Anatomy Of The Deal -- Key People Make Difference

Editor's note: Two weeks ago, ICOS, a Seattle biotechnology company, announced it would begin operations with investors and directors that include some of the biggest names on the national business scene. Here is a look at how that deal came together in the first of occasional articles on deals.

ICOS, a Seattle biotechnology company that expects to start operations this fall, wasn't founded through a ``deal,'' but through ``nine months of intensive, hard work,'' says a company founder.

The company, which may not have a commercial product for years and may not show a profit until the late 1990s, has attracted a board that reads like a who's-who in business and has raised far more money than any other biotech startup.

``The way you put together a company is by putting together people,'' said Robert Nowinski, a founder and chief executive officer.

Nowinski did that based on an informal business, scientific and financial network built up over the past decade.

ICOS, whose investors and directors include Microsoft co-founder Bill Gates and former chairmen of IBM, General Foods and Citibank, raised $33 million initial capital this spring through the investment banking division of PaineWebber.

Nowinski said ICOS is the largest single biotechnology startup since the industry had its beginnings about 12 years ago. He said ICOS is the first biotech company ever to obtain initial money through an investment banker.

``This has never happened before; we are just not in the business of venture capital,'' said Stelios Papadopoulos, managing director of the investment

banking division of PaineWebber in New York.

The two main factors that lured PaineWebber were ICOS' scientific endeavors and its trio of co-founders, he said.

``It's not hard to find money,'' Papadopoulos said. ``But business combinations like this are hard to find.''

In 30,000 square feet of leased space in Bothell, ICOS plans to open for business in September with a staff of about 65, Nowinski said.

In 18 to 24 months, ICOS's first products - new compounds aimed at reducing and preventing inflammation in chronic, degenerative diseases - should reach clinical trials, said Nowinski, a former University of Washington professor who nine years ago founded Genetic Systems Corp., which was purchased in 1986 by Bristol-Myers.

Besides Nowinski, ICOS co-founders are George Rathmun, a founder and the current chairman of Amgen, a 10-year-old biotechnology company in Los Angeles; and Christopher Henney, a founder of Immunex, where he was scientific director until last year.

That combination has been ICOS's strongest lure.

``If you took the 15 largest biotechnology companies of the 1980s, we founded three of them,'' Nowinski said.

``You don't find teams like this in our business,'' said Papadopoulos. ``Their track records speak for themselves.''

ICOS got its start last fall, shortly after Nowinski left his job as a vice president in charge of corporate strategy and acquisitions at Bristol-Myers headquarters in New York.

Nowinski said he liked that job, ``but I missed the laboratory and the direct contact with science'' he had had at Genetic Systems.

Almost immediately after he left Bristol-Myers last September, Nowinski started talking to Henney and Rathmun about forming a new venture. The three had known one another for more than a decade.

Henney was ready for a change and relished the idea of starting another company.

``I had concluded that the most useful part of my work at Immunex was probably past,'' he said. Henney said the strongest lure for him was the chance to work with Nowinski and Rathmun.

``They are sort of legends in the field,'' Henney said. ``The chance to work with them would have been very hard for me to turn down.''

Since 1988, Rathmun had been ``diminishing his role'' at Amgen, though he remains the company's chairman, Nowinski said. By last February, Rathmun had agreed to join Henney and Nowinski in a new venture.

Nowinski said Rathmun's recruitment was ``pivotal'' to the new company.

Suddenly three investment bankers, who usually shun startup financing, wanted to raise money for ICOS. PaineWebber, which had financed many other U.S. biotech companies, was chosen.

In April, Nowinski was contacted by a financial representative of Gates, who ``indicated an interest'' in the new company. Nowinski arranged a dinner with Gates, Rathmun and Henney and found that the Microsoft co-founder ``was extremely well read about biotechnology,'' Nowinski said.

``Bill said, `If I'm going to come in, I'm going to come in seriously,' '' Nowinski said. Gates became ICOS' largest single investor, putting in $5.2 million for 10 percent of the stock.

Before Rathmun was on board and long before the financing was in place, Nowinski and Henney identified a scientific niche for ICOS: inflammation.

``We saw that inflammation was a core of the science of immunology and was one of the most under-addressed areas'' of biotechnology, Nowinski said.

By January, the two knew they would tackle inflammation involving asthma, multiple sclerosis and rheumatoid arthritis. By March, they had obtained exclusive licenses to use technology being developed at the University of Washington and Cold Spring Harbor Laboratory in New York. They had recruited a team of scientists, including a dozen people already working together at the Fred Hutchinson Cancer Research Center.

To recruit a board including the likes of former IBM Chairman Frank Cary, former Citibank Chairman Walter Wriston and former General Foods Chairman James Ferguson, Nowinski tapped into another part of his informal network: two financier brothers in New York City, David and Isaac Blech.

Both were among the founders of Genetic Systems, and each had been a vice president of that company. In addition, they had helped found five other biotech companies in the past decade.

``In effect, they were the start of the financial apparatus'' of ICOS, Nowinski said.

The Blech brothers knew how to make direct contact with people like Ferguson, Cary and Wriston, and ICOS' initial board and investors soon fell into place.

Nowinski said biotechnology companies have become commercial successes only in the last few years, and of about 1,000 companies that were formed, only about 20 have grown ``to any significant size.''

He says it's impossible to predict ICOS' future. But he expects his company to become an industry leader. Investors apparently share that expectation. In a few months, ICOS has attracted more money than Amgen, Immunex and Genetic Systems raised cumulatively during their first four years.

Nowinski said that happened partly because ``the time was right.'' But Henney said it was no accident. ``Good things happen to those who are prepared to take advantage of them,'' he said.