Editor

NEW YORK - Science is all about experiments, so here's an idea for the blackboard: Imagine a world where biotechnology pays pharmaceutical companies to develop compounds.

That farfetched notion, among others, was floated during a roundtable discussion at the Biotechnology Industry Organization's CEO & Investor Conference last week, exploring how the relationship is changing between biotechnology and big pharmaceutical companies.

"Are we getting somewhere in terms of these newfangled technologies?" asked moderator Arie Michelsohn, a member of the biotechnology team at the law firm of Finnegan Henderson Farabow Garrett & Dunner LLP in Washington. "Are they working better? Are people willing to invest more, and what factors are involved early on?"

Definitive answers were in short supply but opinions weren't, as the panel of high-caliber experts from the biotechnology and pharmaceutical arenas mulled the issues in a packed meeting room at the Waldorf-Astoria Hotel. Among the speakers was Gail Maderis, president of Genzyme Molecular Oncology, a division of Genzyme General.

"There are companies that are more tolerant of making early investments in risky technologies, getting in first, and there are the followers that have traditionally come in later," she said. "That probably isn't going to change, although given that there are fewer late-stage products available, there has been some movement toward moving in at an earlier stage."

Both sides are focused on coming up with "structures that recognize the risk," and protect partners as well as possible. But what kind of structure is fair?

Martin Haslanger, president and CEO of Amphora Discovery Corp., a database company that managed to raise $23 million several months ago, said, "What we see right now is the product of a decade or so of learning how biotech and pharma work together," and the work is proceeding a "bit more cautiously on both sides."

Pharmaceutical firms are clearer these days about what they need - and what they don't, Haslanger said. "The initial conversations lead to building a research plan for a small pilot [project], rather than jumping into the Millennium-Bayer type deal right away, if we ever see those again," he said, referring to the $465 million collaboration between Millennium Pharmaceuticals Inc. and Bayer AG. The agreement was entered in 1998 and expanded in 2001, when it had identified 140 targets.

Pharmaceutical firms want to shop around, Haslanger acknowledged, but "biotechs are also interested in having relationships with multiple pharma [companies]. In the current capital markets, pharma represents a technologically and scientifically sophisticated source of capital, relative to certainly the public markets and perhaps the venture funds."

Speaking up for the venture capital sector was Wolfgang Stoiber, principal and co-founder of JSB Partners.

"The key consideration is risk - risk and capabilities," he said. "How much money is it going to take to get to the endpoint, and how do I get out of my investment, how can I be liquid within a reasonable period of time?"

Investors are starting to appreciate the advantages of getting involved at the late preclinical stage, Stoiber said. "At current price levels, you get a lot of value, drive development through early phases and then try to get out," he said.

Acknowledging that "the big majority of technology companies" are not doing well, Stoiber noted "we're seeing some pretty large financing rounds," even in that sector. "RNAi is a pretty hot topic, I think," he added.

RNAi, or RNA interference, silences gene expression by deploying small interfering RNA, called siRNA, to degrade messenger RNA, which is the link between DNA and proteins. Ribozyme Pharmaceuticals Inc. recently entered an agreement for $48 million in financing to pursue RNAi research, and many others also have become involved in the field. (See BioWorld Financial Watch, Feb. 13, 2003.)

What hasn't changed is investors' demand for a platform linked in some identifiable way to a product, as adjustment of the hysteria over genomics continues. "Throughput is not the issue," Stoiber said. "Output is."

Nor is judging the likelihood of that "output" widely considered the bailiwick of pharmaceutical firms anymore, said Stephen Sands, managing director and co-lead of the life sciences banking group at Lazard Freres & Co. LLC.

"Ten or 15 years ago, you wanted a pharma deal to validate the technology," he said. But "look at [pharmaceutical firms'] history, look at their own pipelines. I'm not sure they're any better at guessing what's going to survive Phase III. Why should they be any better at validating a biotech pipeline?"

The panel member from Eli Lilly and Co., Steven Caltrider, who is the assistant general patent counsel for the firm's bioproducts division, said the pharmaceutical sector doesn't pretend to know everything.

"I'm not sure I'd characterize it as more savvy, but I think pharma is more cautious," he said, noting the pressure for blockbuster drugs is on everyone.

Michelsohn asked if Caltrider was "bullish on the way thing are going, in terms of the robustness of the technology."

The reply was a cautious affirmative.

"Technology platforms that are delivering results are rising to the top, and the technology platforms that are not delivering results are still struggling," Caltrider said.

Said Haslanger, whose company might be counted among the former: "I think there's been a standard set of milestones established along the way. Everybody's finally speaking the same vocabulary."