ImClone ruling may hurt venture capital investing

The US federal grand jury indictment of former ImClone Systems Inc chief executive Samuel Waksal last week has put at risk an estimated US$5 billion in US-focused biotech investment by venture capital companies in Taiwan, leaders said yesterday.

"It's had a big impact. People are a lot more conservative now," said Willie Lin (林衛理), vice president in charge of the US$219 million biotech-focused fund at the China Development Industrial Bank (中華開發工業銀行). The fund has made 74 investments -- mostly in North America -- over the past five years.

"We depend on our invested companies to IPO so we can cash out. The IPO window is now closed again, probably until 2003," he said.

Waksal, who founded the New York-based company in 1984, faces up to 30 years in prison over charges including securities fraud, bank fraud, perjury and obstruction of justice.

US officials say the executive tipped off family and friends to sell stock in ImClone three days before news broke that the company's initial application for an experimental cancer drug had been rejected by the US Food and Drug Administration.

Shares in ImClone, which had soared to US$73.83 on the NASDAQ Dec. 5, plummeted after investors discovered the news. The company's shares ended trading last Friday at US$7.34 per share.

A series of corporate scandals in the US, particularly Enron Inc, WorldCom Inc and Adelphia Communications, have left Taiwanese investors cold. During the dotcom rise, billions of New Taiwan dollars flowed to the US, only to be lost when the Internet bubble burst.

"We went from virtual firms to real poverty, and then we were told that the computing revolution would lead to great opportunities in biotechnology -- especially after the sequencing of the human genome. Where are the new discoveries? Are the biotechs going to be a repeat of the dotcoms?" said another fund manager under condition of anonymity.

"To some degree you have to trust the CEO's word on products and inventions. But now I see that the CEO is the one who gets rich while investors lose," he said.

Nevertheless, some investment funds remain optimistic about the future of the industry.

"We were very disappointed with this incident. What happened at ImClone is just one side of human nature. It can happen in any business," said Lai Por-hsiung (賴博雄), head of President Life Sciences (統ㄧ生命), which operates a US$100 million biotech venture capital fund.

"It's important for investors to be very careful in appointing a CEO," Lai said.

"At President Life Sciences, we research the background of the CEO and the team that leads a company, before we make and investment," he said.