BioWorld International Correspondent

LONDON - There may be widespread acknowledgement that partnering and merger and acquisition are currently the only ways for fragmented and cash-strapped European biotechnology to build value, but executives must improve their skills in due diligence or those deals will fail.

"The industry has to get better at due diligence, and do it more thoroughly," Ian Rhodes, of Global Technology Group, PA Consulting, told delegates at the International Biotech Conference in London Tuesday. "In the past there was not enough due diligence and it was not independent. There are many examples where a little more up-front thinking would have saved a great amount of grief and money."

In part, the need for M&A is driven by the fact that the capital markets are closed. But it is also a sign that the industry is moving out of its start-up phase and maturing. "The current financial backdrop is the catalyst, but it would have happened anyway," Rhodes said.

The skills required for thorough due diligence do exist in the industry, but it is unusual for them to all exist within a single company. "The due diligence team needs experience in technology, markets, products, intellectual property rights, clinical, regulatory, financial, management and operations. There's no way most [companies] can cover this in breadth and depth," he said.

Many companies working on due diligence do a lot of work at the ground level on technology and markets, but do not ask high-level questions.

"You have to know what you want to get out of it, and think clearly about what the other party wants to get out of the deal," Rhodes said. "The point is, if you haven't done enough due diligence you can't answer this type of question."

Another common failure is to see doing the deal as the endpoint. In fact, it also is necessary to define an implementation plan. "It is important to remember that the value comes from the follow-through," Rhodes said.

He suggested that companies looking to do deals need to get themselves into a state of due diligence readiness. "This enables a potential partner to get to the specifics more quickly and as a result, companies can come together more quickly."

"Prediligence" is a new word in the biotech CEO's lexicon. "A number recognize M&A is their only option - they have to bag something in the next six to 12 months, otherwise it is curtains. We are beginning to get approaches from companies that want to get themselves in a state of readiness to do deals," Rhodes said.