatexperience as an Abbott consultant was a meaningful experience. Then, whileat UCSF, we had a relationship with Eli Lilly for a while. And so on. So all ofthose things helped. But frankly, I had no experience with running an entire28business. We were running a lab that had commercial potential, but it was anextrapolation of something that I’d done before in several different venues. Itwas a pretty easy extrapolation from a complicated department integratedwithin a medical school to develop a coherent program at Chiron with a groupof focused individuals, especially with Pablo, who was just great as acolleague and practical thinker, and with Ed who was smart and was a greatcommunicator and who had an innate sense of building an organization. Hehad demonstrated that at Berkeley. It wasn’t the easiest thing in the world, butthen again, it wasn’t totally daunting either. I am glad we didn’t recruit aperson from “industry” to lead the effort. The culture would have been totallydifferent, and maybe it wouldn’t have succeededThen the issue of contracts and how the company worked, how we presentedourselves, well, that was in part an intellectual problem—[Tape 5, Side A]Rutter: —of establishing the right balance of values. In that context, the issue was thevalue of new knowledge and technology as opposed to money and experience.I took the view it was about equal, so fifty-fifty was about where to start. Onthe other hand, it was complicated with respect to contracts with Merckbecause part of the work had been previously done at UCSF, with thecollaboration of the University of Washington, and so the royalties went inboth of those directions. So, then, how much could Chiron get beyond that?Hughes: Wasn’t Benjamin Hall negotiating separately with Merck?Rutter: Yes. I described that, I think, last time. Ben Hall, unbeknownst to me afterwe’d set up the program, also tried to get Merck to support his programindependently of ours. He did get a grant from them, separate from our owncontract with Merck. Frankly, I don’t know all the details of that. But mysupposition is that he tried to say that the approach to the hepatitis vaccinewas a joint project, independently conceived, which was not true. They couldhave other projects going on. Neither Roy or Ben ever mentioned it.Hughes: So Merck was dividing up the science and—?Rutter: No, the science was integrated, but, as the authorship will show, it was acollaboration between Gustav Ammerer and Ben Hall with Pablo Valenzuelaand myself. They provided the yeast, and we provided technology and theproblem. So on the paper, it’s fifty-fifty. Making the particles and then thevaccine, all that was done within Chiron. So, aside from those earlyexperiments, then everything else was Chiron.We had developed a model for royalties, but then when it all worked, Merck’schief negotiator, Edward somebody, had a meeting with Bill Green, Ed, and29myself. The pre-negotiated royalty was seven and a half percent. Ed [fromMerck] kept telling us they were the only group in town that could bring thevaccine to the public market, so we couldn’t possibly get seven and a halfpercent. He kept talking and offering lower and lower royalties until he finallyreached half a percent! There were three of us: Bill Green, our attorney, EdPenhoet, and myself. We were terribly deflated and glum. I said, “The heckwith it. We’re leaving.” So we left. A week or so later, Ed [from Merck]called and said, “Well, Roy told me we’d better get this deal back. So let’scome to a conclusion.” We didn’t get our seven and a half percent, but we gotpartway there, and this represented a major achievement and a step forward.All in all, Merck really helped us get started, and in that overall sense [theroyalty] was fair, I felt. We learned a lot in the fire of negotiation, hownegotiation was really carried out and, most importantly, the power of theorganization that has the money and is doing the selling. It was a great lesson.High tuition, but a great lesson. We learned as we went along, mostly mistakeby mistake.Hughes: Were you at a disadvantage compared to biotech startups, such as Amgen andBiogen, which had experienced venture capitalists advising them? Or was thewhole thing so new that everybody was learning on the fly?Rutter: I think the advantage of Amgen and Biogen was that they had more resources,and, yes, their advisors no doubt helped as well. Undoubtedly, they had moreto play with, and they had a larger number of people in the “executive” groupand could carry out more programs. On the other hand, there was a realdisadvantage, and that was the disadvantage that money brought and bigcorporate experience brought. I thought we were tremendously advantagedjust because we were in control of our own destiny. We didn’t have to askanybody for anything, so we could make our own mistakes, and we madeplenty of them. We could also make our own choices. So the strategy wasn’tfoisted on us by anybody, and Jean Deleage certainly did not. He was asupporter from the beginning. Outstanding venture capitalist and individual.Hughes: Had he had any experience before with biology-based companies?Rutter: Yes, but I can’t tell you how many.Hughes: What I’m trying to find out is, was there a learning curve for him, too.Rutter: I’m sure there was, but I can’t answer for Jean. But Jean has always had asense of both betting on people and finding a problem that people could solve,and then supporting the program, and getting out of the way so they couldwork at it.Hughes: Do you think that Deleage gave more independence than was true for mostVCs?30Rutter: I can’t answer that. Certainly he gives plenty of independence, and he’s beenvery successful. He certainly didn’t manage us. Well, he didn’t have as muchmoney in it, either. But he didn’t manage us like Tom Perkins did Genentech.Hughes: Or Moshe Alafi for Cetus.Rutter: Or Moshe Alafi for Cetus. But I know little about that, really. If I knowMoshe, they should have listened to him more intently.Hughes: Do you think that some of the management style is based directly on the sizeof the investment? Or could it also be that Deleage—Rutter: I think Kleiner Perkins was the sole investor in Genentech initially.Hughes: The first time around, yes.Rutter: And Cetus, there were several investors in it. When syndicates form, then youbegin to crystallize a general set of business practices around it. But I can’ttruly make comparisons between these.Hughes: I noticed in the 1982 business plan that there was a point made in the briefsketches of the three founders, that none of you was at the time associatedwith a university. The sketches made the point that you had taken a leave ofabsence and that Pablo and Ed had resigned their university appointments.There must have been a point behind that, or several.Rutter: Well, there was a major point, and that is that in Biogen, for example, the keyscientists were still university professors. We were making virtually full-timecommitments to Chiron.Hughes: Yes, I thought that would be one point. Was there also a residue of the unrestthat had characterized the late seventies at places like UCSF of professorsputting one foot into the commercial world and keeping the other inacademia?Rutter: Well, obviously, my (our) decisions were related to that issue. That’s why Iwas saying that many of the other companies had part-time professors,professors who operated as professors but also had a company on the side. Inour case, it was clear that we had made a commitment; we had changed. Wewere devoting the main part of our life to Chiron. Although I had anappointment in the university, I gave up my chair in the Department ofBiochemistry and became a director of the Hormone Research Institute [atUCSF], which allowed me to do some research there, but also allowed meconsiderable freedom with respect to having direct responsibilities withChiron.31It was only a matter of time when I would join Chiron full-time. I was simplynot needed full-time at the beginning, in my view. I was still spending nightsand weekends on Chiron matters, and my energy level was high, and I wasable to get both jobs done. Further, my research, both at the technology leveland on the problems I was addressing in my lab, better prepared me for myactivities at Chiron.Hughes: There’s one sentence in the same business plan, quote, “Chiron is not ascientific start-up,” and it’s underlined. What else could it have been?Rutter: Sounds a little defensive, doesn’t it?Hughes: In the very early days, wasn’t it a scientific start-up?Rutter: Well, it depends on your point of view about scientific start-up. Let me defendit. The notion behind that is that it wasn’t just, okay, we’ll have some science,and we’ll have an idea, and let’s go there. The fact is that we had really madeprogress, and even dramatic progress, on hepatitis B. So in that context, it wasnot a start-up with no specific project (e.g., like Amgen was). Secondly, wehad the technology, which was transferred from my lab, predominantly mylab, but others as well. We had product categories, and we had a businessstrategy. So it wasn’t something that was solely based on technology whichwas quite standard in those days. We had a level of experience andaccomplishment in the field that we were trying to enter.Hughes: As I said off-tape, the original handwritten document is quite different fromthe business plan.Rutter: Can you stop that for a while, and let me just take a look at it?[Tape recorder turned off.]Rutter: I actually don’t think that this business plan is substantially different, exceptit’s an evolution from the general plan, which was laid out without specificityin that initial document. Here we provide specificity. We’re still dealing withvaccines, we’re still dealing with diagnostics, and we’re dealing withtherapeutics and commercial enzymes. In this case, therefore, we’re talkingabout specific products and targets, estimated revenues.[Tape 5, Side B]Hughes: Well, understandably, the market projections certainly aren’t in the firstdocument. Was that something that you knew eventually you would have todeal with? Somebody had to do some research and get the tables together.32Rutter: Well, most of the tables, the selection of diseases and so on, were done just byperusing the literature and using documents that were already in the publicdomain. The target projections were all soft. They were done internally. Wedidn’t outsource that kind of information. Of course it was important that webe orderly in our thinking of projects and in their extrapolation into thecommercial domain. We had to present the case to potential partners, after all.Hughes: Would Ed have been doing most of that sort of work?Rutter: He would have done part, but he would have been supplemented by others aswell. Pablo and I, but probably other people, too, would have been involved inthat part of it. This is not what you’d call today a professional business plan.Certainly the figures and the income statements and the projections, I thinkthat would have been largely done by Ed, with some help from other localfolks.Hughes: Was the business plan adequate when you went to potential investors, whenyou began to set up the partnerships?Rutter: Well, I believe that it was, in the sense that we got investment enough to getus going, and then beyond that, the next investors were J& J [Johnson &Johnson] and Martin Marietta.Hughes: Before we get there: you mentioned Bill Green, who was at Brobeck [Phleger& Harrison], right?Rutter: Bill Green was, yes, initially at Brobeck.Hughes: Bill, of course, eventually joined Chiron full-time, but not till about 1990.Rutter: For a long time we didn’t have a need for a full-time attorney. But he was partof the internal group, and he and Ed became friends. But I don’t think thatthey were friends before.Hughes: He was brought on because of his experience in IP [intellectual property]?Rutter: Well, he was brought on because he was a good attorney who filled our billwell and got along with all of us. Obviously, a good member of the team, butBill was not an intellectual property attorney.Hughes: Tell me the story of choosing Chiron’s earliest consultants. There were someeven before the Martin Marietta partnership, and they’re there on the outline.Rutter: Fundamentally, we chose consultants to help us in each one of the fields. Wewanted to do production in yeast, for example. So we developed relationshipswith folks that were related to projects or technology, and obviously we33sought advice. But we didn’t establish a scientific advisory board, a board ofgeneral advisors.Hughes: Why?Rutter: Well, we had a coherent plan, and we felt that we needed specific advice, butwe didn’t need general advice. My own experience on scientific advisoryboards or advisory boards in general has been that they take more time thanthey’re worth. They are great when they are colleagues and are directlyinvolved with the programs, but not as advisors. And furthermore, as ascientist, I’m not so interested in opinions as I am in getting something done.So to have people associated with a project made more sense to me.So in a number of areas, we then began to involve people that had scientificknowledge or specific technical knowledge that we didn’t have. A main areawas yeast, because we were working on protein expression in yeast. This wasclearly an advantage in the case of the hepatitis vaccine. The control ofexpression and secretion by sex factors in yeast had been studied by a numberof people, including Ira Herskowitz. So we tried to get Ira to come on board asa consultant and in fact license us that technology. At that time Ira was moreon the hesitant side about business in general. Ira didn’t want to commit. Sowe chose Jeremy Thorner at Berkeley, another person working in the samefield and a friend of Ed’s. Years later, Ira then began to cooperate with us, andin fact at some point we licensed his technology. But it was typical in that erathat some people were delighted to participate and others not.Hughes: So stigma against professors in business was a factor. Yes, I know you left thechairmanship and became head of HRI [The Hormone Research Institute,UCSF]. But that in itself was a response to the criticism and the fact that youractivities at Chiron were escalating. Right?Rutter: Well, I also gave Chiron shares into a foundation in support of the [UCSFbiochemistry] department, a significant number.Hughes: From the start?Rutter: This happened when Chiron went public. But I told people that was going tohappen. And, of course, besides royalties, these shares turned out to be wortha lot of money. So in some senses the department benefited. However, it wasstill a very controversial area, and there were people on both sides of it, butmostly antagonistic. The same great people in science had a very considerableskepticism about doing anything with business. My guess is they were worriedabout the corrupting influence of money and the issue of intellectual integrity.All significant issues to be sure.Hughes: Well, you don’t have to guess. It was pretty explicitly stated at the time frommany sources.34Rutter: Yes, by some people. But I think other people on the sidelines were not soexplicit about it. They were just reticent. There were the real activists. Thenthere were the people who just didn’t want to be dragged into it.[interruption]The general policy was to get consultants that had knowledge in specific areaswe were interested in. For example, we were able to secure the services of EdLennette, a broadly knowledgeable microbiologist, who was invaluable inhelping us understand and obtain relevant pathogens, doing testing, etc. Hehelped indeed.Hughes: He did testing in his own lab at the California State Department of PublicHealth?Rutter: Just handling bacteria, primarily, not viruses. Ed Lennette was an expert onbacterial infections. And Sy Fogel supplemented Jeremy Thorner. He was agood yeast person.Hughes: Where was he?Rutter: Sy Fogel was at Berkeley. Harold Varmus was an advisor on many subjectsfor sure. Tremendous person, obviously. Dan Santi later came on board inrelation to projects involving chemistry, particularly peptide chemistry, wherehe and I had some joint patents together. Eventually, he started a small startupcompany, a wholly owned spin-off company called Protos, which wasdevoted to the use of small biological molecules, peptides, to define targetsand simplify them eventually to produce them or derivatives as drugs.Hughes: When would that have been?Rutter: It would have been in 1984 or 1985, something like that.Hughes: What became of Protos?Rutter: Eventually we had to buy it back. If you want to talk about some of thoseissues, we can do it at some point.Hughes: Later, yes.Rutter: It has to do with the business, but it’s a later part of the business.Hughes: Another consultant at this time was Hyman.Rutter: He was an expert on herpes viruses. In our attempts to focus on targets, someof which are elaborated in that 1982 business plan, we came to the conclusion35that we could deal with the herpes viruses as a set, probably for the wrongreasons. Nevertheless, none of us were expert in herpes viruses, and so webrought in Hyman.Hughes: Why did you say, “for the wrong reasons”?Rutter: Well, herpes is quite opposed to the simple, small, tractable viruses that wewere working on. Herpes are among the biggest and most complicated of theviruses, and in being large and complicated, they are very difficult to dealwith.[Tape 6, Side A]Hughes: But it was a Chiron project for a number of years.Rutter: Yes, and it was a disaster, in hindsight. The real issue is whether you want totalk about these episodes. I think in the development of the vaccine business,the work on herpes simplex 2 stood out as a high-gain but high-risk problem.It’s one of the reasons why many people on the outside shied away fromvaccines, and inside Chiron it gave us all the shudders.Hughes: From the start?Rutter: No, from the end. So do you want to talk about this right now?Hughes: I want to talk about it at some point.Rutter: So each one of these businesses we can take apart one by one, and the herpesproblem would be interesting from that standpoint. What I would like to do isto get through this general stuff as quickly as possible.Hughes: Yes, that’s fine. There’s only one remaining early consultant, and that’sRandy Schekman.7Rutter: Randy Schekman was a person who is knowledgeable about yeast andsecretion, and we were obviously interested in secretion of molecules. Hislaboratory developed most of the information on secretion from yeast and thesecretion process. He’s an extraordinarily talented scientist and was aconsultant in that area. So you can see from this early list of consultants thatquite a few of them, a high proportion, were in yeast. That was the productionissue and the ability to use yeast as a commercial organism. The others wererelated to targets, viruses and bacteria.7 See Randy Schekman’s oral history:http://bancroft.berkeley.edu/ROHO/projects/koshland/schekman_randy.html36So with respect to operations, then, we had fundamental research going on,and then there were offshoots, the applicability in the three different areas, andeach one of the areas had potentially some business partners. Our tendency inthose early days was to try to form a broad partnership, instead of a singleproductpartnership. So in that sense we were different than the othercompanies as well. We wanted a partnership in diagnostics, another one invaccines, and in therapeutics. In therapeutics it was a product-by-productpartnership, as you’d expect.Eventually the diagnostic business could have been just on hepatitis B,because that was in the public domain. The work on other viral agents, HIV[human immunodeficiency virus], for example, began to evolve in the 1982time frame, and of course herpes was another one of those. Besides hepatitisB, we began to concentrate on hepatitis A and non-A, non-B as a big project.So the selection was in part due to the fact that we felt that there were gooddiagnostic applications, and particularly in screening blood, because there theevidence was beginning to accumulate that most of these agents weretransmitted by blood or could be transmitted by blood. There was a specificprogram in blood screening, and then there was the diagnostic area totally. Sowe approached many of the leading companies in diagnostics for partnership,and we got nowhere with that. This is while Jack Schuler was in charge as thepresident of Abbott. I think the last proposal from them had us getting 3percent of the program.Eventually we made a fifty-fifty-deal with Ortho [Clinical Diagnostics, asubsidiary of Johnson & Johnson], a much weaker company, but they gave uswhat we needed. With all its good aspects, and there were lots of good peoplewithin J&J at the time, there was an unfortunate aspect. Maybe this came from[our] naïveté; maybe it would have happened anyway, in their insisting oncontrolling the selling despite the fact that it was a fifty-fifty deal. I don’tthink we understood at the time that that itself was a major control factor, andthat they were essentially driving the business from that standpoint from thatpoint on.Hughes: Explain that a little more.Rutter: If you control selling to customers, and therefore all the products are based oncustomer interest and satisfaction, the development of new products andservices is obviously driven by commercial interest. So in this so-called fiftyfiftybusiness partnership, Ortho and J&J were the heavies.Now, that wasn’t the case in vaccines. In that instance, we were lucky enoughto get the interest of Ciba-Geigy and particularly Jack Nüesch, RichardWilliams (a business development person), and also the chairman, AlexKrauer.[interruption]37Rutter: We eventually were able to convince the top leaders, in particular thechairman of Ciba-Geigy, that a vaccine was the way of the future. They hadexplicitly eliminated vaccines from their program. But the way that thisChiron project was presented to them was that this was a new kind of vaccinewhich eliminated the risks. Therefore it was a totally new approach. So wegave it a new name, Biocines. In this way Dr. Krauer, the chairman, was ableto embrace the project wholeheartedly, and the Ciba-Geigy group was able toembrace the concept, in particular Jack Nüesch, who’s become a longstandingfriend and a great supporter.We virtually had control over the vaccine program, except there was a heavyinfluence by them, particularly by the overall director of research anddevelopment, Max Wilhelm, who paid a lot of attention. In the end, they werethe ones who wanted to choose a single project—success or failure based onthis project. And they chose herpes simplex 2. Of course, we went along withit naïvely, not really fully understanding that this is one of the toughestproblems, because herpes has a tendency to quickly hide in cells so it’sunavailable to the immune system. So how does the immune system manageto contain it? It has to be through T-cells and other ancillary strategies thatinvolve transmission from cell to cell. It’s an extremely difficult problem. Butit was the major project after hepatitis B. Biocine Sclavo helped supportmodest programs in HIV on a continuing basis. These became larger, and theybecame more interested in them.With the exception of that choice of herpes, why, we remained in full controlof that project. And that was truly a joint venture, not a joint business. In thegeneral period of partnerships, we had a challenging time because we hadestablished the principle that our partnerships would be fifty-fifty. Basically,we had the technology, they had the money and the position in themarketplace, and we should work together to develop the products, with noone having power over the other. This was simply not acceptable for mostcompanies. They wanted somebody to be in charge, namely them, even if itwas 51 percent. “Why do you care [if it’s] just 51 percent?” was the commonquery. [Our] answer was, “Fifty-fifty.” So after a while people got used to thatconcept, and we made many fifty-fifty deals. I think we were the only ones inthe industry who championed the fifty-fifty deal. Now it is quitecommonplace.This put a lot of pressure on managing the situation and accommodating andmaking sure that things worked. I took about half of them, and Ed tookanother half. Ed was a master at dealing with the personal aspects, gettingpeople to be quite comfortable with fifty-fifty deals. I wasn’t so bad doing thateither. So by and large we had really good relationships for many years withour partners. It only became difficult in the later years where we began tohave muscle and wanted more control over our destinies. Then things gottroublesome, I’d say mostly through one person at J&J.38Hughes: Have you said enough now about early Chiron?Rutter: Well, with respect to day-to-day operations, Ed was CEO. He was in directcontrol.[Tape 6, Side B]Rutter: Ed took responsibility for finances, keeping the books and running thefacilities, establishing overall communications with the employees, andespecially external issues ( a crucial role once we were in the public market.Pablo [took responsibility] with running the lab. He and I maintained veryclose contact about details of science, and we all talked together daily. Anysignificant issue, we all knew about it. Each one of us had kind of our area ofresponsibility, but any significant action was discussed by all of us andreceived our general agreement. It was a small group so you could operate thatway, with a division of labor, yes, but each one of us talking to the others. Itwas truly a trio. I particularly focused on overall strategy, both business andscience, and would argue for the projects. I did a lot of negotiation myself. Edwas Mister Outside and dealt with the financial community. I rarely did. Edalso took care of all the infrastructure issues. So it was a little bit unusual, butit worked well, in fact, until we gave it up.Hughes: Unusual in the sense that there were three of you with sort of equal say?[interruption]Rutter: Well, there was a kind of hierarchy, and there’s no question that I was thesenior person. I broke ties, if there were ever any, and there were two or threetimes in our history when Ed and I didn’t agree. A couple of those times wetook the vote to the other people.Hughes: To the board?Rutter: Not to the board, to the other executives.Hughes: Do you care to say which issues?Rutter: No. Honestly, as I said before, there were very few times. When we did havetimes like this, we opened it up for discussion, and it all resolved.Okay, so after a year of progress, we already had a vaccine in development,that is, in 1982. We had a full-scale program with Merck. We had another onewith Nordisk when it was an independent company before forming NovoNordisk.39At a crucial stage, our money was running low, and so Burr, Egan, Deleage &Co, who was our only investor, was the logical source of money. The waythey presented themselves initially was that if we made progress, we’d be ableto get some more money, and we’d be able to get some more money at a goodprice as an indication of the progress we’d made. So I visited Craig Burr, themanaging director of Burr, Egan, Deleage & Co, and much to my surprise, theoffer was at the same price per share or something like that. I began to argueour case, but Craig essentially made a take-it-or-leave-it offer. It seemed thathe really felt he was doing us a favor at that. Needless to say, I was furiousmyself. I thought—we all thought—we’d made a lot of progress compared tothe competition in that one year. I rejected the offer on the spot, and said itwas inconsistent with what we had been lead to believe when we chose BurrEgan Deleage. We later learned that this was not only a common, it was analmost universal tactic of VCs [venture capitalists]. If you run out of money,and you don’t have other sources of it, don’t expect your VC to come in andautomatically give you money at a price reflecting the increased value. Well,that was just another reflection of our naïveté.So we, mostly I, didn’t want to take that money, and we were playing chicken.We were virtually on the verge of running out of money. I was in Washington[D.C.] for a meeting, and miraculously Martin Marietta, the aerospacecompany, contacted us. They were investing in biotech companies. Somehowthey found out about us. Ed took the call and immediately called me. Iimmediately took the afternoon off and drove over into Maryland to theheadquarters of Martin Marietta, to the research wing where I met KennethJarmelow. He told me that Martin Marietta was interested in diversification.To me, they looked about as diversified as you could ever get. Aside fromairplanes and defense, they were in aluminum, cement, dyestuffs, and nowthey wanted to get into agriculture, to develop a fifth leg on their stool! Thequestion was how to get there. So Ken’s plan was to essentially put outfeelers, develop little companies, and then at the right point consolidate byacquisition into a viable agriculture organization of sufficient scale to beworthy of a subsidiary of Martin Marietta. After all, aerospace was a cyclicalbusiness.They liked the plant field, agriculture broadly speaking, but they realized thatthe plant field was destitute of real technology, and Ken wasn’t sure of hisown ability to choose. So in exchange for an investment in us, the concept wasthat we would help him select other companies and would helptechnologically some of the companies he’d already invested in. One of thosehappened to be Native Plants, which, as the name implies, focused oninteresting varieties of native plants of various sorts. So it was a companyseveral times larger than ours, and it was actually run by Peter Meldrum, whois now the CEO.It appeared to us to be a very diffuse way of developing a field, but of courseMartin Marietta was an extraordinarily large company, which had just40survived a challenge internally on buying another company or being boughtout. So the net result of this was, we had on our board Charles Lighthouserwho was their chief financial officer and had gotten considerable internationalacclaim for the way he had managed a takeover threat, and Ken Jarmelow alsocame on our board. We got a substantial increase in share price from them anda significant amount of money, and with them came some money from J &JDevelopment Company, and so we were off to the races. The next financing,as luck would have it, occurred in the public market.Hughes: So the Marietta deal came before the IPO?Rutter: Yes, indeed.Hughes: What about the consortium that was associated with this deal with Marietta?Rutter: Oh yes, I talked about the consortium.Hughes: Chiron was to help out; that’s the consortium?Rutter: We would help out. The consortium was a number of small companies thatMarietta would buy into, and we would help choose the members of that, andthen, in some sense, help to manage it.Hughes: But Chiron wasn’t just one of the boys. Chiron was the one that was going totake the lead in organizing the consortium. I mean, it wasn’t an equallyweighted consortium.Rutter: Yes. We were not a member of the consortium itself, except in the choosing ofthe members of the consortium and providing technical advice.Hughes: Well, let’s go to the IPO. The IPO was August ’83. Why then?Rutter: All of a sudden the market opened up. The experience with Martin Mariettaand with Craig Burr put the fear of a collapse of financial resources into ourminds. So the market opened up, and we found we could go to the publicmarket for additional resources. We had, after all, hepatitis B vaccine in theworks. We had a program with J&J on diagnostics. We had a contract withNovo Nordisk. So we could talk about products. Therefore we decided to gointo the open market and become a public company.I remember how worried the VCs were when they first met me. Theywondered whether I knew how to dress, and whether I knew how to talk, andEd gave them comfort on these counts. They somehow, right from the get-go,sensed that Ed was kind of fair. He was very sociable and had established hisrelationships initially. But they must have thought that I was kind of a kookfrom the lab that never could possibly do anything else. So it was with somesurprise that they found out that I could tie a tie and wear a suit and could41follow a line of questioning. [Hughes laughs.] Then we went on road shows,which were extraordinary in themselves.Hughes: Give me a taste of why.Rutter: On road shows, we talked to possible investors. I remember when we weretrying to get money from investors, one of the particularly revealing meetingswas with a person who ran an investment fund, who, in the midst of ourpresentation, fell asleep. When he woke up, he mentioned that he muchpreferred drilling oil wells. In that case one knew at the end whether it was asuccess or a failure. He thought biotech was much more risky than drilling foroil. As a generality maybe he was right, but not in our case.[End of interview]42Interview 3: April 17, 2005[Tape 7, Side A]Hughes: I’d like to hear more about the organization of Chiron, which was largely thesubject last time. Chiron, I believe, is known for its tripartite structure, thethree divisions that form Chiron. How early a concept was that, and where didit come from?Rutter: It originated from thinking about the fundamental problem facing earlybiotechnology companies—how to get commercial value from discoveryresearch. In Chiron’s case, we initially focused on insulin, an outgrowth of ourstudies on changes of gene expression during differentiation of the pancreas;and infectious disease, as a result of our early studies on the development of avaccine for hepatitis B, which was our earliest commercial success.I knew from my earlier experience as a consultant for Abbott Laboratories thatthere was a significant opportunity for hepatitis B diagnostics, andrecombinant DNA technology could change both the quality and quantity ofreagents, and conceptually the sensitivity and specificity of the tests.Conceptually, metrics are at the basis of science and of discovery.Diagnostics, especially quantitative diagnostics, are fundamental todeveloping any preventive or therapeutic regimen. Further, in the case ofblood-borne diseases, diagnostics provide the ability to detect and eliminatecontaminated blood from the blood supply. This was a major source of diseasetransmission at that time and a significant opportunity.Obviously, vaccines were a core strategy for prevention of disease andtheoretically represented the best strategy for control of disease. However,there were significant problems in developing effective vaccines which wereboth broadly potent and did not themselves cause disease, as had been thecase for polio vaccine. Recombinant DNA methodology held the promise ofconstructing a "mimic" of the infectious agent in the absence of a geneticsystem for self-replication, hence, a "safe" vaccine could potentially becreated. Hopefully, a therapeutic would evolve, and the diagnostic would becritical for detection and also to monitor treatment. Thus it was an integratedapproach to the containment and elimination of infectious disease or anydisease that could be immunologically contained on a straightforward basis.So the general notion was that the same research program that supported oneof these activities could, to a degree, support the other two. Potentially, onewould have three earning streams from a single powerful research program.Thus the cost of the research could be allocated to these three differentcommercial outcomes. Also, the three avenues played out at different timeframes in relationship to the research. At that time, recombinant DNA43technology opened up a new research horizon and with it immense practicalopportunities.The first outcome of course would be a diagnostic test. I believed there was animportant market in using recombinant methodologies to produce betterdiagnostic tests. Secondly, I felt at the time, obviously wrongly, that thevaccines would come more rapidly than other therapeutics. So a vaccinedevelopment would be the second commercial outcome. And the third, then,and the least predictable, was the therapeutic approach. So accordingly we setup the three divisions to reflect the three strategies.The problems associated with developing products would of course bedifferent in each case, but the fundamental research and understanding of thedisease would support all three. Incidentally, this strategy also reflected ourexperience and competence at the time. However, I believe this kind ofthinking is to some extent relevant today—research organizations which aredirected toward solving a particular medical problem must learn thetechnological intricacies, the physiological symptomatology, and all themedical issues surrounding the disease or syndrome. Those who understandthe fundamental scientific/medical issues at the technical level are in the bestposition to make contributions to a particular problem. Frequently groupsdon’t take full advantage of the learnings and technological advances that theyhave made, either through an internal commercial program or, alternatively,by establishing partnerships in these fields. Recently this kind of thing isbeginning to happen—"companion diagnostics" are being developed bycooperative relationships between diagnostic companies and therapeuticcompanies.In our case, we had limited resources both in terms of the overall cost todevelop and the personnel to execute these avenues ourselves. So our strategywas to establish partnerships, much as we did in carrying out basic research atUCSF, for each one of them. A large pharma organization, I felt, mistakenly,would be able to develop all of them. At first we discussed such a broadrelationship with several pharma companies, but the idea turned out to beimpractical, and we eventually ended up with separate programs in thedifferent commercial areas—J&J for diagnostics, Ciba-Geigy for vaccines,and the therapeutics programs were eventually developed internally at the IPlevel and subsequently licensed. Chiron later established an internal programfor drug development against these infectious agents, but the programs werenever really powerful because of limitations in our own organization,including resources.Hughes: Why was that?Rutter: Again, it was a matter of resources, and also technical scope.Hughes: Did you know that that was a direction that you might go? Was it obvious?44Rutter: Well, yes indeed. Chiron developed a modest internal program for a drugversus hepatitis C. It might have developed as a cooperative program withCiba-Geigy. But with the formation of Novartis, cooperative programs werenever established.Hughes: At Chiron.Rutter: Yes, at Chiron. Today, we have a significant vaccine program and of course aprofitable diagnostic business based largely on blood testing.Hughes: How clear was it to early biotech companies that small molecules should alsobe in the scheme? The molecules that were first worked on were very largebiological molecules.Rutter: Well, the typical drug at that time was a small molecule, so it seemed logicalto many individuals in large and small companies, especially those withexperience with small molecules, that that was the ultimate solution.Gradually biotechnology companies began to focus on small molecules aswell, usually directed against some novel target. By blending technologiessome have been very successful.The other aspect was hubris. I felt there was real opportunity to change thegame eventually in all three of those areas. For example, until a few years ago,the diagnostics business was largely focused on the instruments of the centrallaboratory. There were few proprietary products. The business was builtaround big machines, devices which could handle large numbers of diagnostictests in a progressively more automated form. The big companies that wereinvolved in