BioWorld International Correspondent

STUTTGART, Germany - Wrapping up the BIO-Europe 2002 International Partnering Conference here, participants acknowledged that the bear market is starting to bite, but that the teeth will really start to sink in over the next 12 to 18 months.

"We definitely have enough cash for the next year and a half. Unfortunately, our proof of concept is likely to come six months after that," one executive said.

At present, many company leaders are working hard to bridge anticipated gaps. Venture capitalists are looking for new exits, and people on both sides of the financing equation are seeking creative solutions to difficult situations. If companies are not able to find fresh funding over the next year, they will have to take much more drastic measures than the 20 percent to 25 percent cuts that numerous European companies imposed in 2002.

Ann Louring Roldan, director of licensing for Pharmexa A/S in Horsholm, Denmark, told BioWorld International that the bear market is "absolutely having an effect. Practically every biotech company has gone into a cost-containment mode." Under present circumstances, "you have to be very careful about your spending."

The market "is much more difficult this year," said Frank Muehlenbeck, a consultant to the German state of Baden-Wuerttemberg. "That's more than clear. Valuations are sinking dramatically, and investors are focusing their interest on late-stage products."

These changes pose tough choices for company founders, managers and investors.

"Valuations were much too high," said Kristina Felner, investment manager with BioMed Venture AG in Hannover, Germany, a sentiment echoed by other venture investors. "The valuations are coming back down to earth. Expectations have become more realistic, and companies are realizing that the time frames for their products are longer than they had thought."

The founders and leaders of biotechnology firms are finding it difficult to accept that their companies may have dropped in value despite years of work and development, Muehlenbeck said. "The older investors are having a hard time with that, too," he added. They are facing having to write off the complete investment.

The industry can look forward to a year of negotiating tenaciously, as companies and early round investors try to hold on to as much valuation as possible, while new funders press their advantage to pick up bargains.

Investors' focus on late-stage companies and products holds an obvious danger, Muehlenbeck said. Lack of seed and first-round financing could lead to a dearth of mature firms and products five years down the road.

Changes in the venture environment may be less startling to more experienced companies and managers. Roldan, for example, said that when Pharmexa was founded in the early 1990s, venture capital was all but unknown in Denmark. The company grew from its own resources and a variety of funding sources.

Diane Romza-Kutz, a partner with the law firm of Mayer Brown Rowe & Maw in Chicago, also saw a silver lining. "Companies have to get creative in difficult times," and they were turning to the global law firm for advice. "Our practice has tripled in the last year," she added.