LSF Magazine: Fall 2012
The Archetypal Bioentrepreneur
Alejandro Zaffaroni was born on February 27, 1923 in Montevideo, Uruguay. From an early age, he was drawn to science and medicine. He studied a pre-med curriculum at the University of Montevideo, became fascinated by biochemistry, and decided to make a career in the field. Advanced training was not available in Uruguay, so he applied to PhD programs abroad. He received letters of acceptance from the Harvard University and Rochester University. In July of 1945, as World War II was winding down, Zaffaroni hitched a ride on a US military cargo vessel bound for New York City.
His entrepreneurial bent was already evident. On arriving in the United States, Zaffaroni went directly to Harvard, where he learned that graduate research projects were selected by advising professors. He didn’t like the idea. He traveled on to Rochester. He found that the department chair at Rochester, Walter Ray Bloor, encouraged students to pursue independent research. Bloor also promised lab space. That suited the young scientist: “The notion that I could be my own master and have my own place where I could close the door and work in my own little kingdom was extraordinary. I was thrilled and accepted the Rochester offer immediately.”
Zaffaroni chose to investigate corticosteroids, regulatory hormones produced by the adrenal cortex. The first molecules in the class had been identified a decade earlier by several American research groups. As the 1940s drew to a close, biochemists had begun exploring possible medical applications. The chemical structures of several corticosteroids had been identified, but there were no analytical techniques for identifying and measuring those secreted into the bloodstream. Developing this capability promised to enhance understandings of the roles played by corticosteroids in metabolic regulation. Zaffaroni took up the problem as his thesis topic.
He came across a scientific paper by British researchers Archer J.P. Martin and Richard L.M. Synge that described the use of partition chromatography to separate and analyze closely-related, water-soluble proteins and protein hormones by weight. It was an important invention – Martin and Synge were awarded a Nobel Prize for it in 1952. Zaffaroni modified the method for use with insoluble lipids, including steroid hormones. The ‘Zaffaroni system,’ became an essential analytical tool in steroid synthesis. It was the only reliable method of identifying and characterizing steroid hormones with high degrees of specificity. Zaffaroni gained a bit of visibility and acclaim when the Upjohn Company used his invention to manufacture the new steroid wonder drug, cortisone.
On completing his PhD in 1949, Zaffaroni accepted a two-year fellowship at the National Institutes of Health (NIH), where he carried on work in steroid biosynthesis. Afterwards, he received multiple job offers, including an invitation to join the one of the world’s top steroid labs at the Sloan-Kettering Institute. He was also offered a full professorship at the University of Utah, an assistant professorship at Harvard, and positions at several major pharmaceutical firms. Zaffaroni elected instead to join a little-known Mexican chemical company called Syntex SA. He went to Syntex for the same reason he had chosen Rochester over Harvard – the company offered scientific freedom, a stimulating and open-ended research agenda, and opportunities to innovate.
Zaffaroni had been introduced to Syntex’s chief chemist, George Rosenkranz, at the Laurentian Hormone Conference in New Hampshire, in 1950, while at NIH. The pair had struck up a friendship. Zaffaroni became a consultant to the company. In July 1951, he signed on as Associate Director of Biochemical Research, and moved to Mexico City. He intended to use his paper chromatography system to work on cortisone analogs and related compounds.
Syntex’s main lines of business were dependent on the extraction of disogenin, a phytoestrogen, from Mexican yams. The substance served as the starting raw material for the synthesis of steroid hormones. The yams came from the state of Veracruz. Zaffaroni observed that the quality was highly variable. The peasant farmers who dug up the tubers frequently left them out in the elements or in storage for extended periods before transporting them. The roots often arrived in Mexico City partially dried out or partially putrefied. Yields of diosgenin were inconsistent and unpredictable. “It wasn’t really a good deal for anyone,” Zaffaroni said later. “The campesinos weren’t paid much, and we were buying a rotten product.”
