By Randall Osborne

Editor

Just when it seemed the biotechnology financing party was over well, OK, significantly after it seemed the party was over, but before everybody had put on their coats to go home another guest arrived. And his pockets were stuffed with money.

His name: Acqua Wellington North American Equities Fund Ltd. His game: pumping cash into needful companies by way of measured transfusion, administered at will. In the typical Acqua Wellington deal, the fund buys a specified number of shares from the company over a given period of time, at just enough of a discount to make the arrangement feasible for both, and sometimes with an investment right away.

It's a sort of shelf registration with a guarantee.

Nice, especially in a down market where the rule is to raise money "by any means necessary" the problem being that there often are no means.

Deals helping to make Acqua Wellington, rather suddenly (although the fund has been operating since January 2000), an oft-heard phrase 'round company water coolers make up a veritable army of mostly small-cap or mid-cap firms. Included in the list of cash-pledging deals made by the fund are:

* Igen Inc.'s $60 million, 28-month financing plan, entered earlier this month, which included an equity investment of $3 million.

* BioMarin Pharmaceutical Inc.'s agreement, also sealed this month, for up to $50 million over 20 months, with an initial stock buy of $1 million by Acqua Wellington.

* Ribozyme Pharmaceuticals Inc.'s deal in January to sell up to $60 million of its stock over 28 months, pursuant to a shelf registration of 3 million shares.

* Aradigm Corp.'s November pact for the sale of up to $50 million of its stock over 20 months.

* Geron Corp.'s arrangement in September, also for as much of $50 million in stock to Acqua Wellington, during the next two years.

* Axys Pharmaceuticals Inc.'s 15-month plan for up to $50 million in stock sales to Acqua Wellington, which said it would buy $10 million up front.

* Aviron Inc.'s January 2000 commitment by Acqua Wellington for up to $48 million in equity financing, through the sale of an undetermined number of stocks.

Others to find a place at the Acqua Wellington table recently include Nexell Therapeutics Inc. ($25 million, 22 months), Aronex Pharmaceuticals Inc. ($24 million, 28 months), Myriad Genetics Inc. ($41 million, in a private placement of 400,000 shares), and Genelabs Technologies Inc. ($29 million, 18 months).

Who is this white-knight bankroller with a name that sounds like British aftershave? And where did he get all those dollars?

"We're a private equity fund, and we try to keep somewhat of a low profile," said Isser Elishis, chief investment officer. The fund is locked up for five years, with a first redemption date of Jan. 3, 2005, he added.

Powered by corporate investors from the Far East and Middle East Hong Kong, Singapore, Saudi Arabia Acqua Wellington has 23 front-office people, mainly from the Hong Kong Shanghai Bank Corp. (HSBC), Elishis told BioWorld Financial Watch. HSBC popped up on the biotechnology radar screen last summer, when it managed the public offering of Madrid-based Zeltia, which raised EUR181.5 million (US$172.5 million).

Acqua Wellington, in New York, has made "about 30" deals in biotechnology, Elishis said, adding that "we spend 80 percent of our time in biotech, and the rest in other technology. Not Internet, but things you can touch, like batteries and semiconductors."

Elishis said he and his associates "have all worked together, in one incarnation or another. A lot of us have some sort of background in the sciences or engineering, and we got started doing this back in 1998, in different forms."

Acqua Wellington was Elishis' brainchild.

"It's good for biotech," he said. "I think all companies should tap the public market. But, as opposed to doing some very expensive form of financing before they do that, they can tap [Acqua Wellington] equity when they need it, and it doesn't restrict you. When the window is closed for public financing, you can do this."

Observers, watching the ranks of Acqua Wellington's deal partners swell, have noted a commonality among those who come aboard, as Elishis is quick to acknowledge.

"Our 'sweet spot' is companies with $200 million in equity market cap to $2 billion, but our average is probably $500 million to $750 million," he said.

But there's more to it than that.

"We like to get our head around more complicated situations, such as maybe a company that has announced something about a trial that was misunderstood," he said, calling Acqua Wellington's deal in August with CV Therapeutics Inc. "a perfect example."

Heftier than most such arrangements, the CV Therapeutics stock-purchase pact is worth $120 million over 28 months. The deal was made before the company's shares took a 35 percent nosedive, as a result of January 2001's disclosure of interim results from a Phase III trial of its angina drug, ranolazine. Still, Elishis said, the stock plunge illustrates the principle.

"Basically, they just had to add extra patients, and that was perceived as being the worst thing possible," he said. "We don't believe [CV Therapeutics] said anything bad. If you're a strong company with lots of cash and ultra-conservative senior management, why would you not add patients? But the market takes the stock down."

Sliding stock value doesn't bode well for any firm, Elishis said, but "you have to believe, when you invest in your company, that it's not going to be instant gratification. I don't know if it's going to work, at the end of the day, but we'll hang in for quite some time. The goal for us is not to do 2000 deals, but to pick our spots high quality companies with very strong senior management."

Already, Acqua Wellington's reputation for betting on companies outside the small, magical circle of apparent "sure winners" is getting around. In a tight market, such news travels fast.

"We don't do any origination," Elishis said. "Companies call us, and it's basically referrals in some instances from other CEOs and board members. We also work with the banking community. They might have a client who can't do a secondary or doesn't want to do a [public investment in private entity (PIPE)]. We get a fair amount of those, but we don't just want to write checks."

Although the fund's appeal is great now, it's "not the be-all and end-all of financing," Elishis said. "Companies have to use the banking industry when it's appropriate. When it's appropriate, that's the key bit."

Reluctant, like most in the industry, to guess when the sun might shine again on biotechnology, Elishis said "after June-ish" the market situation could improve.

"We made a lot of money with everybody else in March and April, when the market was open for anything and everything," he said, but the Nasdaq situation overall "doesn't put investors in a great mood" at the moment.

Still, one of Acqua Wellington's clients, Aviron, "did a great secondary a few weeks ago, $400 million," Elishis noted. "There will always be situations."

And there will always be firms with misjudged or overlooked potential, where those with cash to play with, who are willing to ride out the storms, can make more money.

"We do make some obscure investment decisions," Elishis said. "You've got to stay in for the long term. To make an investment in Amgen is great, but you're not going to get a 10-fold return."