Ep50: Joel Marcus

It's a pleasure to be here with you, Luke.

Well, and as you know, we also signed a full building lease for our Eastlake on the lake property with Adaptive, which has just gone public and had a really outstanding initial public offering performance. So we're very pleased. We've really spent a lot of time in Seattle dating back, as you know, to 1996. So it's one of our most important and certainly one of my favorite markets.

Grew up in Denver, Colorado, and came out here to go to UCLA. Did both undergraduate and graduate there. Got a CPA degree and also a law degree and spent the first part of my career as a lawyer. And then really the kind of serendipitous occurrence which really changed my life in a professional way was back in 1983 when the biotech industry was really in its infancy. I was a corporate securities lawyer and I got a call from Morgan Stanley and they said, 'Could you be out tomorrow to Thousand Oaks? We're going to meet with — we're representing a foreign party and we're going to meet with a company called Applied Molecular Genetics, better known as Amgen.' And so this is 1983. Actually it was November of '83. Amgen's market cap was $160 million. People probably didn't even know who that was or how to pronounce it at the time.

My dad was really — neither parent went to college. So my dad was in retail and ultimately ended up doing some government work. And my mom was primarily a homemaker. So it was a pretty average story for a kid from Denver.

Two. Yep.

The best — the middle child.

Yeah, I was pretty typical. Nothing spectacular. I liked to study, so I was pretty studious. I also was not greatly athletic, but somewhat athletic. I was a backup quarterback on our high school team that actually went to and won the state championship. And I just, you know, I was pretty normal. Nothing unusual.

No. I actually was thinking of being a fighter pilot in my early days and I did join the Air Force and I ended up as a medic of all things. And during the Tet Offensive way back in 1968, I was active on active duty actually up near San Francisco at a place called Travis Air Force Base and I was assigned to what's called a casualty staging unit in the Air Force and we flew wounded soldiers from the Tet Offensive in Vietnam through Japan and the Philippines to Travis Air Force Base. And the key there was treat them. They're about one to three days off the battlefield with wounds and then transship them to a Veterans Administration hospital near where they live or where they're based. So I spent part of my time in college doing that. And I was an accounting major, minor, whatever it was, that was my focus and then my plan was to get a CPA and then go to law school and I knew whatever I would do those would be two kind of core skills that would be useful in hopefully anything that I did. But again, I was just pretty average.

I actually wanted to, but didn't. I mean, I would not have turned it down, but I was assigned to this unit and that's what we did, so that's what I did.

Yeah. But I signed up. I joined the Air Force willingly and this is something I wanted to do and I served in the reserves. I was active two years and served in the reserves for four years.

That seemed fine to me. And it was the call to go out to Amgen that really pivoted me to a career focused in the biotech industry. Before that I did a lot of initial public offerings, venture capital work, all kinds of capital markets and corporate securities but didn't specialize in the biotech industry. That just kind of was super serendipitous.

Yep. That's exactly right. I had never — you know, I may have heard of biotech but I didn't ever pay any attention to it. And you know, I actually was doing, weirdly enough, a secondary offering for Getty Oil Company, which doesn't exist anymore. And so as a corporate securities lawyer, when this call came in for Thousand Oaks, I mean, I kind of knew where it was but I'd never been up there. And when somebody said Amgen, I was like, what the heck is that? And in those days, you didn't have Google, so it was a little hard to figure out what the heck is this company about.

So when I came in, I was introduced to the Kirin Brewery people. I was to represent them and Amgen was represented by Cooley, who actually we use now as one of our mainline lawyers thanks to that transaction. And from the day we met, and the end of it was around Thanksgiving of 1983, and this is kind of legendary because it was the first real strategic partnership in the biotech industry and it's one that lasted for a long, long time and a very great one. And the products that came out of there were — erythropoietin became the leading recombinant product that ever, you know, up to Humira's time, that was ever produced. So from the date that we shook hands around Thanksgiving of '83 to the date we signed a fairly sophisticated joint venture, which was May 13th, 1984, you think about six months from shaking hands with a Japanese company and getting a very sophisticated joint venture done — pretty hard. So that was pretty record time. That would have been an American company or European, you would have kind of thought, okay, six months makes sense, but — or you know, less than six months of real work because you had Christmas and Thanksgiving. But there it was, Japanese.

