Some 100 U.S. biotechnology companies have been acquired or have ceased operations since the end of 2007 – a 25 percent drop in the number of publicly-traded, active companies, said a report cited by Bloomberg News.

Biotech companies have struggled to raise funds from public offerings, and acquisitions haven’t filled the void, said John Craighead, managing director for investor relations and business development of the Biotechnology Industry Organization, a Washington-based trade group.

 While acquisitions of biotech companies grew to 55 in 2008 from 40 in 2007, the number fell to 38 last year and to 21 so far this year, Craighead said, Bloomberg (News - Alert) reported.

The issue was presented at the BIO Investor Forum, being held in San Francisco with a realistic look at the harsh reality of the industry, which is much smaller compared to three short years ago, with fewer deals and no substantial increase in Merger and Acquisition (M&A) activity.

"There is overwhelming need for biotech innovations that address prevalent diseases, but we need new models of investment to lower the time, risk and cost of drug development," said Gail Maderis of BayBio at the opening plenary.

The underlying sentiment at the conference is that strong science will prevail despite challenges in capital formation and financing. Creative approaches to financing and deal making will help to ensure that promising innovations continue to move forward.

"Every downturn presents an opportunity for us to look at new models," said Morris Berrie, co-chairman of the Global Tech Transfer Summit Initiative, TTS Ltd., U.K., in an intellectual property session.

The opening plenary featured a panel discussing the deal structure of Celgene’s acquisition of Gloucester Pharmaceuticals, Inc. "The Art of Deal Making" session, moderated by Glen Giovannetti of Ernst & Young, highlighted interesting elements of the transaction. Celgene's primary motivation was its interest in the potential of the only product in Gloucester's pipeline – Istodax – a treatment for cutaneous T-cell lymphoma.

At the time, Gloucester had several companies interested in a potential partnership, and Istodax had positive clinical trial data and demonstrated positive results in related peripheral T-cell lymphoma. Celgene provided $340 million upfront, with another $300 million based on future regulatory milestones.

"We approached the deal as an opportunity to remove some of the uncertainty and frame the future competitive landscape, based on the potential of the drug for multiple indications," said Alan Colowick, senior vice president of Global Medical Affairs of Celgene Corporation and former CEO of Gloucester.

For companies with promising data to share, the deal could be an optimistic sign for future therapeutic deal making. For the industry, increased M&A activity will result in opportunities for emerging companies to move promising innovations forward, which seems to be on everyone’s mind at the conference.

In another panel, participants were in agreement that returns have decreased dramatically in the past 10 years and investors and venture capitalists are now interested in later stage assets more than ever before. The outlook for the future is that there will be more venture arms of large pharmaceutical and biotech companies, and they will be engaging in more deals.

Vincent Miles of Abingworth further believes that there will be fewer venture firms raising fewer funds. Chris Fugelsang of Tavistock Life Sciences advised companies with early stage products to "plan carefully and execute stringently," since risk tends to compound and they no longer have any margin of error.