Genentech Inc. had used gene splicing techniques to produce commercial quantities of human growth hormone, but lacked the ability to test, manufacture and market the product on a worldwide basis.
So the growing biotech firm agreed in 1978 to give a Swedish company the rights to produce and market the substance outside the United States and Canada in return for royalties and supply contracts.
Genentech, founded in 1976, says it has about a dozen such relationships with foreign companies in Japan and Europe -- companies that provided essential capital during the company's start-up years.
This pattern of cooperation dates back to the birth of the industry, in research laboratories all over the world. International cooperation in investment and research support also helped launch the companies that are turning scientific breakthroughs into commercial products.
But as the industry prepares to market these products, some of the U.S. and foreign biotechnology partners will be confronting each other as competitors. However, most experts say the continued sharing of technology will help, not hurt, U.S. firms. Genentech says the economic and scientific benefits of cooperating with foreign business partners outweigh the danger of sharing its technical expertise with potential rivals.
"These arrangements are vital to our growth," said Thomas D. Kiley, a Genentech vice president, adding that the company tries to "retain the technology whenever possible."
The United States leads the world in the commercialization of biotechnology, with more companies, scientists, research institutions and financial investment in biotechnology than any other nation.
That lead could be challenged, however, by Japan and several European countries that have made biotechnology a national industrial priority and have committed government resources to encouraging its growth.
"The issue has been raised; there is a sensitivity on the part of many companies . . . ," said Harvey Price, executive director of the Industrial Biotechnology Association. "But for most companies, at the present stage of development, relationships between corporations that cut across national lines are beneficial to both parties. The technology exchange goes both ways."
The U.S. Office of Technology Assessment said in a report that "most observers would agree that currently the net flow of biotechnology transfer is outward from the United States," and added that the long-term effect on U.S. competitiveness is unknown.
In the short run, business ties between U.S. and foreign firms serve domestic companies as a means to enter foreign markets, an important source of investment capital, a channel of technological exchange and an avenue of scientific progress.
No estimate is available on the number or value of business ties between U.S. and foreign biotech firms. The U.S. Commerce Department, in a report on biotechnology, listed a sample of 41 agreements between U.S. and foreign biotech firms, including 20 between U.S. and Japanese companies, and 53 agreements between Japanese and non-Japanese biotech firms.
Most of the agreements listed involve licensing and marketing arrangements for pharmaceuticals. Japan is the second-largest pharmaceutical market after the United States, and companies that want to enter that market have found it helpful to have a Japanese business partner. "You need a Japanese partner to be successful in Japan -- it's just the nature of the marketplace," said Barry Weiner, executive vice president of Enzo Biochem Inc., of New York City. Enzo has given Meiji Seika, of Japan, worldwide rights to market a pregnancy test using monoclonal antibodies produced by Enzo, in return for royalties and supply contracts.
E. I. du Pont de Nemours & Co., the giant chemical, energy and life sciences conglomerate, has teamed with Sankyo Pharmaceutical Co. of Japan for the same reason. "The culture makes it hard to crack the Japanese market without a Japanese partner in the pharmaceutical business," said Jurg A. Schneider, director of product licensing in Du Pont's biomedical products department. "The negative aspect is you must give up half the potential returns."
Du Pont and Sankyo have formed a joint venture to market pharmaceutical products developed by Du Pont. "We must give technical information to them," Schneider said, adding that Du Pont is not giving away trade secrets involving "basic innovation."
Amgen, a firm based in Thousand Oaks, Calif., has formed a joint venture with Kirin Brewery, of Japan, to produce and market a hormone used for treating anemia. "Absolutely, we gave them the technology in this case," said Amgen President George B. Rathmann, referring to the gene splicing technique used.
The economic advantages of such relationships, at least in the short term, far outweigh the possible technological risks, especially for young companies with high research costs and few, if any, product sales.
Foreign capital can be attractive, and perhaps addictive, at a time when the stock market has cooled to biotech firms and venture money is flowing less freely.
Kirin put in "the bulk of the money, and guaranteed the funding needed to bring our product to market," Rathmann said. Amgen retains rights to market the product in the United States, Kirin has rights to the Japanese market and Kirin-Amgen Inc. has rights to the rest of the world.
Many small companies say they prefer foreign companies as business partners because the large U.S. pharmaceutical and chemical companies do not want to give up rights to the U.S. market.
"The most difficult thing in the world" is to go to a U.S. company and ask them to forgo rights to the world's biggest pharmaceutical market, said Genentech's Kiley.
"Any small biotech company has two goals, to establish its long-term viability as a business in the U.S market and to raise the cash to develop its products in the short term," Rathmann said, discussing the benefits of Kirin-Amgen. "There are few deals as useful in meeting these goals."
"It is necessary for start-up companies to fund operations from sources other than sales revenue," said Kiley. "It often means trading future rights to moneyed organizations with a lesser grasp on the technology. We are technology-rich, but less well-heeled."