Abstract: Throughout the 1990s, traditional biological product regulation has undergone a series of significant changes, initiating a harmonization of the regulatory requirements for "well-characterized" drugs and biologics. This article outlines important factors in the initial regulatory paradigm shift, including the role of the FDA’s "Points to Consider" and the Reinventing Government initiatives, and discusses the steps necessary to complete implementation of the new regulatory paradigm.

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Abstract: The financial press recently has published a number of reports that raise concern about short sellers and their associates (typically "newsletter" authors) manipulating the market for shares of newly-emerging public companies. This is allegedly done by issuing a negative article about a company with the intent of depressing its share price to the benefit of short sellers. It also has been reported that the authors of these newsletters may tip favored clients as to an upcoming negative article before it is published, and that said authors are compensated for these tips. It is further alleged that the negative information may be false—indeed, even manufactured, just to get something negative out in the market so that the scheme can be accomplished. Naturally, these tactics may cause a precipitous decline in the share price of the target corporation, and thereby damage long-term shareholders and the corporation. Conversely, this price drop may enable the short seller to reap substantial profits in a variety of trading markets.

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Abstract: On March 18, 1997, the MBC dedicated its annual meeting, Stages of Biotech Growth: Evolving Through Experience, to feature finance, deal, and product strategies for biotechnology industry executives. More than twenty renowned industry experts candidly shared their experiences with colleagues through eight focused forums. Part I of this Special Feature presents the forums on early-stage issues: New Financing Strategies, Is Virtual a Virtue?, Early Stage Partnership Models, and Exit Strategies: Going Public or Acquisition? Part II, which will be published in Issue Two of BioLaw, focuses on later stage issues addressed in forums entitled Crossroads: How Strategic Decisions Affect Future Options, Managing Wall Street Expectations, New Product Launching: The Impact on Companies, and The Approval Process: Myths and Realities.

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

Abstract: In a climate of heightened competition for limited capital, originality and creativity are the means to structure transactions. Increasingly, these qualities are becoming prerequisites for all stages of biotech finance. Malcolm Morville begins this forum on biotech financing strategies by drawing from the experiences of Phytera, Inc. to illustrate pressing challenges, opportunities, and considerations. Malcolm places particular emphasis on the potential significance of capital from nonventure sources, such as corporate partners, and opportunities to raise capital outside of the United States (U.S.). In A Global Perspective on Biotech Finance, Allan Ferguson discusses impediments to biotech venture finance and a series of mechanisms that have worked for Atlas Venture’s companies. These mechanisms include small business innovation research (SBIR) grants, in-kind investments, outsourcing, project-centered deals, and opportunities abroad. Allan concludes that those engaged in biotech finance need to follow the example set by the pharmaceutical industry, meaning that they must collaborate more aggressively. J. Misha Petkevich closes the series by applying creativity and originality in the context of biotech finance. Misha proposes several biotech finance transaction models that demonstrate possibilities and, more important, generate ideas.

Case Study: Phytera, Inc.
Malcolm Morville

A Global Perspective on Biotech Finance
Allan R. Ferguson

Biotech Finance Transaction Models
J. Misha Petkevich

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

Abstract: AutoImmune, Inc. and GelTex Pharmaceuticals, Inc. have applied the virtual model and are attempting to move products forward to commercialization, while Hybridon, Inc. has become a manufacturing service supplier to companies that are more virtual. This forum explores the strategic aspects of the virtual concept through these companies’ experiences. Bob Bishop opens the forum by discussing how AutoImmune has used the virtual model to increase flexibility over its operating expenses. He identifies accompanying complications and challenges, including (1) maintaining contractor focus and quality, (2) managing information flow and maximizing responsiveness among a collection of organizations, and (3) an unending negotiation process for every aspect of operations. Bob emphasizes that success is unlikely without an experienced, skilled management team that is careful to apply the virtual mode only when technology reaches a stage when outsourcing can be employed. His summation is that "successful application of the virtual mode depends upon the nature of your science or product and the resources available, both internal and external." Mark Skaletsky explains the idiosyncrasies of GelTex’s strategy, such as the decision "to select a couple of products and commit to moving them into the clinic as quickly as possible" and a firm commitment to outsource certain functions, such as manufacturing. He reiterates many of the conclusions reached by Bob, but also adds others original to GelTex’s experiences. Mark explains that GelTex has arrived at several principles, including (1) enter no corporate partnerships that include equity, (2) stay involved as long as possible in the development phase, (3) pay careful attention to the commitment of the people you consider working with, and (4) assume that problems are going to arise and establish a system to resolve disputes from the very beginning. Mark’s summation is that "upfront negotiation is the approach that proves most efficacious in the long run" In contrast to AutoImmune and GelTex, Jose Gonzalez explains how Hybridon has become a manufacturing service supplier to companies that are more virtual. Jose discusses how, from a starting point of simply securing the raw materials needed to engage in clinical trials, Hybridon has become part of the industry that supports the rest of the field by supplying enabling technology for antigens research. Jose also discusses the benefits of owning manufacturing capability—namely independence from the intellectual property of venders and the creation of salable property in manufacturing.

