BioWorld International Correspondent

STUTTGART, Germany - The eighth BIO-Europe 2002 International Partnering Conference here drew approximately 1,200 representatives from all sectors of the biotechnology industry to concentrate on partnering and making deals.

"This is definitely the largest single partnering event in Europe, and probably anywhere," Morrie Ruffin, vice president for business development and emerging companies with the Biotechnology Industry Organization, told BioWorld International. "The focus here is on one-on-one meetings that bring pharma together with biotech."

While the keynote sessions and the company presentations were well attended, the majority of the delegates appeared to be spending their time in the more than 2,000 partnering meetings scheduled through the conference's master roster. Delegates said that they did not expect to announce major deals completed at the conference, but that they relished the opportunity to plant the seeds of future collaboration. Many also stressed the number of productive meetings that they could have over the event's two and a half days.

Presenters and organizers have not shied away from confronting the difficult market conditions facing the industry. "We've seen down cycles before, and we will come through this," Ruffin said.

Scott Morrison, national director of life sciences for Ernst & Young LLP, said that "the current pressure on valuations is bringing renewed emphasis on partnering, and on mergers and acquisitions."

Pain in the industry also is unevenly distributed. Morrison noted that there have been a number of very well-funded start-ups in both the U.S. and in Europe, and he said that a few have raised as much as $40 million to $60 million privately. "That is close to the proceeds of an IPO," he added. At the other end of the spectrum, however, a gap is emerging for seed and early stage financing for smaller firms. "This could still be the third biggest year for biotechnology investment," he said, "but it is not spread evenly. There is a lot at the top."

The size of some venture funds - Morrison cited one that is in the process of raising $900 million - means that they will not be interested in investing in small deals and will have to concentrate either on late-stage investments or on spin-offs from larger corporations.

Not all of the conference participants think that tough markets are bad for the industry.

"These are actually good times," Robert Blum, senior vice president of finance and corporate development of Cytokinetics Inc., said. "This is time to learn the lessons that weren't learned before. Many biotech companies that went public did that just three or four years from their inception. That is very early in a company's life cycle," particularly for an industry in which products easily take more than twice that time to come to market. A slower march to public financing gives more time to build partnerships and for companies to mature. In the mid-1990s, Blum said, many biotech companies traded at a discount to their IPO price before their stocks took off. That suggests that they were taken public too early.

Mark Cochran, a partner with NeuroVentures Capital LLC in Charlottesville, Va., also saw benefits in a tight capital market. Venture capitalists were not just looking at the short-term advantages in valuation negotiations, but also were learning from previous mistakes, Cochran said. "These days, VCs are resisting what looks sexy, and they are looking closely at management experience, at technology that has legs and at companies that have what pharmaceutical companies want."

Deals are also being shaped differently. "Deep-pocketed syndicates are important. We want to make sure there's enough money available to take the technology into a proof of product in humans," Cochran said. Morrison said that he observed big syndicates becoming increasingly important in investments, especially in cross-border transactions.

Morrison also saw a structural advantage for U.S. companies. He said that the global outlook of the biotechnology industry meant that, despite all of the practical difficulties in implementation, cross-border mergers were likely not only to continue, but also to increase. Strengthening that trend is the view that "a cross-border transaction is a validation of a company's growth and strategy."

American companies, which provide entry into the vital U.S. market, have a particular cachet, and "U.S. companies can command a premium in investments," Morrison said.