BioWorld International Correspondent

CARDIFF - The pride of Welsh manhood, as represented by the country's rugby team, rubbed their bulky shoulders with the cream of its life sciences sector in the lobby of the St David's Hotel, in Cardiff's redeveloped and gentrified docklands recently.

As the rugby team went off to hone its musculature for a match the following day against England, delegates to BioWales 2007 were left to ponder how to develop the financial muscle needed to compete on the international stage.

Peter Keen, a venture capitalist who bears the scars of 23 years in the industry, told conference attendees there are four essential ingredients of a successful company: quality technology, quality management, quality shareholders and image.

"And image is something VCs don't want to spend money on, so Wales needs to create the right image to attract investors," Keen told delegates.

While finance will be more readily available if those four pillars are in place, the state of the public markets means it is no longer possible for VCs to make money on investments in early stage companies. "VC money comes in, in order to get out. If they can't see an exit, they won't come in."

But it would be wrong for early stage companies struggling to find capital to conclude that there is not enough money, said Keen, who is a partner with Esprit Capital Partners. "There actually isn't a shortage of money; there is a shortage of projects where commercial funders can get a return."

VCs now are looking to invest at Phase II, whereas previously they would invest at the lead/preclinical stage. "Therefore you need to find sources of non-commercial money," Keen said. "That's why soft money from public sources is so important to bridge the gap."

Even when armed with a public listing, it is a challenge for biotech companies to raise the money needed for ongoing development, Andrew Heath, CEO of Protherics plc, told the conference. His first act on joining what was then Therapeutic Antibodies Inc., of Nashville, Tenn., in 1998, was to raise $4.5 million to keep the business afloat. That paved the way for the company to be repatriated to the UK and merge with Proteus International in 1999, forming Protherics.

Since then London-based Protherics has done a series of different fund raisings, taking in £59.5 million (US$115.7 million) in total. Heath told delegates the quality of the rounds gradually improves, but it does take time. One particular problem in the UK is the system of pre-emption rights, whereby existing shareholders have to be given the right to participate in any share issue that amounts to more that 5 percent of the total share capital.

The consultation process takes three to four weeks, and inevitably the shares are issued at a lower price than when the fund raising was initiated. The pre-emption rights limit for biotech companies was recently raised to 10 to 20 percent of shares in issue, but Heath said it remains a prime example of "biotech rights not being aligned with those of generalist shareholders."

Heath also cautioned against aspiring to a Nasdaq listing as a way around the difficulties of raising money in Europe. Protherics de-listed its U.S. ADRs 18 months ago because Sarbanes-Oxley compliance was costing £2 million per annum. "It really is tough and expensive," said Heath. "You need strong U.S. connections to make it worthwhile."

Overall, noted Heath, it takes more time to build up a biotech company than most shareholders want to invest. One of Protherics' strengths is that two of its institutional investors have been patient, long-term supporters.

Despite that support, "There have been several times when we had just a few week's cash left. Everyone you speak to in this industry has had a near-death experience," Heath said.

He concluded, "All the success comes at the tail end of a great deal of trial and tribulation."

No doubt the Welsh rugby team would agree. After consecutive defeats at the hands of Italy, France, Ireland and Scotland, they beat the old enemy England, 27 to 18 in Cardiff's Millennium Stadium on Saturday.