the development of these “Big Iron Instruments,” as I call them,were Abbott Laboratories, Roche, Bayer, J&J, Hitachi, and several otherJapanese companies, and a number of other companies that have since gottenout of the game, like Hoechst. All were competing to build bigger and betterinstruments.Ciba-Geigy itself had made a rather large commitment to the diagnosticbusiness. They had been developing sophisticated central lab instruments andhad a battery of tests, none of them proprietary. Eventually Chiron acquiredthis business in the Ciba/Chiron transaction (1986). I believed that discoveryand the development of proprietary reagents presented an opportunistic shiftin commercial strategy, putting more emphasis on the test itself and thecomponents of the test, as opposed to the machine which handled it. Of courseone had to have both, but the proprietary test was the factor that differentiated,both from the scientific and business perspective.Hughes: What was your rationale?Rutter: After all, the fundamental reason for developing the tests in the first place wastheir relevance to the needs of the medical community. For example, in the45case of HCV [hepatitis C virus], it was a matter of providing reagents andquantitative methods which had never before existed. In the case of HIV,initially scientists were using wild-type HIV in a cell-based test, and thenprogressively semi-purified forms were employed in one way or another incell-based semi-quantitative assays. In both cases, the discovery of thecausative agent—the virus—allowed the viral proteins to be produced andeventually the nucleic acid to be produced—all specific reagents that could beused in developing quantitative tests. So looking forward, new discoverieswould lead to new metrics, to new diagnostics, and the proprietary diagnosticscould perhaps be employed on any instrument. Why not? The novelty andhence the value was truly in the reagents and the discovery of them.So that was the main idea behind the diagnostics business, and over time itturned out to be valid. That is to say, Chiron’s proprietary position on bothHIV and HCV enhanced the value of the companion HBV test, which was notproprietary, and the trio of tests that made our blood diagnostic business sostrong. In fact, the strong proprietary position, on HCV particularly,transformed the diagnostic industry, because they were the most valuablesingle tests, and companies that didn’t have them were greatly disadvantagedin the market.Hughes: Was the previous focus on instrumentation largely because these companiesdidn’t have the science to develop the tests?Rutter: None of the diagnostics companies at the time had strong discovery science.They built their business around a set of standard tests that were commonlyused, and they didn’t really have the vision or scientific resources, that is,personnel, to broaden their focus. They relied on licensing the newinformation from outside. This is still usually the case since most newdiscoveries come from universities or research institutes. In the early days ofrecombinant DNA technology, though, many of those discoveries were beingmade in biotech companies like ours. Now, companies are discoveringdiagnostics based on multiple analytes that predict diseases, such as cancer orthe predilection to develop diabetes.Hughes: They had engineers who could build instruments?Rutter: That’s right. The diagnostic companies focused on building the instrumentsystems and had internal research scientists who developed the tests. So theyhad good technical knowledge about how you would develop a test, per se,but very poor ability to evolve their repertoire in relationship to newdiscoveries.Hughes: Was there any other company developing diagnostics the way Chiron was?Rutter: Not really. But all the major companies had some degree of innovation withintheir organization.46Hughes: In the beginning, you were a vaccine company; you had hepatitis B.Rutter: That’s right. The first product was the vaccine for hepatitis B, with Merck.Hughes: Were diagnostics sort of a fallback? They were the way you hoped to bring inmoney to do vaccines and therapeutics?Rutter: No, not at all. I felt there was a real business in diagnostics, and it turned outto be the case. The diagnostics business at Chiron for many years was moreprofitable than the vaccine business, based both on the inherent profitability inthe business and especial on the return on investment. It takes relatively lessmoney to develop a diagnostic test than a vaccine or therapeutic and, further,the risks are much lower and the timelines are shorter. Finally, the systems forreadout, the instruments, can be used for many tests.We sold part of the diagnostic business to Bayer for one and a half billiondollars and kept the most lucrative part of the business, the blood-testingbusiness, along with the royalty stream from our proprietary tests, which was2-300 million dollars per year. It was and is a very fine business. In retrospect,the return on investment in our diagnostic business may be one of the best inthe pharma/biotech industry. Furthermore, diagnostics have a large andperhaps unappreciated impact on healthcare costs and human suffering. Forexample, the elimination of contaminated blood prevents the spread of diseasevia blood transfusion and through personal contact from individuals who areunaware of being infected. So diagnostics had what I thought were theingredients of real success—it solved a fundamental problem in healthcareand at the same time did it in an elegant and profitable way.Hughes: Wasn’t the mindset of a lot of people in the early industry that the real way tomake money was through therapeutics?Rutter: You’re right. Certainly that was the case and still is, though the thinking ischanging. We were one of the few, the only major biotech company at thetime, that took this other alternative, and, even that avenue was not easy. Itturned out to be a struggle because the industry was not used to proprietarytests, and we had to fight to protect our discoveries and our technology. It tookat least ten years of legal battles to protect our intellectual property, especiallyon hepatitis C. We had to exclude other companies from copying our tests.They initially reacted as if the information and reagents and methods were inthe public domain. Further and importantly, the financial markets did notvalue the DX business highly. There were few analysts that followeddiagnostics. Nevertheless, diagnostics turned out to be a profitable businessand a real contribution to healthcare, but it was undervalued by the market.This situation is changing today. Several diagnostic businesses financed bythe venture capital community, especially by Brook Byers and KleinerPerkins, have turned out to be profitable, and their value relative to47therapeutics is being realized by the market and also the medical community.In another dimension, the automation of histochemical tests, so important inpathology, has been an area of innovation. Ventana, developed by JackSchuler, a former Chiron board member, and colleagues, was sold to Rochefor four billion dollars.The vaccine business, on the other hand, has been more problematic. Therather straightforward approach to developing a hepatitis B vaccine led to thebelief that it would be straightforward to apply similar principles to developvaccines for other viruses or bacteria. That is, we could use recombinantmethodologies to create a molecular facsimile—a homologue that containedthe essential structure, the key epitopes of the infectious agent, to whichneutralizing antibodies could be directed. This was the basis for protectiveimmunity. And this without the potential for causing disease ordinarilyassociated with the native virus.Hughes: You created the molecular facsimile in yeast?Rutter: A significant part of the problem in the development of the core structure thatwas intrinsically capable of producing the broad immunological responsenecessary to obtain broad protection was the biological system. Bacteria werenot usually suitable for many reasons. Yeast turned out to be a good biologicalsystem to produce more complicated structures. But it was not an absolutelynecessary component of the strategy. The general idea was to use recombinantDNA technologies to produce proteins which self-organized to form a threedimensionalstructural homolog of the virus in such a way that the humanimmunological response to this structure would be sufficiently strong inbreadth of antibodies produced and T-cell responses to neutralize theinfectious agent. This strategy provided a mechanism for producing specificcompounds of high purity and potentially high potency, and the processcompletely eliminated the chance for an infection from the vaccine itself.The two vaccine strategies that had been used prior to this concept were theinactivation or killing strategy, for example, a vaccine based on aphysiologically inactive, killed, infectious agent or alternatively theelimination of the pathological competence of the pathogen, in this case byrepetitive culturing such that a viable but nonpathogenic organism wasobtained. Of course the risk in both those strategies is the degree ofinactivation or killing. How much do you really inactivate? Can one inactivateall of the infectious activity by these strategies? And how do you know whenyou have accomplished this? Have you also inactivated the epitopes whichmust be neutralized in order to obtain protective immunity?The polio vaccine business of Cutter Labs illustrates this point. A batchwasn’t completely inactivated, and as a result, many people who were giventhat vaccine contracted the disease from the vaccine. This incident led to greatliabilities for the company in compensating people who contacted polio and a48general negative reaction from the public which never really abated. Thelawsuits resulting from the "infectious" vaccine and the diminished market forthe polio vaccine ultimately led to the demise of Cutter Labs. This exampleessentially led companies and people in the financial community to concludethat the vaccine business was not a viable business opportunity. It was toorisky, both for the vaccine company and for the patients, frequently children,taking the vaccine.Hughes: Including my brother.Rutter: Oh my gosh! I am sorry to hear that, Sally.The same problem exists for an attenuated virus vaccine. Sometimesinfectious agents grown for extended periods of time under certain definedculture conditions lose the competence to cause disease but retain the abilityto grow. These attenuated vaccines retain many of the overall characteristicsof the pathological form but don't provoke the disease, yet potentially elicit animmunological response sufficiently broad to kill the natural infectious agent.Several vaccines of this sort—the Sabin vaccine for polio, for example—havebeen on the market for decades and are part of the traditional vaccinerepertoire. However, without such long experience, the fundamental concernalways exists, that under some instances, for example, inimmunocompromised patients or in young children who have not developedmature immunological responses, the attenuated virus might cause disease. Ifvaccinated people contract the disease, it is difficult to prove that the vaccinedid not in some way contribute to it. Hence the vaccine industry was for along time subject to lawsuits, despite the fact that it was demonstrablyreducing the risk of infections in populations. This issue was resolved by thegovernment accepting some of the risks of the industry. Still, the completeelimination of risks would be preferable, obviously, to just attenuating them.Hughes: Was that an idea that was easy to sell? Obviously, you sold it to Merck. Butwas it obvious at the time to other companies in the vaccine business that therecombinant DNA approach was a way that should be explored invaccinology?Rutter: Well, it became obvious after it had been done.Hughes: Yes, but before that?Rutter: Before that. Well, SmithKline had a program on hepatitis B, based on asimilar idea.Hughes: Were they working with yeast as well?Rutter: They were also using yeast, unbeknownst to us. They were hot on our trail.49Hughes: Genentech also had a program.Rutter: They did have a program on hepatitis B, similar to our own. In fact, Ben Hall,who collaborated with us at UCSF on the hepatitis B vaccine, was a consultantwith them when I first contacted him. They were trying to replicate what wewere doing in my UCSF lab. There was a big issue whether Ben wouldcontinue to work with Genentech or whether he would work with us on thisproject. We had all the clones and the strategy was straightforward wethought. But we needed a system to express the proteins, hopefully organizedin a particle like the natural ones produced in infections. We tried tosynthesize the relevant genes in bacteria and failed to obtain adequate levelsof synthesis and eventually concluded we needed a eukaryotic cell, like yeast.For this, we needed a yeast promoter to drive the translation of the hepatitis Bgenes in yeast. Of course the hepatitis genes had promoters which weredesigned to be produced in humans.Hughes: And you didn’t have that.Rutter: We did not have it. We had extensive experience with yeast, but we didn'thave the promoter we needed to make the yeast into a vaccine "factory".Hughes: Ira Herskowitz at UCSF was a yeast person.Rutter: Ira Herskowitz was a fine scientist who had a very sophisticated andpragmatic knowledge of yeast. But his research program was absolutelydevoted to unraveling the mysteries of mating types, and he did have a[promoter], but it was not a typical yeast promoter that could be used for ourpurpose. He was studying the mating-type system in yeast.Hughes: So the promoter didn’t work?Rutter: It might have worked, but it didn’t work out for us. It wasn’t available to us.Hughes: Why was that? You were in the same department.Rutter: Ira didn't want to become involved in our program. In those early days, he wasnot in favor of commercial activities. Later on, it was another matter.Hughes: So he wouldn’t give you the promoter.Rutter: I tried to get him involved as a consultant and directly or indirectly toparticipate in the program. He just didn’t want to do it. It was part of the anticommercialismissue at UCSF. There was a faction of UCSF who wereopponents of any program that had direct commercial complications. Theybelieved that such programs were corrupting and not compatible with teachingof graduate students and postdocs because patents were restricting and inmany cases involved some kind of secrecy. Which to a degree was true.50However, I thought this could be managed effectively, just as one managednew science findings. Science itself was/is intensely competitive as well. Inmany cases, projects or certain aspects of projects are carried out quiteprivately until the result is ready for publication. Patenting and publication gohand in hand.The group that held these opposing views included outstanding scientists andalso thoughtful people. This group was absolutely against what I was doingand what Herb [Boyer] was doing and what others with similar programs weredoing. I think they believed that an academic program should be orientedtoward the elucidation of new knowledge, the elaboration of information, notthe practical application of that knowledge, even if the practical applicationhad come from the new knowledge that had been elucidated in the course ofdiscovery.Hughes: That attitude affected your career at UCSF.Rutter: For sure. For sure. It resulted in controversy which to a degree changed thecohesive spirit of the department which we had worked so hard to achieve andto which I was committed. I felt it attenuated my ability to lead thedepartment. There was no overt antagonism or reaction to the decisions Imade as chairman. But the spirit was not the same as it had been. And anonaffiliated but trusted arbiter, like Gordon Tomkins, was not there toameliorate the situation.Okay, now, back to vaccines. The idea that one could produce animmunologically functional mimic was the strength of the recombinantapproach to hepatitis B. If the particles were self-organizing, they should beable to be produced in any cell that was competent to produce and secretecomplex protein/lipid structures like viruses. Yeast was the simplest organismthat had that capacity.Hughes: Why would self-organization be recognized as non-self by the immunesystem?Rutter: We had to rely on the intrinsic capacity of the molecules to organize in thenatural conformation and not rely on additional genetic information from ahuman cell or organ, liver for example. The structure had to be sufficientlycomplex and unique so that it could be recognized as non-self by the immunesystem. Further, the molecules had to be so similar to the wild-type virus thatthe antibodies and other facets of the immune system would essentially reactto it as if it were the wild-type virus. This means that it should be a faithfulmimic of the natural viral structure, down to the atomic level, if possible.The immunological system is organized to react against foreign structuressuch as viruses and other pathogens which are recognizably different from anyof the myriad molecules that are present in the non-infected human. Assembly51into a unique structure or conformation that is sufficiently similar to theorganism is necessary in order to produce antibodies in B-cells directedagainst the virus and hopefully also induce T-cell responses which essentiallykill cells infected by the infectious agent. In addition, the immune systemresponds more abundantly to larger structures, such as a virus particle, ratherthan to smaller ones, such as proteins. Frequently multiple sites of interactionof the immune system are required in order to generate an effective immuneresponse because of the many genetic variants in the intruding pathogen.Immunological containment is based on pervasive and multifaceted responsesto a foreign structure.Hughes: So back to the idea of partnering. Would you say, generalizing wildly, thatyou would be arguing the science of the deal and your partner would bearguing the business of it?Rutter: Yes, in general, for sure. We knew more about science. We had littleexperience and knowledge of business. On the other hand, the insight we hadwas not always the same as our partners. I’ll give you an example. Later, inthe case of possible purchase of Connaught [Laboratories], the Canadiangovernment vaccine business, by Ciba and ourselves, we agreed on a fiftyfiftydeal. Ciba agreed to put up 95 percent of the money initially, and wewould put up 5 percent. We’d co-own the business fifty-fifty, but thengradually we’d pay back the cash out of future earnings of the business. Inthat case, I was the one who argued that we should terminate the bidding totake Connaught, based on what I thought was the value of the business from ascientific and business perspective. We did terminate the bidding when we gotinto a bidding war with Merieux.Hughes: Why?Rutter: Too much money. It’s a fascinating story. Just briefly, the company thatbought it, Merieux, became so debt ridden, so undercapitalized, that AlainMerieux had to sell their vaccine business to Rhone-Poulenc, now Sanofi.That was a disaster, an internal disaster, for the Merieux family. BioMerieuxwas a family business which had been active for several generations, back tothe time of Pasteur. The vaccine business was generated largely by Alain'sfather, Charles Merieux, who was a pioneer in vaccine development and whohad achieved international acclaim for his achievements. It was a familylegacy and quite disappointing that they became over-committed in thattransaction. Now Alain has become a leader in the diagnostic field and thecompany is flourishing but they no longer have a vaccine business.It just shows that when you have two parties, both of which have an interest inthe outcome, it’s not always the experienced individual who has the mostcogent or relevant opinion. And vice versa, on the opposite side, I think manyof the issues that are associated with technical developments have to do with akind of prejudice from the technical end. So an open, unprejudiced mind may52be very valuable in rational decision making. I still believe that the fifty-fiftyrelationship is the best possible relationship between companies, and as longas I was at Chiron, we liked to do fifty-fifty deals.Hughes: Was some of this an outcome of what had not been a fifty-fifty-relationshipwith Merck? Had you in a sense learned the hard way?Rutter: Well, for sure, the deal with Merck [1981] was not a very good deal forChiron and was an exceptional deal for Merck. It could also have been abigger deal for Merck![Tape 7, Side B]Rutter: The problem with this project in Merck was that it was not supported stronglywithin the vaccine division. It was supported by Roy Vagelos, who initiatedthe original deal, very strongly. On the other hand, Maurice Hilleman and hisgroup had developed another non-recombinant hepatitis B vaccine and wantedto support that vaccine and get it out into the market. The internally developedvaccine was based on the accumulation of virus-like particles, the Daneparticles, in hepatitis patients. These particles were noninfectious andapparently did not contain DNA/RNA. Hence they were a natural source of anon-infectious mimic. Of course there was still the issue of completeelimination of the virus or other viruses from this source. But in principle itwas an innovative vaccine, even with the attendant risks. They were reallyproud of that vaccine, and Maurice did not believe that the recombinantmethod would work.Hughes: Why?Rutter: Because they didn’t think we could mimic a natural process—the noninfectiousDane particles accumulated naturally in infected patients—despitethe fact that we had virus-like particles that appeared very similar to thenaturally occurring Dane particles. I can’t tell you what would have happenedif we had just gotten the production of a nonparticulate protein, as one mighthave gotten in bacteria. When we got particles that had the same generalproperties as the natural particles which exist in the blood of infected patients,we felt it was virtually a certainty that we would be able to show efficacy as avaccine, and of course, that turned out to be the case.Hughes: The Hilleman group resisted even with that evidence?Rutter: Yes, probably because the other vaccine had been developed. They had begunto promote it in the market, and they felt that they could proceed with theirvaccine, which was an internal project. Merck has always been a companythat valued their internal developments and has largely excelled because ofinternal developments. Their lack of commitment was evidenced by the factthat they didn’t really focus on commercialization of our HBV product. By53that I mean, they largely took our laboratory methods and translated them intoa larger fermenter. Pablo Valenzuela from our lab spent many weeksessentially transferring the technology. I think there was very little adaptationof the methods to achieve higher yields or to anticipate the production oflarger volumes. So they had a limited supply and for some years were supplyconstrained,while they were putting their efforts into their big programs.Hughes: On the other vaccines?Rutter: Perhaps on other vaccines. But they were also in rapid development of newproducts which emanated from Roy’s own interests, which turned out to bebillion-dollar products. Still, we always thought of Merck as a company withimmense resources and therefore felt that they could do anything and woulddo so, once they were committed to it.Hughes: And that indeed was true? They could have supported your vaccine if they hadso wished? It wasn’t a resource issue?Rutter: I believe it was, at least to some extent, a resource issue. And I believe that thecompany itself was so oriented toward therapeutic drugs—more immensemarkets from a revenue and profit standpoint. Every one of the divisionsoperated according to a budget, so the allocation of money to the budgetdepended upon the demands of the various activities in the vaccine division.They act almost as subsidiaries, so it would have taken a very significantdecision. Undoubtedly they must have discussed the merits of the recombinantvaccine, I believe. It was such a radical difference from their previous practicethat it wasn’t adopted with enthusiasm initially within their vaccine businessunit. Now, later on when the recombinant vaccine became a success, then ofcourse all the folks at Merck claimed it as their own product from start tofinish. This of course is not surprising and also has some degree of validity aswell.Hughes: I was at a gathering at which I met Mr. [Charles S.] Versaggi. He claimed thathe and his company, Versaggi Biocommunications, had worked with Chiron.He claimed, and he even wrote an article in which Chiron was featured, thatyou apparently hired the company to bring back some of the claim to Chironbecause Merck had virtually taken full credit for the hepatitis B vaccine work.That doesn’t ring bells?Rutter: It’s a group of attorneys?Hughes: No, they’re public relations people, I suppose.Rutter: Oh yes, now I remember. Yes, we were disturbed. We were disturbed atseveral levels. First of all, how the research went. Merck was supposed toprovide infected liver from which the virus could be isolated. This turned outto be rate-limiting in a very competitive environment. Further, when the54research agreement was set up, we developed a royalty proposal which, if itworked, brought us, in my recollection, seven and a half percent royalty.Finally, they did not put significant effort into the manufacturing and ensuringthe ability to produce the product and meet market demands. Taken alltogether, we thought we earned the royalty we had initially agreed to.Hughes: That high? The press speculated 3 percent.Rutter: Well, it was seven and a half percent. When it was obvious to us that therecombinant vaccine was going to work, then we had a negotiation with thebusiness development person at Merck, whose name was Ed—I’ve forgottenhis last name. Besides Ed Penhoet, we brought along Bill Green then workingfor Brobeck Phleger and Harrison, a major law firm in San Francisco, butsoon to become our corporate counsel.8 We felt the agreement was solid, butMerck's Ed started by minimizing our position. We started at seven and a halfpercent and the Merck attorney simply refused each of the stages from sevenand a half percent downward in half percent intervals, ending up at half apercent! It was a roller coaster ride all the way down from seven and a halfpercent to one-half percent. I can remember how disconsolate we all were.This was over a couple of days, and at the end of this time, I believeparticularly Bill Green, whom we relied upon as an attorney to help usthrough this, felt we had little alternative—we just had to accept the deal. Iwas furious. I said, “We’re walking.” And we did.Hughes: You mean Bill Green said, “Take the one-half percent”?Rutter: Fundamentally, yes. I mean, he felt we were helpless under the circumstances.Hughes: That it was one-half percent or nothing, he felt?Rutter: Yes, and that’s the way that Ed of Merck essentially portrayed it. We finallyended up with two and a half percent. Well, that deal required Roy’sintervention. According to Ed of Merck, Roy had told him to “make a deal.”We were too stupid to insist on keeping our seven and a half percent. That wasone of the biggest learning experiences that I had in all my commercialactivities. I am very wary when it comes to making a deal. Very few peoplefollow through on a verbal commitment and a handshake.Hughes: The two and a half had been on a handshake?Rutter: No, it was a formal agreement.8See the oral history with William G. Green: http://www.lib.berkeley.edu/cgibin/roho_disclaimer_cgi.pl?target=http://digitalassets.lib.berkeley.edu/roho/ucb/text/green_william.pdf55Hughes: Written?Rutter: Written, you bet. Absolutely.Hughes: Well, how could Merck get out of that agreement?Rutter: Well, it’s one thing to have a deal. It’s another thing to commit to the signeddeal. So Merck could walk away from it and say, “Okay, we won't develop thevaccine under these terms." What are we going to do then? They haddeveloped the process internally, though we had helped. With money in thetill from them, we could immediately develop the vaccine. If we took it backand had to start all over again, how do we do that? They recognized that alittle resource-limited company like ours does not have many alternativesunder those circumstance.Hughes: Plus the fact at that point the only egg in Chiron’s basket was the hepatitis Bvaccine. If you didn’t get that deal, I would think that the whole future of thecompany was jeopardized.Rutter: To some extent that was true. But we were in a project to make insulin withNovo Nordisk [1982]. And we had a potential project with IGF-1 [insulingrowth factor-1], later with Sumitomo Chemical Company and also with J&J.Hughes: Had IGF-1 already happened?Rutter: No, it hadn’t happened this early; that was a couple of years later.Hughes: My point is, right then and there in negotiating with Merck, when you werefaced with having no deal or a two-and-a-half-percent royalty deal, it was sortof a no-brainer that two and a half was better than nothing, because it wouldseem to me that Chiron would have died right there on the spot.Rutter: No, I don't think it would have.Hughes: Why?Rutter: Because the development of the vaccine was unique and spectacular at thattime, and I think we wouldn't have let it languish.Hughes: Meaning that you would—Rutter: Well, who knows? I think we would have been able to find another partner,but perhaps not of Merck's status.Hughes: Would you?56Rutter: Sure, we could have tried. But we didn’t have the courage of our convictions,nor did we have the business experience that would have given us theconfidence to insist on adherence to our deal. Unfortunately, Ed Penhoet and Iwere both green, and Bill Green, in this context at that time, was alsoinexperienced. Green was green. It’s also true that Merck had every right notto further develop the vaccine if they chose to. So it was a situation in whichthey could play hardball with us, and they did.The attenuation of the royalty stream and lack of acknowledgement ofChiron’s fundamental contributions to it was a huge problem for me and alsofor Pablo. He had been directly involved in the work from the beginning, andit was really spectacular work. Of course Roy/Merck had also to deal with theUniversity of Washington and Ben Hall's aggressive claims for rights as well.Part of the problem was the value of the promoter. We had to have it, but ofcourse we felt it should have been a low-level licensing cost rather than aprominent aspect of the strategic asset. Parsing the two would have beendifficult for Merck and was.Hughes: But there was more than that, it seems to me. Chiron at that point was acompany struggling for validation, was it not?Rutter: For sure, it was early days. But I didn't think we were struggling. We hadresources and good projects. We had taken only a modest amount of moneyfrom venture funds. I think we could have taken more, but it would have beena different Chiron. For sure the Merck deal gave us a validation and was veryimportant to us. The point I am trying to make is that we probably could havemade a better deal, and we should have. We should have played hard ball withUW/Ben and have been in control of negotiating the whole deal. We couldhave done that when Merck was down to half a percent. It certainly made abig impression on me and probably on all of us. It was a great learningexperience.Hughes: But the venture funds were soon to run out. Relatively soon you were going tohave financial problems, hence the Martin Marietta deal (1982).Rutter: That came somewhat later, but yes, money was and is a perpetual concern.The issue you raise, though, concerned the terms for the second round ofventure funding that were proposed by Burr, Egan, Deleage & Co. Craig Burrdidn't agree with the terms we had negotiated when we accepted the firstround of funding from them. So we rejected them and sought funds elsewhere.Luckily, we were able to make an agreement with Martin Marietta, with onlya couple of months’ cash left. My point is that there’s always an issue of risk,and the construction of an appropriately documented legal agreement isabsolutely necessary in order to establish the concepts and terms of anypartnership. We made many collaborative agreements. Over time, we learnedwhat the weaknesses and strengths were, and each one of the agreements had57weaknesses and in some cases great weaknesses that attenuated the businessin the future.Incidentally, I believe strongly that Craig Burr's rejection of the deal we hadinitially struck with Jean Deleage for second-round financing at the time wechose them to be our venture partner led to Deleage leaving Burr, Egan,Deleage & Co and forming his own company, Alta Partners. Jean Deleagewas exceedingly loyal to his biotech clients and was true to his word. He wasa great help in building Chiron, even long after Alta realized its superb returnon its investment in Chiron. Alta Partners became a leading biotechnologyventure firm.Hughes: Do you attribute those weaknesses in negotiation to your naïveté, or werethese problems that almost any company would have run into, regardless ofhow experienced?Rutter: It’s a bit of both. Certainly we gained experience over time and became quitesavvy in making deals. Bill Green, for example, became an accomplished dealattorney, and Ed Penhoet was excellent conceptually and in detail. Frankly, Ithink as a group we were very good, maybe on par with Genentech, which issaying something. Maybe pride on both sides kept us from doing dealstogether. There were several times we tried.Any organization which is putting in the money eventually has some kind ofsuperior position over another one which is not. Cash has always been king.It’s a commercial deal, so cash is the key element of the transaction. Everyone of our so-called fifty-fifty partnerships had aspects to them that were verypositive and others that were not so positive, even negative for our business.Because of our unique situation in each of them, a junior partner in a fiftyfiftydeal, we suffered both the good and the bad. And we learned a lot.Briefly, in the diagnostic realm, the fifty-fifty deal we had with J&J was basedon segregated functions. Although we shared the revenues fifty-fifty, J&J hadthe control on the commercial side, and we did the research and productdevelopment. We were a research company; they were a commercialcompany. We developed the IP, but they controlled the IP along with thecommercialization and fundamentally controlled the business, despite the factthat we shared it fifty-fifty.Hughes: Why would J&J control the IP?Rutter: Well, because they controlled the commercial use of the IP. In the end, thatturned out to be a tremendous detriment to us. We were manipulated one wayor another, and we had no way to move. We were boxed into that deal, andstill are on the immunological side. There were also ancillary agreements that58were made by J&J and Abbott, which in a sense optimized their overallcommercial position, and we received no value from those deals. It wasn’treally an absolutely clean co-ownership of the assets—a squeaky-clean, fiftyfiftydeal. The person behind all of that, Ron Gelbman, was very shrewd inmaximizing Ortho's [Ortho Diagnostic Systems, a J&J company] positionwith us. We went to arbitration a couple of times with J&J and lost as I recall.However, this general tactic of minimizing our role and maximizing hiseventually led to his being fired.Later when it came to forming an equity-based partnership with Chiron, J&Jaggressively sought a fifty-fifty position in Chiron, and ordinarily we wouldhave been delighted to do so. J&J was and is a great company, and we wereon excellent terms with its leadership. But that poisonous relationshipcultivated by Gelbman served to the disadvantage of both companies; iteliminated that possibility.In the context of our original partnership agreement, we gave J&J anopportunity to participate in the development of quantitative nucleic aciddiagnostic tests time and time and time again. We needed funding. J&J alwayspassed on those opportunities. I believe that Ron Gelbman tacitly thought thatif it worked, they could buy in on the cheap. Well, eventually it workedbeautifully, and we developed commercial nucleic acid testing ourselves.We developed the concept of viral load ourselves. That transformed theindustry through the ability to quantitatively measure the level of the virusitself [in blood] via its DNA or RNA.This was a major step forward in thedevelopment not only of diagnostics but also any product which had an effecton the viral load, for example, therapeutic drugs. Thank heaven, we held ontothose concepts, the IP, which resulted in major royalties and the mostprofitable part of the business. But still, J&J had control of the immunologicalcomponent of diagnostics. Today Chiron has control of the nucleic acidbusiness. The net result is that Chiron and J&J are not fully aligned in thebusiness and therefore are not full and satisfied partners in that segment of thebusiness.In the vaccine business, we couldn’t in general have had a better partner thanCiba. And part of that was due to the director of research, Jack (Jakob)Nüesch who really was passionate about the business and was a champion ofit. A major contribution was also made by a business development person atCiba-Geigy named Richard Williams, who came from McKinsey &Company, a business advisory firm. Richard Williams developed the strategiccase for vaccines within Ciba-Geigy. He was a major asset to Ciba-Geigy, andhe believed in us as vehicle for developing the business interests we shared.Ciba was an open, absolutely supportive, wonderful partner in most ways. Butwhen it came to choosing the vaccines to develop, then they began to takepretty definitive and singular positions.59Jack Nüesch’s boss, Max Wilhelm, director of research for the wholeorganization, decided that we should have one project. As we began looking atthe repertoire of possible projects, we selected herpes as the one to go with,and not work on the other projects. We were more inclined to sort of play thefield until we knew which ones were going to succeed. Herpes was thetoughest vaccine to even think about in terms of prevention because the virusinvades nerve cells and hides there and then, under certain circumstances,begins to display its pathological properties.Hughes: And you knew that?Rutter: We knew that. The interaction of herpes virus in various cells had beenstudied extensively. Further, several major vaccine companies, includingMerck and SmithKline had tried to develop a vaccine and failed. There wasstill data which suggested that one could attenuate or eliminate that virus andtherefore develop a product. But still it was so much more difficult than othervaccines which didn’t use this biological tactic of eluding the immune systemby hiding in cells and then creating pathology and infecting other cells.Hughes: Do you think Ciba was biased by projections of the potential market?Rutter: Probably that had something to do with it, but I think they were biased byignorance. Max was a person who’d done very well in developing smallmoleculedrugs. Jack was more mechanistic in his outlook, and morepragmatic, and certainly more supportive of a technical analysis prior to thetime that you committed. On the other hand, at the time they were providingthe money, we listened to them—a major error on my part because my beliefin hindsight is that had I persisted in looking at other targets we would havefound a better one. We had a number of meetings with external experts toadvise us which vaccines we should go forward with, among them scientificluminaries.Hughes: Who were they?Rutter: Harold Varmus and Don Ganem were among them.Hughes: They pointed Chiron towards herpes?Rutter: No, not at all. They were general advisors on science matters.We considered a variety of vaccines. I think we were all flying blind becausehonestly it wasn’t so apparent. After hepatitis B, everything seemed simple inour minds. The issue there, which has turned out to be the major issue goingforward in the vaccine business, has been the fundamental one of biologicalmimicry. In hepatitis B, a single molecule or two molecules coming from thesame gene comprise the basic structures which self-organize into the Daneparticle. In other viruses, why, it’s much more complex than that. There are60multiple proteins, multiple components, that need to self-organize or beorganized. We simply didn’t know the variety of structural configurations, andit was a rather simplistic assumption, aha, that all behave by the same processand that success would be straightforward. We only have to be able to producethe subunits, the molecules themselves, and these will be effective. Well, itturned out not to be true, just not true.Hughes: How long did you persist with the yeast approach, because that in itself wasflawed, was it not?Rutter: No. We used Saccharomyces. A better yeast might have been Pichia. Pichiahad been developed, interestingly, by an oil company, Phillips 66.Hughes: Why?Rutter: Well, Phillips had a little research program going on, as most oil companiesdo, and they chose to develop Pichia pastoris. This yeast had properties whichfar excelled S. cerevisiae in producing particles like those of the HBV virusvaccine. The Pichia technology was eventually licensed by an offshootcompany from the Salk Institute, with which one of my old professors, WillisAvery Wood, eventually became associated. So Pichia became a majorsystem to produce proteins and complicated structures. Chiron never licensedthe technology; it was simply too expensive, we thought. We might have beenwrong. Probably we should have purchased the company.Hughes: So the fact that you were using yeast wasn’t the problem in the herpes vaccineproject?Rutter: No, not at all. Up until now, no one has been able to produce a herpes-likestructure, a subunit, in mammalian cells that engenders broad protection.Since our failed trial—must be ten years ago now—why, there have been nofurther trials of a herpes vaccine. But there has been a lot of technicaldevelopment of herpes-based systems (vaccinia) for the production ofproteins, etc. So somebody will do that eventually.Hughes: Let me go back to the difficult negotiations with Merck.