Zaffaroni volunteered to improve the collection process himself. He traveled to rural Veracruz to set up a small shop for the preliminary treatment of fresh root supplies. He established a relationship with Don Emilio Fortanet, an old man who ran a yam collecting business. Fortanet agreed to help Syntex procure a better product, but he didn’t want to work at the beck and call of big shots in Mexico City. He agreed to set up a processing plant so long as he did business exclusively with Zaffaroni, whom he trusted.
Zaffaroni found the experience exhilarating, even though the accommodations were spartan and the climate was disagreeable: “The three-room ‘hotel’ in the jungle was often flooded by rainwater, in which case we wore high rubber boots to wade through two or three feet of rainwater in the lobby. We tried to sleep in our clothes on cots, but the place was hot and humid and insects of all sizes kept us awake—huge, heavy beetles and mosquitoes that buzzed around the room all night. In desperation, I would turn on the fan to get rid of the bugs, but the fan was so loud I could only stand it for a short time before turning it off. That was how the night passed: on and off, on and off.”
Despite the hardships, Zaffaroni standardized the operation, increased the workers’ pay, and made the extraction process more efficient— the plant processed four hundred tons of plant material per month. “Although I didn’t realize it at the time,” Zaffaroni reflected, “the experience of organizing the root collection and improving our production was the start of my learning to be a manager and entrepreneur as well as a scientist.”
In 1956, Solmo sold Syntex to New York financier Charles Allen. Allen promoted Rosenkranz and Zaffaroni to executive management positions. The reorganization provided a tremendous opportunity. Rosenkranz and Zaffaroni saw an opening to transform Syntex from a bulk supplier of steroids into a full-fledged pharmaceutical company. The company had assembled a supremely talented team of scientists that included Bert Bowers, Carlos Casas-Campillo, Carl Djerassi, Luis Miramontes, Howard Ringold, and John Zderic. Syntex was ready to take on the world.
The company’s move into pharmaceuticals was realized through the development of a topical corticosteroid called Synalar®. Company chemists synthesized the compound in 1958. Its anti-inflammatory properties made it ideal for treating psoriasis, an autoimmune disorder of the skin. One of the company’s academic advisors, dermatologist Judson Schultz, of the University of Southern California, wanted to improve the absorption of the steroid by psoriatic lesions. He had the idea to cover the applied compound with Saran Wrap™ in order to make the drug more effective. The contraption worked.
The low-tech ‘occlusive’ method proved its mettle in clinical trials, and enabled the company to dominate the market for topically applied anti-inflammatories. Each tube of the cream came with a miniaturized container of Saran Wrap. “I have no doubt,” Zaffaroni has said, “that Syntex’s success as a pharmaceutical company was due to Synalar. Synalar made Syntex a highly profitable company and showed that we could successfully develop and market a drug.”
Syntex Laboratories, Palo Alto, California
Rosenkranz and Zaffaroni realized that if Syntex was to become a competitive pharmaceutical company with staying power, it would need to establish a foothold in the US market. A plan was devised to establish a pharmaceutical subsidiary north of the border. A large chunk of Syntex’s research operation would relocate so the company’s laboratory and clinical studies would qualify for review by the FDA.
Instead of setting up shop in New Jersey, where many major pharmaceutical companies were located, Rosenkranz and Zaffaroni, at the urging of Carl Djerassi, decided to settle in the Stanford Research Park in Palo Alto, California. There, the firm could take advantage of proximity to Stanford University’s impressive roster of world-class biologists and biochemists. Djerassi had recently left the company to accept a faculty position at the school, and with support from Syntex, had set up the Institute for Molecular Biology on Porter Drive.
Zaffaroni was appointed President of the new subsidiary. He moved to Palo Alto in 1962 to begin setting up the operation. He directed construction of a new facility in the research park, overseeing every detail of the design. He insisted on the highest architectural standards, and a physical layout that encouraged collegiality. He incorporated an area for temporary art exhibitions and other public events. He was adamant that the building needed to be impressive: “I wanted the world at large to see that we weren’t some fly-by-night operation, but a high-quality American company, here for the long term and part of the community.” Syntex researchers moved into the new research center in 1964.
