Fatal Blunder:
                   Genentech CEO, a Man
                   Used to Pushing Limit,
                   Exceeds It and Is Out
                   ---
                   While in Talks With Roche,
                   Raab Asked It to Provide
                   Personal Loan Guarantee
                   ---
                   Scientist Named as Successor
                   By Joan E. Rigdon

                   07/11/1995
                   The Wall Street Journal
                   Page A1
                   (Copyright (c) 1995, Dow Jones & Co., Inc.)
 
 

                   G. Kirk Raab finally skated over the edge.

                   Mr. Raab built Genentech Inc. into a biotech power through daring and
                   aggressive marketing strategies that generated strong sales but earned him
                   a reputation for pushing the boundaries of propriety. Yesterday, he was
                   ousted from his posts as chief executive and president after a board
                   committee did a broad review of his leadership.

                   The proximate cause was an audacious effort by Mr. Raab to secure a
                   $2 million guarantee of a personal loan from Roche Holding Ltd., which
                   owns 66% of Genentech's stock and has an option to buy the rest. Mr.
                   Raab sought the guarantee in the midst of renegotiating Roche's option --
                   a negotiation that ended in a deal some shareholders felt had
                   shortchanged them.

                   Mr. Raab never told his board he had sought the loan guarantee.
                   Although Swiss-based Roche eventually balked and Mr. Raab didn't get
                   the guarantee, to many -- including, apparently, substantial numbers of
                   directors -- the effort seemed a clear conflict of interest.

                   But there was more to it than that. Mr. Raab's misstep unleashed the
                   board probe that in effect provided a pipeline of independent information
                   to the directors. Genentech said the special committee did an "extensive
                   review of Mr. Raab's leadership over the past few years," including his
                   personal finances and continuing outside investigations of the South San
                   Francisco, Calif., company.

                   In one of those cases, Genentech's top sales executive is under indictment
                   in Minneapolis for allegedly bribing a doctor to prescribe Genentech's
                   human growth hormone for more children; trial is set for next month.
                   Genentech's practices also are the subject of broad investigations by the
                   Food and Drug Administration and the Federal Trade Commission.
                   Prosecutors and regulators are scrutinizing many of the very marketing
                   methods Mr. Raab has used to forge Genentech into a biotech power.

                   On the board committee's recommendation, directors voted last Friday to
                   demand Mr. Raab's resignation. He submitted it that day, and it was
                   announced yesterday morning. As his successor, Genentech named
                   Arthur D. Levinson, a senior vice president.

                   In an interview, Mr. Raab maintained that he was guilty of no more than
                   bad judgment, brought on by money troubles. So why did he seek the
                   loan guarantee? "I've asked myself that question a whole lot," Mr. Raab
                   said. "I'm clearly paying a great price."

                   Genentech itself could pay a price for its CEO's messy departure. Some
                   speculate that Roche, should it eventually buy all of Genentech, might be
                   less inclined to continue letting it operate autonomously.

                   Roche's original option to buy the rest of Genentech was to expire June
                   30, but the deal negotiated this spring gave the Swiss company four more
                   years to do so, at steadily rising per-share prices. Under sweetened terms
                   announced yesterday -- at the same time as shareholder suits challenging
                   the four-year extension were dropped -- Roche increased the maximum
                   price it could pay in 1999 to $82.50, up 50 cents. Despite the dropping
                   of the suits, the deal remains controversial.

                   Genentech had more jolting news yesterday. It is dropping efforts to
                   expand its cystic-fibrosis drug to a much broader category of lung ills.

                   Genentech's choice for Mr. Raab's successor raised some eyebrows,
                   because he is primarily a scientist. Dr. Levinson, a biochemist who joined
                   Genentech in 1980, exudes a kind of brilliant boyishness that has made
                   him much-liked in Genentech's laboratories. His office walls are lined with
                   his children's artwork rather than the usual assortment of degrees. It is a
                   touch that, colleagues say, tells much about Dr. Levinson's priorities.

                   His enthusiasm for science is on open display, too. Once during an
                   interview, he got so excited explaining the creation of a monoclonal
                   antibody (an antibody that can target diseased cells and minimize damage
                   to healthy ones) that he leapt from his chair, flung his arms up and struck
                   a scarecrow-like pose to depict the antibody's molecular structure.