[Tape 8, Side A]If there had been an experienced business person on the Chiron team, couldthings have been different? All three of you were naïve in terms of businessdealings.Rutter: Yes, sure. If there had been an experienced person there who had moreconfidence and maybe negotiating skill than we ostensibly had, that individualmight have gotten a better deal.61Hughes: Now, just to finish that story, bring in Versaggi and the public relations aspectof the Merck deal.Rutter: Well, we were obviously very disturbed when the announcement simplycalled it the Merck vaccine, and there was no credit given whatsoever toChiron. Now, let me tell you about the complexity which made it a little bitunclear. First of all, the original cloning was done in my lab at UCSF, and weset up an agreement with Ben Hall to use the promoter, alcoholdehydrogenase, that Ben had available. I struggled prior to that agreement. Ilooked all over for promoters in yeast. Plenty of people were working onyeast, and plenty of people had promoters, including, incidentally, a postdoccoming from my own lab.Hughes: Who was that?Rutter: Michael was a professor at Davis. He had a consulting agreement with Cetus.But as far as I knew, Cetus was not involved in yeast research at the time. SoMike could have easily given us some of his promoters. We simply could notget an agreement with him. Not a chance.Hughes: Why was that?Rutter: Well, I think everybody at that time was super aggressive in protecting theirknow-how, their proprietary position, believing they could form a company,or in some way become very wealthy. So we ended up with Ben Hall, whohad been a previous colleague at Illinois years before and a personal friend ofmine.Hughes: And also at the University of Washington? Did you overlap?Rutter: Indeed. Ben was a major factor in my moving to Washington after he movedthere, and I was very appreciative to be in that environment. Washington wasa wonderful place, and Ben and his family and I were good friends.Nevertheless, when it came to this kind of agreement, Ben essentially wantedto become a fifty-fifty partner in a business where he only provided what wastruly a nonproprietary component. By that I mean, there were lots of otheralternatives to get there; he provided the one that actually was available. Sowhen we talked about collaborating, he came to UCSF with an attorney tonegotiate a deal with the University of California, in which we split revenuesdown the middle on the expression of hepatitis B particles. That happened justduring the time that we were forming Chiron, and all the work on thedevelopment of the vaccine occurred within Chiron. So Merck had to payroyalties to UCSF, royalties to the University of Washington, and royalties toChiron. If you add all those up, it was something like 10 percent, somethinglike that. By the way, I am told that the hepatitis B royalties were the largestsingle contributor to royalties of the University of California for many yearsand they are still coming! So the complexity was that Merck had to negotiate62with three parties separately. When Roy describes this in his recent book,[Medicine, Science, and Merck], he describes this as a terrific venture andmentions both me and Ben.Hughes: On an equal basis?Rutter: More or less. Of course, as far as I was concerned, that was so far from thetruth. We just had to live with it in order to get it done. We didn’t have aneasy way to get any one of those promoters ourselves. We could have gottenthem ourselves, and probably should have gotten them ourselves, but therewas a race.At that time, many of the companies were trying to do the same thing. WhenGenentech heard that we were trying to do it in yeast, of course they startedtrying to do it in yeast. We learned afterwards that there was a competitiveprogram at SmithKline. The people at Amgen had a similar program. JohnCarbon was a member of the scientific advisory group at Amgen, was a yeastguy, and still a friend of mine. I’d been acquainted with John since my earlydays as a consultant with Abbott Labs. John was a very fine scientist, and hewas a member of the scientific advisory board at Amgen and supported theAmgen program.Then there was the yeast group at Genentech, who were strong competitors.So we had to get on with this program or else we would have lost in thecompetition. That’s how it turned out, and why Merck had their own point ofview about how the vaccine was developed.Of course, Roy knew how the project originated since we had been involvedsince the cloning of the HBV virus, in part in a collaboration with Merck. Thekey person in the development was my long-time associate and colleague,Pablo Valenzuela, who was the leader of the team that cloned the virus, andalso expressed the surface antigen in yeast, and finally was a major factor inpurifying the yeast particle, the key element in the development of thevaccine. In fact, it was during the hepatitis B project that Pablo became asenior colleague, essentially a partner, and I agreed to split any royalties thatwere derived from the program, after allocation of royalties to others who alsoworked on the project.Hughes: Yes, and Merck was supporting the work in your UCSF lab.Rutter: They were supporting the work in our lab.Hughes: Presumably, the relationship with Versaggi was an effort to recoup some ofthe credit. How did that work out?Rutter: Not very well. We really did not continue that relationship beyond theplanning stage.63Hughes: Do you remember what he tried to do?Rutter: Essentially to present the case.Hughes: To whom?Rutter: To the public.Hughes: Through what means?Rutter: Well, they were going to publish articles, encourage third party reactions andthings like that, and maybe approach Merck directly. As I remember it, he felthe could be a kind of business development/PR group who might help us getbetter deals and more of them. He felt we didn't promote ourselves aseffectively as we could and should. For example, he felt we should emphasizethe actual role we played in development of the vaccine, for example, providea more accurate presentation of the roles of the two companies in HBV andvaccine development. But that was not to be, not to be, for sure not to be. I/wewere very grateful to Roy/Merck for giving us the opportunity to develop thisvaccine concept, and I was absolutely against some kind of confrontationwhich might have generated a little money in the best of circumstances, but atthe cost of alienating many in the vaccine division and appearing tooavaricious and acquisitive of acclaim as well.Later on it became clear that SmithKline had developed a parallel path ofproducing the vaccine and that they had a more efficient process thanwe/Merck had. So that’s why I say Merck really hadn’t committedwholeheartedly to commercial development, because ordinarily when youhave something like this, you try to get the best production system. Thatallows the company to sell more broadly at a profit and therefore competemore effectively in the market. SmithKline’s method allowed them to producemuch more vaccine so they could produce it more cheaply and capture moreof the world market for this product. Merck's lofty reputation helped sell theproduct, but SmithKline's commitment to the vaccine at the practical levelpaid dividends in the market. Merck’s share of the hepatitis B vaccine revenuewas not what it should have been.Furthermore, when it came to defending a proprietary position, there wereclaims and counterclaims and so on between SmithKline, Pierre Tiollais of thePasteur Institute, and ourselves. One of the scientists at the Pasteur Institute,working with Pierre Tiollais, had developed a program directed towardproduction of hepatitis B surface antigen in mammalian cells. Sooner or laterBiogen came in with strong claims on the virus itself, based on theidentification of some sequences of HBV, which by implication meant theycould have the sequence of the whole virus, including the surface antigengene. We had sought and obtained the surface antigen gene. What hadhappened here?64Walter Gilbert, founding CEO of Biogen, and his lab at Harvard had been incompetition with our lab to clone the HBV virus. It was not clear whether hewanted to make a vaccine. He/they had used a technique of expression cloningof the virus, cultivated in mice, to get a piece of the virus. We had ourselvesindependently located the gene encoding surface antigen which wasspecifically used in the vaccine. Nevertheless, they got IP claims which weredeemed valid in Europe! Just having a little information on the virus gavethem claims to the whole virus, without knowing anything about the surfaceantigen or its components! We can debate the fairness of that ruling, but thatgave Biogen, especially with the capable and shrewd Jim Vincent (fromAbbott) as CEO, the upper hand in winning the patent battle and thennegotiating superb licensing deals with both SmithKline and Merck! Biogenobtained a much larger revenue stream from HBV than we did! This gaveBiogen the financial resources to support the future development of thecompany in weakly productive times—another big lesson for us.Hughes: To change the subject, if you were asked to characterize your managementstyle, what would you say?Rutter: Interactive, vigorous, and driving, forceful.Hughes: Authoritarian?Rutter: Perhaps a bit, in the end.Hughes: So you would consult, but then make the decision on your own?Rutter: Well, I honestly don’t think that I dismissed other people’s ideas, andfrequently I enthusiastically accepted other people’s ideas. But I took theresponsibility of making the decision in the end, taking into account,hopefully, all the various points of view. I was very cognizant of thecompetition we were in, and I don't like to lose competitions. I don't think Iwas directive, but I liked things to happen. Not always was it my decision, notalways was it my idea going in, but when it came to making a go, no-godecision, yes, then I could make a decision. And that was my role.Ed and Pablo and I talked over almost every significant decision. But I waskind of the final, final decision maker. They may not have agreed with all thedecisions I made. For sure, they did not agree with everything I did. I also haddeveloped my own view about how to run science organizations. I was amicro-manager, to be sure, within the science/technology area, and moregenerally a strategic leader when it came to business. I enjoyed strategicanalysis, and I think I was pretty good at negotiating business deals:Hughes: Which you had done first through the Department of Biochemistry andBiophysics?65Rutter: I did gain experience at UCSF in managing people and money andengendering a productive climate. However, running Chiron was quitedifferent from running a research lab or running a university department orinstitute. At Chiron, the size and scope was ten to one hundred times bigger,and the financial/legal/strategic issues were immensely more complex.Proprietary issues coupled with large expenditures of money andcommitments of significant numbers of personnel were involved. There wereconflicting management styles that simply represented different ways oflooking at outcomes, the market, and the world. Many people believe that achief executive should focus on a single thing and then direct all the resourcesthere and go forward, succeed or fail.I didn't believe in betting the company on any one project. I believed instressing the system: establishing and ensuring multiple ways to win. Thetripartite strategy was an example of that. I subscribed to a concept I called"muddling through". This involved projection of a project to the end andanticipating the best ultimate solution, but also realizing there were lesssuccessful but still acceptable alternatives. I tried to describe and adhere to aprocess that essentially perpetuated the possibility of achieving the mostdesirable result from any time in the process. Thus, rather than establishing aprecise and defined development plan that involved killing the project if itdidn't reach the targeted goals in the specified amount of time, I was moreconcerned about the quality of the target, rate of progress, the peopleinvolved—could they pull it off? the competition—could we win?The timelines to discover, develop, or enter the market were all hypotheticaland varied greatly with the importance and novelty of the product, andcertainly were variable with each product and the target market. This camedown to not making firm decisions initially. You keep things open until youeither have enough information to close them or you’re forced to close them.I’d seen too many examples where actions were taken on the basis of somepreconceived set of notions about project management. Research anddevelopment is not a kind of pharmaceutical algebra; it is more like a set ofdifferential equations that never quite describe the actual situation, but ratherdescribe various representations of them. That is why discovery coupled withstrategic corporate development is so fascinating and challenging to me. It isthe best game going, especially if you are accountable.Hughes: That philosophy came true more at Chiron than in the department?Rutter: Well, as I mentioned, commercial projects are much more complex thanlaboratory projects. So there are many more variables, including the financialresponsibilities to investors and the ultimate responsibility for people'sprofessional future, as well as their livelihood. Still, there are differentmanagement philosophies. Some would say: You pick a target, pick theleader, who in turn picks his/her team, provide specified resources, and allowDarwinian processes to select the winners and exclude the losers. You either66succeed or fail. It's like drilling for oil; it is either there or not, and one playspercentages. That was the view of Max Wilhelm, for example, on a target fora vaccine for Chiron. He selected herpes: it’s a good target in the sense that itis an unmet medical need. Succeed or fail, and live with the consequences.Well, there were lots of times along the way that if we’d have been a little bitmore critical at looking at all the data, we might have changed the calculusand attenuated the program.Hughes: But he was too dominant a force to allow you to overrule him?Rutter: Well, once you commit, then a company like that puts money behind it, andthen it becomes a project. Then you have a budget, and you continue becauseyou have money behind it. Otherwise they’d say, “Well, this group doesn’tknow how to run anything because they changed their mind.”Hughes: But how could you do it otherwise, if you are dependent on outside money?Receiving money from an outside source is a commitment, which I wouldthink would really close down the options that Chiron had.Rutter: No, we had an arrangement which covered all of the vaccine area. That was afifty-fifty deal on vaccines. So the issue was how to develop a vaccinebusiness with our technology. That’s totally different than we have a programin which we have a single vaccine we’re going for, herpes, and the wholething succeeds or fails. We had managed to convince them that the newvaccine area was a great area for the future, and we had unusually strongtechnological competence, so we were good partners, so we wanted to build anew business.Hughes: Now you’re really talking about Biocene.Rutter: Yes, that was it, Biocene. Biocene was more than just herpes.[interruption]Hughes: Being a strong supporter of UCSF, you have claimed very adamantly, inlitigation and otherwise, that you wished UCSF to profit from technologytransfer. How specifically did you see that happening? Putting it in extremewords, you could be accused of raiding UCSF in terms of personnel andresearch discoveries that had been supported through the public purse. Ibelieve those criticisms were leveled, if not at you, certainly at people likeHerb Boyer, who were in that first wave of commercializing academicresearch in biology.Rutter: Well, the royalties from the university work from my lab exceeded those ofany other project coming from UCSF in the last twenty-five years. Secondly, Iput into a foundation equity that was to be used for the furtherance of researchat UCSF.67Hughes: That was the California Genetics Institute?Rutter: The California Foundation for BioMedical Research. And the money in thereis more than $30 million and will accrue over time.Hughes: So that still exists.Rutter: That still exists, and it’s being used. It was a major source of money for the[UCSF] Mission Bay project.Most of the people in my laboratory were not paid by the university. Theywere employees. They had no tenure. Pablo, although he had a professor-inresidencetitle, had to get all his salary support from grants, initially from mygrants. Pablo had many opportunities to go elsewhere. At the time we formedChiron, he was being recruited to be director of research at Amgen. By theway, so could have Ed. So I don’t understand those allegations. But that wastypical of people in that time frame. Julie [Julius] Krevans has said manytimes that we were the only group that "did it right". I’m personally quitepleased with what happened to UCSF.Hughes: One could argue that you had seen close up what had happened to Herb Boyerand heard the accusations about Genentech being run from his UCSF lab—allthe very troubling things that happened around the time of the foundation ofGenentech.Rutter: Genentech in the early days did occupy a portion of Department ofBiochemistry space, and with my explicit support. It wouldn't have happenedif I had not agreed to it and actively supported it.Hughes: My point is that you had seen what had happened to Herb and Genentechwhen things were not handled the way you eventually handled them. You mayhave decided: I want to form a company, but I don’t want to put myself, mypeople, and my company through the terrible set of circumstances that Herbwent through. So I’m going to draw the line very carefully between WilliamRutter as department chair and William Rutter as Chiron chairman, in a waythat Herb, because he was the first, didn’t know to do or chose to ignore. Ithink, personally, that he kind of naïvely went after founding a companywithout really knowing what he was going to get into.Rutter: Well, that may be the case; many of us were to some degree naïve. On theother hand, Bob Swanson was very much more savvy. I think he was advisedby the people at Kleiner Perkins, especially by Tom Perkins, who wasGenentech executive board chairman, and advantaged by the naïveté of UCSFand my naïveté, too, because I agreed to stay out of the negotiation with theuniversity for the remuneration to them [UC], and I should never havedisassociated myself from that.68Hughes: You mean when Genentech was negotiating with UC, you had an opportunityto participate?Rutter: Well, as the department chair, they [Boyer and his lab] were using space that Icontrolled. I was responsible for the space. Bob asked that I not get involvedin negotiations with the university over conditions, including remuneration forthe space. I agreed, under the condition that he treat UCSF "fairly". But hisidea of fairness and mine were quite far apart. UCSF should have taken someequity in the company or in some other way have been adequatelycompensated.Hughes: Why did you decide to stay out of it?Rutter: Well, the argument by Bob was that this was a deal with the university andthat it wasn’t a deal with me. We probably had either competing or convergentinterests, and I was a little ambivalent about that because sometime duringthat time period, we could have joined forces with Genentech. Therefore I didnot want to be associated with making a deal with a company that I could atsome level be associated with.Hughes: You were asked to join, as we talked about last time.Rutter: Well, we discussed joining Genentech, but the offer just didn't mature. Wejust never came to an agreement. It was their choice, not mine or Howard[Goodman]'s, to my knowledge, and frankly it was a good choice.Hughes: Not to participate.Rutter: A good choice by them, I thought, because Bob’s personality and mypersonality would never have been fully complimentary, I think. I don’t knowthat for sure. But I have a strong personality. He certainly had a strongpersonality. I wasn’t used to compromising on important issues, saying,“Okay, let’s cut a deal between us.” There would have either been a strongercompany or it would have been a disaster. I think Bob did a fantastic job inbuilding Genentech, and I admired what he accomplished, but we haddifferent views on some fundamentals. It probably would not have workedout.Hughes: Then the Amgen opportunity came fast on the heels of the Genentechproposal. Were you, in the quiet of your study, thinking, “Why am Inegotiating with these other people? Why aren’t I forming my owncompany?”Rutter: I told you, in the end I fundamentally didn’t feel it was a core strength of mineto start a company, with all of its complexities. At the same time, I had myhands full, and I was loving the science that was going on in my lab. So Iwould have been very happy to have it continue that way.69[Tape 8, Side B]Rutter: But in the end, competition ruled. Amgen simply wasn’t decisive enough, andthey wouldn’t allocate enough money [to Amgen North]. That probably was agood idea, too, from their standpoint. I know Bill Bowes somewhat now andalso Pitch [Franklin P.] Johnson and Sam Wohlstadter. All of those folks [whofounded and financed Amgen] are outstanding individuals who are bothflexible and wise. But they only had so much money, and they wanted tofocus it in a certain way. They split off part of it on the device/diagnostic endto form what is now ABI [Applied Biosystems]. Then they were committed toAmgen, and they just didn’t have enough resources to put behind my projects.They thought, probably, I should have just kept up with the program downthere.Hughes: At Amgen in Thousand Oaks [California]?Rutter: At Amgen. Sam Wohlstadter quietly counseled me: “Why don’t you buildyour own company? I’ll back you.”Hughes: He said that at the time?Rutter: Yes, and at the time he was on the board and therefore had fiduciaryresponsibility toward Amgen. I thought it was such an unethical position totake, I didn’t want to have anything to do with Sam. But the issue wasprimarily competitive. I would have been happy if I had thought I’d have acompetitive program [in my UCSF lab] with any one of those companies.That would have been fine with me. But we would also lose the race forhepatitis B, I have no doubt. So I wasn’t ready to do that, and as it turned out,doing the hepatitis B project myself was one of the most exhilaratingexperiences of my life. I loved it.Hughes: One last question, because I’m reading that you have had enough for today. Iread, and it was interesting where I read it. It was in a letter from you to JamesWatson, when he asked you for money for Cold Spring Harbor, and you listedreasons why you couldn’t contribute. One of them was that you were notreceiving compensation from Chiron, that you were being paid strictly as aconsultant. Why was the arrangement set up in that way?Rutter: Well, because I was a university employee, and I wasn’t a full-time person atChiron. I had two jobs for the first ten years of Chiron. I joined Chiron in1990 as an employee, or 1989, something like that. So I felt I could keep thosetwo jobs. Remember, I gave up my department chairmanship because Ithought that was a conflict. I became head of the Hormone Research Institute[at UCSF] and developed it as a research institute, which was not a conflict.Hughes: Why?70Rutter: Well, because I had no administrative position, and I was only responsible tomyself and building up the organization. There I had abundant programswhich on a scientific basis stood by themselves. I was doing the best scienceof my life at that time. At the same time, I had enough time to handle all of theissues associated with Chiron, on the weekends, nights, and so on and so on. Iworked long hours, and I could handle those two positions. But I was aconsultant, and I had a consultant’s salary, which was modest, and thatallowed me to keep both jobs. It was fun.Now we could finish the discussion on Chiron structure or organization.Hughes: The three businesses, you mean?Rutter: Yes, so we get that over. Okay, we had this tripartite program. How was itorganized? Well, there’s always complexity in a small company when youhave three business orientations, and then you have a research base whichsupports all the businesses. There was a debate: do you have businessorganizations that are separate, with heads that essentially fend forthemselves, like the diagnostic division and vaccine division at Merck? Theymake their own budget; they make their own profit, and so on and so on. It’sallocated as part of a portfolio of component parts to the business. So it wasalways the question about how you organize research in these various areasand what authority does the head of the business group always have.We essentially evolved into a structure such that a common researchorganization fed all three. To be honest, you burdened each of the three withthe research that was occurring in the central division. The issue was whodetermined and controlled the programs. The company itself and theleadership of the company were always seeking good deals for the company.Until 1995, they went along the road of joint deals of some sort, where wewould get large payments supporting the research, and we would have anequity position in the outcome of the research—equity, strong royalty,whatever, could happen.So over time there was always a tension between the head of a divisionwanting to control the research that was relevant to that division—essentially,it was a fully integrated business—as opposed to the research always havingequal position with heads of division and, in some senses, having a superiorposition. Because they controlled the money, they controlled essentially whatthey did. So we evolved a structure in which research itself was a componentof a business-oriented division. By that, its responsibility was to get earningsin terms of royalties; to get some allocated fraction of the money that wentinto the various commercial entities. And that was possible for a long timebecause the Research Division always scouted for new projects and moneycoming in.71The research organ of the company was the strongest part of Chiron, no doubt.So it accumulated a lot of intellectual property and know-how in particularareas but was not restricted to a single program or to a single part of thecompany. This was very different than other companies. Still is. It supportedthe contention that in a research-driven organization, the director of researchand the key players that they had used this strategy as a technical approach toa competitive advantage. For a long time we held a competitive advantage inthe areas that we knew a lot about, and part of that was due to that structure.Even today, the royalties accruing from the Research Division are a majoraspect of earnings. My guess is that in fact all the earnings of Chiron could beascribed to royalties and the three businesses essentially break even.Later on, after the acquisition of Ciba [1986], they broke it down into silos.Certainly when I left the company [1999], Sean [Lance] totally changed thecorporate structure. The commercial entities have control over R&D and thebusiness.Hughes: How did that work out?Rutter: Variably. That structure was the downfall of entrepreneurial and discoveryresearch at Chiron. We began to look like any other big company.Hughes: Had Lance gotten that business model from his past experience?Rutter: Oh yes. Most of the big companies do that, and for understandable reasons.There obviously has be some specialty investigations of each of the areas ofcommercial interest. But I still believe that the director of research is the keyperson to deciding with the business entity which projects are the best andwhich people do this, and so on and so on. Again, it’s this issue of a positivetension which exists between two parties that have the same objective in mindbut have different responsibilities. So just like I like fifty-fifty deals, I alsolike a situation of shared responsibility where within the organization nosingle person has total control over decision making.Hughes: But couldn’t this also be a question of the evolution of a company? That in thebeginning it made a lot of sense to have a dominant emphasis on research. Butas Chiron grew, it became more a business than a heavily research-orientedorganization? I think one could argue by the time that Sean Lance came in thatChiron required an organization that was more businesslike than sciencefriendly.Rutter: Yes, many people think this way. If you’ve read the literature, we wereaccused of being a university-oriented company because we were working ona lot of projects, had a lot of good science going on, published a lot, and so on.My contention is that the business interests are not devalued by such astructure. In fact, they are more effectively developed by such a structure,because the heads of the business units do have responsibility for the72development of products and the commercial development of those products.In the typical classical structure, the head of the business unit tells the researchdirector what to do and how to do it. My contention is, that is the wrongbalance of power, and I see no evidence whatsoever that that structure is bettertoday. In fact, most large organizations are first of all restricted to one generalarea so that their research officer does in fact sort of cover that area.The other point is, that if the business units are large enough, if they’re thebillion-dollar size, and you’re spending 20, 25 percent of that budget, well,then you need a separate person in charge of that area. But for a smallcompany whose revenues are less than $500 million, it doesn’t make anysense. If it’s a research organization, it’s got to be efficient, and one personneeds to pay attention across the board to see that you get the most effectiveuse of capital, both financial and personal.[End of interview]73Interview 4: May 7, 2005[Tape 9][Dr. Rutter did not review Interview 4. Sally Smith Hughes reviewed the transcript; her insertsare shown in brackets.]09-00:00:00Hughes: In January of 1982 Chiron signed a contract with Nordisk InsulinLaboratorium. Maybe the first thing to explain is what that was as opposed toNovo Nordisk.09-00:00:24Rutter: Nordisk was a precursor of Novo Nordisk. Nordisk and Novo wereindependent companies, both of which manufactured and sold insulin, andboth of them were major worldwide companies in this field. They started earlyon after the discovery of insulin and became competitors with differentfocuses. By that I mean, Novo Nordisk was a more research-type companythat had its own diabetes hospital and focused solely on diabetes. Now, theyexpanded after a while but [insulin] was their major claim to fame. Novo, onthe other hand, had a division for industrial biochemical, that is, industrialenzymes and insulin, and it was a much bigger company. Later Novo mergedwith or acquired Nordisk and that became Novo Nordisk.09-00:01:53Hughes: After Chiron had the contract?09-00:01:58Rutter: Yes, indeed.09-00:01:59Hughes: What is the Insulin Laboratorium?09-00:02:05Rutter: Well, the name of the company is Nordisk Kompaniet, the Nordisk Company.Chiron’s contract was with their laboratory division, which was focused oninsulin and other things. There was a research program there, to be sure, andthe people in research, though a small number, were high quality. They allknew about my work on the development of the pancreas. Fundamentally thehistory was that after we formed Chiron and we worked on the production ofinsulin using the natural precursor, we approached Eli Lilly about a contractthat would have supplemented or superseded the one with Genentech. We feltthat Chiron’s process was more commercially feasible because the Genentechprocess involved the production of the two chains of insulin and thenrecombining those in vitro, which is not always a very efficient process. Infact, it wasn’t efficient. And their process included things like the use of verytoxic chemicals, like cyanogen bromide. In fact, I was told that if theyexpanded the program, they had to make a cyanogen bromide factory becausethey’d by far exceed the world’s supply of plants.7409-00:04:23Hughes: Lilly would have to?09-00:04:23Rutter: Lilly. So the reason for that was that Lilly had supported, contracted my[UCSF] lab and Howard Goodman’s lab on cloning insulin, and we’dsucceeded.09-00:04:51Hughes: Cloning rat insulin?09-00:04:52Rutter: Cloning rat insulin. Then subsequently my lab cloned human insulin in thesame project. So essentially we had the sequence for proinsulin, which thenself-folded, and then the intermediate peptide could be cleaved out, allenzymatically in a clean process and with high efficiency.09-00:05:30Hughes: Is that the process that Eli Lilly eventually took on?09-00:05:36Rutter: Yes, indeed. It’s the process that everybody in the world uses today at onepoint or another. And we had that process at that time. We had seriousdiscussions with Lilly about that project and an IGF1 project, insulin-likegrowth factor one, which we’d also cloned in my lab. None of them wentanyplace. Eventually the people from Nordisk came to see us and proposedthat we work together in some way. We finally ended up doing a project oninsulin with them, and that led to this insulin production process, which Ibelieve was the major reason for Novo to acquire Nordisk. By the way, thenegotiation for the value in that process was not very successful with us; butwas a very nice relationship with this group of people. But I think we only gotmodest rewards for it.09-00:07:24Hughes: Was that because of your relative naïveté?09-00:07:29Rutter: Well, first of all, we had no place to go. Well, we thought we had no place togo besides Nordisk. Not quite clear that was the case.09-00:07:39Hughes: One step in this story is that in August 1978 Lilly signed a contract withGenentech.09-00:07:53Rutter: Well, they signed a contract with Genentech. Are you asking why didn’t Lillyturn around and sign the contract with us? Well, our process was better, but onthe other hand we didn’t know the details of the contract with Genentech. Andeventually Lilly abrogated that process anyway. That is, Lilly abrogated the75contract and changed the process. So it was possible. The question only wasone of efficiency of production.09-00:08:23Hughes: But why do you suppose that Lilly didn’t bet on both horses? It had bet onboth horses in the basic research phase because it was supporting bothGenentech and you at UCSF. But it could have contracted with Chiron, too,couldn’t it? Why not?09-00:08:52Rutter: Well, they could very much have done. Irving Johnson said in hindsight hewas playing for who got there first. Not who got their best but who got therefirst. And it was Genentech who got there first. We started much later thanGenentech, and Genentech got there first. So they elected to do what theyelected to do.09-00:09:27Hughes: But do you suppose that was somewhat due to Lilly not having greatunderstanding of this new science?09-00:09:40Rutter: No, I don’t think that at all.09-00:09:42Hughes: No? So it wasn’t so clear that Chiron’s process was the better?09-00:09:50Rutter: I think it was clear.09-00:09:52Hughes: Well, then, I go back to that question of why wouldn’t Eli Lilly havecontracted with both groups?09-00:10:06Rutter: Well, I believe it was the nature of the contract with Genentech.09-00:10:11Hughes: That they couldn’t.09-00:10:13Rutter: I think Genentech was paid handsomely, and I guess they didn’t wantroyalties on top of that. But also there was the cloud over our work because of[plasmid] pBR322, the use of pBR322 in cloning. It’s conceivable that Lillydidn’t want to get into that. At the end we had a lawsuit and we lost withthem.Hughes: Well, I know from talking with Dr. [Irving] Johnson—not in this specificregard, I don’t think it came up in our discussions, but in regard to thepolitical debate that was going on at this time about the safety of recombinant76DNA—that he was ultra-careful in following the [NIH] guidelines [forRecombinant DNA Research].09-00:11:40Rutter: Well, they [Lilly] were certainly willing to support and conduct experimentsoutside of the U.S. where U.S. guidelines didn’t restrict that recombinantDNA research]. So yes, they were careful. And maybe because of thesupposed [pBR322] infraction, they decided they didn’t want to do that withus. But I doubt it. That’s a storm that only we weathered, to tell you the truth,and I don’t believe it would have impinged on them at all. But I do believe atthe same time that Axel Ullrich and Peter Seeburg went over to Genentechand took the clones. My guess is that Genentech promised the same deal thatwe had, and in fact with our clones but through Genentech. That’s my guess.And I wouldn’t be a bit surprised if sub rosa that’s what happened. Whoknows?So anyway, we started this contract with [Lilly] and decided on the productionof [insulin in] yeast. They knew about using yeast, and we used