LONDON _ The rise in the value of U.K. biotechnology stocks is good news for start-ups setting out on the long haul to market. But does the increase in public companies' shares do anything to aide the survival chances of their less mature siblings?

Biotechnology may have become a honey pot but it's still difficult to get companies off the ground, said Andrew Allars, of Prelude Technology Investments Ltd., in Cambridge, the only U.K. venture capital fund to back start-ups exclusively.

"There are a smaller number of players in the market doing true start-ups and getting seed investments is harder than ever," he said. "However, if there are projects around which have been seeded, there are some later- stage venture capitalists with more enthusiasm."

One man to agree ruefully is Jim Pickard, who has spent the past three years looking for backers for Core Technologies Ltd., a drug delivery company he founded in Kilmarnock, Scotland. "It is still very difficult to start- up a biotechnology company. In the three years since setting up Core Technologies our management team of four has done nothing but fund raising."

Three years down the road Core has raised 7 million, and having passed a few milestones, things are looking up. "The wave of enthusiasm generated by the rise in biotech stocks makes it that bit easier."

Peter Smith, an analyst for James Capel & Co. Ltd., of London, argues that the rise in the market has created a critical mass which improves the prospects for start-ups. "Before the middle of the year it did not matter to fund managers whether they were in or out of biotech stocks." Now, he said, the sector is established and, "People can see there is a way of being able to realize the fruit of their investment."

Smith said this is feeding the forward cycle of investment in start-ups. "Venture capitalists can see they can get money out of companies they invested in."

Remaining doubters must have been swayed at the end of November when the valuation of British Biotech plc, of Oxford, rose by 250 million to 750 million. This followed the release of preliminary Phase II data showing that the company's anti-cancer drug Marimastat appeared to have some action in preventing tumors from metastasizing.

"It is clear that more and more fund managers accept there are major opportunities and this must make it less difficult for start-ups to get funding," said Ian Smith, an analyst at Lehman Brothers. But he cautions, "What has changed is the perceptions of investors _ it's still a high risk market."

Jeremy Curnock Cook, director of Rothschild Asset Management Ltd., of London, which runs two funds, Biotechnology Investments Ltd. and International Biotechnology Trust, said British Biotechnology is an important role model. "This was a visible demonstration that the sort of successful start-up there has been in the U.S. could happen here too."

Aside from cash, the growing stock of managerial expertise available to start-ups also is giving them a better chance of survival. These skills are coming not just from people with experience in the sector, but from senior marketing people washed out of pharmaceutical companies by the current wave of restructuring. "There's no doubt start-ups are helped by the big pharma shake- out," said Curnock Cook. "There are now plenty of people around with experience of bringing drugs to market, a skill that the entrepreneurs who set up companies do not have."

The consolidation of the pharmaceuticals industry is promoting the survival chances of start-ups in another respect. Recognizing that they cannot cover all the research bases alone, the big drug companies are increasingly reliant on partnerships with biotechnology companies. Such arrangements are now more likely to involve joint research and development rather than straightforward licensing.

In the past, U.K. companies may have looked with jealousy at the ease with which their U.S. counterparts could get funding. Today there is an advantage in being European, said Roger Craig, a founder of Therexsys Ltd., of Keele, the only human gene therapy company in the U.K., and one of only a handful in Europe. "It's much easier to be seen and noted," he said.

Now that investors are converted to the cause, the worry is that the bandwagon effect will dilute the quality of start-ups. "We need to be careful not to get into the same situation as the U.S.," Smith said. "When the technology got hot, all sorts of nonsense got funded.

"Investors need to be very wary of saying, `It's a biotechnology company, it must be good.'" However, he added, there is still a large untapped resource within U.K. universities. n

-- Nuala Moran Special To BioWorld Today

(c) 1997 American Health Consultants. All rights reserved.