Chapter 17

R. J. KIRK

On Forbes 400 list of richest Americans

Co-founded New River Pharmaceutical—sold for $2.6 billion

Senior managing director and CEO of Third Security, LLC

 

 

 

 

 

So there I was, having one of those typical days when you talk with a billionaire about parallel universes.

Excuse me? Yes, that’s the kind of conversation that can occur when the wildly successful businessman R. J. Kirk starts talking. He’s obviously smart. A law degree from the University of Virginia isn’t bestowed on the intellectually lethargic. Nor is success in starting up companies and making tremendous profits from running them and then selling them. No, you don’t become a self-made billionaire by pure luck. You must have done something right along the way. That makes it a bit curious when you hear him talk about the keys to success: that there aren’t any. Or at least—and I want to pick the right words, because R.J. is very precise—you can’t determine them.

“I’m at a loss to explain success,” he says. “Just as a matter of proof, it’s almost never possible to explain why something succeeded.” And he thinks that most rich, successful people overestimate their own brilliance. “They usually draw the wrong inferences from their own success—one of which being there’s a temptation to believe one is a great deal more intelligent than one truly is.”

Such are the unconventional arguments made by a business professional in a position to comment on careers marked by financial achievement. “By sort of algorithmic fact, we are limited to learning from our failures. It’s true in science. It’s true logically. I would say it’s true tautologically. It’s not really possible to learn from a success.”

For someone like myself, writing a book about learning from mistakes, I found this a breath of agreeably self-serving air. Still, I couldn’t help but feel a little off kilter. I mean, what about all the books and lectures on how to succeed? It’s practically an entire genre. Are they of no value whatsoever?

“With success you don’t get feedback, so you can’t really learn from success,” he says. “You can’t tell which were the critical factors that contributed to a success. And you can’t prove them, because you weren’t able to go back in time and alter those inputs and try it the other way.”

“So,” I say, trying to bring the conversation down to my level, “it’s like on Star Trek when they’re presented with nine different possible universes?”

“I think that’s exactly the way a physicist would think about it,” he says. “If there was a split universe at every decision point and you only went this way, it’s not really possible to test the other universes.

“When you produce a failure, though,” he continues, “It is possible to derive some inferences and therefore to learn from failure.”

Failure is not something that has visited R. J. Kirk on a regular basis. His investments and commitments as an entrepreneur led him to co-found General Injectables & Vaccines, a southwestern Virginia next-day provider of medical supplies to doctors. The ownership team sold the company for more than $67 million in 1998.

Then he and some colleagues founded Third Security, a Radford, Virginia—based investment management company that specializes in life sciences. The company invested in a start-up that became New River Pharmaceuticals, which was sold a few years later for a profit that reportedly netted him close to $1.5 billion.

So if he doesn’t believe that success can teach you lessons, how is it that he has managed to succeed more than once and become a billionaire? “We do enough self-analysis to know what the components of our model are, and we exercise discipline to adhere to that model. But I can’t tell you which of these are critical components,” he says.

“Which of them could be relaxed to obtain the same or a better result, I’m not sure.”

In my universe I might put it like this: If it ain’t broke, don’t fix it.

R. J. Kirk’s Best Mistake, in His Own Words

My business consists of organizing teams of people to produce successful results. This is the unifying theme.

I’m like Louis B. Mayer or David O. Selznick. I’m a good executive producer. I don’t know a lot about acting, or lighting, or costumes, or directing, but I’m pretty good at determining who does know about those things and figuring out which groups of those could work together toward an end point that I have established in my mind.

My best mistake relates to a time in my career when I had already produced a number of minor successes. By that time I had been doing transactions with a number of pharmaceutical companies. My original business was a specialty distributor. That cast me in the role of chief of business development for the specialty distributor. And I found myself in negotiation with the world’s largest pharmaceutical and then biotherapeutic companies to obtain the right to distribute those products in the physician office marketplace.

 

Q. Which company was this?

General Injectables & Vaccines.

I had experienced the following several times: I vvould be in negotiation with the business development person of a major company, and this fellow and I might be hitting it off and maybe the deal sounded like it might make sense, and it would be getting traction on both sides. And this fellow let it be know to me that he was available for employment, and would sometimes actually proffer his resume. I thought that the topic, every time this happened, was improper while this business discussion was going on. So I alvvays deferred discussion about this while a transaction was in the air.

But in truth, after the deal, and without any prearrangement, I usually thought well of the people with whom I had satisfactory business dealings. And knowing that these people were available I would sometimes hire them. Now this is after the transaction. I do not believe I ever did anything improper.

If you’ve done satisfactory business with someone, you usually have a favorable impression of the other guy. My suggestion is that many times that favorable impression is based on vanity. In other words, the other guy liked your deal; the other guy liked you; therefore, you think that he must be pretty good. So my suggestion in terms of what I learned is that ain’t necessarily so!

And this is how I learned it.

At a time when I had collected four such people—three in the means I just described, and one to obtain the approval of a major shareholder of the company that I was running; in other words, he was a relative of a major shareholder (which also is a wrong reason to hire someone!).