Yeah. Well, Fujiwara Lin had just cloned and expressed the gene for erythropoietin. You know, you were going to need to use mammalian cell production. So it was a very — number one, nobody knew if the product was going to work, and number two, if it did work, the manufacturing of it was pretty daunting, and then how you divide up the world is also pretty daunting. So it was a complicated deal and once I was into it, I knew that's what I wanted to do, you know, for the focus of my life. I didn't at that point ever think about real estate, although my dad was involved in real estate. During part of his years he actually was a home builder. So I had some real estate background in the family, but you know, at that point I was only focused on biotech as a lawyer.

Indeed. George was there, Gordon Binder was there, Bob Wuest was there, Dan Vapnik who ran R&D. So it was a pretty legendary group of people. Kirby Alton, a lot of people who were, you know, there in the original days. And they didn't even know what they had. They had shopped EPO around to a lot of people and no one wanted to write him a check. And finally Kirin said, 'Okay, we'll put up $12 million. You put up four of it and we'll value the EPO technology at $8 million.' And it turned out to be a $24 million JV.

And I'll tell you one weird thing. I have an older brother who is a judge. EPO ended up saving his life because he had a situation where he needed it and it was the medicine that worked to save his life. So it's really weird how that worked out personally, too.

Well, one, it involved cross-border relationships which I've always found pretty interesting. The first place I ever went outside of the United States on a trip was the old Soviet Union. Not because I was in sympathy with them in any way, but I had taken Russian actually in college and wanted to practice. So I did something pretty rare, which is, you know, during the days of Brezhnev, you know, heavy-duty Cold War, go over there and, you know, that was kind of pretty unusual for a US person to do that. So I always liked kind of international cross-border things and also representing the Japanese. I kind of fell in love with the people and the culture and ended up representing over time, over my career, when I was at Brobeck, almost every single Japanese pharma company on inbound investment in US technologies and things. So I ended up actually — this catapulted me to actually a pretty significant practice doing that which I never even imagined. So kind of a weird serendipitous thing.

Yeah. So the other thing that grabbed me, going back to your question just a moment ago, Luke, is much like the millennial generation today, I found that biotech was very mission-driven and really developed a passion. Whereas if I was doing a secondary offering for an oil company, well, you know, it was an interesting exercise in capital markets, but you know, I wasn't really passionate about oil. Although we need it, right? But biotech just grabbed me and I think the sophistication of melding business, science, law, and financial capabilities really kind of piqued my interest. So I practiced and focused on biotech the next decade. So from '83 to '93. And then in '93 I was doing a public offering of a company in the lupus space which ultimately didn't go public, but the chairman and the vice chairman wanted to see me after this pitch meeting and I said okay, fine. And it turned out to be Joe Jacobs, the founder of Jacobs Engineering, and Jerry Sedarski, who was the vice chairman of Jacobs. And they said, you know, you've done a really good job in working with the company here, and we'd like to have you work with us. We've got this idea to — you know, Jacobs is a service company, and they do architecture and design and so forth of lab buildings and manufacturing and all kinds of stuff in the pharma and biotech industry and well beyond. But they said, 'We'd like to own some real estate and we're thinking about starting a company. Would you help us?' So that was the introduction. It wasn't my idea. It was their idea. And over the next nine months, I helped them put together a business plan as a lawyer — I didn't join them — and a financial model. And so that was the first beginnings of the seed of Alexandria.

Yeah, I was a partner at Brobeck. This is about a decade before they collapsed. So they were in very, very good shape and had a great — I did a lot of work for Kleiner Perkins, for Roberts and Stevens. So we had a great client roster including my own clients and many of the firm. So it was a really great practice. I was happy. I had three young kids. And so life was pretty good although I worked hard. I ended up going to Japan for that 10 years, every month for 10 years. So I did it about 120 times. You know, not only Kirin but a lot of other assignments. So you know, it was hard work.

Never even entered my mind.

