LONDON - Meeting with potential biotech partners sometimes can seem like a Covent Garden street act, where innocent interest in a little juggling and magic can turn into a much bigger proposition.

"Now that I have your attention, let's talk about pyramid sales," the entertainer said on Sunday.

He was joking, and the crowd laughed, but in the real world of industry partnerships, it's no surprise that a shared appreciation of innovative technology sometimes can morph into a pricey acquisition of an entire business.

That was the subject Monday at the opening leadership session of the 15th BioPartnering Europe conference held here at the Queen Elizabeth II Centre up the road from parliament square and across the street from Westminster Abbey.

More than 1,000 attendees from 30 countries gathered to learn what they could at the leadership sessions, tell what they could in 10 minutes or less about their companies before a room filled with potential partners, and meet with as many people as possible in private meetings.

The conference, which began in 1993 by Technology Vision Group LLC as the first biopartnering event in the world, was a dreamchild of then-U.S. Vice President Al Gore. Since then, it has evolved into two other partnership conferences, one in the U.S. and one in Canada.

It kicked off Sunday evening with an opening reception and continued Monday with a panel discussion on "False-Flagging or Shape-Shifting: How Partnership Deals Morph into M&A."

The first term refers to occasions when small biotech companies dangle carrots in front of cash-rich pharma all with the intention of finding an exit for its investors, specifically a buyout.

The second term, shape-shifting, refers to bigger biotech and pharma companies that decide, after looking at the menu of innovative products, they'd rather just get the whole buffet.

Such was the case when Whitehouse Station, N.J.-based Merck & Co. Inc. began discussions with Sirna Therapeutics Inc., of San Francisco, to license technology in a particular therapeutic area.

That company's business model was to divide its therapeutic areas among several different partners, doling out respiratory rights to GlaxoSmithKline plc and ophthalmic rights to Allergan Inc., of Irvine, Calif.

But as the talks progressed, Merck's interest in the technology grew, and "we began to think that we would have more interest than just this one therapeutic area," said panelist Barbara Yanni, vice president and chief licensing officer at Merck.

The interest culminated into a $1.1 billion acquisition that closed in December.

Representing an example of false-flagging was Ian Garland, the former chief financial officer of London-based Arrow Therapeutics, now the CEO of Acambis plc.

AstraZeneca plc purchased Arrow for $150 million in March following licensing discussions of a hepatitis C program at the small-molecule anti-infectives firm formed in 1998.

Garland called the term false-flagging disingenuous because "it implies that buyers are not aware of the real strategy."

At the time, Arrow was a company that had raised £43 million through a seed round and Series A and B financings. It had a runway through mid-2007, a lead product, RSV604 for respiratory syncytial virus, partnered out with Novartis AG, of Basel, Switzerland, and three hepatitis C virus programs, with one product in Phase I. Some venture capitalists, however, who had first invested in 2000 were looking for an exit.

The options: Arrow could have partnered its hepatitis C virus programs, but it "would have reduced our chance of a trade sale" and pushed off the VC's exit, Garland said; the company could have sought an initial public offering in London, but investors would have lost control and lacked liquidity; Arrow could have gone the reverse-merger route, and joined with a public U.S. shell to gain a listing on Nasdaq, but company officials worried about being a small fish in a large pond and lacking the newsflow needed to drive up the stock; and it also could have returned to the VCs to conduct a Series C financing, but that would have raised the hurdle for an IPO.

In essence, the trade sale seemed like the best option. While the Novartis partnership would have played a big role in a private financing or an IPO, it was not a major factor in the AstraZeneca acquisition, aside from the illusion that perhaps Arrow was playing a game that would pit the two big pharma firms against one another.

But Garland insisted that "we didn't spring this on anyone at the end." His lessons learned: For small biotech firms, it is important to find patient and supportive investors, and in partnership discussions, it is crucial to build knowledge of the crown jewel.

While partnerships are great options for nondilutive financing, it also can "close doors in terms of a trade sale," he said.

Genzyme Corp.'s Stephen Potter, who stood in the audience, told of how his company and the Canadian company Anormed Inc. wanted to collaborate, but financial investors drove the discussions toward an acquisition agreement. The $584 million acquisition was completed late last year.

While not a typical example of false-flagging, the situation is a reminder of all of the issues at play during a partnership discussion. Not only do investors need their exits, but big pharma needs innovative products to fill their pipelines and continue the value chain.

In 2005, Merck licensed GlycoFi Inc.'s novel yeast-based protein optimization technology, but in early 2006, it became aware of another GlycoFi partner that wanted to purchase the Lebanon, N.H.-based company.

"That gave us pause to think - if the large company acquires GlycoFi, will that technology be available to Merck?" Yanni asked. Merck bid and won, paying $400 million in May 2006.

Likewise, AstraZeneca acquired Cambridge Antibody Technology plc in the summer of 2006 after entering into a five-year alliance to expand its biological pipeline and capabilities, using a "buy rather than build" mentality, noted Campbell Wilson, director of SPBD Discovery within cancer research at AstraZeneca. In an example of false-flagging, the pharmaceutical company was in discussions with Kudos Pharmaceuticals, also of Cambridge, to license Ku59436, an oral poly-ADP-ribose polymerase inhibitor in Phase I oncology.

While Kudos management and Kudos investors had an evident difference in preferred outcome, it became clear through the process that AstraZeneca might need to buy the company.

At this point, many pharma companies decide to walk away. Acquisitions are more expensive than licensing deals. But AstraZeneca took the bait, purchasing Kudos and changing the name of Ku59436 to AZD2281.

"We could buy the company or lose the product," Wilson said. "We chose to buy the company, and in retrospect, I think we got it absolutely right."

Following a full day of partnership meetings, open house presentations and workshops, conference participants traveled Monday evening to a dinner reception at the Victoria and Albert Museum, which holds more than 3,000 years of art and design artifacts. The conference ends Tuesday.