Amgen, a five-year-old California biotech firm, lacked the money and marketing muscle to develop one of its most promising new products: a hormone used for treating anemia.
Kirin Brewery Co. Ltd., a giant Japanese beer manufacturer, offered ample financial resources and international distribution experience.
So the little innovator and the foreign giant formed a joint venture that will bring the product to market -- one of countless such partnerships being forged all over the high-tech world.
Paradoxically, at a time of rising trade tensions, these partnerships are multiplying fast, enabling cash-short, inventive start-ups and multinational corporations to pool their strengths and get ahead in a fast-moving industry.
But many companies realize that current partners may become future competitors, and some industry experts worry that the U.S. companies could lose their lead in biotechnology by sharing their technological expertise with foreign firms.
International scientific cooperation created many of the breakthroughs that serve as the foundations of the industry, but the United States currently leads in the commercialization of the technology with more companies, products and investment than any other country. Governments in Japan and Europe want to close the gap and have committed national resources to nurturing their own biotech companies.
"Most observers would agree that currently the net flow of biotechnology transfer is outward from the United States," according to a report by the U.S. Office of Technology Assessment, which said the long-term effect on U.S. competitiveness is unknown.
Most U.S. biotech firms say the benefits of international financial and scientific cooperation outweigh the risks, particularly for young companies with high research costs and few, if any, product sales.
"It is necessary for start-up companies to fund operations from sources other than sales revenue," said Thomas D. Kiley, a vice president of Genentech Inc. "It often means trading future rights to moneyed organizations with a lesser grasp on the technology. We are technology-rich, but less well-heeled."
Business relationships with foreign firms provide U.S. companies with critical financial support, a means to enter worldwide markets and a channel of technological exchange.
Through research and development contracts, licensing and marketing agreements, and equity investments, these ties have played a vital role in the growth of the American biotech industry, according to some experts.
"Those early international contracts resulted both directly and indirectly in the pivotal funds that built our industry," said J. Leslie Glick, chairman and chief executive of Genex Corp.
No estimate has been made of the number or value of business ties between American and foreign biotech firms. A Commerce Department report on biotechnology listed a sample of 41 such relationships, including 20 between U.S. and Japanese companies. It also listed 53 biotech agreements between Japanese and non-Japanese firms.
Most of the agreements listed involve research, licensing and marketing arrangements for pharmaceuticals. Although biotechnology has applications in fields such as agriculture, food processing, energy and electronics, most of the first products have been biomedical substances such as insulin, hormones, blood proteins and antibodies.
One reason new biomedical firms link up with major corporations -- domestic and foreign -- is the enormous costs of trying to enter the pharmaceutical industry.
One new product may cost between $50 million and $70 million and take up to 10 years to bring to market. The field requires expensive equipment and highly trained scientists. Once developed, a new drug must pass several stages of testing over many years to win government approval.
Kirin put in "the bulk of the money, and guaranteed the funding needed to bring our product to market," said Amgen President George B. Rathmann.
The availability of foreign capital has been critical during recent years when the stock market cooled to biotechnology and venture money flowed less freely.
Formed in 1976 with venture capital, Genentech has turned a profit for six years without selling any finished products, largely because of its contracts with large U.S. and foreign firms.
Genentech has earned revenue from research contracts, supply sales and license royalties. The company's foreign partners have spent $47 million for overseas clinical tests of Genentech's gamma interferon.
"These arrangements are vital to our growth," Kiley said of Genentech, which has about a dozen foreign relationships.
A major advantage of partnerships with foreign firms is that they can help a U.S. company enter overseas markets.
Genentech agreed in 1983 to give Boehringer Ingelheim International GmbH of West Germany the rights to market Genentech's blood clot-dissolving agent in Europe, the Middle East, Africa, South America and parts of Australia.
Rights to the Japanese market are held by two companies, Mitsubishi Chemical Industries Ltd. and Kyowa Hakko Kogyo Co. Ltd.
Genentech will sell the product in this country, and in March, the firm announced formation of a joint venture with Boehringer to market all of Genentech's products in Canada.
Japan is the second-largest pharmaceutical market after the United States, and companies hoping for a share of those sales must have a Japanese partner, many U.S. companies say.
"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. 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.
Even giant corporations such as E. I. du Pont de Nemours & Co. have found it useful to team up with a Japanese firm.
"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 Co. Ltd. have formed a joint venture to market pharmaceutical products developed by Du Pont. The major advantage for Du Pont is Sankyo's "very outstanding marketing organization," Schneider said. "We want outlets for products we develop for worldwide use."
Some small companies say they prefer foreign partners because they will concede the U.S. market, unlike major domestic coporations.
Through its joint venture, Amgen retains rights to sell the product in the United States, Kirin has rights to the Japanese market and Kirin-Amgen Inc. has rights to sell it throughout the rest of the world.
