![]() ![]() Nowinski's two partners in Icos are Christopher Henney, 50, a founder of Immunex, which developed interleukin-2, an anticancer drug, and George Rathmann, 63, a founder of Amgen. ICOS - short for icosahedron, a 20-sided solid - is the brainchild of Robert Nowinski, 45, a founder of Genetic Systems, a biotech company that Bristol-Myers bought in 1986. ![]() That's at least two or three years before its first product will be available for sale. And even for Icos to clear the lower hurdle, it would have to reach the market value of a successful FORTUNE 500 company by 1995. That growth rate is equivalent to a compound annual return of 60% 40% would be low for a deal as risky as Icos. But venture capitalists, who spread their investments over many companies in hopes that the winners will more than make up for the losers, expect their money to grow by, say, a factor of ten within five years, to compensate for the risk they are taking. In an interview with FORTUNE, the chairman of Icos, George Rathmann, said that if all went well investors might see average annual returns surpassing 40%. The company sold the shares through a confidential private-placement memorandum, similar to a prospectus. Paine Webber turned to the public to raise money for Icos in a private placement of nontradable shares. Normally venture capitalists put up the money for such fledglings, but these engines of enterprise are less interested in biotech startups than they once were. But soon you are out of business.'' The marketing of Icos suggests that these conflicts may increase in future financings of biotech companies. Says Robert Pangia, co-head of Paine Webber's investment banking arm: ''We're in business for the long haul. But if those terms are so attractive to the client that they burn the investors, the brokerage will lose credibility. The firm must compete for the business of the issuing company and offer attractive terms to win the account. Any brokerage house that issues stock for corporate clients and sells it to investors faces a potential conflict of interest. The transaction also brought to a head a longstanding turf battle inside Paine Webber: It culminated with the ouster of a managing director who argued that the Icos deal was too lucrative for the firm and the founders - at the expense of the investors. ![]() No one who isn't steeped in biotech could comprehend the complexities of the business. You can argue that this isn't the kind of deal that's appropriate for individual investors, no matter how wealthy. ![]() By venture capital standards they put up too much money for too little equity they aren't likely to hit the jackpot even if the company does. Or was it? The wealthy people who anted up at least $37,500 apiece wound up buying a deal that most venture capitalists wouldn't touch. How lucky to be one of the first investors in such a venture. What really set Icos apart, however, was cash - $33 million raised mainly from individual investors, the largest startup financing of a biotech company ever. The board of directors sparkled with all-star names - among them Walter Wriston and Frank Cary, the former CEOs of Citicorp and IBM, and Bill Gates, the founding father of Microsoft. They also had a fascinating new approach to fighting such chronic inflammatory diseases as arthritis and asthma, and had lined up a glittering array of scientific talent ready to start work. Its three founders all had superlative records at their * previous ventures. (FORTUNE Magazine) – LAST JUNE a biotech company called Icos became the envy of anyone who had ever spliced a gene. ![]()
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