by Geeta Anand
“You did it, Doc,” he shouted into the phone. “Congratulations!”
“Call off the cows,” said Canfield, ready to make light of the plan to buy a herd now that it was no longer needed. The graphs depicted the results of confirmatory tests that Canfield and his scientists had just successfully completed. At long last, after Herculean effort, they had produced human PTase.
“This will show those guys at Neose,” John said. “Now we can begin our animal studies this spring.”
“I’ve already got my team making our stuff with the human PTase,” said Canfield.
John hung up, grabbed two bottles of champagne from the refrigerator, and headed toward the basement door. Behind him, he heard Megan’s beeper sounding in the toy room and Helen’s uncharacteristically angry voice.
“You put that tube back in now, Megan,” the nurse was shouting.
John knew exactly what his daughter was trying to pull, and raced into the room to stop her. Megan, who couldn’t run to her parents or shout loudly enough to get their attention, had developed her own unique—and very scary—way of summoning them to her side. Perched on her chair, she was holding two ends of the breathing tubes she had disconnected so that her ventilator—recognizing the low pressure—beeped in alarm.
“You know you are not allowed to do that,” John said, angrily. “I’m going to tell Mommy.”
Megan jammed the two ends together, neatly stopping the anxious beeping, and allowed the tubes to fall to the floor. She let her lower lip jut out and whined, “Daddy, Mommy said I could stay up late.”
John decided to give in and save everyone from experiencing one of Megan’s meltdowns, legendary in the household for their fury and duration. She would scream for forty-five minutes—the ventilator alarms blaring—if she didn’t get her way. “Helen, let’s give her another half hour before bedtime,” John said.
Then he crouched down in front of Megan, unable to keep the thrilling news to himself any longer. “You know Daddy’s been working on making Special Medicine for you, right? Tell Helen what you’re going to do when Special Medicine is ready.”
Megan straightened her back, pointed at her red wheelchair, then toward the window.
“That’s right,” John said. “Megan’s going to throw her wheelchair out the window when Special Medicine is ready.
“You know Dr. Canfield—you’ve met him, right. Well, while we’re having our party here, he’s been working on trying to make Special Medicine. And guess what? He just found the exact right way to make it. Can you believe it?”
“What color is it?” Megan asked, eyes bright with excitement.
“What color do you want it to be?” John asked.
“Blue!” said Megan, pointing at her sapphire blue dress. “Can you call Dr. Canfield and tell him Megan Crowley wants Special Medicine to be blue?”
“You bet,” John said. “Blue Special Medicine, coming right up.”
16
Losing Support
Winter 2000–Spring 2001
Cambridge, Massachusetts; Oklahoma City,
Oklahoma; San Francisco, California; Princeton,
New Jersey
John couldn’t afford to let Neose’s displeasure demoralize him. He kept telling himself that the company had no real power over him. Neose, after all, didn’t hold a voting board seat. All that really mattered, John knew, was the support of his board. If he kept that, the Neose debacle would just be a bump in the road.
But what was brewing on the board would prove more dangerous than anything Neose had handed him.
Unbeknownst to John, one board member, Gus Lawlor, a partner at HealthCare Ventures, had begun his tenure particularly skeptical of the young CEO. HealthCare Ventures, one of the most respected health investment funds in the world of biotechnology, had invested in Novazyme over the initial objections of Gus, who at that time had been the venture firm’s newest partner. Gus had opposed the Novazyme investment for one and only one reason—John. Gus saw John’s conflict of interest as an insurmountable obstacle.1
“I don’t believe the guy can be a good businessman and a good father at the same time,” he had told his partners. “I don’t believe it because I don’t think I could do it. What’s going to happen if the question is whether he should spend our money wisely or get his kids the drug? He’s going to spend away our money.”
Gus’s partners had argued that that same conflict of interest made John immensely motivated. John’s urgency, combined with the fact that Genzyme would likely have to buy Novazyme, made it an excellent investment, they argued. In the end, Gus had reluctantly agreed to the investment—his first as a venture capitalist.
When it came time to decide which partner would sit on the Novazyme board, however, Gus’s colleagues decided it should be him. As the most skeptical, he would watch the company the most carefully.
The board membership made Gus nervous. While he was about ten years older than John, it was his first assignment as a partner at HealthCare Ventures, and he was determined not to let it end in failure. He hadn’t been born rich. He’d grown up in the old mill city of Lawrence, Massachusetts, the eldest of four sons born to a pharmacist and his homemaker wife. He’d graduated from the University of New Hampshire and the Yale School of Management—like John, a hard worker and a shrewd businessman.
But unlike the younger man, Gus already had more than a decade of experience in management at four biotechnology companies. And he was now responsible for making profitable investments for HealthCare Ventures—and protecting them. He didn’t have sick children; nor, from his position, could he afford to let anyone’s sick children affect his business judgment. Gus resolved to watch John’s every move.
Everything John did in the first few months after the venture investment seemed to confirm Gus’s fears—and worse. In addition to the huge conflict of interest, Gus found John inexperienced and arrogant.