yeast and gota nice production method going, and eventually Lilly developed it. They alsolearned recombinant DNA technology from us. So it was a very shrewdrelationship that was developed by Bruno Hansen and the other people.09-00:13:46Hughes: Was learning the technology from Chiron all right with you?09-00:13:52Rutter: Yeah. I didn’t at all mind that part of it which was arranged more by Ed than Ion the basis of good graces. I always have taken the view that in the corporateworld if you do something for somebody else, you get some value for it. It’spart of the equation. They weren’t giving us anything for free. And in the endthey really were very pecunious.09-00:14:36Hughes: In terms of royalties?09-00:14:39Rutter: Yes. They were arguing in this case that they could continue in the same waythey were, just with a chemical modification of insulin and they would havedone okay. Our [process] was less expensive, and they just wanted to pay usthe difference.09-00:15:08Hughes: I would think they would have been getting a bit nervous about Eli Lilly andits branching out into recombinant DNA.09-00:15:18Rutter: They were getting nervous. At that time there was biosynthetic, too. Youcould take pork insulin and change it to human insulin by just changing the Cterminus.7709-00:15:30Hughes: And did they have that technology?09-00:15:32Rutter: Yes. Many people had that.09-00:15:36Hughes: I’m wondering if Genentech didn’t divide up the world and let Eli Lilly havethis country.09-00:15:45Rutter: No.09-00:15:40Hughes: No?09-00:15:48Rutter: No. I assure that you that Eli Lilly was not dividing up the world withanybody and with neither of these companies. They were still battling.Whether there were sub rosa agreements because they didn’t have very muchsuccess, and it took a lot to get into the U.S. market. And Eli Lilly had it cold.09-00:16:12Hughes: And had had a monopoly forever. From 1912 or whatever it was.09-00:16:21Rutter: Yes, but it’s interesting. They had the market, but in the early days everybodycomplained about it because they were the only one in the market. Then EliLilly allowed other people in, and they even got a bigger market share, and nocomplaints. So it was just how they handled the public relations. It was basedon competition, why that was way good, way cool.09-00:16:55Hughes: I know in Genentech’s relationship with Lilly, there were benchmarks thatthey really had to race to meet in order to get the next allotment of cash. Wasthere a similar arrangement with Chiron and Nordisk?09-00:17:16Rutter: I don’t remember, to tell you the truth. But it all worked so rapidly that itwasn’t a big deal. We got all of our payments.09-00:17:30Hughes: You did, yes. How long did that relationship last?09-00:17:40Rutter: Well, until it became a commercial process. And after that we always hadvery good relationships with the people at Novo Nordisk. It terminatedroughly at the time that they were acquired by Novo.09-00:17:54Hughes: And so insulin was the only thing that you did with them?7809-00:17:58Rutter: Well, except we helped them on a couple of their other projects, but insulinwas the main thing.09-00:18:05Hughes: With the technology?09-00:18:07Rutter: Yes. I think we did work on Factor 8.09-00:18:14Hughes: Well, that’s what I was wondering. I think you did.09-00:18:22Rutter: I think as a matter of fact, we did do Factor 8 with them. In fact, now I’mcertain we did.09-00:18:32Hughes: What became of that project?09-00:18:38Rutter: Well, we were behind Genentech and Genetic Systems. Is that the right one,on the East Coast?09-00:19:00Hughes: No, Genetic Institute.09-00:19:00Rutter: Yes, GI, Genetic Institute. We ended up, as a matter of fact, behind them onthe papers. But the thing that we had done there was develop a factory minigene,which was more active than the natural one and was much more easilyincorporated into the production process. So it turned out to be quite a goodthing.09-00:19:39Hughes: Because the mini-gene was smaller?09-00:19:40Rutter: Uh-huh.09-00:19:41Hughes: Because the natural molecule is very large.09-00:19:45Rutter: It’s very large and complex. There are lots of different sections there,including these kringle-like structures which undoubtedly form nodules in onesort or another. So in the end nobody used it because there were patents and soon. Only later it developed that we had a very strong position because of themini-gene. As far as I know, nobody’s used it.09-00:20:25Hughes: I wonder why. Does it function biologically as well?7909-00:20:33Rutter: Oh, yes, it does.09-00:20:38Hughes: Because that was another Genentech coup, cloning, I believe, the entirenatural gene.09-00:20:53Rutter: Maybe it was a coup, but I always thought that GI was right in there withthem.09-00:21:00Hughes: No, I think Genentech in the end got there first.09-00:21:05Rutter: Maybe.09-00:21:06Hughes: Well, did that bring any revenue into Chiron or was it just a bust?09-00:21:19Rutter: Which? Factor 8?09-00:21:21Hughes: Factor 8.09-00:21:24Rutter: Only in the research agreement. I don’t think it ever brought any commercial[revenue]. Up until now, I still have hopes that some of the Factor 8 uses willuse the mini-gene.09-00:21:45Hughes: The next step then is Martin Marietta.09-00:21:54Rutter: Martin Marietta is a different kind of relationship. It was an investmentrelationship.09-00:22:00Hughes: And a consortium.09-00:22:05Rutter: Well, it was set-up an interesting consortium, but it was an investmentrelationship in which the consortium was a condition of the investment.09-00:22:15Hughes: And the consortium was Marietta’s idea?09-00:22:17Rutter: Yes. Martin Marietta at the time was interested in diversification since theyseemed to have a very narrow program--aerospace, aluminum, cement, anddye stuffs. [laughter]8009-00:22:50Hughes: Why do you laugh?09-00:22:46Rutter: Well, if there’s anything that’s broad, it’s something like that.09-00:22:54Hughes: Well, let’s call their program non-biological. [laughter]09-00:22:58Rutter: Well, anyway, they wanted a fifth leg on their stool of all things, so they chosewhat else but agriculture since it was so close [said with irony]. And then in astroke of genius, Ken Jarmelow, then director of research, decided that itwouldn’t be a bad idea to have a company like ours help them in the selectionprocess.09-00:23:38Hughes: Selection process of projects?09-00:23:39Rutter: Of the other companies in agriculture.09-00:23:42Hughes: But you were just a little baby company.09-00:23:45Rutter: Yet, but they were totally transformed by our vitality [said jokingly]. Andmaybe at the time it was justified since I think I’ve told you before we werejust about ready to run out of cash.09-00:24:07Hughes: So you did have a bit of energy behind you.[laughter]09-00:24:10Rutter: And our esteemed investors, Burr and Deleage, had assured us there would bemoney available if we carried out our activities. And we did, positively. Wewere already on the way to developing a vaccine, and we had a lot of otherprojects, so we thought we’d made progress in spades. During the year, Ivisited Craig Burr, who was a senior partner in Boston, and he told me thatthey were willing to invest but at a lower price. I said, “What do you mean?Look at all the stuff we’ve done.” “Yes, but the investment will still be at alower price.” Needless to say, it didn’t go well with me. So I was doing mydarndest to get money from some other source, not knowing anything aboutwhere to get money or whatever.I was in Washington, DC. I think I was at a study section meeting, and Edcalled me to tell me—maybe I was presenting at this meeting. Ed called me atany rate to tell me that Ken Jarmelow had called and wanted to talk to me.Martin Marietta headquarters were outside Baltimore but relatively easy to getthere from where we were. And we went over and I gave him the story. Ken81was really fascinated by it and immediately set up to make a bid to buy someChiron stock. We included two members on the board besides Ken. We hadCharles Leithauser, who was the CFO, who made a very acclaimedrefinancing of their company just at a time when there was going to be somebuy-out or some kind of transaction. He had to borrow a large sum of money,something like five billion dollars overnight. This was well talked about in thefinancial press. So he joined that board. Neither of them was a scientistscientist. But Ken Jarmelow was obviously an experienced, thoughtful, singleminded,supportive person. We really enjoyed him. And Charles Leithauser,aside from not paying the executives anything, namely Ed and I, was also avery good finance man. So we had a step up in the board activities for surewith them. They bought Chiron stock at four or five times what we could havesold it.09-00:28:49Hughes: They bought a lot of Chiron stock. Twenty-two point five-six percent ofcurrent equity, according to my notes.09-00:28:59Rutter: Yes. I think they ended up owning 15 percent or something like that of thecompany. I’m not sure. But it was a minor amount. But I remember it wasenough to completely change the history of the company in the sense that wehad some solid financing. We had non-directed venture funds from acorporate company, which was unbelievably good at that time. And the onlything we had to do as payment was to go around with Jarmelow and help lookat other companies, and we did look at other plant companies.09-00:30:08Hughes: I think there were three companies eventually selected for the consortium.09-00:30:18Rutter: Indeed, all of them. One of them was Native Plants.09-00:30:22Hughes: Right. And Molecular Genetics, Inc., was another one. Maybe there were onlytwo others. I don’t know.09-00:30:33Rutter: Molecular Genetics I think was this company in Minnesota.09-00:30:44Hughes: They were all plant companies.09-00:31:04Rutter: Yes, of course. They [Molecular Genetics] were working on the production ofbiomolecules in yeast and so on.09-00:31:13Hughes: Here’s a list.8209-00:31:17Rutter: Thanks for reminding me. [reading] Calgene, Plant Genetics, AdvancedGenetic Sciences, PhytoGen. This is what we sent them?09-00:31:40Hughes: My impression is that it was their list, and what they hoped you and Ed woulddo is winnow it down to the three or so companies that you thought were thebest fit. Do you think that’s the way it went?09-00:32:44Rutter: Well, I think you’re right. [tape break]09-00:32:48Hughes: This news release, I believe written by Chiron although it doesn’t say so, putsChiron as one of the participants in the consortium along with MolecularGenetics and Native Plants. [reading:] “We’re ecstatic about the possibilities,”says Dr. Franklin Pass, chief executive officer of Molecular Genetics. PeterMeldrum, chief executive officer of Native Plants, affirms, “It’s a verypowerful tool if used properly.” I suppose meaning recombinant DNA. So itsounds as though Chiron wasn’t just the instigator; it was actually supposed tobe part of the producing consortium. Do you think that’s accurate?09-00:34:11Rutter: Do I think what?09-00:34:12Hughes: Well, the way this release is worded it makes it sound, or my interpretation is,that Chiron was not just there to select companies; it was actually expected toparticipate, to collaborate with these other two companies. The consortiumincludes healthcare, which would have been Chiron. [reading:] “The purposeof the biotechnology consortium shall be to establish and develop majorbusinesses based on biotechnology products related to agriculture andhealthcare markets.” [extraneous material deleted] I’m trying to establish ifChiron was an active scientific partner in this consortium.09-00:35:42Rutter: Yes, active in the sense that we did participate in the selection of NativePlants. We went to board meetings. We looked at their program overall. Wegot familiar with Calgene; didn’t do a deal with Calgene nor MolecularGenetics. We became familiar with all of them except PhytoGen.09-00:36:19Hughes: A few years later, Chiron withdrew from the consortium. I think it was in1985. I can’t put my finger on the document right now. But was that justbecause you’d done what you were supposed to do for the consortium?09-00:37:05Rutter: Calgene moved toward products rapidly and, as you know, they eventuallyproduced a couple of products, vegetables, and were acquired by Monsanto.Plant Genetics and Advanced Genetic Sciences were different.8309-00:37:49Hughes: Do you remember why Chiron got out of the consortium? It didn’t last verylong. It lasted a few years, and then Chiron withdrew. Was there anyparticular reason for withdrawing or had you just done your bit?09-00:38:45Rutter: Well, we’d done our bit but, more than that, we just didn’t buy into thestrategy. The strategy had been for Martin Marietta to invest in several smallcompanies and then at the end to combine them into a major larger company.Just on the face of it, you add value to the company, and then you buy it at ahigher price after having added the value. So what’s the return on investment?What’s the strategy behind it? Just never made any sense. Besides that, allthese little companies were fierce little companies. They weren’t working inthe same area necessarily. Native Plants was really producing native plants. Infact, they had quite a repertoire of native plants.09-00:39:48Hughes: Using genetic technologies?09-00:39:50Rutter: No, not always. Selection. They would get them from different parts of theworld. Pete Meldrum, who is now head of Myriad Genetics, was the CEO ofNative Plants.09-00:40:04Hughes: He was one of the names that was mentioned.09-00:40:09Rutter: And John Bedbrook was in one of these other companies. The classical guyswere there in plant biotechnology. The fact was, very limited success.09-00:40:31Hughes: And that’s why Chiron got out?09-00:40:44Rutter: Yeah. It wasn’t our field, and we didn’t think we were contributing verymuch, and we didn’t buy into the business proposition. We had our own gameplan.09-00:40:49Hughes: Had Chiron ever conceived of working in the field of agriculture?09-00:40:58Rutter: Yeah. One time we considered a project for producing higher levels of alcoholin yeast because we were a yeast company, and we thought we knew themechanism for doing that. So we wondered if there were people who wantedus to try to work on that problem. Thank heavens we never found somebody.09-00:41:29Hughes: I may be wrong in this, and it may be something to do with Chiron’s age, thefact that it wasn’t amongst the very first companies to start using the genetic84technologies. Genentech and Amgen and maybe Genetics Institute, but I don’tknow much about Genetics Institute, had a very broad agenda in those earlydays. I think it was one of the problems you had with Amgen, that its agendawas too broad. Chiron, I believe, was never quite as widely spread out, even inyour earliest days.09-00:42:22Rutter: Fundamentally, that’s one of the differences I had from the rest of thesecompanies. They were too spread out.09-00:42:28Hughes: So that was a deliberate strategy.09-00:42:31Rutter: For sure it was deliberate.09-00:42:33Hughes: Did Chiron’s more focused program come somewhat from your frustrationwith Amgen?09-00:42:43Rutter: Well, a little bit came from that experience but a lot came from the fact thatwe just wanted to get our own projects done, and we didn’t recruit a lot ofmoney. We didn’t, for example, take a lot of money from venture funds. Wewere frugal with the resources we had. We were all pretty practical guys. Idon’t think any of us would have wanted to have a program so broad that wecouldn’t possibly accomplish it. We already had a program that was too broadfor us to do everything. But compared with everybody else, we looked like wewere totally focused.09-00:43:50Hughes: Who was on your earliest scientific advisory board.09-00:43:55Rutter: We didn’t have a scientific advisory board.09-00:43:58Hughes: Oh, well, maybe that was some of it.Rutter: We later got scientific advisors. But I was from the beginning not enamored ofscientific advisory boards because I had been on one at Amgen. And althoughI liked the guys, they fundamentally were not involved in the company. Itwasn’t those people who generated ideas necessarily; it was those people whogenerated ideas all over the map. I remember a great guy, Norman Davidson,and John Carbon—golly Moses, it was an idea a minute and just bubbling upall over, with a couple of dozen people in the company [to do the research].Just totally impractical.8509-00:45:09Hughes: Isn’t there an element here, too, of over-expectation for the technology?[Extraneous material deleted] The difficulties were not so apparent at first.09-00:46:36Rutter: Well, every company was looking for projects and sponsors of projects. Andthose sponsors of projects had their own little pet projects. Oil companies hadtheir projects, and they had money. The portfolio of projects was largelyrepresentative of the selling mechanism of the companies. And since it waskind of a novel thing [recombinant DNA technology] and pharma companiesweren’t jumping all over themselves to support programs in this area, why, alot of the work just went to other fields.09-00:47:30Hughes: I just said that Chiron wasn’t in the first wave of biotech startups, and I’mwondering what legal implications that had. Did you ever have problemsbecause patent barriers had been setup in certain fields which you might havegone into.09-00:48:10Rutter: If we weren’t in the first wave we were not very far behind it. So I hardlythink we were in the second wave. Some of the fundamental earliertechnology, which was grabbed by— There was a technology grab byGenentech.09-00:48:32Hughes: The Riggs-Itakura patents?09-00:48:37Rutter: The Riggs-Itakura and, yeah, the general cloning patents and so on and so onthat gave Genentech an edge that other folks didn’t have. Amgen had moremoney and they were [founded] earlier [than Chiron], but they were alsoencumbered by this huge program and were ineffectual in the early years.Biogen, yes, it started, and they had a nice program. GI was there, startedmore or less at the same time. They had gotten just enough ahead of us on acouple of projects. But we weren’t ruled out on any project that I knew of.09-00:49:36Hughes: So it wasn’t a problem early on.09-00:49:37Rutter: Well, it was a problem because any lead and any amount of money gaveresources. Those companies had more.Hughes: By the time Chiron was founded [1981], Tom Kiley, who wasn’t a Genentechemployee until 1980, but was involved in all Genentech’s early contracts—8609-00:50:26Rutter: Tom Kiley was, as I told you before, was the most effective patent attorney ofany company and was in many respects a major source of value forGenentech.09-00:50:46Hughes: Yes, definitely. Bill Green had to get up to speed quickly because the legalfield was already populated with Tom Kiley’s?09-00:51:09Rutter: Bill Green was not a patent attorney. He’s a corporate attorney.09-00:51:20Hughes: Who did you use?09-00:51:24Rutter: We used commercial. Tom Ciotti—Ciotti & Murashige.09-00:51:35Hughes: And how familiar were they with biotech?09-00:51:39Rutter: Well, they were early on and they worked with us. We worked with severalfirms, but we finally got a member of their group, [Robert P.] Blackburn,who’s just now left the company [Chiron] after these many years and is afabulous guy. But that was some years later.09-00:52:02Hughes: So what I’m trying to get at is, Chiron wasn’t hindered by an intellectualproperty attorney or patent attorney having to get up to speed in the intricaciesof biotech law?09-00:52:23Rutter: Oh, yes, for sure. I think everybody was hindered. All the firms, from Pennie& Edmonds, which was kind of acclaimed as one of the big players, they wereall trying to make waves, but there were no big roadblocks fundamentally.09-00:53:16Hughes: Can you talk a little about patent strategy in a very general sense? Forexample, Herb Boyer at Genentech said, “Our scientists have to be allowed topublish,” and Swanson said, “They can’t do that unless we apply for patentsfirst.” That’s where Kiley came in and wrote patent applications very quickly,and then they published. What was Chiron doing in that regard?09-00:53:56Rutter: We didn’t know exactly how they did it but that’s exactly how we did it. Wepublished. We’re among the most published companies for sure in thattimeframe. And in terms of citations we were among the top in the citationindex. We had a quick publication policy, as far as I know. The only thingthat’s happened is it’s slowed down now in both companies.8709-00:54:32Hughes: In later years?09-00:54:35Rutter: Yes.09-00:54:36Hughes: Just because the field was—?09-00:54:40Rutter: Well, depends on the attitude of the people in it. But in general peoplepublish. They don’t hold back papers for years, like was sometimes the casefor pharmaceutical companies. We had the view inside the company that notonly were people encouraged to publish, they had to publish if they weregoing to stay in our research organization.09-00:55:15Hughes: That was part?09-00:55:20Rutter: Absolutely. We were competitive in many different areas, and this was a hotarea for publishing. We expected to publish papers and have them acclaimedas well. It added value, and it added value in the marketplace at that time, too.So it was absolutely a strategy.09-00:55:49Hughes: Were manuscripts reviewed by the legal department before being sent off tothe publisher?09-00:55:58Rutter: I’m sure they were cursorily reviewed. I think I reviewed every one of themand probably so did Pablo and probably so did Ed. I don’t know. But certainlyI did.09-00:56:15Hughes: Looking for what?09-00:56:21Rutter: Like all the papers in my [UCSF] lab: I always managed to work on the lastdraft and probably the first one, too.09-00:56:33Hughes: Rewriting. [laughter]09-00:56:36Rutter: Frequently.09-00:56:37Hughes: I know something about that.09-00:56:41Rutter: I liked a clear writing style and non-ambiguous papers.8809-00:56:53Hughes: So was it that you were more concerned about than letting out secrets?09-00:57:03Rutter: As far as I can remember, I never sort of inked out a section because I thoughtwe didn’t want to talk about it. I wanted to put it out there, and I wanted to getit in patents. Probably we might have been naive about some of those things,but nevertheless that’s how we did it.09-00:57:26Hughes: That policy extended to presentations and meetings?09-00:57:33Rutter: Yeah. If anything, I erred on the side of telling people more than perhaps Ishould. I’ve always had the view that telling what’s going on doesn’t providea disadvantage. Quite frequently it’s an advantage. [phone ringing][End of Interview]89Interview 5: July 16, 2005[Tape 10, Side A]Hughes: We have talked about the earlier history of the diagnostic business, and nowwe’re continuing that theme.Rutter: You’ll recall the diagnostic strategy was that the same research that supportedprevention or vaccines and even therapeutics could be used to provide aproprietary approach to diagnostics and might provide a competitiveadvantage. Because our early targets were hepatitis B, for which a diagnosticbusiness was already established by Abbott, and HIV, for which there was anegregious need, and later HCV [hepatitis C virus], which was also atremendous and completely unknown need, we’d evolved a strategy for firstdeveloping a joint business in which we would provide the technology and thepartner would provide the marketing and general support. In the very earlydays we had looked for an appropriate partner. About the same time that wewere negotiating with Ciba-Geigy for vaccines, we were simultaneouslylooking for a partner in diagnostics. Because Ciba-Geigy had a diagnosticbusiness, which we felt could be dramatically helped by proprietary tests, theywere our favorite partner. But in actual fact they decided not to form apartnership with us.Hughes: Do you know why that was?Rutter: They had a fairly large diagnostic business, and we only had intellectualproperty, and we wanted a fifty-fifty deal or a rich deal. Bill Zadell, the CEO,nor any of the Ciba-Geigy folks, felt that the technology we brought meritedthat kind of a deal. They had bigger ambitions. So ultimately, after we lookedat a number of other possibilities, including by the way Sclavo which had aminor diagnostic business at the time, we discussed such an arrangement withAbbott. I was pretty confident that we might be able to make an acceptabledeal with them for I had been a consultant with them for about a decade.However, we were unsuccessful with them as well. Abbott was not willing tomake a partnership with us but was willing to license our products at, I think itwas, 3 percent royalty, a move which later Abbott lived to regret.We were more successful with J&J’s Ortho Diagnostic Systems. Weestablished a joint business in the diagnostic field. This was probably due tothe fact that J&J at that time were minor players in diagnostics but wanted tobecome more prominent in the business. Although our interest wasestablishing a full joint venture, they ended up proposing, and we accepted, ajoint business in which they were clearly responsible for marketing and sellingand therefore booked the top-line revenues into the company. We weretherefore a technology partner. We had no control over sales but had controlover the production of the diagnostic tests. We did share the profits fifty-fifty,90a situation which has always had its difficulties in the past because ourinterests were not always totally aligned.Hughes: Meaning what, for example?Rutter: Well, whenever one group controls the sales force, they in fact control theneed for the repertoire of whatever diagnostics are being developed. So youmay be a fifty-fifty partner, but you’re really not in control of the strategy andexecution of the business. J& J controlled marketing and pricing. We had apartnership executive group, but it was really the marketing group thatdetermined how the business went.Hughes: Meaning where the demand was?Rutter: It was not always reflective of the demand of the market or in our view thebest strategy for developing market share and profitability. It was sometimes amatter of how they decided to sell other J& J products as well. Of course atthat time we thought that J&J, a huge international company, was the perfectpartner for diagnostics. But the downsides to J&J is that they were so broad inthe industry—having more than 15 companies—and their marketing andselling programs outside the United States had diagnostics submerged withinthe whole J&J business. So the strategy in external countries was a corporateJ&J strategy; it wasn’t a diagnostic strategy. In the United States and Europe,the diagnostic business operated more or less independently. But in Japan, forexample, the business was Johnson & Johnson, and the head of Johnson &Johnson decided how much to spend on diagnostics and how to develop thediagnostics business in Japan. No doubt the compensation for the J&Jexecutive was linked to total J&J top-line and bottom-line revenues. So theincentives were not tied to the performance of the diagnostic business. Thatwas different from Abbott, who eventually became a market leader.Hughes: How can a small company, as most biotech companies of course then were,deal successfully with an international market?Rutter: Facing world markets for any small company is a challenge. Further, differentinternational companies have different approaches to international markets. Ifa small company is lucky enough to have a product which everybody wants,they can control their own destiny. In a complex business like the diagnosticbusiness, we eventually had a strong edge on one component of the business,an extremely profitable and important one, eventually having to do with themajor infectious diseases of the time. But when we negotiated this deal withJ&J, we didn’t have hepatitis C. It became a true joint venture when wediscovered hepatitis C and were able to develop a recombinant HIV from ourwork on HIV structure. The combination was truly powerful.So the Chiron/J&J business and the imperious Ron Gelbman of OrthoDiagnostics, the head of J& J’s diagnostic business, became progressively91more powerful in the field as we began to accumulate intellectual property. Asit turned out, the original deals with Ron Gelbman of Ortho and AbbottLaboratories, with whom we established a licensing agreement, were alwaystricky because there were several two-way agreements between J&J andAbbott that were included in the overall agreements that did not involveChiron and represented value to J&J and Abbott and came along as part of thedeal.Despite this, with the discovery of hepatitis C in 1989, the strength of ourprogram became obvious, and J&J became a major player inimmunodiagnostics. Prior to that, we recognized that just measuring theimmunological response to infectious agents was not the best way to measureeither infectivity or the status of the patient because there was a second-orderphenomenon associated with a previous infection experience. So we startedlooking at other methods for directly measuring infectious agents, usingnucleic acids.The immediate focus of the business was on blood banking where there wasan important need because of the period after infection and prior to the timeindividuals develop an immunological response, which in various diseases,like HIV, HCV, HPV [human papilloma virus], varies somewhere from theorder of a couple of weeks to two or three months. During that period of time,the infectious agent itself, the virus, replicates explosively and achieves veryhigh blood levels. So the individuals during this period are highly infectious,yet none of the immunological tests would work because this was the eclipseperiod before the immune response was generated. There was a possibility ofmeasuring a protein component of the infectious agent—developing anantigen test. Later on J&J and we, among others, developed an antigen test.But I believed that the development of the DNA tests was crucial, not just formeasuring the infectivity per se but also for developing any kind of drug ortreatment where measurement of the virus concentration was the key tocontrol. Believe it or not, in the late 1980s and nineties, the concept of viralload was foreign to clinical diagnosticians and medical people as a whole,who were the potential customers in the field. At that time the typical assaywas carried out by incubating the sample to be tested with the appropriatecells that fostered the growth of the infectious agent. After replication, theagent would grow and multiply within the cells and then could be detected bysome kind of cytopathology or some other indirect test of the virus itself.So the biological assay took frequently days to a week, so the time was alwayslong compared with the requirements for treatment. Furthermore, it couldnever be quantitative because there were variations in the growth rate and theconcentrations of the virus in the inoculum. Of course the viruses weredeveloping in the cells and accumulated in the medium where they couldreinfect the cells. So the measureable virus accumulated according to somekind of a logarithmic factor that was idiosyncratic to the sample. So thisinaccuracy or lack of quantitation that was inherent in this kind of assay92simply precluded an efficient development process for drugs relating to viruscontrol or epidemiology or anything else like that.Hughes: Now, was giving primacy to the viral load a Chiron strategy?Rutter: That was absolutely a Chiron strategy. The concept of viral load wasdeveloped in our group, the head person of which was Mickey Urdea. Iworked closely with Mickey on viral-load concepts. You cannot believe—Ican’t even believe today—how difficult the promulgation of that conceptturned out to be.Hughes: What was the opposition?Rutter: Well, the opposition reflected a loyalty to the status quo. People had beendoing the other for years, and they still use this older method in certain partsof the world. Of course, there were companies selling the old methods.Microbiologists were used to using them, and there were virtually no drugdevelopmenttests. The medical practice wasn’t oriented toward treatment.There were not too many treatments available. So fundamentally we wereentering an open field for both investigation and for diagnostics.Hughes: The idea of viral load becomes absolutely critical in AIDS medicine, both fordiagnosis and for therapy. Isn’t it one of the central tenets of AIDS medicinetoday?Rutter: Well, it’s the central tenet in management of any viral disease and is the baseof developing therapeutic agents but also of treating the patient with thosetherapeutic agents and also monitoring the status of the patient. So it took tenyears from the time the concept was initiated until it was adopted universally.But it literally took at least a decade. In fact, I think we analyzed it rathermore recently and concluded it took thirteen years.Hughes: When did Chiron promulgate the concept of viral load?Rutter: Well, it was in the late 1980s, close to 1990, that we started to develop that.And in developing this concept, it was correlated with attempts to develop atest which was inherently quantitative.Hughes: I don’t understand what drove you in that direction. Was it the need forquantification?Rutter: Yes, it was the realization of the need for quantitation of the viral load,anticipating that that would be important in the treatment of patients and alsoin the development of drugs to treat those patients. So we saw the lack ofquantification as the crucial roadblock in developing an approach to thecontrol of viral diseases and also bacterial diseases and any other kind of93infectious disease, for that matter. But primarily viral diseases were the targetswe focused on—HIV and hepatitis B and hepatitis C.At that time, of course, we did not have PCR [polymerase chain reaction],because, as you’ll recall, Cetus had already licensed PCR to Kodak and[Hoffmann-La] Roche. In the Chiron/Cetus transaction, Roche ended up withfull rights to PCR. But PCR wasn’t initially a good quantitative methodology.Later on, it turned out that it could be made to be quantitative. There are waysnow to develop a quantitative procedure, and it’s a competitive technologytoday and widely used. But at that time, it was difficult to make quantitativebecause the products themselves were substrates for the PCR reaction, and sothere was a geometric relationship between the concentration and the finalassay. So it was initially a better yes/no test than it was a quantitative test.Hughes: Were you, Chiron, looking at it as a possible technology to incorporate in—Rutter: We looked at everything at the time, and aside from the fact that we didn’town PCR, we didn’t think it was the optimal good test. So the issue was,could we develop a quantitative test which provided a more straightforwardresult. So under the leadership of Mickey Urdea, we initiated a program onamplification of the signal, rather than amplification of the target (PCR). Theuse of branched DNA structures became progressively more sensitive andelegant as time went on.Mickey started essentially with the concept that using the establishedprinciples of base pairing, one could construct a branched DNA structurecomprised of a portion of DNA that would bind to target and hence providethe specificity. [It] attached to other branches that were in turn attached tochemiluminescent signals, ultimately providing a kind of Christmas-treestructure such that there is great amplification of the chemoluminescent signalfrom a single binding site. Further, one could employ multiple binding sites,depending on the DNA structure to be measured, to further enhance the signaland enhance the sensitivity of the assay. This was a totally different approachfrom PCR, which was based on amplification of the target. In the end, it wastruly an elegant method in which tricks of hybridization were used, such thatsignal-to-noise was amplified in an exquisite way, and the practical sensitivityrivaled PCR.Hughes: In a quantifiable way?Rutter: In a quantifiable way, such that the signal was amplified and the noise wasessentially eliminated. So it certainly became the most elegant andquantitative way of measuring viral concentration.During all of these development years, we approached J&J because we neededfunds for development of the tests, and we were partners in the diagnosticbusiness. But J&J either refused outright or proposed such a weak financial94position with respect to the technology that it was unacceptable to us. So westruggled on using our own resources.Hughes: J&J didn’t really appreciate branched DNA?Rutter: They did not, at least not enough to help support the development.Hughes: And why?Rutter: They didn’t appreciate the strength of the concepts nor the strength of themethodology. I think they were more tuned to the problems associated withdevelopment of the viral load concept, the uptake by patients, and also,obviously, the troubles with developing a test like that.Hughes: Where did PCR enter their thinking?Rutter: Well, they were always willing to try to license PCR, but of course Rochedidn’t want to license it. They were looking at different methodologies and,typical of a company like that, had little sophistication in the field. As may betypical of partners in general, they underestimated our competence and will tosucceed in this area. Eventually they ended up with no position whatsoever.Hughes: But weren’t people looking at PCR as more powerful? Or perhaps thequestion is, when did people begin to look at PCR as the technology, eclipsingbranched DNA?Rutter: The PCR methodology began to be used against viral load only after weestablished the concepts, and then because of the sensitivity of the system atthat time, and because PCR was used in a semi-quantitative way everywherein the world, they began to move toward quantitation. They eventuallybecame quite powerful competitors. The branched DNA methodology cameinto its own only in the late nineties when its elegance began to show itself.Maybe I will elaborate this later when I discuss the acquisition of ourdiagnostic business by Bayer, because after Bayer bought the business,branched DNA became more broadly recognized and a favored method fortests of this sort for some period of time. The advantages, aside from the factof signal application, is it soon became as sensitive as PCR—well not soon,but over time it became sensitive, and one didn’t require isolation andpurification of the sample. So the tests were much simpler, and the wholeexperimental system for measurement was very straightforward. So todaybranched DNA’s a significant business. But it took fifteen years or more todevelop, with the concept being driven by our company first, with selling theconcept of viral load and our approach to it. Gradually it began to pick upsteam in certain sophisticated labs, and then the other tests began to have theirown approaches to quantitation, and today there are two or three differentmethodologies which can be used.95Eventually, the problems of this test began to be recognized. It took a lot ofquality-control effort and cost to qualify the various components of the assayand the resultant cost increases. Ultimately, that was the factor that caused itsdemise in the diagnostic-tolerated—[Tape 10, Side B]]Rutter: --quantitative measurement of viral load. The signal amplification methodreally enhanced the diagnostic business within Chiron and elsewhere. It wasbroadly recognized as a purely Chiron contribution, and therefore it was thebeginning of a serious commitment to the business. Not only was it then basedon a proprietary position on the reagents—HIV and HCV particularly—but ona technology which essentially was revolutionizing the field.Hughes: Was that somewhat a surprise? The way I’ve seen Chiron history is, it was avaccine company in origin and concept in those early days.Rutter: No.Hughes: Diagnostics was always a