In contrast, Genentech cannot sell its most successful product in this country. Eli Lilly & Co., the giant U.S. pharmaceutical company, has the domestic marketing rights to human insulin, the only product of gene splicing approved for use in the United States. Lilly supported Genentech's research and pays royalties to use Genentech's method for turning a single-celled bacterium into an insulin factory.
"The most difficult thing in the world" is to ask an American corporation 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," said Rathmann, discussing the Kirin-Amgen joint venture. "There are few deals as useful in meeting these goals."
Some companies also say they gain scientific and production knowledge through international business partnerships.
"When my company agrees to accept a client-sponsored research project, we generally gain the benefit of that client's knowledge and experience in its markets and technology," said Glick of Genex. "It is not at all unusual for us to be able to use the manufacturing processes and applications we gain from our clients in the development of our own proprietary products."
Small U.S. companies, in particular, can learn from Japanese expertise in fermentation processes, a key technology in large-scale production of genetically engineered substances, said Weiner of Enzo Biochem. Start-up firms can use Japanese assistance in financing and building large fermentation facilities when they are ready to increase production of a hormone or enzyme from laboratory amounts to commercial quantities, he said.
However, many companies and industry analysts are aware that technology may flow in both directions; some say technology transfer could threaten this country's competitive advantage in biotechnology.
"The United States needs to realize more that we're out of that period where we were the only market," said Robert A. Swanson, chief executive and a founder of Genentech, advising the industry to do "anything we can do to keep what we've started."
The U.S. government spends billions to support basic biomedical research, and American entrepreneurs have commercialized some of the results, Swanson said.
"Now everybody has targeted that, they want to grab the new technology and the markets for their countries, and we have a chance to keep it here."
Most of Genentech's agreements with foreign partners call for Genentech to produce its products here and ship them overseas for distribution, Swanson said. The company tries to "retain the technology whenever possible," Kiley said.
But other companies say technology transfer is occurring, and some argue that it is an inevitable part of doing business overseas. Most companies agree that the clear short-term benefits of cooperation outweigh the fuzzy long-term risk of losing their competitive edge.
"The issue has been raised, 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 exhange goes both ways."
Amgen shared with Kirin-Amgen the gene-splicing technique used to produce a certain hormone, Rathmann said. "Absolutely, we gave them the technology in this case. . . . Virtually all biotech companies are involved in some type of relationship that has resulted in technology transfer to Japan."
"There is always the danger of losing the technological lead," said Weiner of Enzo Biochem. "But we cannot remain isolationist in relation to the world . . . the benefits outweigh the detriment now."
Biotechnology is itself a creation of international scientific cooperation, and sharing technology is natural to the industry, Glick argues. "Technology transfer should be viewed as but one step in the normal course of business with a company's clients, whether they be foreign or domestic," he said.
More significant channels of technology transfer include scientific journals, conferences, research institutions and universities, some biotech experts say.
"It is inconsistent with reality to think we can isolate ourselves here and can benefit from isolation," said Price of the IBA.
Pharmaceutical products, in particular, require companies to share detailed test results and other information required to win a foreign government's approval.
"We must give technical information to them," said Schneider, refering to Du Pont's agreement with Sankyo, adding that Du Pont is not giving away secrets of "basic innovation."
But in a rapidly developing field, it is difficult to determine which information belongs in the realm of general knowledge and which should be proprietary, which techniques could lead to a major breakthrough in the hands of an individual scientist, or how data could be used by a potential competitor.
"It is a hard thing to do in 1985, to estimate how technology transfer will affect U.S. international competitiveness 10 to 15 years down the road," said Emily A. Arakaki, an economist in the Commerce Department's International Trade Administration. "It's a new industry -- you just don't know where the breakthroughs will occur."
Swanson of Genentech said that "the key knowledge worth protecting is the base of knowledge between the cloning of the microorganism and the data you collect in human clinical trials."
That is the technology that can make U.S. biotech firms the low-cost manufacturers, as well as the inventors, of genetically engineered products, Swanson said.
"Novel expertise in manufacturing and purification . . . the hands-on experience is worth 10 times the value of data collected" in clinical trials, Swanson said.
"If we are to maintain our lead, we must act quickly to address a number of critical issues such as continued tax incentives for research and capital formation, timely review of patent and new drug applications, well-informed export policies, and increased funding for process technology and generic applied research," Swanson said.
The United States maintains a commanding lead in basic research, largely because of extensive government support of biomedical research and training. "We'll stay ahead in basic sciences for a long time to come. That gives us lead time in industrial applications," Kiley said.
Glick of Genex argues further that international business ties will strengthen the U.S. biotech industry by enabling new firms to survive the challenges of their start-up years.
"In the long run, such royalty and licensing arrangements will do much to bring stable profits to high-technology industry in the United States -- and a leadership position in world trade," he said.