If his life were a movie like, say, "The Graduate," there'd be a scene where Stephen Turner's uncle would herd him to a corner of a crowded room, casually drape an arm around his shoulder and conspiratorially whisper, "Stephen, I have just two words to say to you: Restriction Enzymes."
Instead, in real life, Turner had a father-in-law bankrolling him on a wild entrepreneurial adventure that sent his high-flying genetic engineering company--Bethesda Research Laboratories--sputtering over the abyss of bankruptcy. As a story, it might be called the "Indecent Exposure" of designer genes. As a case study, it's a classic example of trying to go too far too fast on too little.
"I was taught long ago that the goal of business planning is survival," Turner once said. That's precisely why he was sacked as president and chief executive officer of the company he founded. BRL, as Turner had fashioned it, simply could not survive.
However, BRL hasn't gone and isn't going bust. In fact, the privately held company, though it will not confirm it, is on the verge of either going public or being acquired. When that finally happens, everyone with equity in the firm--including Turner--will look back on their harrowing glimpse at Chapter 11 bankruptcy with a blend of nostalgia and disbelief--and then whistle all the way to the bank.
In the mid-'70s, as Stephen Turner puts it, "things were starting to pop." The technique of recombinant DNA--the ability to chemically "engineer" the double helix of DNA to synthesize both old and new generations of organic substances--began to harden into a commercial reality. The prospect of manipulating the genetic code to create everything from insulin to interferon struck scientists and investors alike as a market opportunity quite literally as large as life itself.
"At the time," says Turner, "the life sciences were a sleepy market. Not much had been happening. With this ability to manipulate DNA, maybe the life sciences would have the same impact on people's lives as the electronics industry."
Turner was then a pharmaceutical company executive--the marketing director at Bioquest, a division of Becton Dickinson. But he was a very unusual sort of executive. For one thing, his bachelor's degree from Stanford wasn't in business or biology--it was in music. For another, Turner had married the boss's daughter--Anne Dickinson.
Yet Turner also has, says one source, "an excellent feel" for what scientific approaches can be translated into marketable products. He was said to be a superior executive on his own merits. When the entrepreneurial bug finally bit and Turner decided to launch himself into recombinant DNA, the Dickinsons were there to make sure he could surf on the cash flow.
Turner's Bethesda Research Laboratories, started up in 1976, was a brilliant idea superbly executed. Turner figured, rightly, that there would be an explosion of laboratories and companies exploring genetic engineering. They would all need the tools and supplies to conduct their work at the cutting edge. Turner's BRL would supply them. BRL would be the Sears, Roebuck of the industry. "It was a market-driven approach," says Turner, "we recognized that there would be a market for serving the molecular biologists."
BRL's initial product line featured an array of comparatively low-cost "restriction enzymes" with names like Eco RI and Psp I. Restriction enzymes are the chemicals that let scientists and genetic engineers cut and snip the double helix in precisely the spots they want. At that point, the snippets of the DNA chain can be woven into the genetic structure of a cell and thus transform it into a tiny chemical factory churning out organic compounds of human design. In essence, restriction enzymes are like the word processors of genetic engineering. They let the scientist edit the text of DNA until it's ready to "go to press."
The industry knew a good thing when it saw one. Turner was his company's top salesman that first year but he has said, "I remember going to the National Institutes of Health with enzymes in an ice bucket. They were in such demand that people would pay me with a personal check" rather than sit through the government's procurement cycles. BRL also kept pace with rapid change; within 90 days of discovery, BRL could distribute a newly found restriction enzyme to its customers.
At the end of 1977, BRL reported annual sales of $350,000. The next year the total exceeded $1 million. By the end of 1980, BRL had annualized sales of $5.5 million. BRL was now one of the fastest-growing companies in the field. It had scores of people with Ph.D. after their names. Unlike the heavily publicized Cetus and Genentech companies, BRL didn't rely on research contracts for its revenues--it actually pushed product out the doors.
The company was doing well enough that a couple of major pharmaceutical firms came sniffing around to discuss a possible acquisition. Turner had other plans.