Case Study: AutoImmune, Inc.
Robert C. Bishop

Case Study: Hybridon, Inc.
Jose E. Gonzalez

Case Study: GelTex Pharmaceuticals, Inc.
Mark Skaletsky

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

Abstract: Biotechnology is an industry built upon alliances. In this forum, Harry Wilcox illustrates how the developmental status of technology shapes corporate partnering. Harry accomplishes this through discussion of three different kinds of deals, all made by Cambridge Neuroscience, Inc. but at different stages of technology development. John Sorvillo then uses the case study approach to demonstrates how collaboration has become a fundamental aspect of ArQule, Inc.’s business strategy. As explained by John, ArQule has developed a partnership template that has brought the company success and fits securely within its future.

An Illustrative Trilogy of Cambridge NeuroScience Deals
Harry W. Wilcox, III

Case Study: Partnering in Combinatorial Chemistry
John M. Sorvillo

IV. Exit Strategies: Going Public or Acquisition?

Exit Choices
Dennis J. Purcell

Case Study: The ChemGenics/Millennium Merger
Alan L. Crane

Genzyme’s Acquisition Strategy
Peter Wirth

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Abstract: Globalization of the financial markets has created momentum by enabling biotechnology companies to obtain public and private capital. The vigorous expansion of international markets and the pace at which transactions are occurring across borders is a testament to the success of important changes in worldwide financial structures. As a result of these changes, new alliances are emerging and burgeoning sectors such as information technology and biotechnology are increasingly undergoing globalization. The international business and regulatory environment does, however, pose challenges for companies of all sizes. Factors ranging from enactment of the North American Free Trade Agreement (NAFTA), to evolution of the European Economic Community and the opening of Eastern European markets have contributed to market complexities. Whether a company is creating foreign subsidiaries; establishing joint ventures with foreign partners; dealing with licensing, manufacturing, marketing, and distribution rights; or working with international finance agencies, a range of systems knowledge and legal expertise is required. In this article, lawyers from nine countries summarize the main features of public and private financing laws of their respective jurisdictions.

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Abstract: The biotechnology industry has experienced a dramatic rise in the number of initial public offerings (IPOs) conducted over the past few years. A biotechnology company, however, faces many challenges during its various stages of growth. The decision to go public and to obtain investment financing is among the most formidable components of a company’s evolution. Careful planning, both in terms of adequate timing and carefully crafting management strategies, are key to improving the chances of an IPO success. In this Seminar Series, A Roadmap to an IPO, experts map out the process required for a successful IPO. These presentations, which identify idiosyncratic considerations for technology sectors, provide clear and experienced insights into the essential long-term planning issues that companies must consider. This Seminar Series has been developed in collaboration with Testa, Hurwitz & Thibeault, LLP and Adams, Harkness & Hill, Inc. The contents of these papers are based on remarks provided at an April 1997 conference, A Road Map to an IPO, organized and sponsored by Adams, Harkness & Hill, Inc.; Coopers & Lybrand LLP; Massachusetts Software Council; RR Donnelley Financial; and Testa, Hurwitz & Thibeault, LLP.

On the Road: Selling and Closing the Deal
William J. Schnoor, Jr.

Early Planning Issues for Biotechnology Companies
William B. Asher, Jr.

The "Road Show" from an Underwriter’s Perspective
Timothy J. McMahon

Pre-IPO Financing Criteria: The Investment Banker’s Perspective
Theodore L. Stebbins

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Click to buy Special Section (8 pages)

Financing the Biotech Industry: Can the Risks Be Reduced?

