European Biotechs Face Harsh Reality

With IPOs now beyond the reach of all but a chosen few biotech firms, venture capitalists are driving hard bargains--when they're not seeking M&A opportunities. The infrastructure to take companies public now exists in Europe, but institutional investors have little interest in small biotech companies whose products are far from commercialization. If they're going to take risk, they want the promise of Internet-type returns. European VCs under pressure to boost the market appeal of their current portfolio firms are busy assessing the masses of existing companies, seeking M&A opportunities to build up their favorites. Some are pursuing e-health deals. VCs now realize they'll have to hold biotech companies longer and put in more money to help them grow. But the fact that so many firms now need cash works in some VCs' favor: biotech is a buyer's game. Like their US counterparts, European VCs are seeking new, improved biotech business models. They want reduced risk, near-term revenue potential and technological depth--for starters. There are bright spots amid the gloom: some small pre-VC funds are emerging to help start ups set up, and the governments of several European countries are working to encourage biotech.