"You start off and find yourself making restriction enzymes," says Turner, "and you're doing well for a few years, on a roll . . . then you have to start asking yourself the next set of questions of what you want to do?
"You have to listen to your customers. They say, 'Thanks very much for the restriction enzymes--but now how do I sequence messenger RNA?' etc." You have to give them what they want."
They wanted everything--and Turner wanted to give it to them. In 1981, he and BRL embarked full speed on a program of expansion. BRL launched full-fledged research and development programs in tissue culture, recombinant DNA, laboratory instrumentation and research products. All told, the company was diversifying into 11 different areas of research. New people were being hired every day. Money flowed in and money poured out. Everything was happening very fast. Too fast.
"What happened," says William Janeway, a partner with F. Eberstadt & Co., one of BRL's major investors and a member of BRL's board of directors, "was a felt need to compete. Turner was trying to adopt the Cetus/Genentech model of development." Cetus and Genentech had both gone public and raised huge amounts of capital for their expansion plans.
In effect, Turner was trying to transform BRL from a solidly based niche marketer to "the quintessential genetic engineering company," says J. Matthew Mackowski of Citicorp Venture Corp., another major equity holder and board member. "They wanted to get into everything."
Between the media hype and Wall Street's infatuation with a hot new growth possibility, the genetic engineering industry could do no wrong. Biotech was the Holy Grail and the Philosopher's Stone all rolled into a double helix. DNA meant cash and everybody wanted some of it.
"BRL got caught up in the cultural excitement," says Scott King, formerly of F. Eberstadt and now a venture capitalist in California. "Perhaps they should have--if the market is throwing money at you, you might as well hold out a bucket."
Turner responded, like any other entrepreneur building a company from scratch, to the frenzied euphoria of the market. He was intuitive and he was brilliant and he attracted good people--but he wanted to build the premier genetic engineering company. The lure of endless capital oozing from Wall Street in search of an easy money investment, ultimately proved to be too tempting, and Turner succumbed to his ambitions. "He was seduced by the Street," says one member of BRL's board who requested anonymity. "It was his ego," says another.
There were specific problems. Turner's major interest was in product development, sales and marketing. While his attitude towards the financial side wasn't cavalier, it reportedly bordered on the casual. "Turner did not have the experience to put in the financial reporting system that was needed," says BRL board member Mackowski. "He's brilliant at recognizing biochemical markets," says Scott King, "but he's just not comfortable with financial projections." Reportedly, revenue statements were several months late in getting to the board. Moreover, Turner ran through a series of financial officers during BRL's expansion period. "He just wouldn't listen to them," says Chuck Newhall of New Enterprise Associates, also a board member.
Says Citicorp's Mackowski, "BRL made the mistake of mixing research and development and production costs. Because of this, their margins on their specialty chemicals restriction enzymes were quite low." In other words, BRL didn't really know how much it cost to make what it was selling at such a rapid clip. There seemed to be a greater emphasis on sales than on profit.
In its quest to expand into new markets, BRL bought Glencoe Scientific--a Houston-based instrumentation firm. "They were losing money on every unit they sold," says a board member. "Buying it was clearly a mistake."
In one six-month period in 1981, BRL went through $8 million of financing funds. During that same time, sales approached $5 million. The company was losing roughly $1.2 million a month. This was the sour tune BRL was spinning to at the end of 1981.
"BRL was expanding faster than its capitalization," says Eberstadt's Janeway. That's another way of saying, other board members concede, that the company was literally hours away from going into Chapter 11.
How could they have let this happen?
"I think clearly that things got away from the board at that time," says Mackowski. Partly, there was the belief that fresh financing would always be available for a company like BRL. Perhaps some on the board felt that Turner was the right person to transform BRL into the mega-company of the field. In fact, says one board member, "Steve and his family owned roughly 70 percent of the voting stock of the company."
In effect, the management was the ownership--and that is why, some board members maintain, it took the threat of bankruptcy to shock a new sense of reality into the company.
