When Scotgen Ltd. of Aberdeen, Scotland, merged with the U.S.company Vasocor Inc. to form Scotgen Biopharmaceuticals Inc.in early February, one of the leading incentives for the U.K.company was to gain access to working capital to financeongoing research and development projects.

"Scotgen Ltd. felt that if it became part of a U.S. company, itwould be able to access capital more readily," explained RobertFildes, the chairman and chief executive officer of ScotgenBiopharmaceuticals. "They have had a lot of trouble in raisinginvestment capital in the U.K. to support research and productdevelopment. That strategy worked."

And indeed, the newly merged corporate entity completed itsfirst round of financing to the tune of $7 million from InvestorsCharter Ventures, EG & G Holdings Inc., EG & G Ventures,Gryphon Ventures and New York Life Insurance Co.

According to Fildes, a biotechnology venture veteran, "It's beenmy experience that it's extremely difficult to raise money forhigh-risk ventures in Europe generally and in the U.K.specifically, relative to the situation in the U.S." One of thereasons, Fildes suggested, is cultural and historical: The Britishprefer safe investments with a guaranteed rate of return --even if it is low -- to those that are high-risk.

But even greater disincentives, Fildes pointed out, are the"severe criteria that a company has to meet to be a publicentity in Britain. ... One of those criteria is an issue ofprofitability. A company hasn't been able to go public unless itcould show a strong operating base and profitability that goesback a number of years."

And that situation has created a real Catch-22: Biotechnologycompanies need tens of millions of dollars to bring tocommercial fruition exciting research results to actuallygenerate those revenues that lead to continuing profitability.But those dollars have to come from somewhere, and venturecapitalists are not in the business of supporting a company forthe 10 years or so it takes to get a product out. "A VC expectsto get a good return on his money in three to four years," Fildessaid. "He's looking at a front-end investment."

But there may be a way out of this dilemma. There areproposals afoot in Britain to relax the London Stock Exchange'srules for emerging pharmaceutical companies "without anadequate record" to obtain a full listing on the exchange.

In brief, the new rules would allow companies withoutproducts to seek a listing as long as they have at least two newdrugs in clinical trials. As well, the young companies will needto demonstrate that they have R&D agreements with significantpharmaceutical partners, enough money in the bank to survivefor several years and several other qualifications. -- JenniferVan Brunt

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

No Comments