The culture of the enterprise reflected the spirit of its leader – experiment and innovation were encouraged in both science and management. Zaffaroni introduced the idea of free-standing research institutes as part of his vision for the company’s maturation: “We would grow, I hoped, not by expansion, the way most American corporations did, but in a much stronger and more creative, even biological way, the way cells themselves grow: we would grow by division.” The institutes gave researchers a great deal of freedom and autonomy within clearly delimited areas of responsibility.
The direction of research was largely decentralized, but the company remained intensely focused on steroid research. Synalar was by far the company’s leading revenue generator. An oral contraceptive became a second highly profitable product. Syntex was already well-known for its role in the development of the birth control pill. George Rosenkranz, Carl Djerassi, and Luis Miramontes had synthesized and patented the key active ingredient, norethindrone, in 1951, but Syntex had no plans at that time to market a contraceptive. Djerassi has said, “Not in our wildest dreams did we imagine it.” Although convulsive change was on the way, Western culture in the early 1950s was simply not yet prepared for a birth control pill. G.D. Searle introduced the first oral contraceptive, Enovid®, in 1960. Syntex followed in 1964 with a safer, more effective product, called Norinyl®.
To wring value from the many additional lines of research generated by Syntex’s creative scientists, Zaffaroni favored the creation of spin-off companies. Syva Corporation was an important joint venture between Syntex and Varian Associates, one of Silicon Valley’s first high tech companies, the first tenant in the Stanford Research Park, and a pioneer in the development of nuclear magnetic resonance (NMR) imaging. The subsidiary, established in 1966, eventually became a diversified diagnostics and instrumentation company. Zaffaroni also pushed for the creation of a satellite company focused on pest control using an insect-molting hormone, ecdysone. That project became Zoecon, a company led by Carl Djerassi until it was taken over by Occidental Petroleum in 1978.
Eventually, Syntex’s innovative spirit was stifled by its own spectacular growth. The company’s great value made the board of directors wary of taking risks. Some members preferred a conventional growth by acquisition strategy to Zaffaroni’s free-wheeling research-driven approach. By the late 1960s, Zaffaroni wanted Syntex to explore new drug delivery technologies, which he believed could dramatically improve the safety and efficacy of existing pharmaceutical products, but he could not persuade the company to invest. It was time for Zaffaroni to leave: “Most large industrial enterprises are not responsive to innovation, and I suspected that Syntex was turning into that type of company.”
In 1968, with blessings from his friends, George Rosenkranz and Charlie Allen, Zaffaroni founded a new company called ALZA to develop innovative methods of drug delivery. Initially, the firm was bankrolled with $3 million of Zaffaroni’s own money, proceeds from sales of Syntex stock: “I wanted to put my head on the platter,” he said, “to put everything on the line and pursue the concept of drug delivery until we absolutely made it work or went under trying.”
Zaffaroni was certain that the time was ripe. “Centuries had passed,” he later wrote, “without significant changes in drug delivery; pills, tablets, inhalations, ointments, powders, and solutions were all in use before 1800. Capsules were developed around 1840, injections around 1850, and intravenous drug administration sometime during World War I. In the 1960s, when I was thinking about all of this, most drugs were still given in the form of one pill several times a day, a practice that struck me as illogical at best, and potentially quite harmful.”
Traditional means of administering drugs, such as pills or injections, are problematic in a number of ways. They put drugs rapidly into the bloodstream at uncontrolled rates. Active ingredients are often wastefully metabolized, and frequently produce distressing or harmful side-effects. The therapeutic benefits of the drug quickly subside; more pills or injections are required, and another round of side-effects ensues. Improving drug delivery systems, Zaffaroni believed, would have great commercial appeal.
