SAN FRANCISCO - Biotechnology is no stranger to protest and picketing, and attendees of the Biotechnology Industry Organization's "Emerging Company Investor Forum" found more of the same at the door of the Palace Hotel here.

Sign-carrying people blocked the sidewalk, shouting and handing out fliers. Police controlled the crowd. Hotel security, with wires in their ears, stalked the perimeter, watching for signs of worse trouble. For once, though, the fracas had nothing to do with biotechnology. Striking hotel workers had been locked out after refusing to accept a contract.

"We knew it wasn't us because they were not dressed like tomatoes and bananas," joked Carl Feldbaum, BIO's president, as the conference came to a close. "But as a former First Amendment lawyer, I have to tell you, what's going on outside may be inconvenient, but it's worth it." Feldbaum told BioWorld Financial Watch the conference will continue next year at about the same time, in the same place.

At issue in the labor dispute were pay and medical benefits. In the meeting rooms of the hotel, talk was focused not on medical benefits but on the financial benefits of medicine, and how start-up firms might more readily partake of them.

BIO came up with the new yearly event - hosted by five banks - to fill the gap left by the transformed yet still much-attended "H&Q" meeting held every January. Over time, as sponsoring firms including Hambrecht + Quist merged, the emphasis of H&Q, now the JP Morgan Healthcare Conference, became diverted from the challenges facing early stage firms to the much different concerns of larger-cap companies, including big pharma, hospitals and other service groups.

The BIO meeting, with its own acronym BECIF, seemed like a good fix. Just more than 1,100 people pre-registered to attend, and BECIF featured roundtable discussions as well as the usual company presentations, making it a venue suited to learning and deal making.

In a panel on venture capital investing that dealt with why VC funds should take an interest in early stage firms, Ralph Christofferson with Morganthaler Ventures offered tips to would-be cash seekers.

"The first question we ask, and we usually do ask for a formal opinion, is [whether the company has] freedom to operate," he said, conceding this "will always be a judgment call because, in general at the time you do the investment, you don't know in fact whether you have freedom to operate because the patents typically haven't been issued."

VCs might snatch up fresh technology developed in academic settings if the work comes with a strong team, reasonable patent protection and maybe even some early clinical data, Christofferson said.

"If, on the other hand, you're interested in working on endocrine diseases or [central nervous system] diseases where clinical trials are very long, the endpoints are fuzzy, the enrollments are difficult and the development time for the product itself is going to be eight or nine years, then the longer [the VC investor] can wait to get in the better," he said, since the chances are improved of a reasonable return more quickly.

Morganthaler is providing funds for "eight or so" biopharmaceutical firms.

Vera Kallmeyer, founder and managing partner of Equity4Health LLC, said the personnel at her early stage fund have found that some companies can get ahead faster and become attractive to financiers by conducting trials overseas.

However they do it, VC firms must find capital efficiency in companies or perish themselves, said Casey McGlynn, attorney and chairman of the life sciences group at Wilson Sonsini Goodrich & Rosati.

"It is absolutely astounding to me, the size of the burn rates and the number of dollars that are going into some of these products," he said. "I don't mean to be negative about it, I just worry that there is so much money being put on molecules in many cases that have failed multiple times. There is always the great story about the one that failed eight times and the ninth time was great, but that's one good story for the 25 that are bad."

Biotechnology's performance in initial public offerings has been outstripped, too, noted Chris Ehrlich, partner with InterWest Partners.

"You've got to make money at the end of the day," he said. "If you look at the 32 IPOs since the fall of 2003, one-third of those is specialty pharmaceutical companies," and all raised between $60 million and $100 million. The situation may change, Ehrlich said, but the specialty pharma model for the moment seems like the only model "that's actually going to wind up - if you're trying to shoot for something - returning your capital."

So, pay for biotech's longer cash runway or demand more? Dan Janney, managing partner at Alta Partners, noted there's "a lot of banter out there that maybe there should be 15-year funds or 20-year funds so you could really fund, as a venture guy, early technology and stick with it all the way through. I think it's an interesting concept. We haven't seen that proven out."

Instead, by providing seed money to new firms, "what we're looking at doing is putting the company on the map to get that product to the point of validation, preferably Phase II studies with data."

Another aspect of the game that has changed, Janney said, is that academics can no longer sit on the sidelines and wait to profit.

"The days of the scientific entrepreneur who wants to stay in academia and end up at IPO with 10 percent of the company, that ain't happening, and it's not going to happen again," he said. However, if the scientist wants to become officially part of the corporate effort, "he's in the best position he's ever been in, because he can opt up as money comes into the company."

Hosts of the three-day conference were Pacific Growth Equities and Banc of America Securities, along with co-hosts Lazard Freres & Co., CIBC World Markets and Citigroup. The event ended Friday.

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