Bioreactor Startup Comes Together Using Soviet Technology And U.S. Financing

In an unprecedented deal, RiboGene Inc. is putting a Soviet team's advanced research into production with American money MENLO PARK, Calif.A year and a half ago, venture capitalist Petri Vainio was considering buying into a proposal from protein chemist and would-be entrepreneur Kin-Ping Wong. So Vainio began an investigation commonly performed by patent attorneys to see whether any other inventor, anywhere in the world, had come up with a similar idea. Vainio discovered that a group of Soviet scientists not only was working on the very same project, but also was way ahead of Wong. Rather than dump Wong's plan, deal-maker Vainio incorporated both their talents, and after a year of intercontinental negotiations, he and Wong announced a collaboration unprecedented in the annals of biotechnology startups: a company built upon money and management from the United States, but using Soviet technology. RiboGene Inc., incorporated in May, began with the idea of Wong, a former researcher at the University of California, San Francisco, to build bioreactors to produce proteins faster and with less effort than current techniques. The proteins would be used for such things as making large crystals to analyze their molecular structures and in enzyme research leading to new drugs (see accompanying story). Vainio, a partner with Vincent Tabkin in the Silicon Valley firm of Sierra Ventures, found in his patent search that Aleksandr Spirin and his colleagues at the Institute of Protein Research in Moscow had applied for U.S. patents on work that was in many ways more advanced than what Wong had done. Specifically, Spirin's team had figured out how to generate greater yields of proteins for a longer time than what Wong and others had achieved. Kin-Ping Wong has spent years studying protein folding, the process of changing one amino acid within a polypeptide sequence. In synthesizing the proteins he relies on cell-free systems. It's a process, he says, in which we break the cell and get the ribosomes [protein factories] plus all the enzymes required. Fed with amino acids and programmed using DNA or messenger RNA, the ribosomes can then produce made-to-order proteins. Such an approach is not new. Marshall Nirenberg and Johann Matthaei used such systems in the early 1960s at NIH to decipher the genetic code, and it earned Nirenberg a share of the 1968 Nobel Prize in medicine. But most of the work to date has used a batch-mode process, with the synthesis taking place in test tubes. A few years ago, Wong became convinced that it would be possible to operate cell-free systems in a continuous-flow mode, using a specialized bioreactor. This would provide an alternative to existing methods, which splice genes into living cells and produce the proteins using the metabolism of that cell. The cell-free method would also be faster and simpler, he reasoned, avoiding the need to separate the desired protein from a mix of hundreds of cellular proteins. What Wong didn't know at the time was that the Soviets had already developed such a continuous-flow system, which features an ultra-filtration chamber. As protein product is produced, it can diffuse out through membranes, which allows the removal of contaminants and other metabolic products and keep the system running longer. That's not something you would think of intuitively, says Petri Vainio of Sierra Ventures, the venture capital firm that is putting up the funds for the new company combining U.S. money and management and this Soviet technology. It was a piece of brilliant contrarian thinking. We were struck by how much RiboGene would be strengthened if we could also secure exclusive access to the work being done by Spirin, says Vainio. The way to do that, he decided, was to ask for the rights to license the Soviets' technology in exchange for granting them a share of Wong's company. We recognized the tremendous commercial potential of incorporating Spirin's work, says Wong, RiboGene's chairman and president, because of its value to scientists who need large quantities of these proteins. Wong gave up academic life for entrepreneurship after having held faculty positions at California State University in Fresno and UCSF. Although he had never before started a company, he had served as an administrator at both Fresno and the University of Kansas, as well as a program director in biophysics at the National Science Foundation. So he drew up a business plan, and his search for venture capital led him to Vainio. Wong acknowledges that Spirin was a little ahead of us. What's more, the Soviets were well aware of their advantage. In addition to talking with Wong and Vainio, they had held meetings with representatives from two other U.S. firms and a British company. And they proved to be hard bargainers. Vainio initially offered the Soviets a 5 percent share in RiboGene, but they wanted more. The negotiations took more than a year, including a dozen trips by the U.S. team to Moscow and two trips by the Soviets to Silicon Valley. The Americans had to teach the Soviets how venture capital works, says Vainio, and how the value of a startup can appreciate if the technology proves successful. The U.S. team also had to grow accustomed to the Soviet style of deal-making. They tend to negotiate with a win-lose attitude, Vainio explains. They extract concessions, he says, and then interpret such concessions as signs of weakness, leading to demands for further concessions. In the end the Soviets managed to raise their participation to a 15 percent share in the new company. A Soviet scientist, Vladimir Filimon-ov, was appointed to the seven-member board of directors. Sierra Ventures has committed $1.85 million to the joint venture, and it expects to invest additional sums. It has also promised to provide the Soviet lab with $100,000 a year in hard currency for five years. The Soviets will use the money to buy chemical and biological equipment and reagents to continue their work, as well as for professional travel. The short-term goal of the joint venture is to develop prototypes of the bioreactors that will carry out the continuous-flow, cell-free protein synthesis. In addition, the agreement provides for U.S.-Soviet cooperation in starting a second company, yet unnamed, that would license any jointly owned technology for use by other firms and laboratories. The Soviets will own a 49 percent share of this follow-up venture, and will have three seats on its seven-member board of directors. The new company leased office space recently in a building east of the San Francisco Bay area in Dublin, Calif. By the end of the year it hopes to have hired a dozen Ph.D. scientists and technicians. It plans to have its first product on the market by the end of 1992, and it projects sales of $50 million by 1995. Its officers are Wong, president; Michael Dunn, vice president for research and a former senior scientist at NutraSweet Corp.; and Wesley Fox, vice president for operations and a former manager of systems development at Baxter Travenol Inc. as well as a former scientist at Abbott Laboratories. The Soviets will also maintain a presence here. Spirin and Filimonov will visit the company's lab on occasion, and a member of Spirin's team biologist Lubov Ryabova will help RiboGene scientists set up the equipment. Both Wong and Spirin seem pleased by the unique collaboration. By working together with an entrepreneurial U.S. company, says Spirin, we will commercialize our innovative scientific discoveries much faster than we otherwise could. Soviet officials are eager to create similar joint ventures with other U.S. firms, he adds. Wong believes that the venture could not have succeeded five years ago, before the winds of economic change began blowing through the Soviet Union. And he's happy to lend a hand in exchange for the scientific knowledge that RiboGene will acquire. They want to learn how we commercialize high technology, from the research lab to the marketplace, and how we use venture capital and the technical expertise of our universities, he says. And historically, this is the right time to do something like this. T.A. Heppenheimer writes about science and technology from Fountain Valley, Calif.

Bioreactor Startup Comes Together Using Soviet Technology And U.S. Financing

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