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Conventional wisdom would argue that thebest opportunities for starting and develop-ing biotechnology companies are in the US.The historical availability of capital, scien-tific and managerial personnel, favorabletax considerations, and the track record ofmany successful US biotechnology compa-nies make such an assertion hard to deny.However, in the past two years, the oppor-tunities for starting and running biotech-nology companies in Europe have changedso dramatically that bioentrepreneurs mustnow reevaluate this US-centric vision of thefield.

In our view, there is currently a majoropportunity for US biotechnology compa-nies to spin out existing technology into astand-alone European counterpart that canbenefit both the spinout and parent compa-nies. From the perspective of RibozymePharmaceuticals (RPI; Boulder, CO), itallowed us to accomplish our company’sprimary goal of developing novel therapeu-tics and at the same time accelerate devel-opment of a business that is a source of val-idated therapeutic targets and oligonu-cleotide leads. From the AtugenBiotechnology GmbH (Berlin) perspec-tive—the company we helped spin out—they received a well-developed technology,extensive intellectual property, an existingcustomer base, and management advice togive them a competitive edge in the target-validation market (see “Internationalbiotechnology collaborations: Points toconsider”).

Creating this type of “win-win” deal wasdifficult to negotiate because it broke somuch new ground. But, as the dust settles,it is apparent that the value to both compa-nies is the leverage they provide each otherin the rapid deployment of a novel technol-

ogy and the opportunity to increase valuefor their respective stockholders.

Overcoming preconceptionsPerhaps the greatest barriers to creating aEuro-American company are the precon-ceptions all parties initially carry to the

negotiating table. For US bioentrepreneurs,the first preconception to overcome is thatEurope is an extremely difficult place togrow a biotechnology business. While thismay have been the case in the past, Europehas made a dramatic swing to a pro-biotechnology stance in human health. Thishas resulted in the availability of new capitalsources and a “top-down” commitment togrowing biotechnology companies fromgovernment officials, academic institutions,and many pharmaceutical companies. Aspart of this commitment, Europe is lookingto the US for the skill set to make this hap-pen quickly. Given the existing infrastruc-ture of world-class science, this makesEurope an appealing venue for businessdevelopment. Once one understands thepotential of this opportunity, the next set ofpreconceptions that need to be overcomeare objections from within your own com-pany about entering into these kinds ofnegotiations.

Board members are likely to view thenew enterprise as too great a drain on man-agerial and financial resources to justify theinvestment—regardless of the financialprojections. Stockholders may express con-cerns over whether the stock price willincrease or decrease as a result of the trans-action—especially in the short term. And

employees will question what this meansfor their job security. These are all legiti-mate concerns.

Once you have convinced your companythat this opportunity is worth looking into,you may next find yourself overcoming pre-conceptions held by the government agencyresponsible for the European initiative.Many times their greatest worry—based oneither historical precedent or simply fear ofchange—is that a US company is simplytrying to create a shell that will allow it tosiphon funds back to the US. It is also likelythat you will have to overcome theEuropean investor’s preconceptions thatthe mother company’s management willeither not spend sufficient time growing thenew company or will dominate the manage-ment to the point where European man-agers will not be able to learn biotechnolo-gy-specific skills.

Unfortunately, all of these concerns arelegitimate. Setting up a new company, youmust take all of them into account and tryto balance them appropriately. Perhaps thebest advice is, “Get used to it.” You are cre-ating something for which there are nomodels. As part of the process you will nec-essarily be managing a diverse set of expec-tations. Focus on gaining the trust of thevarious negotiating parties from the outset.Find points of congruence in the differingagendas of all the players at the table andwork to create a structure that includesthem all. By keeping focused on the oppor-tunities for all parties in making thesenegotiations work, these seemingly insur-mountable differences will appear at theend of the day to be relatively minor frus-trations.

Nuts and boltsOvercoming preconceptions and managingexpectations is only the first stage of build-ing an international company. The nextstage is bolting together an organizationthat takes into consideration the differentways that the two cultures do business, han-dle financial transactions, and offer legal

STRATEGIC PLANNING

Forming an internationalbiotechnology spinout: Is it worth it?Substantial opportunities exist, but timing and communication issues must be carefully considered.

Ralph E. Christoffersen

Ralph E. Christoffersen is CEO and president of Ribozyme Pharmaceuticals, 2950 Wilderness Place, Boulder, CO 80301(chrisre@rpi.com).

The existing infrastructureof world-class sciencemakes Europe anappealing venue forbusiness development.

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protection. While this article can not hopeto cover all these aspects, here is a samplingof what to expect.

The first issue is time. Bioentrepreneursrun on a different clock than governmentorganizations and investors, whether in theUS or Europe. In governmental organiza-tions, timeliness is nearly always replacedby concerns that mistakes should be avoid-ed. This usually translates into very longdecision-making processes.

If the organizational representativebelieves that, “We have done it this way foryears and the new company must abide bythese rules,” it is frequently difficult tomake progress. Hierarchical organizationsthat employ linear decision-makingprocesses can extend a process that couldrequire only a few weeks into manymonths. This process is further extendedby the necessity of managing it “long dis-tance.” The time losses encountered intravel necessitate fewer opportunities forface-to-face negotiations. Compoundingthis is the need to negotiate in multiple lan-guages and multiple time zones—narrow-ing the window of what can be accom-plished each day.