To organize and run the business, he hired twenty-six year-old Martin Gerstel fresh out of the Stanford School of Business. Gerstel had recently appeared on the cover of Business Week magazine, and in an article profiling the nation’s top business schools and business students. He became ALZA’s Treasurer and Vice-President of Finance. He quickly adapted to Zaffaroni’s unique style of business and management. “I learned,” says Gerstel, “that if you wanted him to do something, the best thing to do was to say to him, ‘This hasn’t been done before.’”
Zaffaroni set about hiring the best people he could find. He brought in an extraordinary team of engineers, biologists and chemists, and promoted a collaborative culture based on “freedom and resources to make the most of collective talents.” He encouraged interdisciplinary approaches to product development. He also sought to “stimulate ALZA employees to a high sense of personal contribution and accomplishment by placing great emphasis on opportunities for the individual’s creativity and self-realization in his or her professional work.”
ALZA became a public company in 1969, the first US company without revenues to do so. Then, through a series of creative private and public financings, substantial funds were raised for the support of the company’s product development projects. Over the next several years, ALZA’s development teams invented a series of improved drug delivery technologies. In 1974, the FDA approved the Ocusert® system, a time-released ocular insert to treat glaucoma. Previously, patients had to use eye drops multiple times a day, leaving them with hours of headaches and blurry vision. The Ocusert system delivered low, steady doses of pilocarpine, a compound that reduces intraocular pressure. The Ocusert system was followed by Progestarset, an intrauterine time-release contraceptive device, the OROS pill delivery system, and transdermal patches for motion sickness and smoking cessation, among many others.
Drug companies were not terribly interested in any of it. They remained locked into the chemical paradigm of pharmaceutical development: drugs are improved by moving molecules around. Even if the new technologies worked well, the big companies were in no hurry to implement them. They had few incentives to move so long as their competitors remained similarly complacent. Improving drug delivery remained a mostly foreign concept. According to Zaffaroni, Martin Gerstel once told a pharmaceutical executive that ALZA was in the drug delivery business; the executive inquired about the company’s fleet of trucks.
ALZA’s chemistries and engineering designs were immaculate, but the company’s technical achievements did not translate into immediate commercial successes. Ocusert failed to live up to expectations as a revenue generator. It was an era before the widespread use of contact lenses. Older patients were generally leery about placing a small patch directly on the eyeball, and few ophthalmologists were willing to take the time to educate and encourage their patients to do so, especially when Merck had just released a once-a-day eye drop for glaucoma, Timoptic®.
It seemed as if the device was ill-fated from the start. Gerstel remembers receiving a phone call informing him that the plane carrying the first shipment had slid off the runway into San Francisco Bay. “That was not a good omen,” he says. Progestasert was also star-crossed. It chances in the marketplace were seriously harmed by litigation and publicity surrounding the Dalkon Shield®, another intrauterine device introduced in 1970 by the A.H. Robins Company. The Dalkon Shield was linked to severe pelvic inflammation and many deaths. Progestasert was perfectly safe – it possessed an admirable safety record – but consumers were spooked.
The commercial failure of these technological achievements weighed heavily on Zaffaroni. “It was hard to accept the fact that such well-conceived programs could fail, and that even if our work was the best in the world, there was no guarantee of success. The repercussions of those failures for both ALZA, and me personally, were devastating and demoralizing. I felt that my idea of creating a full-fledged pharmaceutical company with its own sales force had failed. Our sales force had nothing to sell, and we were headed for bankruptcy.”
By 1976, ALZA was on the brink. The firm was forced to lay off 200 employees, a third of its workforce. To keep the company afloat, ALZA executives knocked on the doors of multiple pharmaceutical, chemical, and oil companies in search of corporate partners – to no avail. Finally, the company negotiated a massive recapitalization with Ciba-Geigy in 1977, ceding full control to the European pharmaceutical firm in the process. “It was a difficult time for me,” recalls Zaffaroni. “I had left one big company, only to find myself working for an even bigger, more bureaucratic one.”
Entrepreneurship and innovation entail serious risks. Scientific and technological masterpieces do not automatically translate into commercial success. The company managed to survive, but at the cost of its autonomy. For Zaffaroni, the episode was a crushing disappointment and a turning point.