The first thing Gus noticed was how quickly John was filling senior management positions with people who had no experience in the area they were supervising. “I’m hiring the best and the brightest,” John would report cheerily, when Gus called to check on how things were going at Novazyme.2
He also didn’t seem to be seeking advice or permission from Gus or anyone else on the board before making big decisions. Gus only heard what was going on at Novazyme when he picked up the phone and called John. To Gus’s dismay, he learned only after the fact that John had signed a $2 million contract to build a manufacturing plant in Oklahoma to produce Canfield’s enzyme for clinical trials.3 John hadn’t discussed the contract even informally with board members, let alone at a board meeting.
When Gus phoned John to ask why he hadn’t consulted the board, John sounded annoyed. Then he didn’t believe Gus when he said Novazyme’s investment agreements with the venture firms specifically required the approval of 75 percent of the investors before making “major management decisions.” John had called back later to apologize and say he hadn’t read the investment agreement until now.
“We need to talk,” Gus told him. He and another partner flew to Oklahoma City the next week.
In the ground-floor restaurant of Oklahoma City’s Renaissance Hotel, Gus and his venture partner delivered a stinging critique of John’s record as CEO—less than sixty days after making their investment in Novazyme.4
“Your philosophy of trying to hire the best and the brightest is wrong,” Gus said bluntly, his blue eyes fixed on John’s face in a cold, unfriendly stare. “Nobody at Novazyme has a clue about the clinical side of things.”
“That’s not true,” John replied, stung. “Tony McKinney has ten years’ experience in the drug industry.”
“He was not in charge of drug development—he was a project manager,” Gus retorted. “There’s a big difference. Without some experienced leaders, Novazyme is going to make costly mistakes. For one thing, you’re trying to do too many things at once. And you have no budget controls. Every time I turn around there are more
people hired at the company! You need to slow down and take your time—you’ve got to give Canfield the time to work out the kinks in his research. It’s all right to spend a year or two to get the basic science right.”
John nodded sullenly, not attempting to hide his irritation. He stared defiantly at Gus, saying nothing.
“And finally, you need to communicate regularly with your board of directors,” Gus continued, undaunted. “You can’t just be signing away a quarter of our investment without getting our approval.”
“Yes, I understand that. I apologize for the lack of communication,” John said stiffly when the list finally wound to a halt. “I certainly appreciate your input.”
Gus could tell John had no intention of heeding him.
On the plane back to Boston, Gus turned to his partner and said, “I don’t think John Crowley really gives a damn what we investors have to say. We either have to lump it or impose our will.”
Nervously, Gus waited for what John would do next. A few days later, John was on the phone saying he and Canfield wanted to add a new, unrelated drug to their portfolio. It had nothing to do with Pompe disease, but Canfield believed that the scientific finding had enormous potential and could be turned into a drug treating many other diseases. “It’s a great way for Novazyme to diversify,” John exulted.
Gus couldn’t believe the idiocy of what he was hearing. “You can’t develop what you have in-house already, and you’re talking about bringing in something else?” he said. “You absolutely should not do this.”
“Thanks for your advice, Gus,” John said, cutting the conversation short. “I’ll certainly think about what you’ve said. This new technology fits squarely into Dr. Canfield’s expertise in glycobiology. I’ll give great thought, though, to your reservations.”
Gus hung up, hoping against hope that John had dropped the idea.
But on December 21, as Gus sat in an airport lounge participating in a Novazyme board meeting by phone, John brought up the idea again.
“Steve, what do you think?” John asked, addressing Steve Elms, the partner from Perseus Soros who represented the venture fund on Novazyme’s board.
“If you want to do it, we’re okay with it,” Steve said.5
“How about you, Stuart?” John asked, addressing Canfield’s mentor Stuart Kornfeld, a professor at Washington University in St. Louis and one of the most respected researchers in glycobiology.
“Sounds like a good prospect,” Dr. Kornfeld said.
Dave Albert, the Oklahoma inventor and investor, a friend of Canfield’s, also supported the idea. Only after everyone else had endorsed the licensing arrangement did John ask Gus.
“I have ten different reasons why this is a bad idea,” Gus burst out. “We don’t have the money to finish what we’re doing now. We don’t have the talent in-house to do what we’re doing. I just can’t figure out why you want to bring in another product. We can’t afford to lose our focus.”
“If I can’t keep this company focused on lysosomal storage diseases, nobody can,” John growled, in a rare and emotional reference during business to his children.
“By the time you realize you’ve gotten behind in your programs, it’s too late,” Gus said, unmoved.
“I’m the CEO of the company, and the entire board is behind it, except you,” John said, his voice icy. “I don’t work for you alone, Gus.”
“You don’t work for the shareholders?” Gus said, sarcastically.
“I work for all the shareholders,” John said through gritted teeth.
John suggested they take a vote. Gus waited, silently, afraid he would lose. But then John pulled back, overriding his anger, suddenly remembering the advice that Josh Phillips’s senior partner at Catalyst had given him months ago. “If you ever have to take a vote of your board, John, you’ve lost the board,” David Hendren had said. So John offered a compromise—he and Canfield would do more research on the project and return to the board with more information.
