BioWorld International Correspondent

Venture investors from across Europe took stock of the industry at the Biotech and Finance Forum in Munich, Germany. Without headline-making IPOs, and with many companies forced by the capital markets to redefine their plans, it could have been a meeting of pessimists, but investors focused on the sector's relative maturity, its strong pipeline and the likelihood of positive clinical results.

John Davis, of the European Investment Bank, said a key positive development was that European biotech companies had 60 products in Phase III testing, compared with only 15 products two or three years ago. However, there has been a lack of IPOs over the last three years. Between those two developments, European biotech has to find a way to increase the interest of financial markets and to provide clearer exits for venture investors, he said.

There were differing views on what measures would most help an industry that appears poised for a breakthrough, although there is no clear sense of when that will come. Views clashed most dramatically on the availability of funds, with investors claiming shortages at the seed, intermediate or exit stages of company development, while others argued there is excess capital at the seed and intermediate stages.

Looking at Europe from the outside, Steven Burrill, CEO of Burrill & Co., said: "The biggest impediment is that venture capitalists don't see a vehicle for exit. The lack of robust public equity markets feeds into the whole system." He added that public support has carried a cost for companies as they grow. "Government funding has meant that easy early financing and complexity later on has created a crunch in the middle that's very hard for some companies," Burrill said.

He added that the squeeze was not unique to Europe and pointed to a need to "differentiate between funded science projects and actual companies. Maybe half the 5,000 [biotech] companies in the world are actually science projects pretending to be companies."

Elmar Maier, chief operating officer of GPC Biotech AG, cited challenges in Germany.

"There are problems with stock options, with limits on the size of transactions, with tax issues such as carry-forward," he said. "German corporate law creates limitations [on] the ability of German biotech companies to raise funds and grow as quickly as their American counterparts." Combine that with "fragmentation among half a dozen significant countries," and the sector's growth has slowed.

Maier also pointed out that most biotech companies in Germany are less than 10 years old. The proper comparison, he said, is not with large American biotech companies as they exist today, but as they were in the first 10 years after their founding.

Burrill noted that the next 10 years of the European biotech industry will probably see far more change than the previous. He cited several drivers for that. First, technology basically has re-engineered the discovery process and automated many elements. It now is in the process of re-engineering development from a linear process to one with different assumptions about patients and the ability to work in parallel. In that area, he expects standardization to shorten development time and bring down costs.

Second, at present prescriptions have high value and diagnostics have lower value. In the medium term, he expects the value of diagnostics to increase because they will make it possible to identify which patients will benefit from treatment. That will link up with the third driver, which is refusal of payers to bear ever-increasing health care costs.

Finally, Burrill said, "Personalized medicine is something that is happening today." The combination of genetic testing, targeted patient selection in clinical trials, better understanding of adverse drug reactions and better understanding of diseases at the molecular level means that the first elements of personalized medicine already are in place. Biotech investors, in Europe or elsewhere, should factor that development into their medium-term decisions.

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