WHAT A WAY TO START A COMPANY! A pharmaceuticals giant has put more than $70 million into Nova, a fledgling outfit that didn't even have a lab before it went public -- and still hasn't marketed a product.
By Gene Bylinsky REPORTER ASSOCIATE Alicia Hills Moore

(FORTUNE Magazine) – HOW DO YOU get past those notorious triple traps in starting up a high-tech company -- that most scientists are terrible managers, that people you want to do business with have never heard of you, and that once your venture capital runs out it's hard to raise more money? For an answer, take a look at Nova Pharmaceutical Corp., a modest biotech venture in Baltimore, which has artfully dodged all those snares. Nova went public before it even had a lab. It brought in seasoned managers and other big names from the start, including ex-presidents of Merck -- and of the U.S. Now it has linked up with a company nearly 250 times its size, which is supplying it with marketing expertise, a ready-made sales force, and an infusion of over $70 million, much of it for beefed-up research and development. Nova is poised to come to market with powerful new medications that treat maladies ranging from symptoms of the common cold to anxiety and other ailments of mind and brain (see table). Who made all this happen? The protagonists are Solomon H. Snyder, 50, a brilliant neuroscientist at Johns Hopkins Medical School who is chairman of Nova's scientific advisory board, and Henry Wendt, 55, chief executive of SmithKline Beckman, the Philadelphia pharmaceuticals house that has become Nova's biggest bankroller. SmithKline is in the process of a merger with Britain's Beecham Group that would make the combined company No. 2 globally. Nova's supporting cast contains an array of worthies from venture capitalist brothers David and Isaac Blech, ages 33 and 39 respectively, to John Lloyd Huck, 66, the former president of Merck, now Nova's chairman. Nova's board of directors includes Ralph Gomory, just retiring as IBM's chief scientist; Edward Hennessy Jr., head of Allied-Signal; and former President Gerald R. Ford. If you think corralling all those luminaries was a rather blatant way to launch a small company into the big time, you're right. But if you think it's too blatant to work, you're probably wrong. The Blech brothers make it a practice to staff their startups with both well-known directors and top-flight managers. Says Isaac Blech: ''We like to bring in management of a quality that you'd ordinarily never imagine would be associated with a new company. To have a fighting chance, these startups need whatever advantages you can give them.''

