National Editor

SAN FRANCISCO - With an obvious nod to the venue - a city noted perhaps as much for its panhandler population as for its biotechnology ties - Timothy Harris, CEO of Structural GenomiX Inc., offered a novel way of fund raising to an audience here.

During a panel talk on establishing a financial runway at the BIO 2004 International Convention, Harris held up a sign that read, "Homeless Biotech Exec, Need Money," and invited all attendees to contribute $100.

"If you're an early stage company and you don't have compounds in the clinic right now, then you're in a squeeze, because you can't access the public markets," he acknowledged. "The investors in Structural GenomiX have put a good deal of money into building what is a fantastic platform for discovering leads, and we're in the process of taking those leads through preclinical and into the clinic."

But what to do in the meantime? "You've got that gap you have to fill, in terms of funding," Harris said, noting that San Diego-based Structural GenomiX has leveraged its platform to gain partnerships.

From such deals, "you're going to make maybe 50 cents on your dollar," he said. "They can pay for infrastructure, they can help develop the platform, but they're not the business."

The company most recently made news by way of its Fragments of Active Structures, or FAST, technology, which is at the center of a small-molecule therapeutics deal worth up to $68 million with Serono SA, of Geneva. (See BioWorld Today, March 24, 2004.)

Stelios Papadopoulos, vice chairman of SG Cowen Securities Corp. in New York, said the money problem has become trickier as paradigms change in the world of fund raising.

A "central challenge facing our industry," he said, has to do with the impossibility of alternating and mixing venture capital funds to extend through a company's development.

"The undeniable fact is that if you believe the proper business life cycle is from inception of a company and a set of ideas to commercial success - and by commercial success I simply mean product launch and some commercial viability, not necessarily profitability - that [period], in a classical sense, from basic science to product, is a minimum of 10 and up to 15 years," Papadopoulos said. "There's no way to blend venture funds that are compatible with this life cycle."

He recommended starting the company with a "product definition" rather than basic science, or planning to go public in "a reasonable time frame." The latter approach would involve structuring the company "as if you would transact a trade sale," possibly aiming to "graft this technology on top of an existing enterprise [that would] give you good money for it."

On the subject of VC - and of getting from one step to the next, as Harris described - Peter Barrett, senior investment principal with Atlas Venture Ltd. in Waltham, Mass., said his firm wants to know, "whatever the asset or whatever the concept that is being invested in, what is the pathway to the next inflection point of value creation."

The answer to that question is matched with the capital requirements, he said.

"One of the things we ask management teams when they come in is to present, in a single slide show, what the progress of the company would look like, coupled with the capital requirements to get there," Barrett said.

"Where a lot of companies get in trouble is they're in the gray zone," he added. "They've made progress, but not enough to get the next set of investors excited to put capital into the company or, even better, to put capital into the company at a premium to the last investment."

If the VC has a clear picture of the path, it's more likely to buy in, he said. Another important factor to explain is how the firm, when it goes public with VC help, might keep interest high.

"I've been involved in a couple of companies now that are going from private and trying to get public, and that's where the pressure comes, of course, for this whole news-flow topic," Barrett said. "Where it first comes out in these presentations to banks, [which say,] It's a very interesting story, but now where is your news flow going to be, after we do that investment?' The danger is that those companies go out there, and there's no news" to keep investors enthusiastic.

BIO's annual meeting continues through today.