SAN FRANCISCO - "There is a saying in the gambling world that, at every poker table there is a fool, and if you don't know who the fool is, you're the fool," said Stelios Papadopoulos, vice chairman of SG Cowen Securities Corp., during a panel discussion last week at the BIO 2004 International Convention.

In few industries do gambling metaphors fit better than in biotechnology, and Papadopoulos was talking about the especially risky matters of getting money and staying afloat for early stage or platform companies.

"What does not work, in my mind, is the announcement that we will be an in-licensing company and systematically review the universe for in-licensing opportunities, because there is a bunch of drugs that are too small for [major pharmaceutical companies] but still big enough for us,'" he said. Such are the poker table's fools.

Talking about what doesn't work, for companies and for investors, turned out to be a major part of the panel titled, "Averting Crises: How to Lengthen a Company's Financial and Operating Runway."

While some 17,000 attendees at the annual meeting sponsored by the Biotechnology Industry Organization circulated through the convention center, protestors teemed in the streets to proclaim - sometimes hysterically - how the industry itself has charted the world on a course to a genetically modified crisis.

Inside, the mood was markedly more sedate, and significantly more coherent. Papadopoulos and his colleagues on the panel laid out big-picture as well as nuts-and-bolts advice to a throng of listeners.

"If you look at the history of biotech in the last 25 years of [initial public offerings], you would argue that they seem to come with some regularity, with a cycle of anywhere from two to five years, depending on many factors, most having to do with events and forces outside of our industry," he said.

At the same time, he noted "a sort of pendulum swinging from product to technology [companies], back and forth over time - except that I think now we may be entering a phase where we are unlikely to ever come back for a protracted period of time being infatuated with technology stories," at least as far as public investors are concerned.

"There's no argument that it's a lot easier to assess the potential of a company, or to think you can assess - which is even more important - the potential of a company with a Phase II compound than some fundamental technology platform," Papadopoulos said. "Public investors seem to think that. The whole business of Wall Street investing in biotech has now become one of handicapping clinical studies. That's an easier debate than saying, Will a systems biology platform be viable 10 years from now?'"

Unlike before, there may now be as many as 50 biotechnology firms "that can fashion some sort of clinical pipeline, and if you are a public investor out there who wants to get a biotech fix,' like a drug addict, you can go choose amongst any of these 50, and go and create a portfolio and be happy," he said.

Papadopoulos said he has embarked on a study to show that, contrary to some beliefs, companies with Phase II products are no less risky than earlier-stage firms.

"There is a perception that, in difficult environments, there is a flight to quality," which is equated with having a product further down the line in development, he said. "What people need to appreciate is, in difficult environments it is not a flight to quality that prevails." Instead, it's the shrinking of the investment horizon.

"That means investors cannot today, with the market being choppy as we call it - or sideways or equivocal or inconclusive, or without leadership, you pick whatever expression you want to say - in this environment, investors are not thinking about how great life will be 10 years from now," as they did in 2000, Papadopoulos said.

"When the investment horizon shrinks, investors want to bet on stories where they will know the outcome in, say, six to 12 months, good or bad," he said. "It's the desire to know that is the driver rather than [the question of whether the product will work]. It's not so much an attempt to anticipate bad outcomes. I'm talking about a more fundamental issue, which is assuming everything working out, will we still have a problem, and let's think about it."

Peter Barrett, senior investment principal with Atlas Venture Ltd., said some companies opting for the in-licensing route to supplement their platforms are making headway, but the strategy comes with dangers.

"First of all, if you're in-licensing a late-stage asset [that investors prefer], to develop that asset is going to cost more than the platform, so you've got a little bit of a Catch-22," he said. "The second problem is, if [the in-licensed product] is totally unrelated to the other investment thesis, then you've got a complicated story. Oh we've got this compound over here in oncology, but we're really an inflammation company, but guess what, it's in Phase II.' Some of the stories we've seen are actually quite eclectic."

Still, he said, opportunities exist in what he called "de-prioritized assets" at biotechnology and pharmaceutical firms.

"What you're doing at that stage is evaluating something that in some ways can be evaluated because it will have some data around it, but too often I've seen the teams not putting the due diligence behind that process," Barrett warned.

Asked for an example where such an approach worked, he could not come up with one, but Papadopoulos did: indiplon, the insomnia drug candidate that was the subject of a 1998 licensing agreement between Wyeth and DOV Pharmaceutical Inc.

"It was lying around, [DOV] picked it up, they developed it a little further," he recalled. Neurocrine Biosciences Inc. "recognized its value and licensed that, and I guess Pfizer saw the value as well," Papadopoulos said. "It can happen." Pfizer Inc. entered a $400 million deal with Neurocrine to market the drug, a non-benzodiazapine agent that acts on a specific site of the GABA-A receptor. Positive Phase III data were disclosed in March.

"If you press me I may come up with two or three other stories [like this]," Papadopoulos said, "but not very many."