Bioe News

Published online: 26 February 2004, doi:10.1038/bioent795

Sumitomo buys Oxford Finance

*Aaron Bouchie is a news editor for Nature Biotechnology, New York

Acquisition will enable US biotech startups to more easily connect with Japanese pharma companies and stores of cash.

On January 29, Sumitomo Corporation of America (New York), a subsidiary of the global commodities trader giant Sumitomo (Tokyo), announced it would acquire specialized financial services firm Oxford Finance (Alexandria, VA, USA) for $85 million in cash and debt. Oxford has a 17-year history of financing biotech startups, and industry observers say its portfolio companies will benefit from Sumitomo's cash coffers and potential collaborations with its portfolio of global pharmaceutical firms.

Oxford is one of a handful of US companies that is dedicated to providing loans to biotech startups for purchasing laboratory equipment and leasing space (see Box 1). According to J. Alden Philbrick, Oxford's president and CEO, each year the firm completes 50–60 investments, which average $2.5–$3 million each.

		"Venture capitalists would rather see their portfolio companies take out loans to pay for equipment and space, and use cash raised from equity financings to fund research and development."

Such lease and debt financing is "incredibly important for small companies," says Jonathan MacQuitty, president of venture capital firm Abingworth Management (Palo Alto, CA, USA). When a young biotech has just received its first seed funding, MacQuitty "would rather see [one of my] portfolio companies take out a loan to pay for equipment and space, and use [my venture capital] dollars on research and development."

In this way, these special equipment loans help startups leverage cash raised from equity financings, says Herbert Mutter, VP of finance at Structural GenomiX (San Diego, CA, USA). Mutter has worked with Oxford for about three years, and he says their financiers have a solid understanding of the biotech industry, which makes Oxford a good business partner.

Now, Oxford will operate as a subsidiary of Sumitomo, which makes investments directly into companies and into various venture capital funds. Sumitomo has offices in 73 countries and has made life sciences an investment priority "for more than a decade," says Philbrick. He says Oxford's new relationship with Sumitomo will give his portfolio companies a "conduit" to the Japanese life sciences market for research collaborations and distribution agreements. Indeed, Mutter looks forward to the potential opportunities of partnering with Sumitomo's portfolio of Japanese pharmaceutical firms.

Philbrick says the deal will also bring more financial capabilities to Oxford's portfolio companies. Whereas Oxford predominantly provides loans to private companies in the United States, the firm will now be able to invest larger amounts into both private and public companies on an international scale. So the Sumitomo acquisition not only benefits Oxford's portfolio firms, but also "positions [Sumitomo] for rapid expansion in this high-growth segment of our marketplace [that is, the biotech sector]," states Sumitomo CEO Atsushi Nishijo.

MacQuitty adds that having a big firm like Sumitomo backing it up is an extra level of security to Oxford. He likens the new Oxford to GE Capital (Stamford, CT, USA), which is backed up by General Electric—the ninth largest company in the world, according to Fortune magazine. "Big financial conglomerate backing is a big help," says MacQuitty.

Companies like Oxford will become increasingly important to the biotech industry as universities continue to spin out new companies at increasing rates—nearly 500 new biotech startups were formed in the US and Canada in 2001, up ~10% from 2000¹. And venture capitalists will continue to encourage this type of financing. MacQuitty concludes: "I encourage all my portfolio companies to go to this type of lender."

References

1. Pressman, L. (ed.). AUTM Licensing Survey: FY 2001 (The Association of University Technology Transfer Managers, Northbrook, IL, USA, 2003).