BioWorld International Correspondent

MUNICH, Germany - As European investors and biotechnology companies hope for an upturn in the sector, the key market for pharmaceutical companies remains the U.S.

Bernard Gilly, a partner with the venture investment firm Sofinnova Partners, of Paris, reminded participants at the EC21 BioInvestor conference in Munich, Germany, that while the industry as a whole is global, the U.S. market still dominates the sector's outlook.

"While investors in the sector have a pan-European perspective, it's clear that conditions are different in different places," Gilly said, adding that incentives and the regulatory framework in France are much better than they were two or three years ago.

Holger Reithinger, a director with 3i Deutschland GmbH, of Munich, agreed and noted that his company's last three biotechnology investments had been outside of Germany. But globalization still has a long way to go, Reithinger said.

"Companies very much reflect the national character of where they are based, and board meetings are still held in the local languages," he said.

The two investors also said that product companies are essentially the only ones that interest their firms. Gilly said the product paradigm is still "the only course for sustained growth," while Reithinger said he couldn't think of a single technology platform company founded since about 1998 that has fulfilled its sales goals.

While investors might have agreed that the product path is the right approach to improve the industry's fortune, there was a broader array of opinions about the timing of any recovery. Erich Platzer, an investment advisor with HBM Bioventures, of Baar, Switzerland, said venture capital firms "seem to have lost faith in any upturn." However, he emphasized the cyclical nature of investment opportunities in biotechnology. He said that over time, the opportunities for initial public offerings have tended to last 18 to 24 months and then been unavailable for 24 to 36 months. On this schedule, he was optimistic that successful IPOs would be launched sooner rather than later.

Until that time, Wolfgang Stoiber, managing director with JSB Partners of Gruenwald, Germany, said the goal for many investors is to "get [their portfolio companies] to be the last man standing."

Recent mergers and acquisitions have been "very poor," said Leopoldo Zambletti, a vice president with JP Morgan plc, of London. The primary driver of many mergers, he said, "has been survival," and he added that "the problem is that many companies have waited to make this happen," and therefore are not poised to reap the advantages.

Addressing these issues from the side of a biotechnology company, Ed Stuart, chief business officer of U3 Pharma AG, of Munich, said management had four key tasks to get through the downturn. "First, re-address the business plan," he said. "Second, manage the cash and spend on product development. Third, consider mergers and acquisitions and remember that a management-led deal is inherently better. Fourth, stay creative and flexible in making deals. Seek partners for access to technology and access to cash."

Investors and company representatives said that business fundamentals, particularly product development, would drive the sector. Only highly visible successes will draw the interest of general investors and re-open the opportunities for successful public offerings.