DUSSELDORF, Germany - At the 12th annual BIO-Europe International Partnering Conference here, almost all the talk - on panels, in the hallways, at the receptions - seemed to focus on the heightened rate of mergers and acquisitions.

Pharma is sniffing around biotech more now than perhaps at any other time in the history of the relationship. Consider this: GlaxoSmithKline plc bought ID Biomedical Corp. for $1.4 billion in 2005, this year AstraZeneca plc snapped up Cambridge Antibody Technology Group plc for about $1.07 billion, paying a 67 percent premium to the trading price of CAT at the time, and Novartis AG bought NeuTec Pharma plc for $574 million, for a 109 percent premium.

There's more. Merck & Co. Inc., once regarded as uninterested in what biotech has to offer, is in the process of buying Sirna Therapeutics Inc. for $1.1 billion, at a 96 percent premium, and at any point in time has about 40 deals under consideration. F. Hoffmann-La Roche Ltd. evaluated 1,200 opportunities in the first half of 2006, discussed 250 of those at the board level and eventually signed 20 agreements. Perhaps most notable of all is Pfizer Inc. Worried by pending patent expirations, the firm said in its second-quarter earnings report that it plans to spend $17 billion on acquiring new products and technologies by the end of 2007, to complement the 40 biotherapeutic programs it already has in development.

If a biotech company has a clinical candidate, the interest will be there. Mingling at the welcoming reception last Sunday, an executive from an Italian biotech firm mentioned that she'd stopped counting her meeting requests at BIO-Europe this year when they topped 100. Last year in Dresden, she had fewer than 10 meetings. The difference? Her firm has reached Phase I trials.

The other major factor shaping the landscape is the public markets. The average amount raised in a biotech IPO this year is about $45 million; while the window is open, it's selective, and those welcomed into the club will find themselves valued lower.

Biotech: Then, Now

Many of this year's IPOs have moved up in post-trading, but since the end of 2003, about half of new companies have traded down.

Technology platforms once were enough for the public markets. In 1999 and 2000, the typical biotech success story sounded a lot like Maxygen Inc.'s.

That company went public in December 1999 on the strength of its MolecularBreeding technology and its partnered research for more than 35 product candidates in the chemical, agricultural and pharmaceutical industries. It had no clinical candidates of its own and priced shares at $15 - the stock climbed to nearly three times that on its second day of trading.

The market corrected, though, and when biotech's window reopened in 2003, clinical products were required for IPO casting. Eyetech Inc. had just what investors wanted in 2004. It raised $136.5 million at $21 per share in its IPO, based on its potential blockbuster, Macugen, for wet age-related macular degeneration. Its shares traded up 54 percent on the opening day.

NitroMed Inc. had a similarly good story, going public on BiDil, its product for heart failure in African-Americans. The pipeline behind it was thin and young, but BiDil oozed enough potential to get NitroMed through for $66 million, at $11 per share.

Renovis Inc. also went public in 2004, selling 5.5 million shares at $12 apiece, raising $66 million. Its lead product, Cerovive, was partnered with AstraZeneca plc in the potentially lucrative area of stroke, and Phase III trials already were under way.

Looking at those firms today paints a darker picture. Maxygen closed Friday at $8.52. NitroMed has struggled to wring money out of BiDil, and shares closed Friday at $2.37. Eyetech had nothing behind Macugen, and when it became clear that Genentech Inc.'s Lucentis would perform better in the market, Eyetech's shares crumbled and it eventually was bought by OSI Pharmaceuticals Inc. for $935 million - a move many OSI shareholders disliked. And late last month, Cerovive flunked the second Phase III study (the first was positive), AstraZeneca bailed out of the agreement and Renovis' stock fell 70 percent to $3.43 - a new low.

Investors have adjusted accordingly. Annette Grimaldi, managing director, investment banking for Jefferies & Co. Inc., told BioWorld Financial Watch that the historical indicators of success - a Phase III drug or a product before the FDA - "haven't borne out this year," adding that "the remnants" of 2006's failures and pharma's keen interest in acquiring have people talking about "throwing in the towel on going public."

Avoiding The Exit

Is it possible that all the pressure of providing an exit doesn't leave companies focused on developing the drugs?

Grimaldi pointed to Microbia Inc. "They seem to be making a go of it," she said. "Look at their last financing."

Microbia has raised $181 million in equity capital - $174 million of that in five private rounds, the most recent a $75 million Series E in February. It has used those funds to push its products, and will have two Phase IIb studies beginning before year's end - one for linaclotide in chronic constipation, the other for MD-0727, its lead cholesterol absorption inhibitor. It also is expecting to start a Phase IIb trial for linaclotide in irritable bowel syndrome-constipation in the first half of next year.

In the later rounds, the company's existing investors pitched in more than half of the total raised. That means that the new investors in the $75 Series E - Sigma Capital Management LLC, Jennison Associates, Maverick Capital and others - put up less than half that total.

Microbia CEO Peter Hecht said the company's "investors generally, and Venrock and Polaris especially, have been strongly supportive of our business and financing strategies at every step of our development," adding that they've stressed "product development, building the company and creating long-term shareholder value."

In other words, the firm is in for $181 million and has yet to hear that an exit is wanted or required. Hecht told BioWorld Financial Watch he appreciated "how unusual this is, but it is the real story - we have very unusual investors. It just proves again that it's worth it to go with the best."

For those without Microbia's envious position, the buyout has replaced the once-glorious IPO as the preferred exit, and now is the sign of biotech success.

Speaking on a panel at BIO-Europe, Uli Kinzel, director of corporate finance at Nomura Code Securities Ltd., said the question for hot biotechs today doesn't concern an IPO date, but rather, "If you are so interesting, why have you not been acquired by big pharma?"