Second of three parts

A nest egg from public offerings doesn't mean biotechcompanies have enough cash to do without corporate partners.

The money raised in IPOs this year is only a fraction of whatcompanies will need to become fully integrated, said AlanTimms, president of Alameda, Calif.-based Glycomed Inc., and athousand other biotech companies are still out there.

It's "absolutely not true" that this year's fund raising will leadto fewer deals, agreed Vaughn Kailian, president and chiefexecutive officer of Cor Therapeutics Inc. of South SanFrancisco, Calif. "It may enable you to delay partnering untilyou've added value, but for geographical and technologicalaccess, and for large technologies that require lots of money, itdoesn't make sense not to seek partners."

Jay Kranzler, president and CEO of Cytel Corp. of San Diego, alsonoted that "this year's success will lead to a lot more companiesbeing formed. So to a certain extent, the number of companieswill contribute to the flow of deals."

Also, the awakening of the large pharmaceutical companies tothe potential of biotech probably won't abate.

"Some of the large pharmaceutical companies are finallywaking up and saying there's a lot of technology that we don'thave that's going to work," said David Hale, president and CEOof Gensia Pharmaceuticals Inc. of San Diego. "Sooner or later Ithink that the European pharmaceutical companies other thanthe Swiss are going to get more aggressive."

"The size of packages is getting into the $20 million to $40million range as large companies have finally started to putaside their myopia and recognize that small companies have alot going for them in terms of discovery and development," saidBrook Byers, a partner at the venture firm Kleiner, Perkins,Caufield & Byers.

This ranges from new players, such as American HomeProducts Corp., to companies like Sandoz Ltd. that have alwaysbeen active and are now turning up the volume a few notches,said Kranzler. As the pharmaceutical companies go throughtheir own consolidation, there will be even greaterrequirements to fill that pipeline, he concluded.

Major pharmaceutical companies also have the expertise andinfrastructure to develop products for very large markets, suchas rheumatoid arthritis, said Kranzler.

By the same token, said Garen Bohlen, executive vice presidentat Cambridge, Mass.-based Genetics Institute Inc., some of theyounger biotech companies have more appreciation of theresources and infrastructure it takes to get a productintroduced.

"A lot of these products are very tough and complex from aclinical development point of view," Bohlen said. "If you canhang onto co-marketing rights, you've got a good arrangement.The capital raised this year takes some of the pressure off, butit won't cut into the number of deals -- it just means the dealswill be better."

But the smaller companies' improved bargaining positionswon't last forever, said Smith Barney analyst Denise Gilbert.The 24 smaller companies she tracks each have about $40million to $45 million in cash, and they will need more moneyas they head into clinical trials.

Starting late this year, she expects to see more mergers,acquisitions and joint ventures between biotech companies. Asthe smaller companies become starved for cash, the biggerones, who will be looking to fill the gaps in their productpipelines, will be in a stronger bargaining position, she said.

Byers disagreed, saying that many companies now have cashwell into 1994. Several biotech companies are now showingthat they can move products through clinical trials for wellunder $100 million, he said.

WEDNESDAY: Deals between biotech companies.

-- Karen Bernstein BioWorld Staff

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