BioWorld International Correspondent

FRANKFURT, Germany - At the ninth annual Bio-Europe conference, the buzz from investors and biotech company representatives was that the public markets might welcome initial public offerings from the sector beginning early next year.

Indeed, one German business development executive told BioWorld International that at his firm, the board "is deeply divided right now about whether to go for a trade sale or an IPO."

A morning panel discussion on financing in Germany showed that over the course of 2002 and 2003, investments from venture capital firms trend toward funding later stages in a company's life cycle.

"This is not just a preference of the venture firms," said Roswitha Gropp, a partner with IMI Consulting GmbH, of Burgwedel, Germany. "It also reflects the VCs' need to continue funding their portfolio companies."

At present, companies and investors are unwilling to name businesses that they consider the most likely candidates for going public. However, likely companies would have completed a third round of venture-backed financing, have products in or about to complete Phase II trials, have a presence in North America as well as Europe, have concrete prospects in Asian markets and have a development pipeline with several compounds.

The conference drew about 1,200 representatives from all sectors of the biotechnology industry to concentrate on partnering and making deals.

"This is the largest single partnering event in the industry," said Morrie Ruffin, vice president for business development and emerging companies with the Washington-based Biotechnology Industry Organization. Ruffin added that Bio-Europe had drawn 250 companies from North America and 500 from Europe.

One new aspect of the conference was an emphasis on the role of "big biotech" companies. The larger, publicly listed companies fill part of the gap between start-up biotech companies and major pharmaceutical concerns. They can offer smaller firms expertise and resources for partnerships, but are not likely to be able to bring a new drug all the way to market.

A fuller continuum of company sizes is a factor of increasingly complex partnership agreements.

"We are seeing more opportunities for swaps between small and large companies," said Fred Brown, a vice president and partner for life science services with IBM. "We would also like to see partnerships between large companies. Partnerships will increase, and may also come to include payers and insurers as well as the known sectors of pharma, finance and biotech."

Pharmaceutical companies also are looking to expand the range of partnerships with the biotech industry, said Ian Nicolson, director of business development for Celltech Group plc, of Slough, UK. "Partnership complexity has increased dramatically, but we are also seeing much greater post-transaction communication," he said.

Where partnering might once have been a euphemism for a financial transaction, it is now living up to its name. Partners are moving toward continuous consultation, and their partnerships are seeing increasingly dedicated management.

Along with partnerships, companies are investigating the key elements of success and failure.

"We've examined close to 400 cases over 15 years' time where compounds have failed in testing," said B.J. Borman, global portfolio director with Pfizer Inc. "Out of that data set, we found that roughly 50 percent failed over safety-related issues, usually in the preclinical stage."

Based on that examination, Pfizer was increasing its efforts in predictive toxicology. "This is an area for the biotechs to address early on," she said.

Failures of efficacy were less common, said Borman, but more expensive. "Furthermore, the rate of failure for new mechanisms of action is very high," she added. "This is one area where biotech has not yet come forward" with innovative approaches.

The European market also will face significant change, beginning in May when 10 countries join the European Union. Although the countries, from Estonia in the north to Cyprus in the south, do not offer any single market larger than 40 million people, their membership will change European policy dynamics and pose the challenge of integrating the relatively poorer populations.

"There are definitely different payment schedules in the east," said Samir Master, vice president of business development and licensing with Novartis Pharma AG. "There may also be a price advantage for trials, but there will be a finite window for that opportunity."

"The admission of new members will also strengthen the drive for centralization" at the EU level, added Brown.