part of the business plan?Rutter: Absolutely, from the very beginning. And that was unique because of thosetwo components. There were other companies focused on immunodiagnostics,but they were not focused necessarily on proprietary diagnostics, especiallythe crucial ones associated with blood banking, the big-volume tests. Therewere others that were focused on, for example, cancer tests and so on, verymodest businesses that could never support the development of an instrumentand so on.Hughes: What about the concept that was adopted by Genentech, that diagnostics werea quicker way to the money than therapeutics, but that the real money in theend was in therapeutics?Rutter: Well, that was a concept that was endemic in the industry, and of course ifyou’re going for the real money, it was the natural way to go. But history hasshown that if you make a contribution to diagnostics and if you have aproprietary position in diagnostics, it can be very profitable indeed. I think theprofitability of the diagnostic business that we have demonstrates the point.Today it’s a billion-dollar business.Furthermore, the magnitude of the effect on public health may be even greaterthan the volume of the business. It’s of course accepted that usually themetrics which a company uses are usually developed by another company.But it’s also useful to have the diagnostics being developed in complement toa therapeutic program. Whether it was hepatitis B vaccine or whether it waswork on hepatitis C vaccine or whatever, the availability of the diagnostics in96the same system and developed contemporaneously was extremely useful.One must have the metrics anyway.Hughes: So that was a synergism that was delivered, or was it just coincidental?Rutter: No, it was absolutely developed as a part of the development part of theproject, as I tried to tell you. The same research that is required for both existsin the same place. So we weren’t a diagnostic company at the time, but wewere a company that developed diagnostics as one arm or way of creatingvalue in dealing with infectious disease. So we saw the concept of eitherinfectious disease or cancer or any one of the other major areas of interest forprevention and therapy to be an issue of developing a sophisticated metrics atthe same time it became a precursor to the development of the therapeutic. Wefelt that developing the most useful metrics to a problem really was arequirement for initiating a project. If we had the best metrics, we thought wehad a good chance of winning. There is no place in which it is more evidentthan in the development of preventive drugs or vaccines or therapeutics forinfectious disease. So then we had the development of a powerful nucleic acidtest, along with the immunological test.Hughes: Meaning probes.Rutter: Yes, of course. Then came the issue when we developed the nucleic acid test,what are we were going to do with the business of diagnostics. We could notourselves just on the basis of the branched DNA test consider developing anew sales force and another diagnostic business. It’s in that area where thereare complexities of the business in the sense of manufacturing anddistribution, that is, manufacturing instruments. We needed a partner, and J&Jwas not by this time a preferred partner. Even after we had developed the viralload tests, they were not convinced of the value and willing to put big moneybehind it. Furthermore, the relationships between us were not always, I wouldsay, conducive to forming a continuing partnership.When the Ciba-Geigy group proposed a partial acquisition in the middle1990s, the concept was at first not at all attractive to us. But on the other hand,they were extremely good partners in the vaccine business, and we alreadyhad a fifty-fifty deal with them. We trusted their integrity as people and as acompany, and they were very strategic-thinking. The director of biologicalresearch, Jakob Nüesch, who had started the program with Chiron, was a keyperson, but also the chairman, Alex Krauer, became convinced that ourapproach to vaccines could be useful in the development of products, and Ithink they felt we had been good partners. Our technological knowledge ingeneral and approach was sufficiently powerful that the partnership of Ciba-Geigy with us would contribute broadly to the development of Ciba-Geigy. Inaddition, Richard Williams, a key business person, played a very importantrole.97So we were intrigued in the end and felt that sooner or later we had to havepartners. It consolidated our focus and loyalties. So we attempted to propose adeal which would potentially allow us to develop as a major companyindependent of Ciba-Geigy but complementary to it. Anything we developedof value, they would have fifty percent of the value. Further, we hoped toestablish a situation so that we would be incented to build the value of Ciba,and would work with them to establish leadership in new fields. You’ll recallthat transaction included the purchase of Ciba’s half of the vaccine business,the purchase of their entire diagnostic business, which, as I recall, had sales ofmore than a half-a-billion dollars, and in addition about a billion dollars incash and loans, which would allow us to develop our own business in thesevarious areas.Hughes: This became Biocine?Rutter: No, Biocine was the designation for the vaccine portion, the fifty-fifty-dealthat we had with Ciba-Geigy on vaccines. We called them Biocines becausewe, particularly Ciba-Geigy, wanted to distinguish recombinant DNA-basedvaccine from the classical vaccines. Ciba-Geigy was not enamored of thetraditional approach to vaccines, but in our case it was based on the use ofrecombinant-DNA methods to produce biological mimics of the naturalinfectious agent. It was not based on the killed or attenuated vaccines whichintrinsically had the possibility to cause the disease, so it had its own intrinsicvalue. So that was the concept of Biocine. But then after the purchase, why,we had acquired and did continue with the use of the term Biocine because wehad traditional vaccines in the acquired vaccine companies of Sclavo and alsoBehringwerke. So it became Chiron Vaccines. That transaction established thecommercial credibility of Chiron.We had two major businesses: a large diagnostic business, which was focusedon the central lab and which could then develop and use the branched DNAtechnology. But [Ciba Diagnostics] had also an elegant, big machine, calledthe Centaur, that would be competitive with the other heavy-machineryplayers in the business. Unfortunately, the development of such an elegantmachine takes a long time. And they also had several instruments in the Pointof-Care segment, such as blood-gas instruments that needed to be at thebedside. The business had two major facilities and was located near Boston. Ithad about twenty-five hundred people and became an important aspect of ourbusiness.It became also a major responsibility because, in our opinion, CibaDiagnostics was not run as a profit-making business. This became obviousonce I was on the board of Ciba and could examine the financials. It was runas a “strategic” enterprise that was potentially profit-making but was run as aninvestment, not managed like one of their profit-making businesses. It wasn’trequired that it have the same profit margins as the other segments of theirbusiness, and it had been maintained that way for several years, so the cost98elements were simply incompatible with a profit-making business. Much goodtechnology, many good people, but it was simply not a profitable business.They recognized that if they could bring in a proprietary set of products thatthat would propel their business forward, ostensibly branched DNA and theproducts that went with it, perhaps that was the way to do that. Their businesswas focused on more than branched DNA. They had a big immunologicalbusiness, instruments for measurement of blood gases, and so on. They hadrealized, there had to be a major change in the management in the diagnosticbusiness as well.At about the same time, the economics of diagnostics changed. Prior to themiddle 1990s, doctors would typically provide a panel of tests for theirinstruments, and the panel of tests had their collective value, but each test wasnot specifically associated with the disease they were measuring. So duringthe analysis of cost of medical care that occurred in that timeframe, why, allthose panels were eliminated and reimbursement began focusing on singletests. This eliminated much of the profit of these very large, high-throughputmachines, and therefore the profitability of the whole industry sagged.Competition between the major companies, which were always big-ironcompanies, became strong, and we’d already licensed the hepatitis C tests toOrtho Diagnostics, so we couldn’t use that proprietary position selectively forCiba-Geigy instruments. Now, the DNA test was just gathering steam. Itwasn’t until several years later that this turned out to be so strong. So when amajor revenue generator, namely the vaccine for herpes, failed in clinicaltrials, the revenues which might have been able to support extensive furtherdevelopment of a broader general financial support for the diagnostic industry,why, the company then decided that a merger would be desirable. The wholeindustry needed to merge. It was clear that many of the diagnostic businesseswere going to fail. We had a technology-rich diagnostic business, but itscommercial base was not the largest in industry, several hundred milliondollars. Other companies wanted to consolidate to develop efficiencies.So we began looking for merger partners. It was my preference at the time todo a joint venture, as we had done before, but at that time of course Ciba-Geigy was on our board, and particularly the people from Ciba felt that it wasnot possible to do a true joint venture with one of the major companies. So webegan looking at various alternatives, and it came down to a joint venture witha smaller organization, but one which had a number of complementaryapproaches, like bioMerieux and Bayer. During the bidding, it becameapparent that Bayer was not going to give us a fifty-fifty deal. Because theirrevenues were higher; we would have ended up with a minority position. Andwe had problems really seeing what the value of the fifty-fifty deal withbioMerieux was. The [Chiron] board didn’t like a deal with a private companylargely owned by a single family.99At the same time, another strategy developed within Chiron, supportedheavily by Jack Schuler, who by the way was immensely valuable as aconsultant and board member during the entire period. You’ll recall that Jackwas the head of diagnostics and eventually president of Abbott Laboratories.He was a very smart, strategic, dynamic executive who was one of the mostshrewd executives in the industry. After having built the diagnostic businessto a leadership position in the industry and substantially improved theperformance of Abbott, Jack was fired by the CEO, Robert Schellhorn, whohad typically fired his presidents, apparently in order to maintain his positionand control of the business. Subsequent to firing Jack, the board of directorsfired Schellhorn and asked Jack to return. Jack refused. He was off on anindependent career.As soon as I found out that Jack was available, I immediately approached himabout being a consultant to Chiron. He became a major consultant and helpedus develop the diagnostic business and joined our board of directors. I can’timagine a better person to have on our side. His broad experience andbusiness sense complemented our own technical expertise and strategicinclinations. I learned an immense amount from Jack and am forever gratefulto him. He had a wonderful knowledge of the market and sensed its direction,and there is no better negotiator on the planet. So when it came time for thistransition at Chiron after the Ciba-Geigy transaction, we developedcollectively and with his strong support the notion that the major aspect ofvalue at Chiron was its intellectual property, not necessarily in owning all thetests and developing them.Hughes: Explain that, please.Rutter: Well, all the diagnostic companies wanted our intellectual property, and theyall had instruments. So one of the issues within Chiron Diagnostics was wehad a particular test system, and of course we benefited by the exclusive useof intellectual property. But what happened if we licensed it to everybody andthen let the field decide which instruments were best? Well, we would thengather royalties. The royalties, of course, were pure profit. It eliminated thenecessity of developing instruments, the cost of selling them, everything else.Hughes: Did that strategy come from Jack Schuler?Rutter: Well, it was certainly supported by Jack Schuler. I think it was developedcooperatively by Jack and me, but also with input from Ed Penhoet and Pablofor sure. I had earlier developed the concept of a separate business unit whichwas really based on intellectual property. Our royalties were a strongcomponent of the J&J business. And as we developed intellectual property ingeneral from both Chiron and from the acquisition of Cetus, intellectualproperty was a major product of our research program. So it was the profitmotive for research when we didn’t develop products ourselves. When onebegan to think of the magnitude of this going downstream, as long as we100could maintain the research, why, this became essentially the product ofresearch and a core aspect of value. So when we then analyzed the segmentsof the diagnostics business in the context of profit instead of revenues, itbecame obvious that the greatest profit was associated with licensing otherorganizations to use the intellectual property in their diagnostic business inexchange for the high royalties we could command.Now, the segment of the business that didn’t fit that principle or the placewhere that principle was modified was in blood banking, because there wereally could control the field. Our intellectual property essentially covered thefield. Hepatitis B, HIV, and HCV were the big tests in that field, and secondof all, there needed to be developed new test systems. Blood banking whereour branched DNA and our technology were arguably the strongest was whereour unique technology was focused, and it was a small enough business sothat we could run it ourselves without large infrastructure costs. So when wesold the diagnostics business to Bayer Diagnostics, we kept the IP to thediagnostic tests, which they licensed for their business. This was the mostprofitable segment and still remains so.Curiously, at that point, the bDNA methodology was sold to Bayer in itsentirety, and we had to develop another methodology. It turned out thatMickey [Urdea] had already decided, as we looked carefully at the variousalternatives, that an approach developed by GenProbe, which was also achemical approach, had some advantages over bDNA. It was a less costlysystem to develop. The bDNA methodology was in trouble because we hadnearly fifty reagents that we had to deal with in QA/QC [qualityassurance/quality control], so it was a horrendous problem to manufacture. Itonly became profitable when the business became large. So you needed alarge influx of capital in order to develop the volume that would support sucha complex test. The GenProbe system was much simpler in the sense that thecomponents were far fewer. It was also sensitive, and in the end, wedetermined it was more practical for the diagnostic business.Hughes: Was that part of your strategy behind selling the bDNA technology?Rutter: Well, it became a component of the strategy. Obviously, we wanted tomaximize the yield from the diagnostic business, and we got an excellentprice. We got one and a half billion dollars, and we kept both the intellectualproperty and the blood banking business which were the highly profitableparts. So fundamentally, we got an acceptable price, and we got more profit,and we kept the core high-value part of the business. The fact that we had analternative to bDNA to develop in this partnership with GenProbe was anelement in all this, for sure. So this then provided, since the late 1990s, thebasis for a very profitable blood-banking business, in which we’re thetechnological leader and, in fact, the business leader, too. This was a greatexample of good science and good business.101[Tape 11, Side A]]Rutter: As far as I can tell, we’ve never been able to somehow come to an agreementwith J&J on convergence of the two businesses. It would clearly be, at onelevel, an advantage to converge the two businesses into a single business, butwe disagreed with J&J on the value of their approach to a system forimmunological diagnostics. They developed their own instrument, and fromtime to time we’d had differences of opinion about the best way to evolve thatbusiness. Suffice it to say that Ron Gelbman left J&J—I think by invitation ofthe upper management of J&J—after the unsuccessful attempts to acquire orform a joint venture with Chiron. (J&J was a competitor of Ciba-Geigy in theacquisition of Chiron.) Because of our difficult relationship with them indiagnostics, we decided that Ciba was a much better partner. In addition, wegot a much better deal from Ciba, though we didn’t really carry our biddingwar between the parties. We committed ourselves to Ciba on both strategicand practical grounds. However, even after the Ciba deal, we maintained theseparate immune and DNA-based businesses with J&J, and luckily both havebeen highly profitable and a core aspect of value now. The immunodiagnosticbusiness makes a major contribution to blood banking, and the developmentof an automated nucleic acid test system with GenProbe makes it the mostefficient system for measuring nucleic acid tests in the blood bankingenvironment.Hughes: Are all these things today really the fundamental technologies of Chiron’sdiagnostic business? I guess what I’m really asking is, has Chiron Diagnosticsmoved on in any substantial way in the last decade or so?Rutter: Not technologically. The instrument system for measuring high volumes hasbeen developed progressively, in concert with GenProbe. So the state of theart now is measuring all three diagnostic tests in the same system, the triplextest. That makes everything easy. So the sophistication of measurement andthe ease of measurement of probe tests have increased dramatically with thedevelopment of those instruments, but fundamentally the technology is thesame.Hughes: Is it the most profitable of Chiron’s present businesses?Rutter: Well, yes, for sure it is, but it depends on how you allocate costs and attributeexpenses. The vaccine business has been growing. It takes a long time todevelop new vaccines. Our hepatitis B vaccine was out-licensed to Merck,which in turn cross-licensed the technology with SmithKline. Thosecompanies are the ones that have highly profitable businesses in hepatitis B.Then our own vaccine business built on Sclavo and very classical vaccines.Chiron has been attempting to develop modern vaccines for HIV, HCV, and anumber of other diseases. [Biocine Sclavo] did develop a recombinant vaccinefor pertussis, and are now in the process of developing one for other major102diseases, including hepatitis C and HIV. But it has taken a long time.Unfortunately, those projects have turned out to be very much more difficultthan hepatitis B.So the vaccine business has been a growing business and an increasinglyprofitable one. But of course the problems with the flu vaccine manufacturingin the last year or so have dramatically affected the profitability of the vaccinebusiness. [Dr. Rutter refers to contamination in one of the facilitiesmanufacturing Chiron’s flu vaccine.]When Sean Lance took over [Chiron] as the new CEO, he wasn’t convincedthat the vaccine business was or could be a profitable business, and so thevaccine business was in, let’s say, an ambivalent state for several years.Eventually they committed to the vaccine business and in fact boughtPowderJect. PowderJect would have been a significant source of profitprovided that they could have run it technically such that they could producethe volume that was required. But that turned out not to be the case.So I’d say that after I left and Ed left the vaccine business has gone from acore business to a questionable status in the Chiron repertoire. One doesn’tknow what is going to happen there, but it’s still a tremendously valuablebusiness. From a technological point of view, Chiron has contributed greatlyto the technology of developing vaccines and has very interesting vaccines indevelopment, including, I think, a very good approach to hepatitis C, althoughit takes a long time for them to go through the development process. For manyyears we were in the front rank of the HIV vaccine program and had anabsolutely novel approach to meningococcus and other bacterial vaccines.Hughes: Some of this return to vaccines as a core business was due to legislation andother initiatives in the wider society to make vaccines a less risky business?Rutter: Well, certainly that helped. That helped support the vaccine business ingeneral. But vaccine businesses, as you know, were developed from a publichealthorientation. Each country had its own approach, and therefore eachcountry had its own production facilities of the standard childhood vaccinesand other vaccines. As a result, each country had its own process forregulatory approval which made it complex to get approvals for vaccines—much more complex than for drugs. And therefore the testing procedurebecame truly complex, time-bounded, and is today one of the biggestchallenges to the industry.Hughes: Do you think that was Lance’s prime reason for wanting to back-burner thevaccine business?Rutter: No. Lance told me that he believed that even if there were development of anHIV vaccine, it wouldn’t be profitable. The reason for that was that it wouldbe necessary to provide the HIV vaccine to the rest of the world.103Hughes: That’s exactly what’s happening, isn’t it, that companies making vaccines areforced to give them at much-reduced prices to the developing world.Rutter: Yes. On the other hand, it’s also true that those various companies are makinga lot of money doing it. This is not a profit-loss situation. In fact, there hasbeen great support by the World Bank, by the various countries, for support ofthe worldwide vaccine program, and the vaccine initiatives worldwide have infact supported worldwide programs. SmithKline has become immenselyprofitable, producing fundamental vaccines for the rest of the world.Hughes: Even though they’re at a lower price.Rutter: Lower price, absolutely, but you can produce them at high volume. Thewonderful thing about vaccines is that they lend themselves to massproduction. So it’s absolutely wrong to conclude that the companies that sellto the rest of the world have become unprofitable. I think hepatitis B is anexample of a vaccine which is sold all over the world, and it’s also a veryprofitable vaccine. It’s a multimillion-dollar vaccine. You watch, whether it’sthe new papilloma vaccine which is going to be sold all over the world or ahepatitis C vaccine or a vaccine for diarrheal diseases, which are largely thirdworlddiseases, they’re all going to be very profitable. I totally disagree withthe concept that you won’t be able to make a profit.Hughes: Is Chiron working on all those diseases?Rutter: No. Chiron’s program on HIV has been attenuated because they want to getothers to support the development of it, and they do have support from theNIH, but it’s not a leading program.Hughes: What about hep C?Rutter: The hepatitis C vaccine is being developed by Chiron, as far as I know as aninternal program, despite long efforts, which were really due to the difficultyof manufacturing the components of the vaccine. I have heard that they haveultimately found a good way to manufacture it, but whether it will ultimatelybecome a vaccine is an issue. I think it does not have the support of upperChiron management, sad to say.Hughes: This is quite a shift, is it not, in the vaccine business? Not just at Chiron but inthe pharmaceutical industry in general, vaccines have had a problematichistory in terms of profitability, liability, and other issues that have madethem, in many cases, a less desirable business to get into.Rutter: Yes, there are complexities in the business. But I disagree with the conceptthat they are intrinsically unprofitable. I think that that’s a common view, andit is true if the vaccine business were simply focused on all vaccine companiesdoing the same thing, namely developing childhood vaccines. That is a highly104competitive field. There’s no intellectual property. It’s just an issue ofmanufacturing volume and cost. There is still room for two or three majorcompanies, all of whom are very profitable today in different areas: Merck,Aventis, now Santofi-Aventis, and GlaxoSmithKline. And hopefully nowNovartis.Hughes: Has the new perception of profitability in the vaccine business had arepercussion in the biotech industry?Rutter: The only way the perception has changed is because of the necessity ofcontrolling disease and the realization that many diseases need to be muchbetter controlled. So [there has been a] progressive understanding ofprevention as a core element in disease control, both in terms of cost and interms of the reality of outcomes. The application of the new technologiesbased on recombinant methods and the advances in immunologicalmethodologies, adjuvant development and so on, have all helped. There havebeen several new technology-oriented vaccine companies. Unfortunately,none has achieved spectacular success as yet. You have the elements of aknowledge-based industry, and with the opening of the entire world, thendiseases become a major issue for every place in the world. So it’s a naturaldriver. It was already obvious twenty-five years ago that it was going tohappen. It was only a question of when. And it was particularly evident afterthe fall of the Berlin Wall when it became obvious that we would eventuallyhave a world that had interrelated currencies, exchange of markets, exchangeof people, and so on.Hughes: Yes, the global economy.Rutter: We really then had a related social economy at the same time, in whichdisease is the centerpiece.Hughes: We should bring Mother Nature in here, too, I think. Some time ago, therewas the belief that infectious disease had been conquered, and then practicallyas soon as people began to mouth that concept, Mother Nature began to showher stuff, and we’ve had a series of outbreaks of infectious disease with globalimplications. I’m thinking of SARS [severe acute respiratory syndrome] andavian flu, etc., that underlined the need for continual development of vaccinesagainst new diseases as well as the old.Rutter: Well, absolutely, and as an historian, it might be interesting to focus on thechange of opinions, even among scientific leaders, especially in HIV disease,from the notion that you could handle it by drugs to the notion that youcouldn’t handle it by drugs. You had to deal with prevention by any methodpossible. And the same thing is true for every endemic disease. Drugs arerarely the total answer. They’re a partial answer. But also there’s atremendous development of new information about the complexity of thosediseases and how to measure them, the life cycles of infectious agents and so105on. So truly, what was a black box when we started in the vaccine business isnow showing some luminosity. It certainly isn’t as easy as it was as firstperceived, but there is real progress. In the end, there will be real controlbased on prevention and immunological strategies for treatment as well asprevention.So getting back to the point: the strength of Chiron and the seminal influencethat we had on both of these fields was due to the fact that we concentrated oninfectious disease as a fundamental problem of humanity which was going tobe controlled by new scientific developments and the evolution ofunderstanding on a social, political, and economic basis. So it was a big ideathat required real support, and one way or another we got it.Hughes: We talked about how the model for hepatitis B vaccine was optimisticallythought to be transferable—obviously with some adjustments. But you did notinitially believe there would be tremendous difficulty and long time periods indeveloping other vaccines?Rutter: Clearly there were two problems in the development of the vaccine industry,both of which I underestimated. The first of them had to do with the technicalissues of mimicry. Hepatitis B was a piece of cake because it was a singlemolecule and self-organized into a structure that was already observable in theserum of patients with the disease. In other instances, the structures weremuch more complex, and the idea of subunit vaccines, which was thoughtplausible by many, just didn’t work out. Both the structures and the ability ofinfectious agents to elude the immune system were not fully comprehended.Hughes: Like herpes.Rutter: Well, herpes is certainly a case in point and is different from HCV. It is amuch more complicated virus, and it resides inside neurons so it is difficult tobe controlled by antibodies. One needs T-cell responses, and you need toprovide a structure which contains an epitope which is required for function.In order to achieve immunity, antibodies must be directed to this or severalepitopes which in the aggregate provide immunological control without thepossibility of escape by mutation, and they must persist indefinitely. Findingthe key elements required for control has been difficult. So it becomes amultiple problem, the biological mimicry part. And the notion of subunitsdoing the job, which was the initial strategy that we and others participated in,the basis of our herpes trial, was that a stronger immune response againstsome key antigens of the virus elicited by adjuvants would do the job.Unfortunately, in this case the system provoked an enhanced disease in somepatients! Some of the antibodies promoted the infection. Clearly, a higherlevel of complexity and more sophisticated understanding and analysis isneeded in such diseases. There are times when a problem is ripe for a solution,and that time was not ripe for HIV or for herpes. Today, the situation isdifferent.106Hughes: Meaning the candidate vaccine didn’t work.Rutter: Didn’t work. Subunit vaccines don’t work. You have to have the threedimensionalorientation of a substantial structure that contains key epitopes.Secondly, there is an additional complexity. That is, in certain instances,antibodies can exacerbate the disease as well as prevent it.Hughes: Which was completely unknown in the early eighties?Rutter: It was largely, if not completely, unknown, and is only now becomingunderstood.Hughes: Did that finding come out in vaccinology?Rutter: Yes, it came out in the herpes trial. Our methodology, using the adjuvants andthe components, developed a hundred times higher antibodies than theprevious trial, which had been carried out by Merck. So in simple systems, itseemed very promising. It was going to work. But it turned out that there werecertain subsets in which the vaccine might have enhanced the infection insteadof inhibiting it. So these cases just raised the issue of how do you tailor thevaccine so you get around that?Hughes: Subsets of people?Rutter: Subsets of people, mostly women. So fundamentally it raised anotherproblem, which had to be dealt with in certain instances and required a newtechnical approach.Hughes: Which Chiron began to work on, or did you drop the herpes vaccine at thatpoint?Rutter: We dropped it, despite the fact that a number of our academic colleagues feltthat there was an approach to the vaccine which might have worked. But atthat time the risk seemed too great, and we had other target diseases, like HIVand HCV, to target. Herpes is a peculiarly difficult infection to containbecause the infectious agent persists in nerve cells, and so you have to protectthe individual before it becomes sequestered from the immune system. Alsoone must kill the infected cells by T-cell-mediated responses. We realized thatit was a difficult problem at the start, but it was a choice made collectivelywith Ciba-Geigy. The head of Ciba-Geigy’s research program, Max Wilhelm,was convinced that we should go for herpes, and we agreed to go forward. Avery bad decision on our collective part.Hughes: Was Chiron able to absorb the people that were working on the herpesproject?107Rutter: Yes, for years, as long as there were other vaccine programs. And, for sure,we had to stop and rethink, and some of the people from those programs left.But the vaccine business itself was going strong, and many of the people thatwere involved in those programs are still at Chiron.Hughes: When you count the time Chiron has spent on trying to develop AIDS andhepatitis C vaccines, it’s taken a lot of money and persistence, hasn’t it?Rutter: Well, it does take money and persistence, and dedication, and if you arededicated to a resolution of the problem over some period of time, one can getthere. The beautiful thing about vaccines is when they work, they are usefulfor a long time, decades in fact. I think that part of the problem of the vaccinebusiness has been that progress has been science-restricted. That is, there wereknowledge gaps about the infectious agents and their interaction with theimmune system. But there is also a huge external problem. It’s the regulatoryproblem worldwide. The complexity of regulatory approvals throughout theworld has been daunting. It helps now that we have the EU [European Union]countries. Gradually they will coalesce to have a single regulatory system.Hughes: Is there a move in that direction?Rutter: Yes, there is. And then a worldwide strategy for approvals. I’ll give you anexample of what I consider just over-the-top regulatory control. Whenmeningococcus C vaccine was developed, Chiron carried out a trial in Britainand also in Canada. The vaccine was given to five or ten million people, andthe consequences of the vaccine were known. That is, it was highlyefficacious, and there were very few side effects. Still, the FDA requiredanother trial for safety.Hughes: At Chiron expense.Rutter: Of course, at Chiron’s expense.Hughes: And what was their argument?Rutter: We hadn’t tried it on a U.S. population. The approval in England had gonerapidly, and we had all that data, but it wasn’t done according to a regularregulatory strategy. So it’s this mixed, bureaucratic application of regulatoryprinciples. The cost of human lives and loss of productivity is staggeringcompared to risks.Without a given target of protection and a way to measure effectiveness andtherefore project approvals, companies are going to have a hard time investingbecause they don’t know the barrier over which they must jump. In drugs, youjust have to surpass by a statistical margin over the last best treatment. Invaccines, some people, including outstanding scientists, believe you have toget close to 100 percent protection in order to have a product, and that’s108particularly the case with HIV. The two concepts don’t make too much sense,not only from the standpoint of the regulatory process and developmentprocess, but from the standpoint of the people suffering from disease.Regulatory agencies demand a high level of protection, but at the same time,many people are dying. Nowadays, it’s frequently impossible to test in theUnited States because in an area where the population has received anothervaccine you have to go to some other population.Hughes: Does government regulation threaten to dampen one advantage of the biotechindustry, namely, its innovative power?Rutter: Well, for sure, the regulatory risks are there, but there are still smallcompanies devoted to vaccines now, and the large companies who are in thebusiness don’t necessarily have to be slow-moving and uncreative. Merck hasformed a partnership with a small company, CSL, who developed thepapilloma vaccine. The same thing is happening with SmithKline for anotherpapilloma vaccine. I would say there’s no good reason why Merck or Sanofi-Aventis or SmithKline aren’t inventive in this field. In fact, they have soughtfrequently, through in-licensing and so on, to develop their vaccine program.Arguably, the hepatitis B program at SmithKline saved the company. So Idon’t necessarily see biotech and pharmaceutical companies as being naturallysegmented into creative and noncreative. Biotech companies, by their verynature, have to have something special or they don’t get any funding and willfail.