A second issue is defining the criteria ofwhat constitutes a successful business. Thetraditional measurements of commercialsuccess in Europe are much different fromthose of the US. In large part this is due toEuropean unfamiliarity with entrepre-neurial businesses. For example, in Europea business has been required to be prof-itable historically to gain access to publicmarkets. For a US biotechnology compa-ny—most of which go public years beforethey have a product to sell—this has beenan unheard of requirement until quiterecently. In addition, since there is no sin-gle European market for biotechnologyIPOs such as NASDAQ in the US, how oneplans the company’s IPO becomes a strate-gic decision based on which of the manymarkets currently springing up will be thebest place to leverage the company’s value.While these issues are being re-thought inEurope, acceptance of alternative criteria isstill slow in coming.

The differences in the legal systemsbetween the two company’s venues is alsoan issue that is likely to prove challenging.For example, a well-known US method ofmotivating performance is through stockoption awards. The concept that an indi-vidual is willing to trade job security forsubstantial potential wealth through astock-option award is well accepted in USentrepreneurial organizations. But thispractice had no legal basis in German lawuntil recently. Even now, programs of thistype must be designed for the specificGerman state in which the company is

located—most states in Germany have noexperience with this practice.

Growing an infrastructureThe third stage of building an internationalcompany is actually rolling up your sleevesand getting to work. One difficulty thatmakes initiation of a new kind of businessin Europe very challenging is the shortageof experienced local management.

Experienced bioentrepreneurs are difi-cult to find, since the European economicsystem has nurtured long-term stability and

minimized risk taking in business, acade-mia, and government for decades. Theresult is that experienced biotechnologymanagers with local knowledge and lan-guage skills cannot be found, except for therare individual who has been trained inEurope and has had entrepreneurialbiotechnology experience in the US, andthen wishes to return to Europe.

A related problem is that Europeanrecruiters generally have no experience inrecruiting biotechnology management andso have few, if any, people of this type intheir databases. This problem extends allthe way to identifying potential boardmembers for a new company. Finding peo-ple who have both relevant industry experi-ence and entrepreneurial understanding is areal challenge, since most industry experi-ence is not relevant to biotechnology com-pany development.

A second problem is finding firms expe-rienced in financing biotechnology. Forexample, venture capital sources have, withfew exceptions, been established onlyrecently. In addition, banks are unaccus-tomed to either the risk profile or the busi-ness model of biotechnology. Generally,they have limited, if any, experience ininvestment banking related to biotechnolo-gy. As a result, you may have to spend a longperiod of time educating nontraditionalbanking sources—such as government-backed commercial banks.

Finally, the lack of entrepreneurial expe-rience in governmental agencies requires

patience in order to develop new structuresappropriate to biotechnology companies.Each time the response of, “We can’t do itthis way” is encountered, an alternativeneeds to be created that allows the desiredgoal to be achieved through the creation ofnew or modified procedures and consensusbuilding that is consistent with governmen-tal policies and mandates. This is time con-suming and challenging, both for the entre-preneur and government official.

Perhaps the best example of thesefinancing issues is the “chicken-and-the-egg” problem Atugen encountered duringits creation. Governmental agenciesexpressed enthusiasm for the proposed pro-ject, but indicated that their commitmentwould be contingent upon receipt of a com-mitment from venture capitalists. The ven-ture capitalists indicated similar enthusi-asm but insisted upon firm governmentalcommitments prior to closing their finan-cial commitments. The obvious solution isto get all parties to commit separately, eachcontingent on the other parties’ commit-ment. However, translating that solutioninto reality required enormous time andeffort.

It is essential to have one or more per-sons or agencies “on the ground” in Europeto help expedite the company buildingprocess. Indeed, the RPI/Atugen story wouldnot have been possible without it. The atten-tion to detail, follow-up, local and state gov-ernment connections, and knowledge of“how the system works” was provided by sev-eral economic development agencies inBerlin, as well as a consulting firm withextensive experience in Germany, each ofwhich worked many months on this project.

ConclusionsSome critics will ask, “Why bother withEurope when you have everything you needin the US?” Part of the answer is that thereare opportunities, both for individualcompanies and for the biotechnologyindustry, by accepting the challenge to cre-ate international biotechnology initiativesin Europe and elsewhere. This is not to saythat it is easy. Transferring your biotech-nology skill set to Europe requires carefulconsideration of the cultural, legal, andfinancial differences that need to be over-come to make an effective internationalorganization.

In the final analysis, perhaps the mostimportant question a bioentrepreneur canask in deciding whether to look to Europeas a place to establish a spinout is, “Canmy business be developed more rapidlyand with greater stockholder value inEurope than in the US?” In our case, afterall was said and done, the answer wasclearly, “Yes.” ///

The most importantquestion a bioentrepreneurcan ask is “Can mybusiness be developedmore rapidly and withgreater stockholdervalue in Europe than in theUS?”

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