LONDON _ The rise in the value of U.K. biotechnologystocks is good news for start-ups setting out on the longhaul to market. But does the increase in publiccompanies' shares do anything to aide the survivalchances of their less mature siblings?

Biotechnology may have become a honey pot but it's stilldifficult to get companies off the ground, said AndrewAllars, of Prelude Technology Investments Ltd., inCambridge, the only U.K. venture capital fund to backstart-ups exclusively.

"There are a smaller number of players in the marketdoing true start-ups and getting seed investments is harderthan ever," he said. "However, if there are projectsaround which have been seeded, there are some later-stage venture capitalists with more enthusiasm."

One man to agree ruefully is Jim Pickard, who has spentthe past three years looking for backers for CoreTechnologies Ltd., a drug delivery company he foundedin Kilmarnock, Scotland. "It is still very difficult to start-up a biotechnology company. In the three years sincesetting up Core Technologies our management team offour has done nothing but fund raising."

Three years down the road Core has raised 7 million,and having passed a few milestones, things are lookingup. "The wave of enthusiasm generated by the rise inbiotech stocks makes it that bit easier."

Peter Smith, an analyst for James Capel & Co. Ltd., ofLondon, argues that the rise in the market has created acritical mass which improves the prospects for start-ups."Before the middle of the year it did not matter to fundmanagers whether they were in or out of biotech stocks."Now, he said, the sector is established and, "People cansee there is a way of being able to realize the fruit of theirinvestment."

Smith said this is feeding the forward cycle of investmentin start-ups. "Venture capitalists can see they can getmoney out of companies they invested in."

Remaining doubters must have been swayed at the end ofNovember when the valuation of British Biotech plc, ofOxford, rose by 250 million to 750 million. Thisfollowed the release of preliminary Phase II data showingthat the company's anti-cancer drug Marimastat appearedto have some action in preventing tumors frommetastasizing.

"It is clear that more and more fund managers acceptthere are major opportunities and this must make it lessdifficult for start-ups to get funding," said Ian Smith, ananalyst at Lehman Brothers. But he cautions, "What haschanged is the perceptions of investors _ it's still a highrisk market."

Jeremy Curnock Cook, director of Rothschild AssetManagement Ltd., of London, which runs two funds,Biotechnology Investments Ltd. and InternationalBiotechnology Trust, said British Biotechnology is animportant role model. "This was a visible demonstrationthat the sort of successful start-up there has been in theU.S. could happen here too."

Aside from cash, the growing stock of managerialexpertise available to start-ups also is giving them a betterchance of survival. These skills are coming not just frompeople with experience in the sector, but from seniormarketing people washed out of pharmaceuticalcompanies by the current wave of restructuring. "There'sno doubt start-ups are helped by the big pharma shake-out," said Curnock Cook. "There are now plenty ofpeople around with experience of bringing drugs tomarket, a skill that the entrepreneurs who set upcompanies do not have."

The consolidation of the pharmaceuticals industry ispromoting the survival chances of start-ups in anotherrespect. Recognizing that they cannot cover all theresearch bases alone, the big drug companies areincreasingly reliant on partnerships with biotechnologycompanies. Such arrangements are now more likely toinvolve joint research and development rather thanstraightforward licensing.

In the past, U.K. companies may have looked withjealousy at the ease with which their U.S. counterpartscould get funding. Today there is an advantage in beingEuropean, said Roger Craig, a founder of Therexsys Ltd.,of Keele, the only human gene therapy company in theU.K., and one of only a handful in Europe. "It's mucheasier to be seen and noted," he said.

Now that investors are converted to the cause, the worryis that the bandwagon effect will dilute the quality ofstart-ups. "We need to be careful not to get into the samesituation as the U.S.," Smith said. "When the technologygot hot, all sorts of nonsense got funded.

"Investors need to be very wary of saying, `It's abiotechnology company, it must be good.'" However, headded, there is still a large untapped resource within U.K.universities. n

-- Nuala Moran Special To BioWorld Today

(c) 1997 American Health Consultants. All rights reserved.