BioWorld International Correspondent

LONDON - "I can go to the casino instead."

"Biotechnology is a lottery for most people and a minefield for others."

"It should not be a bloodless coup - if you are a CEO who has presided over loss of value, investors will want something tangible."

"Investors are saying, I've lost too much in this sector.'"

These are just a few of the unpalatable comments CEOs were forced to listen to at the 3rd annual BIA European CEO and Investor Conference held in London, as investors outlined what is driving their investment strategies at present.

"The UK and European quoted market is quite dire, with several companies running out of money," Andy Smith, fund manager at 3i Bioscience, told attendees of a session titled "Funding Europe's Biotech Future." Although PPL Therapeutics plc recently raised £30 million (US$46.7 million) and Antisoma plc £22 million in last ditch fundings, Smith noted that Vernalis Group plc, Alizyme plc, ML Laboratories plc and Xenova Group plc all "need to raise money in the next year or so. The same is true in [mainland] Europe."

Smith said quoted companies hoping to rescue themselves by doing deals would find they are in a weak bargaining position. "In the quoted market everyone knows how much cash you have got left, and can estimate how quickly you are burning it," he said. As a result, companies in Phase III studies talking to potential partners may find things move slowly.

Furthermore, companies looking to raise money may find their track record restricting them.

"If you have been around for 10 years burning money, you might be perceived less favorably than a company that recently joined the market with products in Phase II," Smith said.

Smith said CEOs looking to raise funds need to have an achievable plan and "stick to it, because you'll be back - the public markets won't be open in 2003."

CEOs also need to adopt a hair shirt approach, one in which CEOs "can't pay [themselves] the same, award bonuses or re-price options - you have got to show that belts are being tightened," Smith said. And he cautioned that CEOs should not bank on previous investors following on in the current climate.

Nick Rodger, director of corporate finance at the UK investment bank Evolution Beeson Gregory, said too many broken promises and failed clinical trials have given investors a poor perception of biotechnology.

"The CEO promises deals, but they take longer to do in the current climate," Rodger said. "Six months stretches to 18 months, and this is perceived as promises broken."

As a result, investors are becoming demanding. "[Investors] have to have a good reason to invest," Rodger told the attendees. "Most have lost money in the sector, and you coming along to raise more money could just be an opportunity for investors to lose some more."

Despite the negativity, Rodger pointed out there has been as much initial public offering activity in Europe in the first seven months of 2002 as there was in the whole of 2001. "And 2001 wasn't that bad," he said. However, CEOs will be faced with lower valuations and they "have to accept it is a buyer's market." In addition, Rodger said there are too many small companies in Europe, and these are higher risk for investors. He said more mergers and acquisitions are needed to improve investor sentiment.

Andreas Wicki, CEO of HBM Partners in Zurich, Switzerland, an international investment fund specializing in life sciences, agreed. Europe has 48 percent of the private biotechnology companies worldwide, compared to 30 percent in the U.S. and 12 percent in Asia Pacific. "M&A is required," Wicki said. "In particular, there are a lot of weak companies in Germany, where a big wave of disappointment is coming in the next year."