Subject: British Bio-Tech Hopes to Take a Page Out of U. S. Story Date: Published: 2/17/93 (138 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Industry Focus: British Bio-Tech Hopes to Take a Page Out of U. S. Story --- Start-Up Drug Group Seeks to Copy Americans' Entrepreneurial Success ---- By Stephen D. Moore Special to The Wall Street Journal OXFORD, England -- It sounds like the classic American entrepreneurial tale: Ten hungry scientists, dumped by a big drug maker, mortgage their homes and plow their life savings into a start-up company based on a risky idea that hardly anybody else believes in. They scrape together funding, recruit some powerful allies, and put themselves into the thick of the race to find a vaccine against AIDS. What makes this scenario unusual is that it is not an American but a European story. It happened to British Bio-Technology Group PLC. And some in Europe's drug business are hoping British Bio-Tech will inspire other restless scientists to strike out on their own. "In the U. S., there are well over 100 publicly traded biotech companies," says James Noble, British Bio-Tech's finance director, who used to be an investment banker. "In the U. K., the comparable figure is five, and that is still about four more than the rest of Europe." That's a problem for Europe's pharmaceutical industry because it is small, entrepreneurial ventures that have become the most fertile breeding grounds for innovation. Says Sam Isaly of Mehta & Isaly, a New York pharmaceutical analysis firm, "People realize that corporate bureaucracies at the major drug makers are absolutely stifling for scientific advance." Starting a tiny drug company in Europe is a headache compared with the U. S., where access to venture capital and research facilities is much freer. Consequently, top European scientists tend to take their discoveries to America. Monoclonal antibodies, for example, were discovered in Cambridge University labs but were commercially exploited first in the U. S. after British authorities failed to patent and develop the breakthrough. "There is enormous scientific potential in Europe that should be more fully exploited by both European companies and American companies that are active here," says Max Link, chairman of the pharmaceutical division of Sandoz AG, the Swiss concern. "But creation of start-up companies is still frustrated by legislative obstacles and lack of access to the capital markets." Figuring that Europe's biotech industry lags a decade behind the U. S., Sandoz and other European drug makers have been prospecting in America. Sandoz paid $392 million in 1991 for 60% of Systemix Inc., a fledgling California research company. And Sandoz is in a 10-year, $300 million research collaboration with San Diego-based Scripps Research Institute. Two years ago, Swiss drug giant Roche Holding Ltd. paid $2.1 billion for a 60% stake in U. S. biotech flagship Genentech Inc. The search for innovation has helped British Bio-Tech to beat the odds against European start-ups. Among its backers are Glaxo Holdings PLC and SmithKline Beecham PLC, which signed on to help speed development of two drugs. The link with British Bio-Tech is "exactly prototypic of what we have in mind," says George Poste, the research director of SmithKline. He acknowledges that even the world's biggest drug companies can no longer afford to remain self-sufficient. British Bio-Tech -- and almost the entire U. K. biotech industry -- grew out of a European research center set up in the 1960s by G. D. Searle & Co., the U. S. drug maker. Searle was acquired by Monsanto Co. in 1985 and the facility was dismantled. "The day we learned Monsanto was closing it down, I smiled and told associates they were doing us a great service," recalls Keith McCullagh, one of the founders of British Bio-Tech, who is now its chief executive. Mr. McCullagh, his boss Brian Richards and eight other scientists invested their severance payments from Searle in the new company -- along with #2.5 million ($3.6 million) of start-up capital from four initial backers. The company subsequently completed four rounds of venture-capital financing, raising #73.2 million from 1986 to 1991. Besides Glaxo and SmithKline, financial backers include Johnson & Johnson of the U. S., Japan's Chugai Pharmaceutical Co. and mutual funds controlled by George Soros, the prominent international investor. A further #30 million came via British Bio-Tech's initial public offering last summer. The issue's simultaneous debut on London's Stock Exchange and the Nasdaq market in the U. S. gave the entire company a valuation of roughly #150 million. Mr. McCullagh and fellow executives probably will need every penny they've raised to survive the punishing 10 to 12 years required to get an innovative new drug to market. No product currently under development is expected to reach markets until the late 1990s at the earliest. In the meantime, development costs will continue to gobble up the company's capital. In the six months ended Oct. 31, British Bio-Tech had a net loss of #4.7 million, which it described as "well within budgeted levels." The losses are expected to widen in the fiscal second half, as clinical trials intensify and lead products progress to human testing. That's a crucial milestone. Mismanagement of expensive clinical trials -- or botched dealings with regulatory agencies -- have forced dozens of fledgling drug and biotech firms to surrender their independence or close down entirely. To help its products through the regulatory labyrinth, British Bio-Tech can tap the experience of its development partners, Glaxo and SmithKline. British Bio-Tech's most advanced product is an AIDS vaccine designed to bolster the immune system and slow deterioration in the health of patients infected with HIV. The vaccine is based on the apparent capacity of antibodies to a protein called p-24, which is contained in the core of the AIDS virus, to delay the onset of AIDS as long as several years in infected patients. Unlike conventional vaccines, in which dead or weakened viruses are injected into patients, British Bio-Technology employs a novel technology to produce virus-like particles that are roughly the same size as the real virus and coated with synthetic copies of p-24. In theory, the vaccine works by spurring the body to produce antibodies that will attack the p-24 protein. The idea is that these will help the immune system at least to slow the AIDS virus. Initial clinical trials on healthy volunteers proved that the vaccine is safe and that it induces the desired antibody and immune-system responses. Phase two clinical trials -- the first test of the vaccine on patients infected with HIV -- began in London last month. Similar trials will commence later this year at other medical centers around Europe. Two other promising medicines now under development target diseases ranging from arthritis and cancer to asthma and septic shock. A drug that British Bio-Tech designates BB-94 is designed to inhibit the action of an enzyme called matrix metalloproteinase, or MMP. Research has linked the MMP enzyme with the ability of cells from a cancer tumor to bore through walls of a blood vessel and spread through the body, a process known as metastasis. The U. K. 's Cancer Research Campaign and British Bio-Tech began initial clinical trials last year testing the ability of BB-94 to prevent the spread of secondary tumors in women who have breast cancer. Separate clinical tests of BB-94 against ovarian and other cancers will begin during the first half of this year. [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]