BioWorld International Correspondent

LONDON - Big pharma's unabated appetite for biotech assets may be providing lucrative exits, but it is turning the European sector into acquisition fodder and preventing the development of sustainable public companies.

In the view of Keith Powell, CEO of Polytherics Ltd., that does not matter. "What matters is that investors get a return on their investment," he told a session called to debate the issue, at the Genesis Conference, held in London last month.

Bruno Montanari of the venture capital firm Atlas Ventures agreed, saying it makes no difference to investors if the exit is via a sale or an initial public offering.

Similarly, for Steven Powell, CEO of Plethora Solutions plc, it is important to plan to be sustainable because it is difficult to run a business on the basis that it will be acquired. "At the end of the day, you need a return for investors. Being acquired for success and therefore delivering a return for investors is OK," he said.

However, Glyn Edwards, CEO of Antisoma plc, said that is short sighted. As things stand, European biotechnology does not have a large enough pool of investors.

"The only way to get [more] is to have a flagship company setting an example. There's no point in small companies making a return for a few shareholders: that won't build an industry," Edwards noted.

Martyn Postle, director of the consultancy Cambridge Healthcare and Biotech, backed up that view, pointing out that while venture capitalists may be happy to see investee companies acquired, it means that the public purse does not get the big returns "on the great science that takes place in Europe."

The opportunity to generate revenue in corporation tax is lost because commercialization takes place elsewhere," said Postle, noting that, "Trade sales wouldn't happen unless GlaxoSmithKline et al., thought they could get a return."

For Sam Fazelli, an analyst at Piper Jaffray, the issue is not being acquired, but that most companies have no control over the process. "It's like owning a house, when you have a choice over putting it on the market, it's OK," he said, adding, "The majority of M&A happens when a company is on its knees."

While there are no pan-European biotech champions, Fazelli argued that the sector in individual countries, including Germany, Belgium, France, Italy and Switzerland, is experiencing a local hero effect around the current success of their public companies.

In 2007, Europe has seen several successful IPOs, but inevitably the investment climate is cyclical, and Fazelli said anyone with ambitions to go public in 2008 will have a "tough time." He cited one unnamed company that has had plenty of venture capital support, with exciting science and products progressing in development. "But they can't IPO because they have missed the cycle," he said.

Steven Powell agreed that private companies looking to go public may be hurt by the timing, adding, "The question is: Can companies sustain themselves in the fallow period?"

Beyond that, a further difficulty is looming, Edwards argued. "Where is the next cohort of big companies? This is a real concern. Where is the next generation; what small companies are coming through?" he said. That is a fundamental problem in Europe as a whole and the UK in particular.

The issue is that there is not enough venture capital money to properly seed companies, Montanari said. "There will be fewer and fewer funds of any size to support companies for five to seven years."

But for Keith Powell, it is no bad thing if fewer companies get started, "Because good companies do get funded, and they get more money because they are good."

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