[interruption]Hughes: You said that hepatitis B was a major basis of Chiron’s IPO [initial publicoffering] in 1983. It was a short time from initial company formation to anIPO, was it not?Rutter: It was a very short time, for sure. This was due to the fact that the marketbecame strong and opened up dramatically, making it possible for youngcompanies to enter the market. Besides the possible early development of thevaccine for hepatitis B with Merck, we had a number of other programs—thediagnostic programs and other programs associated with things like cytokinesand growth factors that were innovative and generated revenue.Hughes: And interferon, which was so hot at that time?Rutter: No, we were not involved in working on it at the discovery level. We only gotinvolved after we acquired Cetus in 1989. Interferon was for a time thought tobe the ultimate solution, a flash of insight and a silver bullet, so to speak.Unfortunately, it didn’t turn out to be so.109Hughes: Maybe it never came to be, but an annual report said Chiron had a contract onthe interferons. I was interested because the interferons were so hyped ascancer cures for a period in the late 1970s-early ‘80s.Rutter: We didn’t have a specific discovery program on interferon. On growth factorsand on insulin, yes. We had a program with [Novo] Nordisk. So we had anumber of projects, and that was related to the portfolio we presented for theIPO. But with the development of the hepatitis vaccine and a straightforwardstrategy for the production of particles in yeast, we saw the opportunity tomove to other vaccines and of course hepatitis C. There was a discoveryprogram where we saw invention as being a strong component of ourrepertoire.When we formed a true joint venture with Ciba, then the core issue for thejoint venture was how to develop a business and what vaccines to focus on.Ciba-Geigy had made the decision earlier not to get into classical vaccines,which were, as they saw it, low profitability, standard, generic vaccines. Butthey took another position, as I mentioned, with respect to these new vaccines.At that time, we called them biocines and formed the Biocine Company, underthe impetus, as I said, of Jack Nüesch. The choice of what vaccines todevelop, how to develop the business, was an area of common interest, andthere was a lot of interaction, in fact quite wonderful interaction, between thecompanies.Due to the insight and recognition of an opportunity by a key businessdevelopment person named Richard Williams within Ciba-Geigy, it wasgradually accepted that regardless of our focus on new high-technologyvaccines, the vaccine business itself had its own business case. So while wewere waiting for the new vaccines to develop, we ought to get into thebusiness, and there was no time like the present. At that time, as well, theclassical vaccine businesses were languishing, businesses which had followedfrom the work at the beginning of the twentieth century by [Emil von]Behring, by [Achilles] Sclavo, by [Shibasaburo] Kitasato.Hughes: And Louis Pasteur.Rutter: Well, these were protégé’s of Pasteur, except that Pasteur didn’t really leadthe early work of protection, which was done by those three folks. Thedevelopment of the diphtheria vaccine was the vaccine which got the NobelPrize for Emil von Behring. The work a hundred years ago of Behring andKitasato, and also Sclavo, on the development of antibodies in horses, andthen the development of external strategies for vaccines had, as I mentioned,the net consequence that most countries of any size, in fact virtually anycountry of size, had developed their own little vaccine business as a strategicdefense against weapons, but also in the context of a world that could befragmented at any one moment. Then the absence of a vaccine supply wouldput the whole population at risk.110Richard Williams recognized this fact and, in discussions with me, began toconsider various alternative approaches to building a business. Among themwas Sclavo, which had been a family business and then acquired by the[Italian] government, made part of a big conglomerate called ENI, then by thebank, Monte dei Paschi in Siena, and finally was owned by an Italianentrepreneur named Marcucci, who owned a number of properties including atelevision channel. That was one potential business. The other potentialbusiness was a Canadian company, Connaught Laboratories, owned by theCanadian government, that had been formed initially at the time of thediscovery of insulin. It was a conglomerate like many of these othercompanies that did vaccines. It also produced biologicals like insulin and alsodiagnostics, separate from the chemical business. Connaught had those twobusinesses. After discussion and after we formed the joint venture, Cibaagreed to support the acquisition of one of these companies. Our first targetwas Connaught, which was up for sale. It turned out to be a very competitivesituation. We worked on the acquisition for the best part of a year. A fewtimes a month, over the weekends, I would go to Toronto. Richard Williamswould also come from Basel. We would be talking with the people atConnaught and discussing with the Canadian government about our role andwhat we would do with the business. As it turned out, there were severalbidders, but the key bidders were Merieux and Ciba and ourselves. There wasan intense bidding process that resulted, and the control of the bidding for ourside was the head of the pharmaceutical division. However, it was mostlydelegated to Richard Williams and me. The financial deal we had was thatCiba would put up most of the money, in fact, ninety-five percent of it, and wewould put up five percent of the money. We would end up fifty-fifty by acomplex process which would involve paying back over time to finallyachieve fifty-fifty. So it was a great deal for us, and there was an incentive toget the deal done.As I said, the bidding was intense and involved dealing with the complexity ofCanadian government, especially the French side. I spent many days inOttawa and also in French Canada, particularly with one of the major funds inFrench Canada, the Caisse de depot, that had a significant bloc of shares. Inthe end, the bidding proceeded. When the value reached something like 700million Canadian dollars, then Merieux raised it a couple hundred to a billion,and we agonized over whether to increase the bid. I thought long and hard; itwas enticing, but ultimately I didn’t [raise the bid]. Too many suppositionsand assumptions. I finally was against it, and we dropped the bid.Hughes: You thought it was overvalued?Rutter: We thought it was overvalued.Hughes: You, William Rutter.Rutter: Yes.111Hughes: That was the basis of your opposition.Rutter: That’s right. I think because it was a “strategic bid”—in quotes. RichardWilliams, in particular, would have bid further.Hughes: For control of the market, you mean?Rutter: Yes, because of the advantage of getting to the market.Hughes: Why wouldn’t that have been as important to you, too?Rutter: Well, because there was no advanced technology. They didn’t have a uniqueposition in the market, although it turned out to be quite a good position. ButJohn Orsinger, the head of pharma, got into the bidding in the last stages. Hewas a key player, and he rightfully was conservative and a tremendous, clearthinking,analytical person. I got to appreciate him.Hughes: Who ended up buying Connaught?Rutter: Then bioMerieux bought it, but it was such a heavy financial burden and theymade so many commitments that they lost control of the company. Theyeventually elected to sell the entire vaccine business to Rhone Poulenc, nowSanofi, to the great distress of Charles Merieux, the scion of the Merieuxfamily, and to Alain Merieux, his son, who now heads bioMerieux.After that failure, we were still on the hunt and continued to look at variousalternatives, and one of them was Sclavo. Incidentally, Merieux was alsointerested in Sclavo. As we know today, Alain Merieux himself worked atSclavo. He loved Siena. He would have immediately chosen it. But I think thehead of the business, Jean François Martin, who eventually was the head ofour vaccine business, was working for them at the time. Martin’s decision togo ahead and make the final bid resulted, I think, [in being separated fromMerieux? (garbled)]. Ultimately, we offered him a job, which he accepted.But back to Sclavo. Then we began negotiating acquisition of Sclavo, whichwas one of these complex biological businesses made up of a diagnosticbusiness, a blood-product business, and a vaccine business, all operating fromthe same general site in Siena—gorgeous site, a beautiful place, for sure, and ahistoric business. Unfortunately, however, none of the businesses wereprofitable. The negotiation began first with the CEO of Sclavo and getting tolearn more of the business, and secondly dealing with the owner at that time.Marcucci had acquired it from Montedison. At one time, by the way, Dupontowned 50 percent of it, and Gregory Lawless, the person who eventually wasthe president of Chiron, ran that business for Dupont. The negotiation withMarcucci was helped greatly by Sergio, Ciba’s executive head in Italy. Sergioknew the Italian way and established a good relationship with Marcucci.112Hughes: What is the Italian way?Rutter: Well, I’ll give you an example. We began to negotiate with Marcucci at one ofhis resorts, called Il Ciocco, which was a mountainous resort that could bereached conveniently only by helicopter. As I recall, we began negotiating atthree o’clock in the morning after being liberally plied with vodka or someother loosening agent. It was a very, very complex negotiation. And here’swhere Ciba-Geigy was absolutely essential because they had a division inItaly. They knew how to handle Italian finances. They knew, in particular, theproblem of dealing with taxes. Eventually, we bought the business for about120 million, including those wonderful buildings, plus some new buildings inRosea [Italy]. We were able to extricate the vaccine business from thediagnostic and the drug products businesses.Hughes: So you bought only the vaccine business?Rutter: Yes.Hughes: Beautiful buildings because they were old?Rutter: Well, centrally located, and they were old. There was one new building oncampus. There was a possible new development/manufacturing plant atanother location, Rosea, outside the city. But it was very close to the walledcity of Siena. It’s still a historical place. But like many of the other diagnosticorganizations, the employees were very focused on their programs anddefensive against any of the other competitors, particularly againstBehringwerke, the German company with a similar business. They had asmall fraction of the market, even in Italy. Later it became clear that theirmanufacturing didn’t meet international standards, so all of the processes hadto be changed, in fact, several times. But we became committed to thebusiness and recruited a previous Ciba person, Mario Lorenzoni, as the CEO.We also involved Dino Dina, from Chiron, who eventually took over thevaccine business.Hughes: Dino Dina was already at Chiron?Rutter: He was at Chiron and eventually became vaccine head.Hughes: But unconnected with Sclavo?Rutter: Yes. He was made head after that. He didn’t participate in the negotiationswith Sclavo.Later, Behringwerke, the classic German vaccine business, became available.It was a division of Hoechst and previously had been part of Krupp Industries,the enormous German enterprise that was known for its steel making and wasdissembled after World War II. After the war Krupp was split and formed113Hoechst, Bayer, and BASF. Behringwerke finally ended up with Hoechst. Butas a biological entity, it really was quite isolated from the key chemicalstrategies in the pharma business and was really an anomaly. So they wereprepared to sell it, provided that the employees were treated well, provided itwould be part of an ongoing concern. When it became available, it was alsoobviously a complement to what we had. At that time, Behringer had a largermarket position compared to Sclavo in the major countries in Europe, andwith rationalization of the vaccines, why, they formed a good commercialbusiness. This happened, actually, after the Ciba deal, so Ciba was notinvolved directly in the acquisition of Behringwerke. We did this byourselves. It was a very good negotiation, with Uwe Biker. Mary Tanner, anexcellent investment banker of Lehmann Brothers, represented Hoechst. Maryis the wife of Fred Frank, who was responsible for putting the Chiron/Cetusdeal together. Subsequently Mary, Fred, and I have become great friends andnearly formed an investment/management group together.[Tape 11, Side B]Rutter: We were ultimately able to obtain Behringwerke, despite the fact that we didnot make the highest bid. The decision was based upon the belief that thefuture of the company would be better in our hands. We developed a plan fordealing with the employees collaboratively with Behringwerke. Indeed, webecame quite committed to Behringwerke, and they became a key componentof the vaccine business. It was a fascinating institution. It had the originaloffices of Emil von Behring and all the accoutrements of his Nobel Prize—asource of great pride and also a symbol of challenge.Hughes: You mean no layoffs?Rutter: Only moderate layoffs.Hughes: That was the agreement?Rutter: That was the key important part of it. We had established a strategy fordealing with layoffs, but one that would keep Behringwerke in Germany, thatis, we wouldn’t consolidate into the Sclavo site. And also it was because theyfelt that our novel vaccines could be developed over a period of time, andtherefore they would be a sustainable business in Germany. That might nothave happened with the other major businesses where consolidation intoheadquarters would have been the usual strategy.Uwe Biker, the Hoechst representative, was a very good strategic thinker andcontributed, I would say, very significantly to the concept. But that biologicalbusiness in Behringwerke, which was about $2 billion at the time, needed tobe fragmented into diagnostic business and, separately, the vaccine business.Eventually Dino Dina was appointed to head the vaccine business. The114remainder of the Behringwerke business was reduced to a residual businesswhich involved biological products.When we had the problem of integration of these ongoing businesses with theU.S. business, which had yet to produce a vaccine on its own, we put all thetechnology behind it. Then each of the processes, whether in Behringwerke orin Sclavo, had to be redone because they didn’t meet international standards.We had a problem also in managing the German organization and the Italianorganization, because each was parochial, with its own culture, and wanted todefend its territories. The two, although superficially friendly, werefundamentally competitive with each other. We chose Dino Dina to head thatgroup. Eventually the whole business was run by Dino, with Lorenzoni beingin charge of the Italian enterprise, with representatives from Behringwerke.Hughes: How well did that work?Rutter: Well, coordination was a problem, for sure, and trying to deal with theproblems of approved vaccines. Each of the companies had competitiveproducts—flu vaccine, for example, and different versions of the childhoodvaccines. But as was the case, once one gets regulatory approval, the approvalis usually grandfathered into the future and has continuing proponents. Sousually one continues to maintain these different lines that deal with the sameinfectious agent. We had two or three different products in flu. We had twoproducts in rabies and different childhood vaccines. So organizing the twoprograms and fitting them into a commercial organization was definitely aproblem. However, the Behring group is one of the best-known companies inGermany, and Sclavo maybe only slightly less so in Italy.Both of these companies then provided a very strong base in Europe andfundamentally needed advanced-technology vaccines. The research programs,of course, focused on our technology and our own programs, complementedby the research, largely in Italy, focused on pertussis, a very commonpertussis vaccine that was developed by Rino Rappuoli. However, there wereintellectual property problems, and pertussis really didn’t see the light of dayas soon as we had planned. It is quite common that a vaccine doesn’t see thelight of day. Over a period of time, the production problems were solved, thecompany became modestly profitable, and they represented a good base forselling in Europe and other parts of the world, even in two separate locations.Then, as I said, herpes, which was the first new vaccine after hepatitis B,didn’t work out. A big deal, and people began to lose confidence in thevaccine business.At a certain time, there was discord between Dino and Mario Lorenzoni, andDino became, let’s say, unhappy in his relationship with Lorenzoni.Hughes: Was it a scientific disagreement or was it a personality problem?115Rutter: It was a personality problem and a business problem, an organizationalproblem. It was, in part, based on the great distance between the two. TheSclavo organization was larger and was much further developed operationallythan Chiron itself. For example, it manufactured several vaccines. So afractious relationship resulted, and it was a significant management issue.Eventually the two became incompatible. In a confrontation, Dino tenderedhis resignation in protest and under unfriendly circumstances. I accepted hisresignation. Subsequently, Dino formed a vaccine company called Dynavaxthat has developed a more potent hepatitis B vaccine.Hughes: What impact did that change at the top have on Chiron’s vaccine business?Rutter: Well, then Mario Lorenzoni took over in the business, and subsequently, afterMario, after the Ciba deal, Martin from bioMerieux was appointed after Dino.He was an acknowledged leader in vaccines. Martin lived in France, and wehad a business in Italy and Germany, so that partially worked. Our programsgrew, but did not transform the industry, as we had hoped. I think I’ve toldyou the rest, the story of the failure of the herpes and the long struggle todevelop HIV and hepatitis C vaccines. Although the vaccine businessachieved significant magnitude, the strength of the programs was always inhigh technology approaches, especially the development of good adjuvants.The first adjuvants that were used, advanced adjuvants, came through ourprograms.Hughes: Are the adjuvants different in the case of AIDS and hepatitis C?Rutter: Well, they’re different vaccines. We had a major adjuvant program whichformed the basis of a potential increased level of production of antibodiesfrom any vaccine, including mucosal vaccines and systemic vaccines. Thatprogram, especially in the last ten years, has been a difficult one for Chironvaccines because we had to consolidate everything to meet internationalstandards. This required extensive reformulation and regulatory approvals. Wefinally did it, but it is not a profitable business. They are still waiting on thedevelopment of the HIV vaccine and hepatitis C vaccine.Under Rino Rappuoli’s leadership, there has been a major development of avaccine to cover all types of meningococcus, which has just been recentlybeen approved. Indeed, the whole meningococcus vaccine program wasdeveloped by Rino Rappuoli and his group in Siena. Rino eventually becamehead of the vaccine program and was elected as a foreign member of the U.S.National Academy of Sciences. The program was attenuated by Sean Lanceafter we left and only partially recovered in the Novartis organization.Hughes: Have the recent problems with the flu vaccine leaked over into the business asa whole, so that Chiron’s reputation as a vaccine business is tarnished in allareas?116Rutter: I can’t answer that because I’ve not been there, and I haven’t seen the reactionof the market. But certainly from a distance, it’s clear that Chiron’s reputationfor vaccine manufacturing, and especially for flu, has fallen. Now this secondproblem in Germany just exacerbates that problem.Hughes: Is that just coincidence that there were two separate contamination problems?Rutter: The contamination problem is in flu, in general.Hughes: Why particularly flu?Rutter: That’s because the current flu vaccines are made with eggs, and one has theproblem of millions of eggs coming in to be incubated. This requiresfastidious quality control since the incubation of the virus is in the eggs. It’san open environment so you’re going to get some contamination. It’s alwaysbeen known as a problem, especially when you do large numbers of eggs.Chiron obviously strained the process.Hughes: By trying to make so many doses?Rutter: By increasing production and speed of the production of the components ofthe vaccine. But the issue, of course, is whether Chiron is going to focus onvaccines or not. I think that is a central strategic matter, which is related to thefocus on biopharmaceuticals, which was a result of the acquisition of Ciba.But that’s another story. Okay. I’ve got to go.Hughes: Thank you.[End of interview]117Interview 6: July 30, 2005[Tape 12, Side A]Hughes: I’d like to hear today about the division of labor between you and Ed Penhoet,in terms of who did what on a daily basis at Chiron.Rutter: Well, generally, Ed and I and Pablo Valenzuela discussed all significantissues, and we ran the organization as much as possible by consensus. But Iwas the ultimate decision maker if there was a real difference of opinion. Edand I focused more on management of the company and business and strategicmatters, and Pablo and I focused on research, which was, of course, a majoractivity of the company. But really there was a great deal of operational andstrategic discussion between us as well as multiple two-way discussions. I wasmore science-oriented at this time than Ed, so Pablo and I worked closelytogether on strategy and execution of R&D. I was interested in the details ofthe science, and Pablo and I talked frequently, several times a week. At leastonce a week we had a scheduled R&D meeting in which each of the projectswas discussed in detail, that is, what happened during the week at theexperimental level. Most of the time it was an all-hands meeting. Ed alsoparticipated actively. It was important that he integrate the strategy andresearch progress of the various projects in the context of providing a coherentpicture to outside investors and other interested parties.Now, with respect to Ed and I and managing the overall enterprise, we workedtogether as a team. But there was really a practical segregation ofresponsibilities. Ed, as the CEO, faced the outside community and dealt withoverall communication with investors. Since we had become a publicorganization so soon after we had started operations as a company—I think inless than two years—this became a predominant activity, and it also reflectedhis unusual talents. Ed is a superb communicator and enjoys that aspect of thejob. I think he is the most talented individual in the industry in explaining boththe state of the science, the biotechnology industry, and Chiron. Hispresentations reflected well on Chiron. He maintained an excellentrelationship with analysts. He always had a good sensibility in presenting thecompany and articulating the key issues. He provided a balanced view, notoverselling and certainly not underselling our strategy and performance. Edhas excellent taste and is a wise person. He is never arrogant and never seemsto “lecture.” He always shines the light on someone else, emphasizing theircontributions and in this way always had a very positive effect on morale andoverall company spirit.Internally, Ed was genuinely interested in the social organization of thecompany, and with individual attitudes and behavior, and building consensusin the various teams and in the company overall. For example, early on, he ledan internal group which focused on elaborating the mission of the company,and out of that dialogue came a statement of ethics. He brought in one of the118previous vice-presidents of Levi Strauss and also Jim Wilson, the previouspresident of Syntex, to advise, and lead internal discussions about building aunique culture. His activities in this area were exemplary, and he had a greatpositive effect on building the Chiron culture.Hughes: Mission in a broader sense than what one would see in a prospectus?Rutter: Well, developing a bottoms-up mission statement, not top-down. I was more atop-down guy, and I would try to sort out the overall issues, matters ofprinciple, and lay out an overall set of strategic goals, and present thephilosophy behind the goals in terms of science/business goals, and ourunique opportunity to influence human health on a worldwide basis. Ed hadboth the patience and the wisdom to understand, it’s really important todevelop a participatory perspective as well and get buy-in to corporate goals.This results in an open dialogue on the programs of the company and anincreased commitment to them.Every company has some kind of culture. I think ours was particularly vibrant.We had an unusually competent and committed group of colleagues. When Imeet former employees today, almost to a person, they mention that Chironwas the best job they ever had and the best group of colleagues. Ed certainlyplayed an important role in establishing that culture. So did Pablo, and I alsowas enthusiastically committed to establish good human relations at all levels.Chiron was certainly an open place. We had company-wide meetings andgroups meetings on special projects, and a range of activities that engenderedinterest and support. On the other hand, we were dead serious about doingimportant and unusual things. We had a fabulous work ethic and anexceptional group of committed individuals at all levels, even down to thejanitorial staff.Hughes: Why wouldn’t you have known that developing a participatory culture waskey, having been chairman of a department for all those years?Rutter: I was sensitive to it. We also had excellent relations and a wonderful sense ofcommunity at UCSF, but it came naturally by having a common set ofobjectives with many collaborations. As a result of that experience, I felt thiscame naturally in a company as well in the course of setting up great projectsand working with the people who executed them. But it was not a priority forme to work deliberately on a program to develop corporate culture and toapproach the problem in such a disciplined way, that is, to engage others withexperience and learn from them. Nevertheless, it was an important issue, anecessity really, in an organization in which there are segregated and diverseroles and disciplines, and information flow is necessarily managed. Further,the size of the organization and geographical locations rapidly made corporateculture an aspect of productivity and personal commitment and fealty. Acompany has to have a coherent set of goals and diverse functions supportingthose goals. Ed took on this role naturally and with great enthusiasm and119seriousness. This is one of his great strengths. He is naturally inclined to beinclusionary, thoughtfully articulate, and always extols the virtues of otherswhile deflecting credit from himself. These qualities made him a fabulousCEO.Hughes: Were you surprised to find this in Ed?Rutter: No, not at all. I had known him since he was a graduate student. He was asocial integrator from the beginning. It is one of his major talents, and it isevident today. It was also true at Berkeley. He was widely acclaimed as thebest teacher and the one who brought the disparate elements in that[biochemistry] department together. This was a significant factor in choosingEd, both as a business partner and as a CEO. He in general has a greattolerance for different points of view. He has an outstanding talent for solvingproblems of discordancy. He is certainly very sensitive to their existence andpersistent in solving them, if he can. He’s more effective in dealing with suchmatters than anyone I know. So naturally, he led in building a corporateculture and human resources. He also was responsible for accounting, finance,building infrastructure and external relationships, and he handled themsuperbly.Hughes: As CEO, it would be expected that the Chief Financial Officer would report tohim, right? He wouldn’t report to the chairman.Rutter: Yes, of course, the CFO did report to Ed from the beginning. However, thereare traditional structures and there are unique situations in every organization.There’s no absolute rule about who does what or how tightly theorganizational operations are tied to the typical structural archetype. Certainly,we did not have a textbook organization. For example, I would take the lead instrategic negotiations, many partnerships, etc. Of course, in all of those Iworked closely with Ed and Bill Green, who became an outstanding corporateattorney. I realize that many chairmen only deal with strategic matters and notwith operations. That is, there is a distinct separation between overall strategyand operations. Some chairmen (and boards) act only to monitor theperformance of the CEO. Others are deeply associated with the operations andday-to day-operations. Our organization was more interactive. I dealt withstrategic matters and the operational details at two different levels. I usuallyled overall strategy and negotiating deals, and as a team, Ed, Bill Green, andmyself were pretty good.Hughes: This arrangement was true even before you were spending more time atChiron? In Chiron’s early years, you were chairman and also director of theHormone Research Institute at UCSF.Rutter: Even during the early days, for sure. I came over to Chiron every weekendand many evenings during the week. I knew what was going on in research.There was never a period in which I was distant from the strategy and120operations of the company. I knew in detail what was going on, especially inresearch and development, but also at the business level. Many of our best andenduring agreements occurred during that timeHughes: Can I ask you to compare yourself to Genentech’s Herb Boyer in the earlydays? Both of you had demanding academic positions. Do you think you wererelatively more engaged in Chiron than Herb was in Genentech?Rutter: You know, I really can’t say because much of what went on at Genentech, andparticularly the division of labor between Herb and Bob [Swanson] wasobscure to me. But knowing Herb and Bob and by reputation, my guess is Iwas much more involved in all aspects of the business. In the beginning, Herbmust have been active like I was, or even like Pablo, in the day-to-daymanagement of research. But I think Genentech rapidly recruited goodindependent scientists. I think they recruited David Goedell as director ofresearch early on. David Goedell is an excellent scientist and leader and mighthave had a role like Pablo’s. All of the top three at Chiron, Ed, Pablo, and I,were scientists, while Bob Swanson at Genentech was trained in business, andI think that Genentech’s board played an important role in strategy as well.Our board was small and supportive. Jean Deleage, as an investor, was theonly key financial advisor, and he was supportive and helpful but never gotinvolved in science or business strategy at an operational level.I was directly involved in the development of the strategy of the companyfrom the beginning. Although both Ed and I wrote the initial tripartitestrategy, it was largely my view that drove that initial focus and the programsemanating from the central ideas. For example, I wrote the initial businessplan by hand. In those early days, I played a strong role in business strategy. Iwould participate directly in the major negotiations and in the internalorganization, establishing divisions oriented to one function or another.Hughes: What expertise were you relying on? I’m thinking particularly of yourconsultant roles with Merck and other companies earlier on.Rutter: I think I did gain a lot from the years I consulted with Abbott. In the finalseveral years, the ‘60’s and early ‘70’s, I had direct interactions with the toplevelexecutives at Abbott on each visit, and that broadened my perspectivesubstantially. I also gained some experience and perspective on strategicthinking. After several years, I developed my own ideas about the strengths ofscience in relation to the Abbott business, and I had quite extensivediscussions with top Abbott executives, especially with the CEO, Ted Ledder,who was a change agent at Abbott. I was one of those who strongly supportedsetting up the diagnostic division at Abbott and spent considerable time inelaborating the reasons for this commercial division. Abbott scientists at thetime were good at measuring and analysis. They considered themselves fastfollowers, not innovators. In fact, they did not have a good record atdeveloping new drugs. Hence I believed they would be very good at121diagnostics. Eventually, Abbott set up the division, which developed into oneof Abbott’s strongest divisions. However, all that experience as a consultantdidn’t really prepare me for the responsibilities and duties associated with acompany or with negotiations per se. The consultations were largely focusedon specific scientific programs and science strategy— building value throughscience programs.Hughes: But you had a quasi-insider’s look at how these companies were run that musthave given you some experience that was helpful for Chiron.Rutter: Yes, for sure, because I saw firsthand the limitations as well as the strengthsand also the struggles of the research organization within the corporatestructure. I think I gained some insight into what not to do. Especially atAbbott, I had a pretty open relationship with the management of the company,especially regarding the issues that were involved in managing specificprograms, both individually and collectively.I knew something about the complexity. In my role as chairman of the UCSFDepartment of Biochemistry and Biophysics, and representing thatdepartment’s interests in the context of all the competing needs of the otherbasic science and clinical departments, there was perpetually a need for giveand take. It was necessary to pay attention to the development of the entireorganization and yet pay particular attention to the success ofBiochemistry/Biophysics—basically to develop the science to the highestlevel and make it recognized as one of the great departments, at the nationaland international level, but also foster collaboration and collective success ofthe medical school. I think we had some success at doing that at UCSF.Ed always sought to achieve a balanced accommodation of all interests in ourcollaborations. I might have been more inclined to have the balance a littlemore shifted in our favor.Hughes: [laughs] It is not difficult for me to believe.Rutter: I like negotiation, the strategy and the tactics associated with the negotiationprocess. I learned very quickly that we had to think in those terms if we wereto be successful in a business based on collaborations and licensing. I think Ialready have mentioned the negotiation with Merck on hepatitis B. It was atremendous lesson, but we also paid a high tuition for the schooling. So bothstrength of will and a sense of strategy and analytical aptitude and a quitespecific understanding of the science and its competitive position, I wouldsay, were what I tried to bring to the negotiation. On the other hand, let mesay immediately that during all the negotiations, Ed and I worked as a team.He was very sensitive to the attitude of other folks. He always established afriendly relationship, which is crucial in contemplating any workingrelationship. So in gauging where they were and where we were, we werebetter as a team than acting alone. Nevertheless, I more or less led most of the122negotiations. I was pretty aggressive in supporting/defending our case. I thinkpartnerships and corporate relations were one of our strong suitsHughes: So, simplistically, were you the tough guy and Ed was the conciliator?Rutter: Well, maybe there was a little tendency in that direction. But negotiation withus was never a situation involving the bad guy and the good guy. We alwayskept the discussions respectful, friendly, and with good humor. We neverdeveloped a we-vs.-they style. In fact, quite the opposite. Certainly my stylewas never to be tough in the sense of being obstinate, but rather to develop arational basis for our position. I didn’t want to foster a covert we-vs.-theyattitude. I also wanted visibility in the development and recognition in theproduct itself. So both of us tried to establish very good relations with others,and I think we were quite successful in doing so. At the level of relationships,we were a good team. I came across as a scientist, having been involved in thescience of many of our initial projects, and I could communicate the scientificissues and strategies for business development well in relationship toprospective business terms. So could Ed. But he had less of a scientificbibliography, and he came across as a more science-oriented business personand would deal with implementation of the projects.To be quite specific, I conceived of the fifty-fifty deal in which we producedthe product concept, and our partner supported the project monetarily, andthen we split the value fifty-fifty. We both espoused it and built thephilosophy behind it at all levels. Clearly it was something that we wanted toespouse as a principle because if we started to break the rule for one, theconcept would deteriorate. All the major companies preferred equity controlover the joint venture or business. The initial response from other companiesalways was, “If it is a partnership, why are you worried about one percentagepoint or two in equity? It’s only rational that the big company providing themoney would take 51 percent, and the smaller company, like Chiron, take 49.”Well, yes, but the difference between 51 percent and 49 is the basis of legaland practical control of the program. It is a way down the slippery slope whenit comes to determination of the principles of operations and the final goal forthe business. By maintaining categorically that we wanted fifty-fifty deals, weeventually got them. And it worked to our advantage dramatically, both in thesense of developing our organization and competence that is required to playthat role, and the commercial position that we had as a small company. Ofcourse, it also brought with it the challenge of execution—we needed to pullour own weight. We needed to be successful at the science/medical level. Wewanted that challenge.Now, having said that, fifty-fifty was interpreted differently in differentcircumstances. I mentioned before that the Ciba relationship was a fifty-fiftydeal. It was a fifty-fifty business. We operated it. They understood theprinciple, and we understood the principle. And we negotiated a deal thatreally was good for both parties. By that I mean, the original fifty-fifty deal123with Ciba on vaccines (Biocines) was much more like a true fifty-fifty deal.We shared strategy and execution at every stage. But in J&J, fifty-fifty wasdefined differently: we were responsible for all the technology, and they wereresponsible and controlled the marketing and selling. Then we shared in theprofits fifty-fifty. That was a fifty-fifty business; it wasn’t a fifty-fifty deal atall levels of execution. So we tried to be pragmatic, but it was in the end notthe best for either company, and we should have held to our guns.Hughes: Why bad for J&J?Rutter: Bad for J&J because in the end J&J never was viewed as a real partner. Ourinterests were not totally aligned, and we had serious issues between us. Weeven went to legal arbitration at one point—a bad sign. So in the end, the toplevelexecutives were interested in acquiring Chiron, and we were quiteattracted to the corporate philosophy and culture of J&J. In addition, we hadexcellent relationships with the top executives of J&J, Burke, Clair, andWilson. We thought that if we were to accept a bid from J&J, it would be inthe context of forming a separate operating company within the framework oftheir multiple-business conglomerate, that is, a separate business within J&J.This would allow us more intrinsic freedom within the larger enterprise, asopposed to Ciba-Geigy where everything is consolidated into a singlepharmaceutical enterprise which is managed at the board level. At the time,Ciba was quite a broad company. It dealt with everything from paint, carbonfiber, photographic films, as well as pharmaceuticals. We realized that on theoperational level, integration into the two companies would be quite different.Hughes: Did the possibility of acquisition even get to a discussion point?Rutter: Yes, indeed. Right at the end, Jim Burke, David Clare, the chairman and CEOof J&J, and Bob Wilson, the vice chairman of J&J, moved aggressively toacquire all or part of Chiron.Hughes: What happened?Rutter: Well, it was too late and too little. I think that by that time, we had a verygood understanding with Ciba-Geigy, and the combination of their puttingsome of their assets into our business, and the overall terms, including quasiindependence,were unbeatable. We also had developed an extraordinaryrelationship with the Ciba-Geigy executives, particularly with the chairman,Alex Krauer, the head of the pharma business, Jean Orsinger, and the directorof biological science, Jakob (Jack) Nüesch. This understanding would haveled to a wonderful business had Ciba-Geigy remained independent. Wesimply didn’t conceive of the possibility that Ciba would not remainindependent. Had the merger not happened, we would be a different companytoday, and so would they. So those are two examples.124Within the company itself, I explained a little bit about what Ed’s role was.But then we had three divisions. I paid a lot of attention to research, and Pabloand I discussed research strategy and the particular approaches. Pablo in turnwas in full control of the planning and execution of the experiments. All threesat together. We knew the key people personally, their talents andidiosyncrasies, and how the programs were going. In the eighties, we haddetailed research discussions on Saturday mornings. Later, the researchorganization increased to a size that required more divisionalization. Besidesresearch, I also took a lead role in diagnostics and vaccines. After the J&J dealon diagnostics though, Ed took the lead in managing the relationship with RonGelbman and the J&J the joint business, while I was the key person withCiga-Geigy and vaccines. After the Ciba-Geigy deal, however, I paid specificattention to the diagnostic division.Hughes: Lacey Overby headed diagnostics in the beginning, is that right?Rutter: Diagnostics, yes, especially in research and development. But then it became apretty big division. After we acquired Ciba Corning Diagnostics, GregLawless became head of the division.Hughes: Was ever yours and Ed’s lack of hard-core business experience a detriment?Neither of you had been to business school. You hadn’t had any formaltraining