By Jim Shrine

Phytera Inc. has withdrawn its proposed $35 million initial public offering (IPO), finding the European financial markets as tough a sell for biotechnology as those in the U.S.

The Worcester, Mass.-based company has a large European presence, but wasn¿t able to pull off the offering on the pan-European EASDAQ and Copenhagen exchanges.

¿We learned a great deal in this process about taking a U.S. company public in European equity markets,¿ said Malcolm Morville, president and CEO of Phytera, which has raised about $43 million privately since its founding in 1992. ¿We¿ll put that to good use in the future.

¿Copenhagen is different than EASDAQ, which is quite different than NASDAQ,¿ he added. ¿You have to understand the procedures and nuances, if you are going to conduct a successful program and enter the European markets as a U.S. company. That¿s part of the reason it took us from last August and September to February to get to the road show.¿

From the time the company made its decision to go public in Europe, through the October filings of registration statements, to preparing for a road show a few months later, the relevant markets in Europe ¿worsened dramatically,¿ Morville said. They dropped about 40 percent over that time, he said.

Marketing Rule Created Time Constraint

Nevertheless, ¿we and our bankers know we¿re an unusual company with unusual appeal, and we decided to go ahead and market the offering,¿ Morville said. ¿We did that through late January and early February.¿

Early delays forced the company into a small timing window because of the 135-day rule to market the offering, he said. A worsening of conditions across Europe as well as an upheaval in the Danish market finally led the company to withdraw the offering. Not only did the company want to ensure it had demand for the initial offering, but also wanted enough support to ensure strong after-offering trading.

The company has grown through the acquisitions of a Sheffield, U.K., company focused on plant cell cultures; a Copenhagen company working in combinatorial chemistry; and a U.S. marine microbiology company. Morville said Phytera has the world¿s largest collection of plants and marine microbes in cell culture, and has developed technologies to manipulate them and express chemistry that goes beyond the plant or microbe¿s natural state.

Other Phytera collaborations are in the areas of fungal diseases with Eli Lilly and Co., of Indianapolis; Chiron Corp., of Emeryville, Calif., focused primarily on compound screening; Tsumura & Co., of Tokyo, in developing small molecules for rheumatoid arthritis and allergies; NeuroSearch A/S, of Glostrup, Denmark, in agents that interact with potassium ion channels; Galileo Laboratories, of Sunnyvale, Calif., in developing drugs to treat ischemic diseases; and Amersham International plc, of Little Chalfont, U.K.

¿We have a reasonable capital position and a strong revenue stream coming from four deals we signed last year,¿ Morville said. ¿We don¿t see any serious curtailment of the company¿s programs because of not being able to move ahead with an IPO. We will look to the capital markets later in the year. Whether that¿s the private or public markets remains to be seen.

¿We know that trying to forecast biotech markets is not easy,¿ he added. ¿We¿re willing to wait until the markets improve. We have a better opportunity than most to access the capital markets, because we¿re a balanced U.S.¿Europe company. We have more than half our operations and people in Europe, and just under 50 percent of our investors are in Europe.¿