By Cormac Sheridan

BioWorld International Correspondent

LONDON - Consolidate, be acquired or go under. These are the stark choices facing the CEOs of privately held UK biotechnology companies, according to successive speakers Thursday at a BioIndustry Association conference on businesses issues for bioscience companies.

The appetite for biotechnology initial public offerings in the UK has all but disappeared during the past couple of years. There have been no new listings on the London Stock Exchange so far this year, and only three biotechnology companies went public last year. Across Europe, 1,178 biotechnology companies are competing for investment attention and funding.

"There isn't enough to go into 1,178 companies," said Chris Evans, Britain's most successful biotechnology company builder and the CEO of Merlin BioScience venture capital group. Lack of scale is also a problem, he said. "No one is interested in these sub-$100 million market-cap companies."

The best prospects, he said, will attract heavier levels of funding during their development and will build a healthy critical mass in advance of an IPO. The "smart guys," who recognize their companies may not "be up to the mark," will take alternate routes.

"Yes, the industry has to consolidate," said Paul Drayson, CEO of Oxford, UK-based Powderject Pharmaceuticals. "That has happened to every industry going right back to railways. It's going to happen to the Internet guys."

He said Europe can support only 25 top-tier biotechnology companies. "The important issue here in Europe is to maximize the opportunity of the European market as a European market," Drayson said.

"The premise about biotech is 'small is beautiful,' but small is small," said Elliot Goldstein, CEO of Oxford-based British Biotech plc. Investors have demanded that companies have more products closer to market, he said. Companies have responded by moving drug candidates through the clinical trials process more rapidly, thereby pushing more of the risk into Phase III trials.

Big pharmaceutical firms have the resources to carry that kind of exposure, Goldstein said. But without a broad portfolio, biotechnology companies are more vulnerable. It is important for companies, though, to avoid undertaking a consolidation or merger out of desperation, he said. Firms should do what makes sense for the business long before they are obliged to do it.

According to Kate Bingham at Schroder Ventures of London, companies - and investors - should be quite explicit about their preferred exit from an early stage. Because of the changing investment climate, the business model favored by the venture capitalists is evolving also, said Bingham, who holds primary responsibility for advising on life sciences investments by Schroder venture capital funds throughout Europe.

She said older models, such as having a fully integrated strategy or focusing on one link in the supply chain, no longer hold. And companies can only remain virtual for a limited period. Her preference is for biotechnology companies to develop a hybrid, partially integrated business with, for example, a pipeline of products at different development stages.

"There aren't a lot of good examples yet," Bingham told BioWorld Today, although she identified Millennium Pharmaceuticals Inc., of Cambridge, Mass., in which Schroder has invested, as one.