                   "Art is a fabulous scientist, but not in my opinion one you would suspect
                   could run this company," said Gary Kaminsky, a Cowen & Co. portfolio
                   manager who until recently was one of Genentech's biggest shareholders.
                   Dr. Levinson said in a statement that he brings "a passion for our science
                   and a strong commitment to the highest business standards."

                   His predecessor's tumultuous ride ended in a fashion that, critics say, now
                   seems almost preordained. A master marketeer, Mr. Raab, 59, joined
                   Genentech in 1985 after missing out in a run for the top job at Abbott
                   Laboratories. There, Mr. Raab is remembered by Jack Schuler, who
                   succeeded him as Abbott's president, as a man who would push the
                   envelope. Within the limits of the law, Mr. Schuler said recently, "Kirk
                   will take it as close to the edge as he can."

                   Mr. Raab's creative and hard-charging tactics are clearly responsible for
                   the sales success of Genentech's leading drug, TPA, a genetically
                   engineered clotbuster for heartattack patients. Mr. Raab gambled $55
                   million in a huge 1993 study that Genentech hoped would show TPA
                   superior to an older and far cheaper rival called streptokinase.

                   The study gave TPA a tiny but statistically significant edge, suggesting it
                   could save one additional life per 100. Some scientists to this day dispute
                   the finding, but Mr. Raab exploited it to the fullest. He sent thousands of
                   copies to hospitals and funded hospital seminars, at one of which a
                   malpractice attorney hinted that doctors could be legally liable if they
                   didn't prescribe TPA.

                   TPA now dominates the market for clot-busters, and it helped Genentech
                   more than double its net income last year to $124.4 million, or $1.04 a
                   share, on revenue of $795.4 million.

                   Mr. Raab also took risks with his personal finances. He said in the
                   interview yesterday that he had sought the loan guarantee because he
                   didn't have the money to pay his taxes. Yet the CEO was paid nearly $1
                   million a year, holds stock in Genentech valued at roughly $786,000 and
                   reaped about $3 million from selling Genentech holdings last year.
                   Acquaintances say one drain has been a $10 million mansion Mr. Raab is
                   building in the Bay Area; one friend says that "it's turned into a money
                   pit."

                   Mr. Raab wouldn't discuss his money problems specifically. "I was
                   putting my energy into Genentech," he said. "It's often the reason that
                   executives like me have very substantial financial-guidance help. I didn't
                   have that." But he said he had been in the hole for years and had
                   borrowed nearly $100,000 annually from Genentech -- and in one year
                   $1.1 million -- on his signature alone.

                   By last year, his outstanding debt to the company had reached
                   $2,075,000, including $750,000 in home loans and "mortgage subsidy"
                   loans, according to Genentech's latest proxy statement. To bail himself
                   out, Mr. Raab sold about 79,000 shares, including 65,625 gained by
                   exercising stock options, grossing roughly $3 million. Theoretically, he
                   could have paid his bill and had more than $900,000 left. Instead, he paid
                   about $1.6 million, leaving a balance of $450,000; he won't say what he
                   did with the remaining $1.4 million.

                   He does say that the stock sale left him with a huge capital-gains tax bill.
                   Mr. Raab says it was this tax bill that led to the move that cost him his
                   job.

                   In April, with the tax deadline looming, Mr. Raab asked a bank for a
                   loan, with his own signature as collateral. "I was proud to find the money
                   myself, and find a way that Genentech didn't have to be involved," he
                   recalls. But the bank said no. It was then that Mr. Raab turned to Roche,
                   sending a four-sentence letter seeking the guarantee. Roche responded
                   with a letter of its own, dated April 10, saying that it would provide the
                   guarantee if Mr. Raab would put up collateral. He had none. Mr. Raab
                   said a Roche official later told him the overture was "inappropriate."

                   Mr. Raab then turned again to Genentech. He says that at the end of an
                   April 13 board meeting, he asked for a new $1.5 million loan, but didn't
                   mention his approach to Roche. The board approved the loan.