So at the end of the nine months when we had the business plan and the financial model, they said, well, we're in our 70s so we can help guide it and we can help raise money but we can't run it and you're young. I was 47. So they thought that was young, but it actually wasn't so young, right? And they said, 'Would you come in and do it?' And I'm like, 'No.' So they went about their way. And then they asked me over the next couple of months time and time again, and I just said, 'No, I really have no interest.' And then they had a venture capitalist friend of theirs and somebody I had worked pretty closely with, a gentleman named Jay Rascin, who was a founder of I think it was called Southern California Ventures, SCV. He passed away a number of years ago and he came to me one day, sat with me and he said, you know, Jerry and Joe want you to do this. I know you have a great life, you got great clients and all this stuff, but you know, if you ever do something, if you don't do it now, you'll never do it. So why don't you take a chance? And so I said, 'Well, I don't really think so.' So then he worked on me over the next couple of months and finally I said, 'Okay, just stop annoying me. I'll do it.' But I assumed that it wouldn't work out. And so my backup plan — I had talked to some friends in the investment banking realm. And so I thought, okay, if this just goes south, I'm going to — because I can't go back and be a lawyer because you can't get your clients back once you give them away. So I was going to go into investment banking if this failed. So that was my backup. But I left this job. We formed the company January of 1994 and our goal was to break even. We raised $19 million of Series A and our goal was we would get compensation after once we broke even, 18 months. So it was a big shift, right, from going from a partnership to a startup where you're not getting paid.

And so yeah, but we were lucky. We started and we bought four buildings to start and we got to break even. So we got our employment agreements and started drawing some salary. And then our next goal was to bridge the company to an IPO because my view of the world was if we don't get public and can't raise access to public funds, both debt and equity, we'll never be able to grow this company quickly and the cost of private capital would just be too high. So that was...

Mid-1995.

We did.

Yeah. I mean, when I was a CPA I had actually worked in the REIT sector. So I was pretty sophisticated when it came to real estate and REITs. I had never been an operator, but I had been an adviser and an analyst. So I kind of knew, you know, I had pretty good skills.

Well, that was the grand vision, but the reality was we didn't know. We had no idea if there was a real deep market. We didn't know if this industry would actually — you know, because it's dependent upon clinical trials and discoveries. We didn't know how deep the industry could get. So if you think about 1994, 1995 was still early days. We had a kind of a hope and a dream, but the reality is we just didn't know.

Yeah. So once we got to break even mid-'95, the goal was we had to bridge to an IPO to really grow the company. We had to have a public platform to access a cost of capital that made sense. So we were fortunate. We did a $27.5 million equity private raise as our B round and we were able to get a revolving credit line for $75 million. You know, in the early days our first loan was $2 million where we had to guarantee it personally because nobody believed the company was worth anything. So kind of crazy. And then we were able to use those funds to get critical mass. We ended up with 15 properties. We had 12 employees and we got public in May of 1997 kind of miraculously. But most people said in the public markets, well, this is a weird niche. The buildings are special. Nobody's going to — you know, when you put in a lab, you're going to have to tear it out to lease it to an accounting firm who's going to come in there afterwards. And so we don't put much faith in the sector or in this business. A lot of people wrote that about us, but you know, lo and behold, we were able to use our — we raised $155 million at the public offering. We invested it pretty rapidly and actually our stock went up 50% in the first year. So we went from 20 to 30, which nobody believed. So we knew something was going on. There was a sentiment out there and we accumulated single assets in the early years in our clusters. We felt that Michael Porter's cluster theory — if we stuck to what we thought were the science clusters, East Coast and West Coast, those would be the places we would best invest. And it wasn't until 2004, 2005, and 2006 that we pivoted from single assets to our campus strategy in Mission Bay, New York City, and Cambridge. And that was probably the biggest pivot in the company's history. That movement really catapulted us into a position to be where we are today. Had we not done that, we wouldn't be anywhere near the size. I remember also when we went public, somebody interviewed me and they said, 'Well, what's your goal over the next five or so years?' And I said, 'Wow, if we could be a billion-dollar REIT, that would be huge.' And you know, here we are and our total enterprise value today is almost approaching $25 billion. So kind of crazy. Never imagined that.