Biotechnology Council of New Jersey programs highlight the hurdles biotech and genomic companies face in getting their products approved and their companies funded.
By: George Frey
To Deborah Chmiel the future of medicine lies in the biotechnology industry and she wants to be ready for that future.
"I’m here to understand the financial and infrastructural issues involved. The issues and risks involved which the business is facing. The companies going to the next stage," the East Brunswick technology and communications project manager said after attending two recent programs on the future of the biotech industry in this state.
Sponsored by the Biotechnology Council of New Jersey, the programs highlighted the hurdles that biotech and genomic companies face in getting their products approved and their companies funded.
Although she’s not a biotech employee, Ms. Chmiel said that she wanted to learn "when, where and how much to invest. Risks, values, and the future of the industry."
The council’s first event focused on managing growth in uncertain times while the second program explored the problems these companies face in securing patents and protecting intellectual property.
"These are uncertain times, but they’re not awful," attorney Stephen Cohen said at the first session, held April 17 in Plainsboro. Mr. Cohen, who practices with the New Jersey Business and Finance section at Morgan Lewis, said that big pharmaceutical companies will continue to sign biotech companies to add to their drug pipelines into the future.
"There is a large potential market where biotechs can be set up with good alliances with pharma companies." As a result, venture capital firms are seeing the opportunity to put a lot of money to work as the results of clinical trials of many young companies draw near.
However, Mr. Cohen said, of the biotech companies that become established, only about 10 percent ever really make it to the IPO stage.
"Everyone thinks they’ll go public but they usually don’t," he said.
One company that is being watched because it is likely to eventually go public is Transave in South Brunswick. CEO Frank Pilkiewicz was at the April 17 meeting.
"Clearly the biotech industry is a very close community," Mr. Pilkiewicz said in a later interview. "It’s good to collaborate together to get an understanding of what’s happening."
Transave will start trials soon on the application of inhalant-deliverable drugs to the lungs. Mr. Pilkiewicz said lung ailments are the largest disabler of the American workforce, and current injectable treatments are often not very targeted and toxic to the rest of the body.
Mr. Pilkiewicz said he had met key people in banking, the stock market and legal community through the event.
Eric Bernbach, a senior director in the Corporate Client Group with the Nasdaq Stock Market, and Marc McCabe, a senior vice president with Nasdaq Insurance Services, both spoke at the event, saying companies should contact Nasdaq early on if they want to be listed on the exchange.
"You have to determine what the ticker symbol will be. Somebody will get in touch with you about the listing process," Mr. Bernbach said.
Mr. Bernbach said there were just over 50 new listings in the last quarter and only about 10 so far in this quarter. He says the market was looking a little more promising than it had in past months and several life sciences companies would debut on the Nasdaq exchange within the next couple of months however probably not without complications.
"The market today is different," Mr. McCabe said. "In 2001, there were 487 securities class action suits which was up 60 percent from the prior year. Of the 487 in 2001, one-third alleged fraud in the IPO process."
"Insurance, therefore, is an important element to people who invest into your company. Are the investors protected? Insurance often comes last in the process," which Mr. McCabe said should not be the case. He said insurance in the end is often as big an expense as legal counsel, so companies should give it serious consideration.
Other panelists said there are many important considerations to make when aligning a company for an IPO, like tax preparation and audits. Some panelists said to challenge the points made in an audit. They said it is really important for a new company to put into place the proper protocol in entering markets.
The panel also spoke about how to raise public and private capital, outlining what considerations investors make before putting their money somewhere.
Some of the panelists suggested talking to banks and a legal team well in advance of any plans of the company. Having a lead manager and an established team will only lead to the confidence and comfort of the analysts and therefore investors. The sense of a track record is something investors think about and associate with the institutions when deciding who they want to work with. The panelists said to also watch other companies closely to get a sense of the market, and to watch other IPO presentations to be informed about the valuation of similar companies.
Nels Lippert, the partner in charge of Hale and Dorr’s New York City office, gave practical tips on assembling a patent portfolio "with common sense rationalization" at the council’s second program, held April 25 in East Brunswick.
"The scientific significance of a patent has to be present," Mr. Lippert said. "When evaluating a product, look to get a patent which is worthwhile to you and has meaning. Make sure it is worth more value to you than the paper it’s written on."
Mr. Lippert said a company’s patents should cover the core of the business. How thick that patent cover is over a company’s products really depends on how much the company wants to spend. Panelists agreed, "You can patent almost anything under the sun.
"You can patent a tie that has raspberry jam on it," as long as you have the time and money, panelists agreed.
Another very important consideration to make is where the patents are applicable.
"You have to look at the situation and ask yourself: Is the U.S. enough?" Mr. Lippert said. "Look at the cost versus benefit, choosing other countries in which to file, concentrate on countries in which you expect to market and or countries where your competitors reside. You have to look at the cost-benefit ratio."
Mr. Lippert said large pharmaceutical companies sometimes have sales in 170 to 180 countries in the world. Smaller companies have to rationalize what countries will be the best for them. He said to use a common sense and rational approach.
To Ms. Chmiel, who attended both programs, it was interesting to note the differences in investors’ interests in companies that produce traditional products compared to a company in the discovery stages of developing a product.
"Investors want to see the physical infrastructure. They want to see physical facility," she said. "The direction of the feasibility concerns with the market is interesting. It’s harder to get funding for companies like this. The government also has specific health concerns and expectations. Everyone is watching for safety, security and the timing of governmental matters in their investments.
"It was made very clear that the unique value of the product or process will be the defining issue in patent obtainability. It will require a lot of up front risk for the owners and stakeholders. It will require a unique set of investors to invest in these companies. There will have to be a belief and commitment into the products. If the companies are successful, the returns will be rewarding," she said.