Cytel Corp., in La Jolla, Calif., sits in a gleaming new building that seems more air and light than matter. Vegetation grows from its courtyard core, water plays on stone. The scene, quiet and lulling, suggests an upscale shopping mall, not home for a fledgling company trying not to get stepped on in the global marketplace of the 1990s. In his cable-knit cotton sweater, canvas trousers, and deck shoes, Jay Kranzler, Cytel's president and CEO, hardly dispels the impression.
But beneath the youthful "what, me worry?" exterior, Kranzler, 31, is very much a man on the go. Like many entrepreneurs seeking to do business with the Japanese, he sees it as a way to gain access to the world market. To get that, he is willing to give up pieces of his company.
Cytel, a two-year-old biopharmaceutical company, is a hot little business right now. Last September Kranzler forged a strategic partnership deal with Sandoz Ltd., the Swiss pharmaceutical giant. In exchange for five-year worldwide rights to Cytel's research into a class of drugs that combat autoimmune diseases, Sandoz pumped more than $30 million into Cytel. For that sum Sandoz also got close to 20% of Cytel's stock.
You'd think $30 million would be plenty to keep Kranzler going for now. It isn't. Kranzler is just back from Japan. "We are looking for more money, and Japan is the place to go for it right now." In fact, the sooner Kranzler can find a Japanese partner the better off he'll be. He figures that because Japanese pharmaceutical companies are not yet the global players that U.S. and European companies are, he can cut a better deal. He may be able to retain rights to other markets, giving up only the Japanese market.
Kranzler is a canny pragmatist. The Japanese have a lot of money; his business burns it. "To develop a drug now costs on average $125 million and takes 13.5 years." To get a payback Cytel must crack the world market. But that, especially in this industry, is tough. "There are tremendous regulatory and cultural barriers to entry in Japan."
Getting a big partner like Sandoz was a vital and calculated first step. (Kranzler began that process by drawing up a list of all U.S. and European drug companies with sales of more than $1 billion -- potential partners.) The Sandoz deal would convey credibility to the Japanese. A Japanese partner will, Kranzler hopes, accomplish something else. Kranzler is looking for complementary expertise in fermentation technology and organic chemistry, areas in which the Japanese are strong. That is the upside.
The downside is all too real. Kranzler's strategy is to sell pieces of his technology. Inevitably, he says, big companies want worldwide rights to the technology. But such deals threaten to turn Cytel into little more than a generator of a "royalty stream" and prevent Kranzler from ever building Cytel into a bona fide, integrated company. He can only go out so many times and sell parts of his technology before he gives away too much. His problem is compounded by figuring out which part and how much of his research base to give up. "You have to be smart about which slice you give away," admits Kranzler. "On the one hand, it has to be attractive to them. On the other hand, it has to be one that you know you need someone else to help you with."
Kranzler acknowledges that he is engaged in a nimble dance. He needs capital. He needs access to world markets. He needs to hang on to as much of his company as possible. "Each of us has a need we are trying to fill. The Japanese are trying to get access to new technologies. We are trying to survive and grow," he says. The Japanese, he admits, will be no different from Sandoz. Generous, co-operative -- potentially predatory.
Subtle evidence of that exists a stone's throw from Cytel's building in the same sun-bleached and lavishly landscaped industrial park, which is also home to an outfit called Gemini Science Inc. Gemini was established by Kirin Brewery Co. with the aim of putting its expertise in fermentation technology to work in the field of biotech. "This allows Kirin to establish a presence in the United States. This will be its eyes and ears over here," says Kranzler. Outposts like this one are cropping up around the country, most notably in university settings, where the Japanese exchange bricks, mortar, and test tubes for research generated by U.S. gray matter.
Kranzler doesn't see a threat in this. He notes that European companies have funded research in the United States for years. He adds: "Sandoz has a large asset base in the United States and no one complains. I don't think of them as a Swiss company. They're an international company. It serves us badly to be xenophobic. If you're xenophobic then you cut yourself out of the global marketplace. You can't compete."
Similarly, Kranzler believes companies that worry about losing their technology to larger partners have deeper concerns. "If you are so worried about losing your technology, then you're probably not going to survive anyway. The stronger players will continue to innovate. People look at this and say it's scary, but this is the way things have to move. Ultimately, industry has to go global. It will be healthy that some Japanese companies will be winners and some U.S. companies will be losers."
Jim Summerton is the founder of Antivirals Inc., in Corvallis, Ore., which is engaged in the design and development of gene-inactivating agents. He has worked in this field for 20 years. About 9 years ago, Summerton, like many a wide-eyed entrepreneur, went out looking for some good old U.S. venture capital. As a man of science and a would-be company builder, he came back disillusioned. "I must have talked to 50 venture capitalists," he recalls. "They don't give a damn about your technology. All they care about is who's on your management team. They want to know how many Harvard M.B.A.s you've got. I get the impression that most venture capitalists we talk to are mainly businessmen. They hire consultants to tell them what the technology is all about."
