Capital-hungry biotech companies look overseas

October 09, 1992|By Liz Bowie | Liz Bowie,Staff Writer

Since biotechnology companies were locked out of the equity markets early this year, they have looked across the Atlantic to European financiers and pharmaceutical companies for money and expertise.

And they aren't being turned away. Europe's large pharmaceutical companies seem eager to grab the technology that is so abundant in the United States, but more scarce in Europe.

Speaking yesterday at a World Trade Center conference on global partnerships between biotechnology companies in the United States and those abroad, Kenneth B. Lee Jr., national director of Ernst & Young's life sciences practice, said that once again biotech companies have gone outside the United States to do deals.

During 1988, 450 deals were put together between foreign and American biotech companies, largely because it was a difficult time to raise capital in markets at home, he said.

This year is expected to be another big year for overseas deals.

The one-day conference was held in Baltimore as part of a monthlong biotechnology and high-technology forum coordinated the Greater Baltimore Committee.

"Americans tend to be insular, but now they have Europeans knocking on their door," said Kenneth D. Noonan, vice president of the Wilkerson Group, a consulting company that helps companies in mergers, acquisitions and partnerships.

He said he believes it's the Europeans who are encouraging the deal-making because there is a lack of small biotechnology companies there. The United States spends $8 billion a year on )) basic biotechnology research, far more than European or Asian countries.

Most biotech chief executives yearn to market their products worldwide, he said.

"It's a juicy market," Mr. Lee said, referring to the European Community, which has 350 million people and consumes as many drugs as the U.S. market.

But for a tiny biotech company without regulatory, marketing and manufacturing expertise in Europe, the barriers to selling products outside the United States can be substantial.

That difficulty has led to partnerships, and Mr. Noonan said he encourages biotech companies to swap its worldwide exclusive rights to a particular product for capital.

But he also encourages companies not to give the big pharmaceutical companies so much equity that it allows them to become board members.

"Don't give away your birthright," Mr. Noonan warned.

One company that has been successful is Ariad Pharmaceuticals Inc. of Cambridge, Mass., which raised $46 million in a private placement of common stock earlier this year, setting a record as the largest start-up financing in the biotech industry.

"Not going to Europe means leaving money on the table," said Charles C. Cabot, senior vice president of Ariad, who sees Europe as a major investment center that can provide a company not only with start-up capital, but with financing for all stages of development.

Asia, on the other hand, remains more closed to biotech companies here and requires more investment of a company's time and energy.

Michael K. Hsu, president of Asia-Pacific Strategic Partners, estimated it takes $150,000, about six trips to Asia over a two-year period and gifts for a biotech company executive to win over an Asian investor.

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