The Blech brothers have started six biotech companies to date. Their biggest success: the first one they underwrote, Genetic Systems of Seattle, which pioneered in the application of antibodies -- proteins that can be used in diagnosing and treating disease. The Blechs put an initial $200,000 into the company and subsequently raised an additional $48.5 million through private placements, public offerings, an R&D partnership, and research contracts. They took the company public in 1981 at $1.25 a share; in 1986 Bristol-Myers bought it in an exchange of stock for the equivalent of $10.50 a share. The Blechs walked away with $30 million. INVESTING runs in the family. Growing up in Brooklyn, the Blech boys often helped out their stockbroker father, Meyer, in the summers. Since Meyer Blech tended to invest in small companies for his own account, they learned early what pitfalls to watch out for. After graduating from Baruch College in Manhattan -- David majored in music, Isaac in English -- David became a broker and Isaac an advertising copywriter. They wrote some songs together; one, a rock tune called ''Shanghaied,'' became a hit in Italy. Says David: ''The Italian record company still owes us $11,000 in royalties, but we haven't spent too much time tracking them down.'' SOON their hearts belonged to Wall Street. In the late 1970s they parlayed a $20,000 stake into a stock portfolio worth $800,000 -- and then saw a contracting market melt it to $200,000. In 1980, wanting to exercise more direct control over their investments and spurred by Genentech's phenomenal success on Wall Street, the brothers decided venture capitalism in biotechnology was the field for them. To find the right research teams to back, the Blechs read a lot of technical journals and tried to get acquainted with knowledgeable scientists, hoping to connect with those who were tops in their fields. They met a researcher in New York City who had studied under Sol Synder at Johns Hopkins and soon arranged a lunch with Snyder in Baltimore. In 1973 Snyder and his associates had identified the receptors -- molecular docking ports -- in the brain for endorphins, natural mood-elevating opiates that the brain itself manufactures. Many scientists believe that the discovery could someday win Snyder a Nobel Prize. Snyder had been a consultant to a number of large pharmaceuticals companies but was frustrated by their slow response to an idea he had for speeding up the search for new drugs. He proposed to match possible candidates with receptors obtained from animal brains and other tissue. Since most medications act by locking onto receptors in the body, Snyder felt it made sense to design drugs to fit the appropriate receptors, eliminating much of the tedious and expensive hit-or-miss process of screening chemicals in live animals. He had already formed a vision of a fast-moving new drug company when the Blechs approached him. In 1982 they put up $200,000 in seed capital and set about building a team. They went after Donald Stark, president of the pharmaceutical group at Sterling Drug. After eight months of courting, and an offer of one million Nova shares at a founder's price of a tenth of a cent a share, Stark succumbed. After he was in place as CEO -- he has since become vice chairman -- Snyder put together a scientific advisory board that includes three Nobel Prize winners. At this stage Nova had a handful of employees and a single idea: Find a way to exploit Snyder's pioneering screening system for new drugs. Despite this tenuous start, the Blechs took Nova public in 1983 at $1.25 a share, raising $7 million. Says Hans Mueller, a former executive of Sandoz, the Swiss drug giant, and now Nova's CEO: ''If you look at it today, it sounds totally crazy. But those were the go-go days of biotech.'' Today the Blech brothers own 10% of Nova's stock, which recently sold for $6.25 a share; their holding is worth around $15 million. Applying Snyder's ideas for finding new drugs, Nova signed up major pharmaceuticals and chemicals companies as clients. Over the years, Marion Laboratories and Eastman Kodak alone have put over $20 million into research at Nova. Research contracts produced $2.7 million of the company's revenues last year. (For the 12 months ended March 31, Nova lost $7.3 million on revenues of $15.3 million.) Nova has relied for capital on the sale of stock and warrants. Before it merged with Hoechst, Celanese Corp. invested $10 million in Nova stock because Robert Mitchell, vice chairman of Celanese and a Nova director, thought his company could use the new technology. ! All along, Mueller and Huck, who replaced Stark as chairman in 1986, felt that Nova had to ally itself with a large pharmaceuticals company. ''Research isn't the most difficult part,'' says Huck. ''When you get into development -- that's where your expenses begin to pile up. And when you get into marketing, you're in an enormously expensive area where it's very difficult to get established.'' HUCK CIRCULATED around the industry, peddling Nova's skills and products. By that time Nova had in development some interesting drugs Snyder had devised to treat anxiety, depression, and other mental conditions. Nova was also at work on what may become its biggest product -- a chemical molecule that locks onto and inactivates a receptor for a natural pain-causing substance called bradykinin. Bradykinin ''blockers'' that suppress such common-cold symptoms as runny noses, sneezing, and sore throats are now in the middle stage of clinical testing. Nova scientists think a bradykinin blocker salve could relieve the excruciating pain of severe burns. Further in the future, a bradykinin blocker pill might help sufferers from arthritis, asthma, and other chronic illnesses. Snyder got SmithKline Beckman involved with Nova. At a scientific gathering in 1987 he met Wendt, the SmithKline CEO, and proposed a joint venture into the unfolding realm of drugs that deal with mental conditions from anxiety to Alzheimer's disease. With the patent on its billion-dollar-a-year blockbuster antiulcer drug Tagamet about to expire and few other big products on the horizon, SmithKline made a generous deal. IN EXCHANGE for a 60% stake in the joint venture and 19% of Nova's stock, it promised to pony up $49 million for the new company over three years and to transfer to it four existing tranquilizers, along with the sales force that brings in $30 million a year from them. Separately, SmithKline will contribute $20 million to Nova itself for continued development of bradykinin blockers. In principle, at least, the joint venture would combine the best of both worlds. It would fuse the audacious spirit of scientific investigators in an entrepreneurial, unbureaucratic setting with the development, production, and marketing know-how of a major manufacturer. As the population of the industrialized world ages, central nervous system drugs that help treat such diseases as Alzheimer's will become ever more important to human welfare -- and to the profits of pharmaceuticals companies. SmithKline's enhanced clout can only benefit the new company's financial well-being. Nova seems as promising an entrepreneur as a young Yale man setting off to seek his fortune in the Texas oil fields, with wealthy relatives standing by to lend him millions.


CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: FROM NOVA: GOOD NEWS FOR YOUR COLDS, PAIN, AND ANXIETY Nova and its SK&F/Nova Pharmaceutical joint ven ture plan to bring to market a sunburst of innovative drugs and delivery systems in the 1990s. (Nova's en tries are shown in beige, the joint venture's in blue.) Nova's part of the list includes several drugs that block the effect of bradykinin, a potent pain-causing substance that the body manufactures in response to injury or disease. In the computer image at left, a bradykinin blocker, or antagonist, is superimposed on a bradykinin molecule. Such pictures help re searchers decipher the shape of the receptors in the nervous system that bradykinin binds to, triggering pain. The blocker would lock onto the receptor in place of bradykinin, barring the pain signal. SK&F/Nova's drugs aim to treat headaches, memo ry loss, and other conditions affecting the brain.