in business matters.Rutter: Before I answer that question, I want to continue. For a while, we had anophthalmic division, and Ed took over the leadership of the ophthalmicdivision.Hughes: That was early on. Because of the growth factors?Rutter: Yes, the ophthalmic business was based on the putative role of growth factorsin healing defects of the eyes. When these did not provide a strong therapeuticsignal, the business shifted focus to refractive errors of the eye.In the biopharm area, as we began to integrate Cetus into the organization, Edtook on the substantial role of integrating what was a very complicated andheterogeneous organization into Chiron. He tried to establish a balancedintegration of the companies, calling it a merger rather than an acquisition.Hollings Renton became the president and headed the therapeutic division,such as it was. I led the negotiations with respect to Betaseron. At first, weonly had a manufacturing arrangement, and so we negotiated a businessrelationship with Berlex, eventually Schering Corporation. We had a longcontinuing negotiation with Lutz Lingnau, the head of the American businessfor Schering. It never developed into a completely successful relationshipHughes: Because of personalities?125Rutter: Not really; the relationship was not prickly. I think I had good personalrelationship with Lutz Lingnau, and so did Ed, for that matter. But it was thedisparate interests and objectives of the parties. Again, this was no fifty-fiftydeal. It was a situation where they had marketing rights, and we got apercentage of the revenues from the sales which decreased over time. Weadded a lot of value to the program, as was our general approach to things.Whether we were fifty-fifty or not, we always acted as though we were fullycommitted to the program. We tried to develop the best research andcommercial program as a result of that.Hollings Renton assumed leadership of the biotherapeutics program andreported to Ed. But when it came to the scientific details of the program, Ibecame involved as well. We tried to be efficient, and I think we were, whilestill getting as much oversight as practical on the programs themselves. On thecommercial side, as we began to extend from the U.S. to Europe, Ed becameinvolved in the management of the group, and I participated in the analysis ofthe scientific and technical details of the programs themselves.Now you asked a question: Was our lack of business experience ever adetriment? Well, yes and no. I believe that early on when it came to thenegotiations I’ve already told you about our naivete and lack of experience inthe Merck negotiations where we were at a distinct disadvantage. So in thoseearly days, there’s no question we were to some extent naïve and were at adistinct disadvantage. I believe that Chiron put more emphasis on ophthalmicsthan it otherwise might have done if we had had a more disciplined businessorientation. Once the epidermal growth factor therapeutic in the eye failed,then we might have withdrawn from the business because it was not our corecompetence. Further, the market didn’t understand the ophthalmics part of ourbusiness. However, Chiron Ophthalmics had an outstanding CEO in Bill Link,and he had an excellent group of colleagues who have since collectivelyhelped to change the world of ophthalmics. So we supported the business,believing there were some outstanding technological approaches coming thatwould change ophthalmology. And there were. Chiron Ophthalmics pioneeredsome of them, much to the credit of Bill Link and his colleagues.We were about to realize the value of them, but in the business transition withSean Lance as CEO and a change at the board level, Chiron sold theophthalmics business—perhaps too soon. We were just beginning to bear thefruits of being one of the pioneering developers of Lasik, today the standardway of treating refractive errors of the eye. However, in the interveningseveral years we were supplying contact lenses, etcetera, clearly a volumemanufacturing business which was not our core competence. We needed to bein areas where our research knowledge provided an advantage. At the time wefelt, if there was a science-driven way to change an industry, that waspotentially a target for us to consider, provided we had some unique approachor perspective. There was this tantalizing approach to ophthalmics with new126technologies to correct refractive errors. But also we wanted it to be a selfsustainingbusiness.Hughes: My impression of you and other academics is that you’re looking forpromising directions to push the science, and presuming the resources arethere, you’re going to go after them. Whereas in a business, even though theopportunities are there, it might not be the best business strategy. Chiron, asyou know, has been accused of being unfocused.Rutter: Yes, that’s right, and to some extent it is a valid critique. We wereopportunistic and went in directions where we thought our technologicalapproach could make a difference. It is true that focus has become a mantraand a useful one. However, it applies to success and also to failure. As youknow, many companies which have sharply focused on a single product havefailed. In fact, depending on the statistics, it might be eighty to ninety percentfailure! It is a question whether a company with technical advantages canoperate effectively in more than one area by selectively concentrating talent ineach of those areas, with the combination being stronger than a more narrowlyfocused organization. For better or worse, I believe the latter, provided thatthe organization has the management and scope of talent and can manage theresources. In principle I believe the company can be more successful becauseof multiple ways to win, (multiple shots on goal), and the discipline imposedby the requirement to manage the resources carefully. When the organizationceases to gain by synergy, or there is need for sharply focusing on amarket/technological segment, the company can be spun off.In ophthalmics, the initial aim of using growth factors to control healingdefects of the eye was supported by strong preclinical evidence and by theimportance of the problem. Having committed to that scientific program andthe business concept associated with it, we kept on developing the businessdue to the overall competence and entrepreneurialism of Bill Link and thegroup at Chiron Ophthalmics and the opportunities in the area. The questionwas how/when to exit. We had competence and an unusual position in thatindustry through Link and colleagues. I think we assessed the assets carefully.But we were not experienced in ophthalmic pathology nor in the broader partof the business. There was a lot of interest in ophthalmology in those days.We became operationally and structurally committed to the business beforewe were certain there was a unique product entry. In the end, however, Chironwas in the forefront of technological approaches to surgical intervention invision correction, which is a major area in ophthalmics today.Chiron Ophthalmics could/should have become an independent company, butthe market timing was not good for that at the time. The major issue was whenand how to exit. In the Ciba deal, optimally, Chiron Ophthalmics should havebeen integrated within Ciba Vision to form a stronger ophthalmic company.We tried to execute this transaction at the end as an alternative to selling it toBausch and Lomb. At that time, though, the decision was to exit asap for127“strategic reasons”, hence its real value was not achieved. We should haveinsisted it be a specific part of the Ciba deal itself.[Tape 12, Side B]Rutter: With respect to the remuneration for our broad science program, I think wewere adequately compensated. About $200 million in royalties per year comesto Chiron. It’s difficult for me to say that that was an error. I think that ourpatent position is particularly strong.Hughes: Even with Genentech being the first off the block?Rutter: With the exception of those initial core patents and looking at the IP estateoverall, yes.Hughes: The Riggs-Itakura patents?Rutter: That’s right, with the exception of those patents. Our position was quitestrong. Now, I wouldn’t say that we used that strength as effectively as wemight have. That’s another matter. For example, we had the early andfundamental insight into TNF [Tumor Necrosis Factor]—the drug being anti-TNF. But we didn’t succeed in developing the neutralizing antibody. Thatwould have been a major drug. That was in part due to the very early stage inthe observations and a very difficult relationship with the inventor, AnthonyCerami. So the richness of the palette created, I would say, a strategic urgencywhich was diluted by the several activities of the company, one of them beingOphthalmics.Hughes: Yes, right, and the initiation of the ophthalmics program was based on anothergrowth hormone.Rutter: It started with a hormone, EGF, epidermal growth factor, which was shown byRita Levi-Montalcini and Stanley Cohen (who won the Nobel Prize for thiswork) to be effective in growing epithelial cells, ostensibly the cells thatwould rejuvenate the epithelium of the eye after it had been disrupted byinjury. This project turned out to be unsuccessful in part because of theextreme variability in the patient populations and perhaps in the mechanism ofdelivery. Both EGF and Insulin Growth Factor 1 turned out to have little valueas therapeutics, at least for the indications we had targeted at the time. TheEGF receptor, however, now turns out to be an important cancer target. So asI reflect on your question: yes, a more experienced businessperson might havebeen more disciplined about focus.But at the same time, we and the industry were growing explosively in areaswhich were totally open to development. We focused on innovative programsand innovative targets based largely, but not solely, on recombinant DNA128technology. Because of the general status of the technology and the openingof therapeutic potential of a new set of targets, we tried to have multiple shotson goal, to use a common term. However, we tried to develop multiplecommercial outcomes from a given target and experimental program (thetripartite strategy).I think our programs in both vaccines and diagnostics changed the industry,both conceptually and practically. As measured both by IP position and patentrevenues and businesses created, the diagnostics business was the leadingprogram in infectious disease diagnostics and maybe diagnostics as a wholeduring that period. We focused on quantitative testing of HIV, HBV, and thenHCV (the Hat trick), the key viruses that are typically transmitted in humanblood and were the cause of enormous health burden due to the need andcommon practice for blood transfusion or the use of needles for selfadministrationof drugs.Our strong intellectual position on HIV and especially HCV, together withHBV, and quantitative methods for detection, led to the concept of viral load,which [formerly] was an unheard of concept. Viruses were typically measuredvia culture, with a positive or negative result. At best, semi-quantitative resultscould be obtained. Quantitation led to the concept of viral load, which is reallythe basis not only for detecting disease but also for measuring the outcome oftreatment. It is the basis for both discovery and development of new drugs, butalso the basis for measuring infectivity or lack of it. It is the basis of infectiousdisease control. From a practical point of view, our test literally saved tens ifnot hundreds of millions of lives via those and ancillary tests. They essentiallymade the world’s blood safe! Of course, I acknowledge that we did not do thatalone. Other companies became involved with measurement systems differentthan ours, for example, PCR [Polymerase Chain Reaction]. But inevitablythey licensed our technology. This was probably Chiron’s greatestcontribution to business and to human health.The vaccine business I think arguably, was among the best in the industryfrom the standpoint of both intellectual property and the projects we weredeveloping. SmithKline was a major competitor. Merck was a major playerand was our partner in developing the HBV vaccine. We consolidated thevaccine businesses that were typically supported by the countries’ own publichealth programs, in particular, in Germany, Behringwerke; in Italy, Sclavo.The main products were childhood vaccines and general public healthvaccines. In each case, we brought recombinant methods into these programs,enhanced the quality of the vaccines, added better vaccines, such asHaemophilus influenzae, another vaccine produced by recombinant methods.We needed to continue to build those programs. It takes a while to build avaccine franchise. But it continues; it has persistence.On the other hand, we were not as strong in therapeutics as we needed to be,especially in small-molecule drugs, the area where the large pharma129companies were strong. I particularly did not feel that we, or any other biotechcompany for that matter, had a competitive advantage in that area. Obviouslywe should have been very active in developing drugs for HCV and HBV. Thisshould have been, could have been, would have been a program that we wouldhave developed with Ciba-Geigy. It didn't happen with Novartis.Hughes: What about the economic basis? We’ve talked about the tripartite structure onseveral occasions. Does that apply also in terms of resources?Rutter: Well, resources, especially for clinical development, become competitive forsure. But at the research level where we were largely operating, I think theywere complementary. The Ciba deal, when we couldn’t have relationshipswith other companies because of their unwillingness to engage in our typicalfifty-fifty deal, Chiron was partly owned by Ciba, and Ciba had the option toacquire the company. Therefore, prospective partners considered a possibletransference of IP and products to Ciba!Hughes: Had you anticipated that problem when you negotiated the Ciba deal?Rutter: Yes, we considered it. We investigated this and thought we had a satisfactorylegal arrangement that would allow us to work with other companies. And sodid the folks from Ciba believe this, or at least they said they did. But it didn’twork out that way. The business disappeared after the Ciba deal.Hughes: Would that have changed things, perhaps?Rutter: If I’d have anticipated the loss of the research business and partnerships, wewould have changed things. I think that because of the transforming featuresof the Ciba deal, it was inevitable that we make a deal with Ciba. However,we would have changed the strategy by which we went about our business inthe next couple of years for sure if we’d have anticipated that. But once wehad anticipated it, we really had to change our business strategy. I would havethen urged us to simplify in some way, either by spinning off companies,which we ultimately did, or becoming integrated more into Ciba-Geigy, wherethey could have taken part of our group. The latter was part of the Cibastrategy, and we would have benefitted enormously from that. We consideredhaving a major strategist in the Ciba organization, Richard Williams, join ourgroup. He would have been outstanding. However, circumstances precludedthat from happening. When Ciba merged with Sandoz, on the other hand, thatcooperative strategy vanished.I should have pushed more for Ciba to acquire [Chiron] Ophthalmics as anaspect of the deal. I am quite sure that that could have been achieved. In fact, Itried to do that subsequent to the deal because Ophthalmics had a logicalhome in Ciba Vision. But Ciba Vision’s vision was focused on lenses and eyecareproducts. However, there was a real complementarity there, which wasnot appreciated by the Ciba Vision people subsequent to the deal. Merging the130divisions would have helped us significantly, and them too. Bottom line: thenegotiations with Ciba were intense, complex, and urgent, and we missed astrategic opportunity to clarify some of the ensuing problems.On the other hand, in the Diagnostic Division, the acquisition of Ciba CorningDiagnostics happened at the same time there was a change in the overallfinancial underpinnings of the diagnostic industry. Prior to 1995, diagnosticswere sold in panels. So a doctor would give you a panel of tests that includedthe specific test relating to the prospective disease under investigation ortreatment on the supposition that the additional tests would provide newinformation about the patient’s health status. Under the new guidelines, aprescription was specifically restricted to the tests directly associated with thedisease or condition under investigation. So the revenue from the industrythen based on panels shifted to individual tests. So suddenly the volume ofdiagnostic tests decreased dramatically, and that changed the underlyingfinancial basis of the industry. Firms began to collapse and consolidationbegan because the total volume of tests decreased significantly. ChironDiagnostics, which included the major instrument systems being developed byCiba Corning Diagnostics, suffered during this period, in part because theirsophisticated instrument systems were in the latter stages in development andhad not yet become integrated in the market. So additional time and resourcesneeded to be employed. So Chiron had a number of developing businesses atthe same time, hence the imbalance in the overall business. The consolidationof all the businesses in Chiron required a period to basically winnow andfocus. When changes begin to happen, frequently there is a deluge of changes,and that happened to us—the good with the unfortunate.When I said positive and negative, I think we did a lot of things that werepositive and turned out to be pretty good for us and the industry. I thinkselling the diagnostic business outright was a big financial success. In somerespects, brilliant. It gave us cash flow from royalties without the complexityof running the business. However, I believe it was a mistake because of evenhigher potential alternatives. We had an opportunity to form an alliance, afifty-fifty partnership, with Roche. It was supported at the highest levels inRoche. However, this alternative was rejected by Novartis. A Chiron-Rochepartnership would have created the most profitable and far-reachingdiagnostic business in the world. Further, Chiron did not acquire the Gen-Probe business which was necessary to fully develop Chiron’s DNA baseddiagnostics business. Thus consolidation of the business into a world leadingbusiness was not carried out. I think this also occurred during a periodinvolving loss of confidence at several levels and, importantly, a lostopportunity for Chiron. Fifty-fifty deals in research-oriented enterprises aredistinctly different than the typical business approach.Hughes: A research-oriented approach, isn’t that what all biotech companies have?131Rutter: Yes, all biotech companies focus on research. But I think our businessproposition and model was quite unusual and also substantially effective. Ithink we formulated and executed fifty-fifty deals which propelled us into thebusinesses that were based on the research. We didn’t start with that program;it evolved from the fusion of established research of high potential in an area,not just single products, and then resulted in acceleration of the developmentvia an agreement with an established commercial entity. We developed thatmodel.Hughes: What else can a young biotech company do but research?Rutter: Obviously, our major strength in the early days was research, but there was nobusiness based on research that existed. So we had to establish the businessbase on which a research enterprise could become a business, not just be aresearch component of a large business. So the whole point is that in this area,given all its constraints, none of the small biotech companies at the time knewhow to convert to a business. The development of the business modeloccurred with experience. All the companies floundered at some point, buteventually great value was created by some. Later, we had some outstandingbusiness leaders, including Magnus Lundberg and Paul Hastings, for example.Hughes: Are you claiming for Chiron the model for doing a research business?Rutter: No, of course not. But we did help evolve the model for businesses based onresearch and new technology: the tripartite business model; the fifty-fiftydeal;the integration of novel technologies with older technologies to build abusiness; in vaccines and diagnostics, the imposition of intellectual propertyon a whole field. Whereas intellectual property was known on the pharmaside, on the vaccine side and the diagnostic side it was never appreciated thatyou could change a whole industry by having proprietary products. Sohepatitis C and HIV substantially changed the diagnostic industry. Before itwas a quasi-generic industry, and it was based on central lab systems–big iron.It was based on accelerating through-put of tests and the efficiency of theoverall organization—great accomplishments of themselves. However, thevalue in the diagnostic industry is determined by the ingredients of thespecialty items which have high value and are required to be in the roster oftests if they are to be purchased by the hospitals. That’s how the industry runstoday and probably will run [in future]: a combination of specific high-valuedproprietary tests, as well as the instruments to run them.In the diagnostic arena, perhaps the most valuable contribution was the viralloadconcept, which we developed. It is at the core of developing andmeasuring the severity and the progress to control infectious disease. It tookalmost a decade to get universal acceptance of this concept, but it is at theheart of protection of the world’s blood supply, for transfusion and otherpurposes and for the production and clinical use of blood products. Samething with vaccines. The hepatitis B vaccine changed the industry, for sure—132the first billion-dollar product. From it SmithKline, now GSK, took over froma strong position in hepatitis B and then worked on their own proprietaryvaccine products. Same thing was true with Merck. Merck did have somevaccines that were unique, a proprietary attenuated strain of measles, forexample. It still exists as a proprietary product. So there were a few cases likethis. But I think we led the overall approach in utilizing new technology tochange products and concepts.Hughes: Did Chiron have any therapeutic strength before the acquisition of Cetus?Rutter: We had projects. We didn’t have products. We certainly developed factorVIII. We developed the process for making insulin for Nordisk, a processwhich is now at the heart of the process for Novo Nordisk, the world’s largestsupplier of insulin. We had IGF-1 [insulin-like growth factor 1]. Allrepresented important new advances. We out-licensed most of them. A keyaspect of our program was to out-license. We had internal developmentprograms as well. In fact, we had outstanding preclinical and clinicaldevelopment teams in the company. But some of these earlier programs basedon biological products were not fully developed because of a sharp focus onhepatitis C and other urgent problems.The factor VIII product, the mini-gene, was one of the better means toproduce factor VIII activity. We obtained a patent on the technology, and it’sstill a very good approach to factor VIII. We had a joint venture with theEthicon Company of J&J to develop those growth factors, especially IGF andpotentially others. It turned out that the initial indications didn’t succeed in theclinic. And after the Ciba deal, this agreement was terminated. Most of theearly products failed or had modest success, except for insulin. But even inthat case the methods employed were not the initial Genentech method.Eventually several of the products found indications, among them interferon,and that compound came via a collaboration with Cetus. That interferonproject had already been out-licensed by Cetus to Schering.]Hughes: There was a drug candidate earlier than interferon that I read about in anannual report.Rutter: We had a program on superoxide dismutase. It originated entirely within ourresearch organization, independent of Pablo or me or Ed.Hughes: But you must have been supportive or it wouldn’t have gone on.Rutter: I was supportive of it, for sure. The concept was good and in the end wasvalid. However, the research behind it led to a simplified hypothesis.Hughes: Could you have known that at the time?133Rutter: No, but this is an example of having the hubris to embrace ideas withoutsufficient preliminary study in good biological models. It was a majorproblem in the industry in the early days. At that time, there was a surge inconfidence regarding mechanisms of pathogenesis and the feeling thatrecombinant methods would quickly resolve many of these previouslyintractable problems—the low-hanging fruit phenomenon.The target indication [of superoxide dismutase] was re-perfusion injury whichis the major underlying pathology in strokes and heart attacks. Our superoxidedismutase, derived from mitochondria, just couldn’t resolve some of the keyaspects of re-perfusion injury, as in strokes, because the half-life in the bloodwas too short. High enough blood levels could not be maintained sufficientlyfor an adequate period of time. It is still an important problem, and no doubtthis problem will be approached via other SOD’s.Hughes: Put simplistically, Genentech and other early companies had the idea that youclone the gene and you have a drug. What came very soon to be realized was,you’ve got to know a lot about the biology.Rutter: Yes, to some extent we all suffered from that simple notion and the hubris thatcame with it. But that idea didn’t die very soon. It came after a decade offailures. That’s why it was such a big lesson and why virtually all thecompanies suffered a challenging period. Success did not come the easy way.The hubris of which I speak existed in most of the major biotech companies ofthat era. There were strong individuals who weren’t used to failing.Hughes: You include Genentech?Rutter: I think so.Hughes: Why?Rutter: Because many of the original products did fail or had limited success.Hughes: You are thinking of the original projects which came from UCSF?Rutter: That is another matter. I was thinking of the products which have madeGenentech arguably the strongest company in the field today. They areprojects that were co-developed with others in the last few years, and I thinkthat was due to the wisdom of current Genentech management, which issuperb, perhaps with the advice of Roche. [Fritz] Gerber especially, I believe,and some of the others at Roche helped shape Genentech and limit its scope,focusing on cancer. Art Levinson has done a fabulous job in buildingGenentech. In that focusing, they wisely were not restricted to their owntechnology but collaborated with others, and in so doing succeeded famously.So that was a case where a big company and a little company reallycomplemented each other well. Of course, Amgen was extraordinarily134fortunate in two products, which are the leading products in the industry.They’ve had a succession of successes after good management in the earlyyears by George Rathmann.Hughes: To interpret simplistically, what you’re saying is that a lot of Genentech’sstrength came from its relationships with Roche, and Amgen’s success wassomewhat based on luck, that they had research projects that paid off quicklyand well.Rutter: No, I wouldn’t ever say that. And I didn’t mean it. I meant to say that therelationship between Genentech and Roche seemed complementary, a goodbalance, at least it seems so from the outside. It wasn’t Roche that reallyprovided the leadership; they provided sage advice to complement the strongpeople, and I think they showed the wisdom to choose Art Levinson andsupport him. Earlier, Bob Swanson without a doubt was an extremely strongleader.Hughes: A hard question: Chiron was founded almost at the beginning of the biotechrevolution. Why didn’t it have the blockbusters that Amgen and Genentechhad?Rutter: Well, I think our major contributions were the hepatitis B vaccine which insome ways was a blockbuster product in the context of its effect on worldhealth, although it didn’t bring huge sales to us. I think the discovery ofhepatitis C represents a milestone not only in the industry but in biologicalscience. That resulted in the Lasker Award [for Clinical Research, 2000] forthe team who were immediately involved in the project. If it had occurred inan academic setting, it might have received the Nobel Prize. Further, thatdiscovery plus the development of the viral-load measurements directlysupport the research which has led fifteen or twenty years later to thedevelopment of HCV drugs against hepatitis C. The sequencing of HIV andits quantitative measurement similarly added to the ability to protect the bloodsupply and enabled Gilead [Sciences] and others to develop small-moleculetherapeutics which now save the lives of tens of millions of infected peopleworldwide. These discoveries and developments represent blockbuster scienceand also blockbuster business, in my view. The business surrounding the HIV,HCV, and HBV diagnostics, and the purification of the world’s blood supply,and the concept of viral load—these are blockbusters. Bottom-line revenuesfrom these contributions I think match some of the contributions made by theother companies.However, the continuing success in the diagnostic arena was blunted by thedecision of Dr. [Daniel] Vasella [Chairman and CEO, Novartis] to not allowthe merger with Roche Diagnostics and eventually to sell the business in favorof generation of cash as opposed to building the business. There was also theunfortunate decision to delay and eventually not acquire Gen-Probe, whichwas crucial to the nucleic acid testing for HIV, HCV, HBV. Instead of135committing to the strong businesses Chiron had, the new management electedto build the therapeutic business and unfortunately was unable to do so in adecisive fashion. The challenge was how to use those resources generated bythe sale of Diagnostics and of Chiron Ophthalmics to build new businesses. Atthat time, there was a significant effect of the change of control that wasfundamentally caused by the Ciba-Geigy/Novartis partial acquisition, whichresulted in a fundamental shift in the business strategy—to small-moleculedrugs.HCV was a blockbuster both in terms of the science and opening up of thefield and in its effect on the diagnostic business. Quantitative tests for HIV,HCV, and HBV changed the diagnostic industry and the blood-productsindustry. So in terms of the effects on numbers of human beings, I think wedid okay. Unfortunately, Chiron didn’t consolidate its position by decisivelybuilding on that base.We had a strategy to work on fields rather than just on products. In buildingbusiness around fields, we had that opportunity. The needed resources came inpart with the Ciba deal, but the merger of Ciba and Novartis and the change inmanagement and change in strategic focus of the company led eventually tothe acquisition by Novartis. and left the Chiron strategy as unfinishedbusiness.Hughes: What was your thinking in deciding which fields to work on?Rutter: Well, it came from the philosophy that new strategic information coupled withnovel technology and the related intellectual property can change a wholefield, to the benefit of society and to the company developing or controlling it.That was true in the critical new proprietary products in diagnostics, and itwas true in vaccines where recombinant techniques showed that biologicalmimicry can yield lasting protection without the possibility of causing thedisease it is designed to eliminate. And then also the use of growth anddevelopmental factors, the compounds that really influence the dynamics ofthe living system, we thought would change medicine, and new informationregarding biological mechanisms would also lead to the best biologicalproducts. We were looking for biological products. In many of the specificprograms, we were in races with the other organizations, for example onfactor VIII. On balance from when we started, I think we did okay.[Tape 13, Side A]Hughes: Burr, Egan, Deleage & Co didn’t have as close a relationship with Chiron asKleiner Perkins had with Genentech?Rutter: We had an excellent relationship with Jean Deleage but little interactions withCraig Burr or Bill Egan. It was an initial investment, and we did not have a136continuing relationship. Certainly they did not promote us like Tom Perkinsdid Genentech. But again, we did okay.Hughes: Was your approach to the public derived from your experience in academicscience where scientists generally base their statements on the facts—prove tome, don’t tell me. It’s a different attitude than when you’re promoting yourcompany in investment circles where there’s a lot of bluster and notnecessarily substance.Rutter: Well, there are different strategies in academics, too, and I don’t believe thatit’s a good idea to say our approach is a big reflection on that. I think it hasmore to do with my own personality and probably Ed’s as well. There aregreat people in business who don’t self-promote, and there are other peoplewho promote all the time.The whole biotechnology industry has been reliant on public interest andexcitement about the potential products. As everyone knows, the industry hasrequired a lot more investment from the public market than the public wasgetting out of it in term of stock price. You probably remember the WallStreet Journal article on the financial balance sheet of the biotech industrywhere after twenty-five years there was a net loss of nearly $50 billion. It tooka huge amount of investment, essentially underwritten by the market, but it ischanging rapidly and will go positive soon. On the other hand, the net effecton medicine and people’s lives is, I contend, distinctly positive.