                   That might have been the end of it, had not a junior-level employee,
                   sorting through Mr. Raab's files to help respond to a slew of shareholder
                   lawsuits triggered by the May extension of Roche's option, discovered
                   the brief letter that Mr. Raab had written to Roche seeking the loan; later,
                   Roche's letter in response was turned up.

                   Genentech executives were stunned by the discovery that Mr. Raab had
                   been privately seeking a deal with Roche while at the same time
                   negotiating the touchy option extension; in particular, corporate counsel
                   John McLaughlin was concerned, fearing even more shareholder wrath,
                   Genentech insiders say. In addition, some Genentech insiders say Mr.
                   McLaughlin had long been troubled by Mr. Raab's freewheeling tactics
                   and the scrutiny they have drawn. Mr. McLaughlin declines to comment.

                   In any case, Mr. McLaughlin delivered a report to the board June 22 and
                   formed a special committee to investigate further. By now, Mr. Raab
                   could read the writing on the wall: On Friday, he faxed a terse note to the
                   board: "I hereby resign as chief executive, president and board director."

                   In the interview, Mr. Raab seemed to contradict himself about the import
                   of the Roche loan request. On one hand, he said that it wasn't improper,
                   that it implied no quid pro quo and that it had no influence in his
                   negotiations with Roche. Moments later, he said that "I completely agree"
                   with a Roche official's view that the approach was "inappropriate."

                   Cowen's Mr. Kaminsky, for one, wasn't surprised that Mr. Raab has
                   been caught in an ethical snare. "This is just another example of Raab
                   looking out for himself and not the independent shareholder," the portfolio
                   manager asserted.

                   Certainly, Genentech and Mr. Raab have been dogged for years by
                   criticism of their aggressive ways. Much of it involves Protropin,
                   Genentech's human growth hormone. Besides the Minneapolis indictment
                   -- which doesn't name the company itself -- and prosecutors'
                   investigation of other allegations that doctors have been bribed to
                   prescribe more, the FTC is looking into Genentech's funding of two
                   charities that screened schoolchildren; the charities steered those who
                   were very short for their age to doctors, and the corporate connection
                   wasn't disclosed to parents. Genentech has suspended such funding but
                   maintains that there is nothing wrong with the program.

                   Lesser examples concern the behavior of Genentech salesmen, such as
                   one who told doctors that a rival clot-buster was made from urine from
                   portable toilets; the drug is indeed made from urine, but not from such a
                   source.

                   In 1990, Mr. Raab's wife, Mollie, agreed to pay $162,400 to settle
                   Securities and Exchange Commission insider-trading charges of having
                   tipped off a family member to Genentech's deal with Roche.

                   Despite the clouds, Mr. Raab leaves Genentech with a vigorous research
                   department and a full pipeline of promising new drugs in varying stages of
                   development. These include a protein that spurs growth of cells vital to
                   blood clotting and a drug to fight tumors in the colon and pancreas.

                   Mr. Raab continues to believe his crowning achievement will be the
                   Roche deal, which he says ensures Genentech's future as a well-heeled
                   scientific pioneer. But with the option extension, agreed to in May, Roche
                   has four more years to wait and see if Genentech's new drugs fulfill their
                   promise -- and if the investigations do any lasting damage. The
                   $82.50-a-share price at the end of the option period is considered too
                   cheap by many investors. Even though lawsuits triggered by the May
                   option extension have been settled, not all investor anger has dissipated.
                   (Yesterday, Genentech shares closed at $49, unchanged, in composite
                   New York Stock Exchange trading.)

                   The problems Mr. Raab leaves behind have increased speculation that
                   Roche won't let Genentech continue as a freewheeling, autonomous
                   biotech pioneer. That is what Mr. Raab has always said the legacy of the
                   Roche deal would be, and he has fought hard to persuade the Swiss
                   company to let Genentech play by its own rules. Some analysts now
                   believe Roche is more likely to structure Genentech as more of a research
                   boutique than a full-fledged drug maker. A Robertson Stephens analyst,
                   Mark Simon, predicts that under Roche, Genentech will become a
                   "quasimolecular biology institute."

                   ---

                   Ralph T. King Jr. and Marilyn Chase contributed to this article.

                    -30-
 

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