By Debbie Strickland
Special To BioWorld Today
BERKELEY, Calif. - U.S. biotechnology companies looking for investment dollars should look beyond their home country, advised three venture capital experts speaking at the NASDAQ International Biotech & Infotech Summit, a two-day meeting at the University of California-Berkeley.
Germany and Asia, in particular, were said to offer unexploited opportunities, including vast amounts of government money earmarked for investment in the sector. The German government will provide $3 to $4 for every $1 in German venture capital raised for companies that meet certain requirements, said Vera Kallmeyer, managing partner for Veritas Venture Partners LLC, of Palo Alto, Calif., and Cambridge, England.
The support reflects the government's fear of falling behind in pharmaceutical development, Kallmeyer said. "They recognized Germany was falling behind," she said, noting that Hoechst AG, of Frankfurt, Germany, and Bayer AG, of Leverkusen, Germany, in recent years have made big investments in Cambridge, England.
In response to Germany's initiative, France launched a similar program, and the U.K. has formed a committee to explore "how to compete against the re-emergence of Germany" in the pharmaceutical arena, Kallmeyer said.
"This European competition creates opportunities such that U.S. companies can now find dollars in Europe," Kallmeyer said. "The opportunities will not last long."
The German program requires that a foreign company first garner funding from a German venture capital partner - an easier task these days, as the number of funds has doubled to 120 since 1997. The company must establish a "self-standing" German company, jointly owned by the U.S. parent and German investors, complete with its own technology or product rights.
Thus far, only one U.S. firm has taken advantage of the program, Ribozyme Pharmaceuticals Inc., which formed Atragen with a $20 million investment.
"The deal flow from the U.S. has been fairly awful," Kallmeyer said. "U.S. companies will send their business plans and just say, 'Fund us.' Most of the approaches have been very unprofessional."
While Germany's requirements for establishing operations within the country's borders are stiff for firms seeking government dollars, Taiwan's program requirements can be as minimal as conducting a clinical trial in the country, said Frank Kung, chairman of BioAsia Investments LLC, which is based in Palo Alto and has an office in Taiwan.
Taiwan has earmarked up to $600 million for development-stage firms, with the aim of quickly ramping up a technology base. The Taiwan money is tied to activity there, but there is a great deal of flexibility, said Kung. For example, support is available to U.S. companies that collaborate with a Taiwanese firm or do research or clinical testing there. Typically, the government provides about one-third of funding, the company one-third, and another third is available in the form of a government loan, which is forgiven if the project fails but repayable through a royalty stream in the event of success.
Singapore has established a $1 billion Innovation 2000 Fund, and has set up branches of relevant development agencies in the U.S. Singapore has stricter requirements, Kung noted.
"Asia is very open to quality biotech and infotech," said Kung. "These are all very real dollars sitting there."
Japan, in contrast to Taiwan and Singapore, "has been quiet the last three years," said Kung, and offers no government incentive program. Corporate partnering and U.S. subsidiaries of Japanese venture firms offer opportunities, however.
Hong Kong's venture capital firms are interested in biotech, but, Kung noted, "One needs to find the right introduction."
Asian venture-capital firms have expressed interest in biotechnology investments, Kung said, as have Asian conglomerates looking to expand beyond traditional strongholds in electronics or manufacturing comprise another group of potential investors.
Corporate investors "feel more comfortable with marketing and manufacturing than with research and development," he noted.
With Asian partners, "it takes longer to build relationships, but they tend to last longer," he said, and recommended allocating at least a year to develop a partnership. In attracting investment of any kind from Asia, "the company has to do a lot of front-end coaching and education," he added. The right introduction can be crucial.
Canadian venture capital is also eager to invest in companies based outside its borders, said Mark Cochrane, vice president of MDS Capital Corp.
"Investing in the U.S. allows us access to world-class people and more technology," he said, noting that a substantial portion of the latest health-care fund of $180 million is earmarked for U.S. investment.
MDS Capital is the largest venture capital firm in Canada, and has invested more than $600 million in 70 health-care companies (20 of them in the U.S.) since the firm's founding in 1988. The firm has offices in Toronto, Montreal, Vancouver and Calgary.