LONDON - At day two of the European C21 BioVentures conference here, an afternoon panel session gathered to discuss investing in early stage technology deals in Europe.

Or rather, to discuss why it doesn't happen more often.

The panel was chaired by Caroline Bruce, associate director, international business development at the University-Industry Liaison Office at the University of British Columbia (UBC) in Canada. There are parallels between Canadian and Europen biotech, she said, and forming a company from university research anywhere takes patience.

"It takes a lot of time, and if you're doing biotech, it takes an extra long amount of time," she said.

She pointed to the biotech high times and said that in 2000-01, UBC spun out 13 companies. These days, the university starts two or three a year, she said, and the selection process is more severe.

She also detailed a slide of Canada's gross expenditure on R&D, plotted against venture capital investment - the lines have diverged sharply in the past few years. The government is supporting innovation, but VC firms in Canada are not keeping pace.

Bruce then used Vancouver-based OncoGenex Technologies Inc. as a model for spinouts.

She was approached, she said, by Martin Gleave, who is a professor of surgery at UBC, who told her he wanted to start a company.

"Martin," she told him, "you don't want to start a company. You've got patients" and a host of other duties to keep him busy. Still, he persisted, and the firm was founded. But as busy as Gleave was, OncoGenex needed someone to run things, and Bruce asked Gleave if she could find someone he approved of to take the helm. She brought in the company's current CEO and president, Scott Cormack.

From there, OncoGenex signed a collaboration with Isis Pharmaceuticals Inc. around the cancer product OGX-011, which OncoGenex had acquired from the Prostate Centre at Vancouver Hospital and Health Sciences Centre.

The company eventually in-licensed two more compounds, and Isis expanded their deal in 2003 to include OGX-225 and then again this month to include two additional second-generation antisense cancer candidates. Last year, they began Phase II trials with OGX-011, Bruce said. (See BioWorld Today, Nov. 27, 2001.)

That's a successful spinout by just about anyone's estimation, but it doesn't happen with enough frequency in Europe. Why?

As happened in previous sessions at the conference, fingers were pointed at the lack of VCs in Europe, especially ones willing to look at younger firms that wear more risk. Compounding that problem is the U.S., with its more-defined biotech models to follow, so those looking to invest might as well invest there.

Michael Forer, managing director, BioScience Managers Ltd., said that "with his VC hat on, you find that they are extremely risk averse in Europe," and while "a lot of the pension funds in North America will invest in biotech" that doesn't happen in other areas. Instead, many European VCs have followed others "like sheep" and looked to the States.

John Berriman, chairman of Alnylam Europe AG, pointed to three recent initial public offerings in Europe: Intercell AG, which went public in Austria with an IPO worth about $61.7 million; Paion AG, which tapped the Frankfurt Stock Exchange for about $52.7 million; and Basilea Pharmaceutica AG, which went public in Switzerland in its IPO valued at about $161.6 million.

IPOs in Europe today, he said, raise about €80 million to €120 million. That points to a "sobering" fact, especially in the biotech field: If an investor wants "three times on investment," then by applying today's European IPO average, a firm can expect to be able to raise only around €25 million to €30 million if investors are going to be satisfied.

"You've got to partner early on," he said, cut that burn and stay within the budget.

Forer also gave stark numbers. In 2003-04, he said, VC investment in the life sciences and information technology fields in Europe fell 40 percent. Over that same time frame, 88 funds were started in the U.S. to focus on life sciences and IT. Five were started in Europe.

Why? The answer is the bottom line.

"It's easier to get returns on investment in the U.S.," Forer said. "Does that mean Europe doesn't have good exit strategies and companies? I don't know, but the money is certainly flowing the other way."

The conference ended Wednesday.