Julian Thurston started his career as general counsel for what was once the flagship of UK biotech—Celltech, now part of Belgian mid-sized pharma company UCB. For the past 26 years, he has been providing legal expertise on commercial exploitation, intellectual property (IP) protection and licensing, partnering and strategic planning to European biotech companies. Thurston wears many hats—he deals with technology transfer as a nonexecutive director for the UK Cancer Research Campaign and currently is a partner at London law firm Morrison and Foerster. He is now regarded as one of the top life sciences transactional attorneys in Europe.

If nothing else, a quarter century of experience has taught Thurston that biotech is cyclical—its fortunes waxing and waning with investor whim. In Europe, the latest trend is the desertion of early-stage biotech by the venture capital (VC) community. “I think that the classic series A, B and C/IPO [initial public offering] model is not going to work in Europe in the future,” he remarks. To get around this, he believes the European biotech sector needs to rethink its business strategy.

One option would be to promote consolidation. Thurston's vision is that the European sector should “sell a package of several startups” with complementary technology or products to partners of choice. “There needs to be mechanisms across universities where a German university would link up with a UK university and with an Italian university,” he explains. By packaging several university spinouts together, companies would become more substantial and sustainable. Peter Heinrich, CEO of Medigene, of Martinsried, Germany, agrees, adding “those focused on niche markets would stand a better chance of being competitive.”

Heinrich is, however, skeptical about whether European investors have the necessary vision to accomplish this. “VCs should drive this [type of] merger,” he says, but whether they will is another matter. Many mergers have failed and consolidation has not been as extensive as it could have been because of what he calls “the ego problem.” This affects both CEOs and venture capitalists: the former bickering over who should get top job at the new company, the latter obsessively focusing on their reputation and the relative valuation of the company they are backing. Simon Turton, an investor at private equity firm Warburg Pincus in London recognizes that ego has a lot to do with the process but points out that “mergers are so difficult to do!” and they may not be the only driver of growth of the sector.

Once consolidation has taken place, Thurston believes that the aggregated companies could be sold to bigger players. And as far as suitable partners go, he thinks that the most likely acquiring candidates for this packaged technology would be mid-sized biotech companies, such as UK firms Cambridge Antibody Technology (CAT) in Cambridge or Vernalis in Winnersh, which are always on the lookout for partnering or acquisition opportunities.

Where acquisition is not possible, Thurston thinks companies could enter partnership deals. This is exactly the kind of strategy that CAT has adopted. As CAT CEO Peter Chambré explains, “If we're convinced of the quality of the opportunity, we will ideally want to take full rights to it. If they are not available, we will partner or take a license.” Leon Bushara, senior executive vice president of business development at Serono in Geneva concurs: “Larger, better capitalized companies [can] identify projects in [smaller] biotech companies in Europe [and] form partnerships with or without equity investment.”

As an alternative to mature biotech, mid-sized pharmaceutical companies could also be partners, says Thurston. This might be particularly attractive because European family-owned pharma companies are not often quoted on the stock market and frequently “escape the radar screen of US-based analysts.” “It's the Ipsens, the Pierre Fabres, the Esteves, the Menarinis and the Schwartz Pharmas—all that lot” that biotech should be focusing on, Thurston suggests.

So why aren't there more deals between mid-sized pharma and biotechs? Thurston cites several reasons: first, mid-sized pharmas are family run and are often unaware of which biotech company is doing what in Europe; second, they are generally risk averse, comparatively smaller and have constraints on resources; and third, they “only look at a small number of projects each year.” Warburg Pincus' Turton points out that the parochial nature of many typical family-run pharmas is the real deal killer. “The majority are regional companies who are strong in their territory,” he says. But they are often not the partner of choice for biotechs seeking to reach the pan-European market.

For early-stage European biotech to really succeed science has to be exceptional. Thurston

With funding in Europe at such a premium, many firms are now turning to the United States for partnering. In March, one of the flagships of French biotech, Immuno-Designed Molecules of Paris (which failed to float in Europe last June), underwent a reverse merger with Californian Nasdaq-quoted company Epimmune of San Diego. According to Thurston, the sad truth is “more science in the US that's average gets funded.” In contrast, for early-stage European biotech to really succeed, he believes “science has to be exceptional.”

But the major stumbling block for Europe is parochial attitudes. European resources are “far too splintered and too nationalistic,” says Thurston. In Europe, old habits die hard and cultural differences make consensus difficult. Each country tries to grow its own biotech industry, regardless of the fact that European biotech can only thrive by being a borderless deal-making activity.

“It is going to take time to be as good as San Francisco, San Diego or Boston,” he adds. “We should be focusing on just two or three clusters and cross-fertilize the science Europe-wide,” he adds. The UK and Switzerland would be good places to start.