Even before he had seen a recent article about himself in Venture Capital Journal, John B. Henry, president of Crop Genetics International in Dorsey, Md., began receiving telephone calls from Japanese businessmen interested in a possible joint venture in Southeast Asia.
Such offers are extremely tempting for small, innovative U.S. genetic engineering companies working on new products and medicines ranging from the laboratory-produced sugar cane seed of Crop Genetics to the interferons of Biogen and Genentech.
With many of these products still several years from the marketplace, pioneering U.S. genetic engineering firms need money to continue research and testing. Japanese companies are providing plenty of it in return for technology, exclusive marketing rights for future products and other concessions.
Why Japanese companies, rather than U.S. financial centers or pharmaceutical firms, are putting up the money and positioning themselves for the profits is a riddle that provides insights into pressures driving the technology trade between the two countries.
In the late 1970s, adventurous U.S. and foreign investors poured money into new companies formed by scientists who had been working on the recombinant DNA (gene splicing) technology at such centers as Harvard, Massachusetts Institute of Technology, Stanford, the National Institutes of Health and the University of California at Berkeley and San Francisco.
There was great excitement about new laboratory-produced microbes that might increase crop yields, provide inexpensive new sources of energy and, most important, form a new family of drugs against hitherto resistant viruses and other diseases.
Now, however, investors have grown more cautious.
"A couple of years ago, any university professor with credentials could generate a seven-figure investment," said Thomas D. Kiley, vice president and general counsel of Genentech in South San Francisco. "Now investors are becoming more sophisticated."
In the U.S. system, Kiley said, running up too much debt by borrowing from banks is considered bad business. Even if banks agree to loan money, he said, rising debt drives down the price of stock, creates financial worries and makes it difficult to attract investors or qualified executives.
The way out, he said, is to do research for other companies for a fee or sell them technology in return for commissions from sale of products made with those technologies. "The trick is to do that without selling your birthright," Kiley said.
Making deals with larger U.S. pharmaceutical companies is extremely risky because it often can mean relinquishing the U.S. market to those companies when products are ready for the marketplace. Many biotechnology companies are cutting deals with Japanese firms instead.
For example, Genentech signed agreements with Toray Industries and Daiichi Seiyaku giving them exclusive rights to buy one type of interferon, gamma, for sale in Japan. The Japanese companies pay Genentech while the U.S. firm continues its research, but Genentech retains control of technical processes for making the interferon, which scientists hope will be used to fight cancer and viruses.
However, Genentech could be forced to give Toray and Daiichi the technology if the Food and Drug Administration does not approve gamma for use in the United States. In that case, the product could not be exported, and Genentech has agreed to provide the gene splicing and process technology to the Japanese companies.
Other U.S. companies have made even broader concessions to the Japanese.
In 1981, for example, Genex of Rockville agreed with Green Cross Corp. of Osaka to perform research aimed at developing a microbe strain that can produce human serum albumin (HSA) in a laboratory.
Hospitals now use HSA to treat shock and a condition called hypoproteinemia, a protein deficiency in the blood. Because HSA is prepared from human donors' blood, it is expensive and sometimes scarce. Laboratory development of HSA using recombinant DNA technology could enable Genex to tap into a market worth $600 million a year.
However, Genex agreed to give Green Cross an exclusive worldwide license to "make, use and sell" all of the HSA eventually produced under the contract.
That Japan's efforts to acquire U.S. molecular biology technology are anything but haphazard is evident from the fact that Tokyo's Ministry of International Trade and Industry has picked 14 companies to lead a research effort. More than 100 Japanese companies and research institutes are spending about $217 million a year on research in biotechnology.
"America has unequaled capacity to develop and apply science, but our companies are competing with well-financed foreign corporations acting in partnership with their governments . . . . U.S. government, business and labor are running uphill," Genentech President Robert A. Swanson said.