[interruption]Hughes: Towards the end of 1990, maybe into 1991, there was an important event inChiron history, namely the acquisition of Cetus. Could you tell me thebackground and the rationale for a substantial acquisition?Rutter: This was the first major example of industry consolidation. Cetus was justnext door to us and had the misfortune of having a major disapproval from theFDA concerning their product, IL-2 [Interleukin-2]. Bob Fildes was their CEOand virtually bet the company on it. When this happened, the stock price wentdown dramatically and confidence in Fildes as the CEO was eroded alsodramatically. The board had to do something, and we recognized by virtue ofits proximity it was an interesting opportunity to contemplate. But also werecognized that Cetus by virtue of its size, the amount of money it had on itsbalance sheet, its position in the marketplace, and the dimensions of itsresearch program, (which was outstanding on the therapeutic side), that itrepresented an ideal opportunity for us to create a merged company that couldtruly operate more effectively in the tripartite mode. So we began havingdelicate conversations—Hughes: With Fildes?137Rutter: No, not with Fildes. With the chairman, Ron Cape, and eventually with theboard members. The person who was the greatest help in putting it togetherwas Fred Frank, who saw the wisdom and the practical issues, particularly thefinancial impediments, Fred contacted Roche, particularly its chairman FritzGerber (with whom he had interacted in the Roche/Genentech purchase), tosell the royalty rights for PCR. This facilitated a transaction that wasacceptable to both parties. Because of the differences in history, size of thecompanies, we decided not to treat it as an acquisition but as a merger. Weattempted merge the two companies and give adequate consideration to Cetusperspectives. I think that was due to our attitude in general that buildingconsensus and having an open society was the best way to develop a thrivingorganization. (After all, that had worked for us). On the other hand, Cetus, itappeared, was a rather structured top down organization, with an already wellestablished, culture.Hughes: That authority originated with Fildes?Rutter: No, with Ron Cape, who was chairman. Fildes was the CEO, and the personimmediately in charge of running the organization.Hughes: You feel Cape had a strong hand on the company?Rutter: Historically yes, of course, but at that time it seemed, Ron had delegatedoperational roles, including strategy to Fildes. However Ron was still thechairman and ultimately responsible to the shareholders.Hughes: But originally Cape had a strong hand?Rutter: Originally, yes. Ron Cape and—Hughes: Peter Farley.Rutter: It seemed that Peter Farley had a very strong operational and strategic role.Hughes: Explain a little more. They were the ones in control? It was not a consensusorganization?Rutter: They certainly controlled the organization. I can’t comment on the extent towhich there was consensus and how they worked at it. But for sure, it was anorganization which was, at the time we knew it, more typical of structuredorganizations with delegated individuals who had the authority to makedecisions. It was not an open society. So for years after the merger there werethe Cetus guys and there were the Chiron guys, who would identifythemselves as such. “I’m a Cetus person, and this is the way we do it.” Theyhad many very good people within the organization, along with the culture ofthe past. We tried to retain Hollings Renton, who was appointed president ofChiron, while Ed was of course the CEO. We also tried to retain the good138research people, particularly Frank McCormick, who was essentially theirchief scientist. But it became clear that they wished to form another company,and eventually we agreed to the formation of Onyx. Onyx was not a spin-offin the usual sense; it was a recognition by us of a fact of life, that thoseindividuals wanted to start their own program—besides Hollings, Bill Gerber,the person who was head of Diagnostics for us, and Frank McCormick, whowas responsible for the oncology research program in Onyx.Hughes: These were all Cetus people?Rutter: All Cetus people. All of these people left and this program was emasculated.But still Chiron had all the intellectual property that resulted from thisacquisition; had the problems of dealing with IL-2 and interferon beta. So onthe commercial side, we were assiduously working on a way to maximize theyield from those and redeveloping a program to get approval of IL-2, whichwe succeeded in doing. It just took an immense amount of energy to shore upthe business side. At the same time, the key scientists were, well, thinking inother directions.Hughes: What did they take with them to Onyx?Rutter: Well, they took, narrowly, a set of projects which were oriented toward cancerand which had been conceived and led by the chief scientist McCormick. SamCollela, from Versamt, a premier venture capital organization, saw anopportunity to recruit this scientist, who was an excellent person in the fieldalong with the program he led. They awarded him a large bonus of shares (oroptions and therefore upside), something as a member of our group we couldnot provide. All that Cetus personnel converted their options in theacquisition, so he got a bonus of money. So did Hollings. So did Bill Gerber.Then afterwards they came in within the Chiron organization, and they had tostart all over again. So at that time a venture organization could come in andoffer another package to the employees, which, if successful, would bringthem lots more money along with the independence which is attractive in aseparate small company in which they become the key management. A veryattractive opportunity. So the acquisition, by its very nature, had within it anincentive for key people to leave, and that’s what happened.So, we had to be realistic. They were going to leave somehow. We negotiatedfor them to take some of the projects which we couldn’t have realisticallycarried on without them, So we came to an accommodation and took arelatively small share of Onyx, and that was it. The share was enough so thatin principle had we wanted to buy back later, we could have done so, and thatwould have been all right, too, with Sam Colella. The immediateconsequence, however, was it began to erode some of the purposes and thefuture of the biopharma division. Anyway, that’s the kind of thing that was, inhindsight, to be expected. Maybe we should have facilitated it. In hindsight,we learned a lot about acquisitions. Mergers of equals rarely if ever work.139They are, or become mergers of unequals. One must assert leadership andcontrol early in order to achieve a common culture.There seems to be no single solution when two distinct cultures are broughttogether. I am told that in Ciba-Geigy, thirty years after the merger of the twocompanies, the personnel still identified themselves as a “Ciba” man or a“Geigy” man. So cultures have a tendency to persist, just like familialrelationships do, because there are strong relationships between people andideas and programs. Nevertheless, if you work at it and are assiduous about it,the people who don’t buy into it leave, and the people who do buy into it stay,and therefore you can have some kind of coherence. That’s what’s demanded.It’s not possible to have an organization with too many cultures and expectthat the individuals in the organization will rapidly adapt to the new cultureand work together,Nevertheless, there was a richness within Cetus not in the products but withintheir research. They had a wonderful immunology program. They werefarsighted early. That program consisted of making monoclonals against manytargets, and among them had been a monoclonal against HER-2 for a breastcancer product later. There were diverse projects and we didn’t and couldn’ttake advantage of them all. Many were in very early stages of developmentbut were quite major in their requirements for future development. But wewere doing other things, too, trying to build businesses. Lack of focus but alsolack of real understanding of each of the programs and having somebody toreally push it forward was an issue for us. If we hadn’t been able to do itourselves, they might have been valued by somebody else. That might havebeen a potential spin-off which would have enabled the value to be unlocked.Hughes: I don’t see how Chiron could have missed those opportunities. My knowledgeof Cetus after Fildes comes in as CEO is that it was an immunologicalcompany, or at least immunology was a large part of their research base.Rutter: None of these products were product candidates. There was a lot ofinformation, a lot of patents filed, but when we bought Cetus, there were twoproducts.Hughes: Betaseron and—Rutter: Yes, and Interleukin-2. That was it. Then there were some research projects,and some of them were elegant, but they were technological approaches, theyreally didn’t evolve into a product. Well, we carried forward one product onseptic shock that had come from that program.Hughes: Well, then, what were you buying? Were you buying Betaseron and IL-2?Rutter: Yes, we were buying Betaseron, IL-2, the whole organization, which hadinfrastructure that we didn’t have, and we were buying this research portfolio.140We did look over the research portfolio. The analysis was carried out quitebroadly. The monoclonal approach, which evolved in the late nineties asopposed to ten years before that, we didn’t have the personnel or the resourcesto initiate a major program in that field (which it needed). Further, ourposition in the field of immunology wasn’t strong enough to drive thecompany in that direction. We looked at all programs that were suggestedinternally, or by our advisors.Hughes: Cetus had an amazing advisory board.Rutter: They certainly did, including people like Francis Crick. We talked to anumber of the key people, Stanley Cohen, in particular.Hughes: Did he join the Chiron board?Rutter: No, he was with Cetus Immune, a group located near Stanford. He talked tous, but it was a question of finding a program which we could work togetheron, and we weren’t big on scientific advisory boards at the time. We weremore focused on programs. Of course, we were involved in immunology, too.The vaccine program is an immunology program. Several of our projects wereantibody projects. It was a question of selecting the most attractive programsand planning out their execution. The TNF program was an internal program.It didn’t come from Cetus. I consider that our biggest miss. So it wasn’t thatwe simply dismissed Cetus projects. We looked at them. A company couldhave been built around monoclonal antibodies perhaps, but it would take a lotof resources, and time. We were certainly not in possession of exclusionaryIP.Hughes: Yes, right. I know that Don Glaser was on the Chiron board for seven years.Were there others from the old Cetus board who joined the Chiron board?Rutter: Yes, several.Hughes: Did you find them helpful?Rutter: Don, of course, is an extraordinarily intelligent and constructive person at ahigh level, so he was superb in discussions, but perhaps not so valuable indiscussing operational details. We had others that were primarily commercialtypepeople in different fields. Carl Djerassi was on the board. Obviously, heis also an extremely bright and experienced person, but I think he was alsooriented more to his own personal take on projects, he had been involved within Cetus’ past, rather than the current pragmatic interests of the company. Itwas a somewhat awkward period. We never heard any strong opposition orstrong suggestions by the Cetus group and after an appropriate period of timeboard we began to transition toward a more functional board. We lost someindividuals from both companies, but eventually ended with a smallerfunctional board.141[Tape 13, Side B]Rutter: The Cetus discussion emphasized one of the fundamental areas of emphasisand strengths of Chiron, which was the belief that intellectual property wouldshape the future. We were one of the companies, after Genentech, thatdeveloped an internal intellectual property group, an extremely strong one.Although Genentech had arguably the most driving IP attorney—Hughes: Tom Kiley.Rutter: Tom Kiley. We had Bob Blackburn, one of the most sophisticated and overallintelligent practitioners in the entire industry. This proved itself in the areas ofour strength, especially in hepatitis C and HIV, but in many other areas aswell. After the acquisition of Cetus, we used to show slides where thenumbers of patents we had in biotechnology would be roughly equivalent tothat of major international corporations.Hughes: I read that as of 1984—this is from the annual report—you had well over ahundred patents pending.Rutter: Not surprising in 1984, but I would guess in five to seven or eight years after,we had more than a thousand. That number of patents created a challenge tomanagement both from the standpoint of cost and also utility—the strategicmanagement of the IP portfolio was a significant issue. It was a majorbalancing act to give the intellectual property portfolio the attention itdeserved and the resources it needed.Hughes: Who was primarily responsible for that kind of thing?Rutter: Bob Blackburn was of course in charge of the patent estate.Hughes: Yes, but he was a patent attorney. Was he also responsible for seeing thatChiron took advantage of its patent positions?Rutter: No, that was a more broadly based set of responsibilities. Bill Green, ourcorporate attorney, had the responsibility of developing a strategy forprotecting the IP from a strategic as well as practical point of view. Also, thedirector of research had a significant role. (Pablo Valenzuela, or later RustyWilliams). The number became so large, and the analysis of them became sospecialized, that maximizing the value of those properties was always anissue. It always is an issue in a company that has a large intellectual propertyportfolio.Of course we became involved in other internally generated projects too—ones where we made major contributions. The first one of which was AIDS,which started after hepatitis B, as a result of a collaboration with Professor Jay142Levy at UCSF. He had indications of a retrovirus, whose function at that timewas not totally well known, but was associated with Kaposi’s sarcomapatients. It turned out to be one of the initial clones of the HIV/AIDS virus.We decided, because of its size and because of its properties and its likelyassociation with disease, that it was worthwhile tackling. So we established aprogram that aimed at culturing it in large enough levels to be able tosequence the genome. Essentially this became our next target.Hughes: You make it sound so deliberate. I mean, there was a tremendous race at thetime, as you are well aware.Rutter: It had to be deliberate, because it required a lot of capital—human andfinancial. In the early days we were not sure it was the same virus.Hughes: Oh, is that so?Rutter: Yes, we were not assuming that it was the same virus, but soon it becameobvious. And in any case, there was a race to sequence the next infectiousagent that was transmissible and related to disease in humans.Hughes: But were you assuming that it had a connection with the disease?Rutter: Well, that was before AIDS was recognized as a disease. We were assuming itwas related to Kaposi’s sarcoma, and we were presuming that anything likethat would have maybe had a broader disease manifestation. But in the earlydays, it was not recognized that it was going to be an international disease ofthe dimensions of AIDS.Hughes: Because it’s such an important part of history, say how Chiron’s research withJay Levy was related to the Robert Gallo-Luc Montagnier controversy overpriority in discovering HIV.Rutter: Well, we were working like crazy to sequence that virus, and somewherealong the line we realized it must be the same virus, or a closely relatedvariant. It certainly was a race to get the required amount of material and thendoing the sequencing. There were many heroes in that race, for sure. But Ithink Kathy Steimer (now deceased) was preeminent. She did all the culturingof the organism herself to provide material for sequencing. She didn’t wantothers involved because of the danger. She was absolutely resolute, and we allowe her a debt of gratitude. The rate of progress of the project really dependedon her. Of course there were other people who were involved in sequencingthe virus who were absolutely extraordinary and dedicated all the way. PaulLuciw and Dino Dina were involved at that time. The people in the laboratoryall working under Pablo were outstanding. No one is better than Pablo indirecting the execution of a research program. I think there is little doubt thatChiron got the sequence first.143Hughes: What came out of that race was that Gallo’s virus was actually Montagnier’svirus.Rutter: Well, that may be, but that had nothing to do with us. Our virus had anindependent source. It was not Montagnier’s virus.Hughes: Well, it was indicative, though, that there were a variety of different AIDSviruses.Rutter: Well, it was indicative. Yes, there were subtle variations. But did that meanthere were only two? No, not necessarily. But the fact that there were differentvariants to the same virus only became clear when the sequences werecompared.Hughes: But the fact that the other people sequencing all came out with virtuallyidentical sequences, except for the Chiron group, showed that it was verylikely that the other groups were using the same virus, which wasMontagnier’s.Rutter: Yes.Hughes: Well, Chiron did have a role in showing that there were variants.Rutter: Yes, for sure. But as far as our intellectual property on HIV was concerned, itcontributed to our position with respect to discovery and a broad IP position.But that aspect was a sideshow. A major sideshow, but still a sideshow. Theseobservations really fueled our enthusiasm for our overall strategy. Anotherimportant virus needed to be characterized so that it could be detected,quantitatively assayed, and hopefully eventually controlled, and we had thetechnical wherewithal to do it. That supported both the diagnostic and vaccineapproach. We immediately began working on a diagnostic test and also a HIVvaccine. Here we are more than twenty years later, still no vaccine. But thequantitative tests for the virus have allowed elimination of major sources ofviral spreading in the population, and also the ability to develop drugs, whichhave been spectacularly successful, especially in the hands of Gilead.At the same time this was going on, we had a major research focus onhepatitis non-A, non-B, as it was called. There was evidence for infectiousviral hepatitis that was neither hepatitis A or B (since both had beencharacterized they could be distinguished). We tried to find out whether therewas one or more viruses causing non-A, non-B hepatitis. Of course it turnedout to be a single virus which we termed hepatitis C. At this time, we were atthe center of viral research working on two of the major viruses causingenormous public health problems. Because of their limited size, both could becharacterized by sequence and hence could be studied quantitatively with themethods we were developing. Let me emphasize these were major wholecompanyprojects, the entire management group was focused on the execution144of the projects. We had research meetings nearly every Saturday in which thedetailed results were discussed and future experiments planned. Pablo wasdirectly involved in planning and analysis of experiments, and I alsoparticipated in strategic planning, starting with negotiating with the CDC forthe use of blood from infected chimpanzees which had been characterized byDr. Daniel Bradley. One of the chimps, Rodney, contained virus in sufficientquantities so that it could be isolated and characterized. So it’s not surprising,on the one hand, that we couldn’t take on many other projects, and in thecontext of our focus on infectious disease, it was appropriate that we focuswhere we were focusing. We had support for vaccines, we had support fordiagnostics within the context of these joint fifty-fifty deals we had previouslynegotiated. On the other hand, it created an issue: how were we going todevelop therapeutics when so much effort was being devoted to getting FDAapprovals of our diagnostic tests and getting some kind of commercialframework in which to further develop the organization.About the same time, we had two other technology-based programs thatemphasized both the scientific and the technical diversity and the problems ofdiversity within Chiron. One of them was Protos, which was a program thatcame out of conversations that Dan Santi and I had had, concerning thepossibility of developing peptides as therapeutic agents. The general idea wasthat peptide libraries of sufficient complexity could readily be synthesized andscreened for optimal binding, and usually drug targets (e.g. immunologicepitopes) were smaller and could be addressed by these peptides, either asquasi-epitopes or as direct binding to targets. Eventually patents that emanatedfrom those conversations were filed. It was essentially a chemical approach,but it had a genetic flavor in the sense that one could ostensibly produce allthe combinations of peptides, and those peptides then could act either asbinders or target analogues (e.g., as epitopes). Diversity of that magnitude wasan analogue of genetic diversity, yet it was addressable by chemical synthesis.So it was a strategy that might be linked to immunology as well astherapeutics. It was an interesting idea in the context of where the science wasat that time, and where we were as a technology company. So we set upProtos as a separate company, mostly because of the strong desire of DanSanti.Hughes: Did he want to be a Chiron employee?Rutter: No.Hughes: Was he coming straight from academia, straight from UCSF?Rutter: Yes, but he retained his position at UCSF. He participated part time. Protoseventually ended up with twenty-five or thirty people. It developedintellectual property, had a separate option plan, and a formal relationshipwith Chiron. The consequence of that was that the employees inevitablywanted to get the best of both companies. They preferred equity (options)145from Chiron when it was doing well and independently from Protos when theythought Protos might be doing better as a startup. The two companies wereindependent though Protos was wholly owned. We spent a lot of timenegotiating and haggling. It became contentious at times and very difficult tomanage in a fashion that satisfied both groups.Hughes: Why did you have to work together?Rutter: They were getting their resources from Chiron, and there was not an easy wayto get resources elsewhere for them, and so it was just a constant haggle. Inthe end we decided we had to repurchase their shares at a negotiated priceestablished by attorneys. There are great difficulties whenever that sort ofthing arises.Hughes: So what happened in the end?Rutter: We bought back the shares at an aggressive price in order to resolve the issue.Hughes: Was that the end of Protos?Rutter: That was the end of Protos and the beginning of a program with peptidechemistry/biology.There was this Australian company, Commonwealth Serum Laboratories inMelbourne, that also had a program called Mimotopes, that was based on thesame general principle: a synthetic approach to peptides, essentially solidphasesynthesis on a pin that could then be used for discovery and analysis. Itwas a very nice idea pioneered by Mario Geysen. CSL wanted to spin outMimotopes since it was not related to their general interests in vaccines andblood products. Because of its close conceptual relationship to Protos we wereattracted by it, and eventually we purchased it, and it became an adjunct,largely research business on its own. It was an excellent research tool. Weused it to define the epitopes of hepatitis C, for example. We tried to developit as a research business. It was too far afield from Chiron’s interests andstrengths to maintain as a separate research business within Chiron.Hughes: So is that another example of being too widely oriented?Rutter: In one sense, absolutely. However at that time the research on proteins, andspecifically antibodies, was technology-restricted by the available tools. It wasvery useful and potentially differentiating for our own research business tohave avant garde techniques and approaches. So we attempted to add to thebreadth of our research capabilities and in this case facilitate their use byothers as well. This would help pay for the development of the technology,and we’d get the research benefit from it. It turned out to be partiallysuccessful. We did sell to the market but never reached the magnitude thatwould truly support the development of the technology. It was a distant146organization, so it represented a management challenge, so eventually we splitit off.Hughes: Does the company exist?Rutter: It was eventually bought by MitoKor, a company that focused onmitochondria that Walter Moos started.That company is now defunct, and Mimotopes was eventually incorporated insome form into Genzyme and also Pepscan. Mario Geysen, I believe, in someway became affiliated with these programs. Pepscan today is well known andwidely used for epitope mapping.Hughes: After Chiron had divested.Rutter: Yes.Hughes: [laughs] Let me check see my notes.Rutter: You didn’t do badly.Hughes: And you did very well. One wind-up question about Chiron. If you had toname one thing that you did for the company, what would it be?Rutter: I don’t believe in such questions.Hughes: But you’ll answer it anyway, won’t you?Rutter: No, I don’t think I will.Hughes: Well, when you look back at Chiron—Rutter: Well, Chiron is truly a reflection of not just my personality but my approachto both science and business. It’s a coordinated approach which is based on anunfailing belief that technology can be applied to programs which benefitpeople. I’d say we established an extremely strong science base and,immodestly, well, we changed the diagnostic and vaccine industries, and Ithink that’s an enduring change. I think research enterprises can wax andwane, but the persistence of those things, such as a strong science base,continues. And I think hepatitis B, hepatitis C, and the strategy of dealing withhigh technology for diagnostics will persist. I’d say intellectual property as acomponent of building a business is stronger in Chiron than in many othercompanies. I mean the relative contribution of patent revenues and using aresearch organization as a strong continuing base for revenues. Now, othercompanies are doing that nowadays, but I think our strategy was particularlyevident in concept and in practice. Chiron contributed the view that sizedoesn’t matter as much as concepts and the reality of what you have to offer,147given the right set of circumstances. Obviously, size does matter, but ambitionand attitude and novelty match it. Okay.Hughes: Okay. I thank you.[End of interview]148CURRICULUM VITAEWILLIAM J. RUTTERBirthdate: August 28, 1927Birthplace: Malad City, IdahoEDUCATION1946-1949 B.A. Harvard University Biochemistry1949-1950 M.S. Universitv of Utah Biochemistry1950-1952 Ph.D. University of Illinois BiochemistryACADEMIC AWARDS AND HONORS1967 Pfizer Award in Enzyme Chemistry, American Chemical Society1981-2 Faculty Research Award, UCSF1983 J.J. Berzelius Award, Karolinska Institutet, Stockholm1986 20th Brown-Hazen Award, State of New York, Department of Public Health1986 Kroc Visiting Professor, Joslin Diabetes Center, Harvard University Cambridge,MA andUniversity of Texas Health Science Center, Dallas1987 Bertner Award, M.D. Anderson Hospital & Tumor Institute, Houston, TX1993 Member, Fellowship of the International Institute of Biotechnology1996 Honorary Doctor of Science, University of Illinois1996 Honorary Professorship of Science, Eotvos University, Budapest1996 Honorary Doctor of Science, Eotvos University, Budapest1996 University of California, San Francisco MedalELECTED MEMBERSHIP ACADEMIES1984 Member, National Academy of Sciences1987 Member, American Academy of Arts and Sciences1491993 Fellow, American Academy of Microbiology1992-98 Member, Harvard Board of Overseers1998- U.S. National Academy of Sciences Council1998- National Research Council Governing BoardBUSINESS AWARDS AND HONORS1992 Ernst & Young and Inc. Magazine Northern California Entrepreneur of the Year Award1993 BioPharm Achievement Award1994 Harvard Business School Northern California Entrepreneur of the Year Award1995 Heinz Award for Technology and the Economy1998 Biotechnology Hall of Fame (Biotechnology CEO’s)1999 Jacob Heskel Gabbay Award in Biotechnology & Medicine2000 The Bower Award for Business Leadership from the Franklin Institute2003 Biotechnology Heritage Award2004 Inductee to the Bay Area Council Hall of FamePROFESSIONAL POSITIONSl963-l965 Professor, Division of Biochemistry, Department of Chemistry, University of Illinois, Urbana1965-1968 Professor, Departments of Biochemistry & Genetics, University of Washington, Seattle1968-1982 Chairman, Department of Biochemistry & Biophysics, University of California, San Francisco1983-1989 Director, Hormone Research Institute, UCSF1968-Date Hertzstein Professor of Biochemistry, Department of Biochemistry & Biophysics, UCSF1981-1999 Chairman of the Board, and co-Founder of Chiron Corporation, Emeryville, CA (resigned fromboard December 2003)2001 Chairman Emeritus, and co-Founder of Chiron Corporation, Emeryville, CA2002 Chairman/CEO, Synergenics LLC, San Francisco, CAConsultantships150Abbott Laboratories, North Chicago, Illinois 1960-1975Eli Lilly Co., Indianapolis, Indiana 1977-1980Merck and Co., Rahway, New Jersey 1977-1981Chiron Corporation, Emeryville, CA 2000-2003Scientific Advisory BoardAMGEN, Newberry Park, CA 1979-1981ACADEMIC (non-profit) INSTITUTIONS - Board of DirectorsHarvard University Board of Overseers 1992-Novartis (Ciba-Geigy) Board of Directors 1995-1999Carnegie Institution of Washington 1995-Board of TrusteesBay Area Life Science Alliance, Chairman 1997-U.C. Mission Bay Campus LLCCouncil, National Academy of Science, U.S. 1997-Governing Board, National Research Council, U.S. 1998-PROFIT MAKING INSTITUTIONS - Board of DirectorsChiron Corporation, Emeryville, CAChairman of the Board 1981-1999Chiron Corporation, Emeryville, CABoard of Directors 1999-2003Cytokinetics Inc., Board Member 1999-Oscient., Board Member 1999-Praxsys Inc., Board Member 1999-151iMetrikus, Founder, Board Member 1999-Sangamo BioScience, Board Member 2000-SGX, Board Member 2000-2003Synamem, Board Member 2000-Silgen Corp., Board Member 2000-Ventria Bioscience, Founding Chairman, Board Member 1992Poetic Genetics, Board Member 2002NuGen, Inc., Board Member 2002Epitomics, LLC, Board Member 2003PUBLICATIONS1. Hansen, R.G., Rutter, W.J. & Samuels, L.T. (1951). The effect of previous diet on the metabolism of glucoseby rat diaphragm. J. Biol. Chem. 192, 243-249.2. Hansen, RG. & Rutter, WJ. (1952). Fatty acid metabolism of rat diaphragm. J Biol. Chem. 195, 121-6.3. Hansen, R.G., Rutter, W.J. & Craine, E.M. (1952). A nephelometric method for the determination ofglycogen. J. Biol. Chem. 195, 127-132.4. Rutter, W.J. & Hansen, R.G. (1953). Lactose metabolism. I. Carbohydrate metabolism of Lactobacillusbulgaricus strain gere A. J. Biol. Chem. 202, 311 321.5. Rutter, W.J. & Hansen, R.G. (1953). Lactose metabolism. II. The conversion of galactose to glucosederivatives in Lactobacillus bulgaricus strain gere A. J. Biol. Chem. 202, 323-330.6. Rutter, W.J., Krichevsky, P., Scott, H.M. & Hansen, R.G. (1953). The metabolism of lactose and galactose inthe chick. Poultry Science 32, 706-715.7. Hansen, R.G., Rutter, W.J. & Krichevsky, P. (1955). a-D-galactose-l-phosphate. Biochem. Prep. 4, 1-5.8. Rutter, W.J. & Rolander, B. (1955). The effects of ions on the activity of enzyme systems. Acta Chem. Scand.9, 191.9. Nygaard, A.P. & Rutter, W.J. (1956). Interaction of pyridine nucleotide linked enzymes. Acta Chem. Scand.10, 37-48.10. Rutter, W.J. (1957). The effects of ions on the catalytic activity of enzymes: Yeast glucose-6-phosphatedehydrogenase. Acta Chem. Scand. 11, 1576-86.11. Rutter, W.J. & Rolander, B. (1957). The effect of ions on the catalytic activity of enzymes: The old yellowenzyme. Acta Chem. Scand. 11, 1663-1670.15212. Rutter, W.J. & Rolander, B. (1958). The isolation of a green pigment from yeast. Acta Chem. Scand. 12,138-139.13. Rutter, W.J. (1958). The interaction of riboflavin, FMN and FAD with various metal ions: The riboflavincatalyzed photochemical reduction of FeIII and photooxidation of FeII. Acta Chem. Scand. 12, 438-446.14. Rutter, W.J. & Ling, K.H. (1958). The mechanism of action of fructose diphosphate aldolase. Biochim.Biophys. Acta 30, 71-79.15. Rutter, W.J. & Lardy, H.A. (1958). Purification and properties of pigeon liver malic enzyme. J. Biol. Chem.233, 374-382.16. Rutter, W.J. (1960). Aldolase. In: The Enzymes 5 (P.D. Boyer, H.A. Lardy & K. Myrbach, eds), AcademicPress, N.Y., pp. 341-366.17. Rutter, W.J. (1960). Some aspects of the regulation of growth in cell systems. In: Biochemistry ofmorphogenesis, Fourth Internatl Congr. of Biochemistry, Pergamon Press, New York, pp. 20-29.18. Brosemer, R.W. & Rutter, W.J. (1961). The effect of oxygen tension on the growth and metabolism of amammalian cell. Exptl Cell Res. 25, 101-113.19. Rutter, W.J. & Brosemer, R.W. (1961). Glucose production by isolated rat liver cells: Anamylase-oligoglucosidase pathway for glycogen breakdown. J. Biol. Chem. 236, 1247-1252.20. Brosemer, R.W. & Rutter, W.J. (1961). Liver amylase. I. Cellular distribution and properties. J. Biol. Chem.236, 1253-1258.21. Rutter, W.J., Arnold, M., Brosemer, R.W. & Miller, J.A. (1961). Liver amylase. II. Physiological role. J. Biol.Chem. 236, 1259-1263.22. Richards, O.C. & Rutter, W.J. (1961). Preparation and properties of yeast aldolase. J. Biol. Chem. 236,3177-3184.23. Richards, O.C. & Rutter, W.J. (1961). Comparative properties of yeast and muscle aldolase. J. Biol. Chem.236, 3185-3192.24. Rutter, W.J., Richards, O.C. & Woodfin, B.M. (1961). Comparative studies of liver and muscle aldolase. I.Effect of carboxypeptidase on catalytic activity. J. Biol. Chem. 236, 3193-3197.25. Rutter, W.J., Blostein, R.E., Woodfin, B.M. & Weber, C.S. (1963). Enzyme variants and metabolicdiversification. In: Adv. Enzyme Reg. 1 (G. Weber, ed), Pergamon Press, N.Y., p.39.26. Deal, W.C., Rutter, W.J. & Van Holde, K.E. (1963). Reversible dissociation of aldolase into unfoldedsubunits. Biochemistry 2, 246-251.27. Deal, W.C., Rutter, W.J., Massey, V. & Van Holde, K.E. (1963). Reversible alteration of the structure ofenzymes in acidic solution. Biochem. Biophys. Res. Commun. 10, 49-54.28. Rutter, W.J., Woodfin, B.M. & Blostein, R.E. (1963). Enzymatic homology: Structural and catalyticdifferentiation of fructose diphosphate aldolases. Acta Chem. Scand. l7, 226-232.29. Arnold, M. & Rutter, W.J. (1963). Liver amylase III. Synthesis by the perfused liver and secretion into theperfusion medium. J. Biol. Chem. 238, 2760-2765.15330. Blostein, R. & Rutter, W.J. (1963). Comparative studies of liver and muscle aldolase. II. Immunochemicaland chromatographic differentiation. J. Biol. Chem. 238, 3280-3285.31. Rutter, W.J. & Groves, W.E. (1964). Coherence and variation in macromolecular Structures in phylogeny. In:Taxonomic Biochemistry and Serology (C.A. Leone, ed), Ronald Press, NY., pp. 417-34.32. Baker, W.K. & Rutter, W.J. (1964). Influence of insulin and environmental factors on glucose uptake inepididymal fat tissue. Arch. Biochem. Biophys. 105, 68-79.33. Rutter, W.J. (ed). (1964). Metabolic and control mechanisms in animal cells. J. Natl Cancer Inst. Monogr. 13.34. Rutter, W.J. (1964). The malic enzymes. In: Hoppe-Seyler's Thierfelder Handbuch der Physiologisch undPathologisch Chemischen Analyse (K. Land & E. Lehnartz, eds), vol. VI, part A, Springer-Verlag, Berlin, pp.377-387.35. Rutter, W.J. (1964). Evolution of aldolase. Fed. Proc. 23, 1248-1257.36. Rutter, W.J., Wessells, N.K. & Grobstein, C. (1964). Control of specific synthesis in the developing pancreas.J. Natl Cancer Inst. Monogr. 13, 51-65. Reprinted in Molecular and Cellular Aspects of Development (E. Bell,ed), Harper & Row (1965).37. Rutter, W.J. (1965). Enzymatic homology and analogy in phylogeny. In: Evolving Genes and Proteins (D.Bryson & H. Vogel, eds), Academic Press, N.Y., pp. 279-291.38. Rutter, W.J. & Weber, C.S. (1965). Specific proteins in cytodifferentiation. In: Developmental and MetabolicControl Mechanisms and Neoplasia (D.N. Ward, ed), Williams & Wilkins, Baltimore, Md., pp. 195-218.39. Morse, D., Lai, C.Y., Horecker, B.L., Rajkumar, T. & Rutter, W.J. (1965). The mechanism of action ofaldolases. X. The combining sites of rabbit liver aldolase. Biochem Biophys Res. Commun. 18, 679-85.40. Clarke, R.B. & Rutter, W.J. (1965). On the possible occurrence of DNA in mammalian reticulocytes. ExptlCell Res. 40, 425-429.41. Daron, H.H., Rutter, W.J. & Gunsalus, I.C. (1966). Isocitrate lyase: kinetics and substrate-tritium exchangereactions. Biochemistry 5, 895-903.42. Penhoet, E.E., Rajkumar, T.V. & Rutter, W.J. (1966). Multiple forms of fructose diphosphate aldolase inmammalian tissues. Proc. Nat. Acad. Sci. USA 56, 1275-1282.43. Rutter, W.J., Hunsley, J.R., Groves, W.E., Calder, J., Rajkumar, T.V. & Woodfin, B.M. (1966). Fructosediphosphate aldolase. Meth. Enzymol. 9, 479-498.44. Rutter, W.J. & Rajkumar, T.V. (1967). Enzyme variants--Isoenzymes-Isozymes. In: The Encyclopedia ofBiochemistry (R.J. Williams & E. Lansford, eds), Reinhold Publ. Corp., New York, pp. 468-473.45. Rutter, W.J., Ball, W., Bradshaw, W., Clark, W.R. & Sanders, T.G. (1967). Morphological and molecularanalogy in cytodifferentiation. In: Secretory Mechanisms of Salivary Glands (L.H. Schneyer & C.A.Schneyer, eds), Academic Press, New York, N.Y., pp. 238-253.46. Rutter, W.J., Ball, W.D., Bradshaw, W.S., Clark, W.R. & Sanders, T.G. (1967). Levels of regulation incytodifferentiation. Exptl Biol. Med. 1, 110-124.47. Lebherz, H.G. & Rutter, W.J. (1967). Glyceraldehyde-3-phosphate dehydrogenase variants in phyleticallydiverse organisms. Science 157, 1198-1200 .15448. Penhoet, E.E., Kochman, M., Valentine, R. & Rutter, W.J. (1967). The subunit structure of mammalianfructose diphosphate aldolase. Biochemistry 6, 2940-2949.49. Rutter, W.J. (1967). Protein determination in embryos. In: Methods in Developmental Biology (N.K.Wessells & F.S. Wilt, eds), Thomas Y. Crowell, New York, N.Y., pp. 671-683.50. Danielsson, H. & Rutter, W.J. (1968). The metabolism of bile acids in the developing rat liver. Biochemistry7, 346-352.51. Susor, W.A. & Rutter, W.J. (1968). Some distinctive properties of pyruvate kinase purified from rat liver.Biochem. Biophys. Res. Commun. 30, 14-20.52. Rutter, W.J., Clark, W.R., Kemp, J.D., Bradshaw, W.S., Sanders, T.G. & Ball, W.D. (1968). Multiphasicregulation in cytodifferentiation. In: Epithelial-Mesenchymal Interactions (R. Fleischmajer & R.E.Billingham, eds), Williams & Wilkins, Baltimore, Md., pp. 114-131.53. Rutter, W.J., Rajkumar, T.V., Penhoet, E.E., Kochman, M. & Valentine, R. (1968). Aldolase variants:Structure and physiological significance. Ann. N.Y. Acad. Sci. 151, 102-117.54. Kochman, M. & Rutter, W.J. (1968). The similarity of the glyceraldehyde 3-phosphate dehydrogenasesisolated from rabbit brain and muscle. Biochemistry 7, 1671-1677.55. Rutter, W.J., Kemp, J.D., Bradshaw, W.S., Clark, W.R., Ronzio, R.A. & Sanders, T.G. (1968). Regulation ofspecific protein synthesis in cytodifferentiation. J. Cell. Physiol. 72 (suppl. 1), 1-18.56. Lebherz., H.G. & Rutter, W.J. (1969). Distribution of fructose diphosphate aldolase variants in biologicalsystems. Biochemistry 8, 109-121.57. Kobes, R.D., Simpson, R.T., Vallee, B.L. & Rutter, W.J. (1969). A functional role of metal ions in a class IIaldolase. Biochemistry 8, 585-587.58. Wessells, N.K. & Rutter, W.J. (1969). Phases in cell differentiation. Scientific American 220, 35-44.59. Rutter, W.J. (1969). Independently regulated synthetic transitions in foetal tissues. Ciba Foundation Symp.Foetal Autonomy (G.E. Wolstenholme & M. O'Connor, eds), J. and A. Churchill, London, pp. 59-76.60. Harris, C.E., Kobes, R.D., Teller, D.C. & Rutter, W.J. (1969). The molecular characteristics of yeast aldolase.Biochemistry 8, 2442-2454.61. Susor, W.A., Kochman, M. & Rutter, W.J. (1969). Heterogeneity of presumably homogeneous proteinpreparations. Science 165, 1260-1262.62. Penhoet, E.E., Kochman, M. & Rutter, W.J. (1969). Molecular and catalytic properties of aldolase C.Biochemistry 8, 4396-4402.63. Penhoet, E.E., Kochman, M. & Rutter, W.J. (1969). The isolation of fructose diphosphate aldolases A, B andC. Biochemistry 8, 4391-4395.64. Malacinski, G.M. & Rutter, W.J. (1969). Multiple molecular forms of a-amylase from the rabbit.Biochemistry 8, 4382-4390.65. Roeder, R.G. & Rutter, W.J. (1969). Multiple forms of DNA-dependent RNA polymerase in eukaryoticorganisms. Nature 224, 234-237.15566. Rutter, W.J. (1969). The current flux in developmental biology. In: Problems in Biology: RNA inDevelopment (E.W. Hanly, ed), University of Utah Press, Salt Lake City, Utah, pp. 425-441.67. Roeder, R.G. & Rutter, W.J. (1970). Specific nucleolar and nucleoplasmic RNA polymerases. Proc. Nat.Acad. Sci. USA 65, 675-682.68. Roeder, R.G. & Rutter, W.J. (1970). Multiple RNA polymerases and RNA synthesis during sea urchindevelopment. Biochemistry 9, 2543-2553.69. Lindell, T.J., Weinberg, F., Morris, P.W., Roeder, R.G. & Rutter, W.J. (1970). Specific inhibition of nuclearRNA polymerase II by a-amanitin. Science 170, 447-449.70. Spooner, B.S., Walther, B.T. & Rutter, W.J. (1970). The development of the dorsal and ventral mammalianpancreas in vivo and in vitro. J. Cell Biol. 47, 235-246.71. Blatti, S.P., Ingles, C.J., Lindell, T.J., Morris, P.W., Weaver, R.F., Weinberg, F. & Rutter, W.J. (1970).Structure and regulatory properties of eukaryotic RNA polymerase. Cold Spring Harbor Symp. Quant. Biol.35, 649-657.72. Ball, W.D. & Rutter, W.J. (1971). The DNAse activities of the mouse. J. Exptl. Zool. 176, 1-14.73. Penhoet, E.E. & Rutter, W.J. (1971). Catalytic and immunochemical properties of homomeric andheteromeric combinations of aldolase subunits. J. Biol. Chem. 246, 318-323.74. Mildvan, A.S., Kobes, R. & Rutter, W.J. (1971). Magnetic resonance studies of the role of the divalent cationin the mechanism of yeast aldolase. Biochemistry 10, 1191-1204.75. Susor, W.A. & Rutter, W.J. (1971). Method for the detection of pyruvate kinase, aldolase and other pyridinenucleotide linked enzyme activities after electrophoresis. Anal. Biochem. 43, 147-155.76. Simpson, R.T., Kobes, R.D., Erbe, R.W., Rutter, W.J. & Vallee, B.L. (1971). Role of metals in the class IIaldolases: Spectral studies of cobalt yeast aldolase. Biochemistry 10, 2466-2470.77. Weaver, R.F., Blatti, S.P. & Rutter, W.J. (1971). Molecular structures of DNA-dependent RNA polymerases(II) from calf thymus and rat liver. Proc. Nat. Acad. Sci. USA 68, 2994-2999.78. Sanders, T.G. & Rutter, W.J. (1972). Molecular properties of rat pancreatic and parotid a-amylase.Biochemistry 11, 130-136.79. Bradshaw, W.S. & Rutter, W.J. (1972). Multiple pancreatic lipases: Tissue distribution and pattern ofaccumulation during embryological development. Biochemistry 11, 1517-1527.80. Pictet, R.L., Clark, W.R., Williams, R.H. & Rutter, W.J. (1972). An ultrastructural analysis of the developingembryonic pancreas. Devel. Biol. 29, 436-467.81. Pictet, R.L. & Rutter, W.J. (1972). Development of the embryonic endocrine pancreas. In: Handbook ofPhysiology, Section 7: Endocrinology (D.F. Steiner & N. Freinkel, eds), vol. 1, Williams & Wilkins,Baltimore, Md., pp. 25-66.82. Pious, D.A., Susor, W.A., Benson, R.W. & Rutter, W.J. (1972). Independent regulation of cytochromes andglycolytic enzymes in human fibroblasts. J. Cell. Physiol. 79, 423-428.15683. Rutter, W.J., Ingles, C.J., Weaver, R.F., Blatti, S.P. & Morris, P.W. (1972). RNA polymerases andtranscriptive specificity in eukaryotes. In: Molecular Genetics and Developmental Biology (M. Sussman, ed),Prentice-Hall, Englewood Cliffs, N.J., pp. 143-162.84. Kemp, J.D., Walther, B.T. & Rutter, W.J. (1972). Protein synthesis during the secondary developmentaltransition of the embryonic rat pancreas. J. Biol. Chem. 247, 3941-3952.85. Clark, W.R. & Rutter, W.J. (1972). Synthesis and accumulation of insulin in the fetal rat pancreas. Devel.Biol. 29, 468-481.86. David, J.D., Walther, B.T. & Rutter, W.J. (1973). A paradoxical effect of 5-BrdU on specific protein synthesisin pancreatic differentiation. In: Metabolic Pathways in Mammalian Embryos During Organogenesis and itsModification by Drugs (R. Bass, S. Beck, H.J. Merker, D. Neubert & B. Randhahn, eds), Free University ofBerlin Press, pp. 185-204.87. Lindell, T.J., Morris, P.W., Ingles, C.J., Weaver, R.F., Blatti, S.P., Weinberg, F. & Rutter, W.J.(1973). -amanitin and the control of transcription in eukaryotes by multiple polymerases. Ibid, pp. 59-77.88. Rall, L.B., Pictet, R.L., Williams, R.H. & Rutter, W.J. (1973). Early differentiation of glucagon-producingcells in the embryonic pancreas: A possible developmental role for glucagon. Proc. Nat. Acad. Sci. USA 70,3478-3482.89. Ronzio, R.A. & Rutter, W.J. (1973). Effects of a partially purified factor from chick embryos onmacromolecular synthesis of embryonic pancreatic epithelia. Devel. Biol. 30, 307-320.90. Lebherz, H.G. & Rutter, W.J. (1973). A class I (Schiff-Base) fructose diphosphate aldolase of prokaryoticorigin: Purification and properties of Micrococcus aerogenes and rabbit. J. Biol. Chem. 248, 1650-1659.91. Lebherz, H.G., Bradshaw, R.A. & Rutter, W.J. (1973). 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