So I ended up with four of these people in my employ. And at a certain point, they betrayed me en masse.

Here’s the lesson. I was furious at them for about two seconds. And in the third second or so I realized that I should have expected this. I really had no independent basis of belief that these individuals were loyal to me.

My supposition had been that while they had not been the most loyal individuals in the past, most certainly they would be loyal to me. And again, my suggestion is that that belief was born mostly out of my own vanity.

Maybe they make themselves available to you. But that’s enough to put you on notice. And the fact that they liked you shouldn’t be taken as something that is probative of their good judgment.

The truth is, with respect to all four of these individuals, that I never trusted them. And eventually I found that I should never have acted as if I did.

 

Q. There must have been some business event in which they took another side.

I had a few occasions of this type in which it seemed to me that they were really doing more advocacy for the counterparties in our transactions. So I found myself scrutinizing their work much more than I should have felt the need to.

And then ultimately they resigned en masse to start their own company, which they had been working on for months, as we later learned—while they were employed by my company (GIV Holdings).

 

Q. Does their company still exist?

No, they went out of business.

 

Q. Do you get some pleasure in that?

Oh, it’s better than that actually. These fellows sued me. I give profits interests in all the things that we are doing to all of our executives. And I had given these gentlemen such profits interests. We were in the middle of a transaction, and without going in to all the details, they sued me related to that.

I did have satisfaction because I will tell you I settled with these gentlemen their completely meritless lawsuit by buying securities from them for 50 cents a share that would later turn into New River Pharmaceuticals, which would, in a few years, sell to Shire for a split-adjusted $128 a share. They got the 50 cents a share that they sued to obtain!

I know that their business did fail, but beyond that I don’t know where they are.

 

Q. You didn’t have that experience with others whom you employed in more conventional ways?

Never. I recognized that the core members of the team really are co-venturers in every sense of the word. They believe in what we’re doing. They’re not working on other things, they are completely loyal, and I am completely loyal to them.

In fact, the reason I had the loyalty to the others was that I had granted it to them.

I really do believe that I am the one who committed the error—or at least the error for which I’m responsible—and there was this dynamic of distrust that pervaded those relationships ab initio [from the beginning].

 

Q. Did you have a gut feeling about this?

Yes. There was an element of distrust that pervaded these relationships. And by the way, I see this quite often in business.

If you want loyalty, you have to grant loyalty. People are not loyal to an organization simply because an organization hired them and pays them regularly. It doesn’t work that way.

I always distrusted them.

It was not possible for me to claim or expect their trust, because I had never trusted them. The reason I had never trusted them was because of the situation that had originally occurred when each of them—in three cases—had communicated his availability for employment. And therefore I never trusted them.

About R. J. Kirk

Randal J. Kirk founded Third Security, LLC in March 1999 and has served as its chief executive officer since that time. In 1984, he co-founded General Injectables & Vaccines, Inc. and served as chairman of the board prior to the 1998 sale of the company. Mr. Kirk also co-founded King Pharmaceuticals, Inc. in 1993. Additionally, in 1996 he founded and became chairman of the board of New River Pharmaceuticals, Inc. (previously traded on NASDAQ prior to its acquisition by Shire plc in 2007) and was president and chief executive officer between October 2001 and April 2007.

Mr. Kirk has served as a member of the board of directors of Clinical Data, Inc. since 2002 and as chairman of the board since 2004; as a member of the board of directors of Halozyme Therapeutics, Inc. (NASDAQ: HALO) since May 2007; as chairman of the board of directors of Intrexon Corporation since February 2008; and as chairman of the board of directors of Cyntellect, Inc. since September 2008. He served as a member of the board of directors of Scios, Inc. (previously traded on NASDAQ prior to its acquisition by Johnson & Johnson) between February 2000 and May 2002.

In 2009, Virginia Governor Timothy M. Kaine appointed Mr. Kirk to serve on the University of Virginia’s Board of Visitors. Prior to that honor, he served as rector of the Radford University Board of Visitors and also on the University’s Foundation Board. In July 2006, Mr. Kirk was chosen by the governor to sit on the Virginia Advisory Council on Revenue Estimates. A year later, he accepted a position on the board of directors for the Virginia University Research Partnership.

Mr. Kirk began his professional career in the private practice of law. He holds a BA in business from Radford University and a JD from the University of Virginia.

Third Security, LLC’s story began in the early 1980s, when its founder, R. J. Kirk, was a young attorney in southwest Virginia. From his initial investments, including the formation of General Injectables & Vaccines, Inc. (GIV) in 1984, Mr. Kirk quickly distilled the principles that became the foundation of Third Security’s management model.

GIV was sold to a major competitor for more than $67 million in 1998; and shortly thereafter, Mr. Kirk and a handful of associates launched Third Security in 1999 to help manage their personal investments and affiliated entities. Their investments included a company that became New River Pharmaceuticals, Inc., which went public in 2004 and was sold to a British concern for $2.6 billion in early 2007. Today, Third Security has more than 50 employees.