BioWorld International Correspondent

MUNICH, Germany - European biotechnology investors looked for breaks in the gloom of both public and private markets - along with signs of the success that many said are crucial for a recovery - at the EC21 BioInvestor Conference in Munich.

One positive sign came from data from Deloitte and Touche, which showed that venture investments expected for 2003 were likely to be in line with the steady growth trend from the mid-1990s to present. The difficulty for many investors and companies is that the trend line is well below the levels of investment seen in 1999 and 2000.

Jane Fisken, managing partner with DrKC Life Science Partners LP, brought home the new reality, saying, "Everyone appreciates that today's challenge is survival."

Companies are struggling now, and she added that "restructuring and adapting are harder in Europe than in the United States."

Venture-backed companies face structural difficulties as well. "The biggest challenge is a bottleneck that comes from the lack of exit options," she said. "You can't sell loss-making businesses."

Karl Keegan, who is head of European biotechnology research for Banc of America Securities Ltd., said that changing investors' perceptions is difficult because "companies are not delivering on their promises." The lack of exits for venture investors is likely to continue, he said, "because a cash crunch is coming in public markets."

Others had more optimism. Hugo Schepens, secretary general of the EuropaBio trade association, pointed out some salutary effects of difficult market conditions. The association continues to grow, with new national biotechnology associations as well as companies joining, reflecting increasing maturity in the industry. The sector also has "learned not to expect miracles from Brussels," he said, referring to the capital of the European Union and source of government initiatives and funds.

"It is much better to foster competition of measures between EU member states than to keep waiting for EU-wide measures," Schepens said, adding that another lesson of the current market should be to focus public investment on existing biotechnology clusters before attempting to create new ones.

Asked whether the current conditions were the worst ever for biotechnology, Tim Wilson, a principal in life science investments for Atlas Venture, said, "It's not nearly as bad as 1994 in the U.S., but in Europe this may be the worst." A turnaround, in his estimates, will come from proven successes with new drugs.

"There is no shortage of VC money," he said. "There are sufficient bridge investors. Over the next two or three years, the companies that are on the cusp need to deliver."

Atlas, Wilson added, is extremely busy.

"We are buying low," he said. "The biggest challenges for the companies are financing issues. We have to figure out business plans that will support the pipelines for up to three years."

Prescriptions for improving the outlook varied greatly.

"The markets need macroeconomic stabilization," said Ravi Mehrotra, head of European biotechnology equity research for SG Cowen.

"Business plans should be much more modest at their beginnings, and companies should realize their dependence on major pharmaceutical firms very early," said Francesco de Rubertis, a partner with Index Ventures. Citing successes in Switzerland as positive examples, de Rubertis also believes that the turnaround is likely to occur sooner than the current consensus expects.

Kai Bruening, a portfolio manager with Cominvest Asset Management GmbH, said, "Public biotechnology funds have shrunk, and the sector has to attract general investors back to biotech."

Maarten de Jong, a director for health care with Lehman Brothers, agreed, saying, "The value proposition alone is probably not enough to attract generalists."

The analysts and investors agreed that the quickest way to change perceptions would be successful results for a major biotechnology-based drug.