"The market euphoria had ended," says Newhall, "it was evident that the company was trying to do too much."
In early 1982, after a series of near-frantic phone deliberations, BRL's board went outside to get a big-gun from New York: Fred Adler, a venture capitalist who built up computer giant Data General and who has a reputation for turning companies around if the price is right. BRL couldn't afford to pay Adler anything but equity. Adler took the job--and a 10 percent chunk of the company--on Washington's Birthday, 1982. "Management had run its string out," says one director.
Adler, who is involved in dozens of venture capital operations, had seen the company about a year earlier when he was asked to go in on a private offering. "It looked exciting," Adler recalls, "but it looked as if it was getting into too many areas. There was just too much hype."
Now, with the complete, total and desperate backing of the board, Adler scrutinized his new company and weighed his options. Part of the reason he'd been asked to come in, says Eberstadt's Janeway, was that he offered instant credibility. The rest of the reason is that nobody could think of anyone else who could save the company before it crashed into bankruptcy.
"They had no strategic plans whatsoever," says Adler. "Every buzzword that was prevalent in life science was their business plan--they'd have been better off buying a medical dictionary."
As far as Adler was concerned, the company "was going on the romance of the stock market." It was riding along with the industry rather than shaping it. Adler went into "turnaround" mode. "He's got it down to a science," says Newhall.
"I went through the table of organization and cut everything that didn't produce sales," says Adler. Adler swung the cleaver and roughly half of BRL's 450 employes were removed. Adler quickly secured $1 million of bridge financing for BRL and the firm issued another $8 million of debt that can be converted to equity.
Living by the dictum of "happiness is a positive cash flow," Adler had thus eased the financial squeeze on the company. He then turned straight to the financial controls. "They didn't know what they were selling," he says, "There were overall figures--they weren't broken out by product. This was an irrational company--it was driven by sales, not profit. They were going for volume instead of adding value. Remember, you're selling value and value is not just price."
Adler had quality assays and shipping times assessed. He brutally slashed research and development expenses in BRL's non-core business. Glencoe Scientific was sold. Everything was redesigned around assuring positive cash flow while securing a solid technical base. It was very radical surgery. "It was either that," says Eberstadt's Janeway, "or the company would no longer exist."
While still cutting, slashing and restructuring, Adler had the headhunters out looking for a new chief operating officer to replace Turner. "Turner was shellshocked," says Adler, "he was sincere, scared and he couldn't believe what was happening. He had been seduced by dreams of glory."
Ego was the root of Turner's failure, Adler asserts. "He not only thought he could drink his own bathwater," says Adler, "he thought he could bottle it and sell it." Yet despite this, there's the general feeling that Turner was a decent fellow who got in over his head.
The fellow the BRL board hired in June 1982 was Dr. M. James Barrett, who was president of SmithKline's diagnostics operation. With both a PhD. in immunology and an MBA, Barrett was just the sort of hard-edged, stick-to-the-knitting hands-on manager that Adler and the board wanted. Although he ostensibly came in as chief operating officer, "Turner was not active the day Barrett walked through the door," says one director. "One of the first things Barrett did when he came in was go to Turner's office. He then said, 'I like this office.' "
Neither Barrett nor Turner would talk about the transition at BRL.
Turner remains on the board, but he recently resigned as its chairman. His successor? Fred Adler.
Poised for public offering or acquisition, the company is valuated by experts at close to $100 million. If that holds, Adler stands to make $10 million for services rendered to BRL. So does Turner.
As for the company itself, indications are clear that Barrett is positioning it to move into both the clinical and diagnostic markets and to begin incrementally the expansion that Turner tried for in one fell swoop. The company now has a positive cash flow off 1982 revenues of $13 million--a 30 percent increase over 1981. A company board member privately expects the company to have revenues in excess of $100 million annually before this decade ends.
And Turner? He talks about his "love for building and running a company."
He declines to say whether he's embarking on yet another venture. "I wouldn't be surprised if he is," says Chuck Newhall, "I'd be more surprised if he didn't."