Now Gus was convinced he had to get rid of John. Over the next few days, he phoned the other board members, feeling them out about Novazyme’s CEO. He was hoping to find the others similarly frustrated and at least willing to consider firing him.
“CEOs and their boards do run into problems—every five years or so. Here we have a problem every month,” Gus told Canfield, who was still the largest shareholder, with 49 percent ownership.
Canfield grunted and said nothing, leaving Gus to construe, correctly, that he stood with John.
“I don’t know if John Crowley is the right person to be CEO,” Gus said to Dennis Purcell, Steve Elms’s managing partner at the Perseus Soros Fund, who had made the decision to invest.
“I don’t know either,” Dennis admitted. “But if you shoot Crowley now, it will damage, if not kill, the company. Crowley is the company.”
Gus hung up, concluding that even though some board members thought John could be a headache, there was no enthusiasm for firing him. John was safe for now.
In mid-January, John and Canfield flew to San Francisco for the J.P. Morgan H&Q Healthcare Conference, a who’s-who schmoozefest in the biotechnology industry. They arrived with an agenda: to find investors for the next round of financing for Novazyme, which needed to happen much faster than either of them had anticipated.
As John was keenly aware—though he had made no attempts to stop it—Novazyme’s bank account was swiftly draining. The company would be out of money by late spring without another infusion of cash, and the list of potential sources of new funding from the existing round of investors was dwindling. John had alienated HealthCare Ventures through his jousting with Gus; he had appalled Neose with his disastrous mouse experiments; and Catalyst didn’t have deep enough pockets to give a ballooning Novazyme the kind of cash it needed. There was only one ally with deep pockets remaining from the A Round—the Perseus Soros Fund. John had called ahead of the H&Q meeting and scheduled breakfast with Dennis Purcell, the managing partner at Perseus Soros, and Steve Elms, the partner who represented the fund on Novazyme’s board.
On the morning of the third day of the conference, John and Canfield met Dennis and Steve at a hotel restaurant. Dennis, tall and broad shouldered with a jovial demeanor, was in a very good mood as they settled down at their square table. He had built a stunning reputation while working at the bank sponsoring the conference, and John and Canfield had watched in amazement as the other attendees greeted him like a rock star, flocking around him wherever he went. He started H&Q’s healthcare investment banking group and raised more money in the stock market for biotechnology firms than almost any other banker. George Soros had recruited Dennis a year earlier to start a biotechnology venture fund, and he had raised about $200 million for it so far. Steve, who had followed Dennis from the same group at H&Q, where he’d been an investment banker for five years, spoke to them in a light, familiar tone.6
“You look like a New York City cop,” he teased, squinting across the table at John’s electric blue shirt. John laughed along, then tried to focus the meeting on financing.
“We’re beginning to think about raising our next round,” John said. “Would you guys be interested in leading it?”
Dennis beamed, looked at Steve, and nodded, saying, “You guys are making good progress. We could pull together between $10 million and $20 million.”
“At what valuation?” John asked, feeling Canfield grow tense beside him. The valuation was the price placed on a company before the next round of investment; the higher the valuation, the bigger the chunk of the company the existing investors owned after the next infusion of cash. Canfield had repeatedly told John that the next round had to be at a high valuation so that he could retain the biggest share of ownership.
“Oh, what could we do, Steve …” Dennis said, looking over at his junior partner. “I’d say between $30 million and $40 million.”
John didn’t even have to look at Canfield beside him to know that he was upset. In part because of
their association with Dennis, John and Canfield had been courted over the past few days by a half-dozen other venture investors and investment banks, all clamoring to be part of the next round of financing. These would-be investors had thrown out valuations twice as high as Dennis was now citing.
“Dennis, why would I do this when the guys at other venture firms are throwing out numbers two and three times as high?” John finally offered.
Dennis, his smile fading, appeared taken aback. “What we’re offering is very reasonable for a company that is still a long way from clinical trials,” he said.
“I’m just telling you, we’re hearing numbers like $70 million and $80 million from the other guys,” John said. “We have a fiduciary responsibility to get the best deal for Novazyme.”
“We would take care of you and Bill,” Dennis said. “We’ll give extra options to senior management to make up for any dilution in ownership you experience.”
John shook his head, thinking Dennis could never give them enough options to make up for the dilution Canfield would experience at that valuation. His 49 percent made him the largest shareholder, and he was ardently opposed to losing control over Novazyme.
“You know, you guys should go out and test the waters—go right out there and get yourself other investors,” Dennis said, his face reddening as he stood up. “Good luck to you both. Let us know how it goes.”
The breakfast ended abruptly. John had made another miscalculation, and his inexperience in dealing with the financial world was about to blow up in his face.
At the same conference, meanwhile, Gus had scheduled a meeting with Neose’s Sherrill Neff and Stephen Roth to try to win them over to his side in opposing the in-licensing deal John had been pushing at the board meeting. But before Gus had a chance to make his pitch, Roth launched into a description of the disastrous scientific presentation that John and McKinney had made two weeks earlier, which Gus hadn’t known about.7