Abstract: This discussion is an Abstract: of remarks from the first forum of the Boston University Law School Biotech Law Symposium held on January 23, 1997, at Boston University. In this roundtable session, experts discussed the dependency of the biotech industry on venture capital, the historical experience of biotech investment, methods of evaluating economic risks, and legal considerations, safeguards, and implications for basic and applied research. To answer the question embedded in this session’s title, Financing the Biotech Industry: Can the Risks Be Reduced?, BioLaw has excerpted remarks from several of the panel members. A common message unites their diverse perspectives: With an understanding of the unique risks associated with biotech companies, and the active development of risk reduction strategies at the various stages of a company’s evolution, the risks of financing biotechnology can indeed be reduced. As these highlights reveal, financing patterns have undergone major changes over the past year. There has been a noticeable shift from traditional venture financing of single-product biotech companies to the use of public market equity financing and other creative mechanisms to support companies with broad platform technologies. Furthermore, the pharmaceutical industry has taken a serious interest in biotechnology companies and continues to bring its manufacturing and marketing skills to bear in the development of new alliances and the commercialization of biotech products. This discussion makes clear that financing biotechnology companies presents a unique set of opportunities and challenges. While financial success often requires large amounts of capital and possibly a decade of research and development to see a product through the pipeline, the keen biotech investor willing to take risks recognizes that a biotech company’s potential for success transcends the early-stage balance sheet. Creative financing trends and strategies are continuing to evolve; and, like market activity, the possibilities are both unpredictable and exciting. The following highlights of this roundtable discussion contain numerous insights designed to stimulate ongoing discussion and to promote successful biotechnology financial planning.

From Maximizing Profits to Risk Reduction: The Emergence of a Financial Model for the Biotech Industry
Farah H. Champsi

Unique Financing Considerations for Biotechnology Start-Ups
Stanley C. Erck

Patterns of Financing in the Biotechnology Industry
Joshua Lerner

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Abstract: Your company has just spent a substantial amount of time and money compiling a database of proteins or gene sequences; a database of all venture capital firms that have made investments in biotechnology companies, verifying the date of investment, amount of investment, and follow-on rounds of investment; and a list of every patient in Spain who has participated in clinical trials. Until now, you would probably not, other than in the United Kingdom (UK) or Ireland, have been able to prevent a competitor from copying these compilations word for word. Since these databases are primarily or exclusively factual databases, they do not benefit from copyright protection, which permits copyright owners to control distribution and reproduction of copyrighted works. This is especially true for compilations in print, which do not have the contractual protection of license agreements that often accompany databases in electronic media. The adoption by the European Union (EU) Parliament and Council of the Directive on the Legal Protection of Databases (Directive) on March 11, 1996, however, creates an entirely new intellectual property right and grants rights never previously enjoyed by producers of factual databases. This Directive promises to entirely change the legal status of databases, not just in the EU, but on a worldwide basis. The Directive represents a balanced approach, remedying an inherent inequity in current law which provides no protection for database makers. The United States Congress and legislatures from other major database producing countries should consider adopting comparable legislation.

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Abstract: Social responsibility is the obligation to consider the consequences of a decision for society as a whole, for various groups within society, and for particular individuals. A social investment is an investment that combines an investor’s financial objectives with her or his commitment to social concerns, and is made with consideration of the impact the investment will have in society. Socially responsible investing is based on three main premises: (1) every investment, whether in stocks, savings accounts, or bonds, has a social and ethical dimension; (2) investors can apply their social and ethical standards to potential investments; and (3) investors who apply social and ethical criteria to investments do not have to sacrifice performance. While Wall Street wisdom may once have been that anything unrelated to financial criteria that limits investment choices limits a return, the performance of the Domini Social Index is proving otherwise. In ever-increasing numbers, social investors are proving you can mix money and ethics, also has been proven wrong by socially responsible investors.

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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Abstract: The European Union (EU) approach to biotechnology regulation differs from the regulatory system used in the United States. In the EU, both the contained use of genetically modified organisms (GMOs) and their release into the environment are subject to regulation. Whether GMOs are used in a research laboratory or in an industrial plant, the EU has introduced legislation requiring the user to inform the designated authorities, and to assess the risk of the procedure(s). The deliberate release of GMO’s requires a permit from one of the governments in the EU before any work may proceed. In addition, an assessment of the risk must be accepted by the "competent authority" within that country prior to its use. Information that becomes available that might require modification of the risk assessment requires that the government be informed and the permit must be modified (or withdrawn if the risk is deemed unacceptable). The approval process involved in marketing GMOs requires a similar approach; however, it involves obtaining permission from the Commission of the EU in Brussels. Once the permit has been issued by the Commission, GMOs may be sold in any of the Member States.

©1997 by The Journal of BioLaw & Business. All Rights Reserved.

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