The number of people employed in the European biotech sector fell by 6% in 2002, while revenues were down by 2%--the first falls in the history of the industry. Those are just two of the findings in Endurance, Ernst & Young's 10th annual European biotech report, which was published this week. But according to the report's lead author Glenn Crocker, Head of Biotechnology in Ernst & Young's Health Science Group, that 6% reduction in workforce is a smaller drop than he would have expected, given the overall economic situation. Although "there are a lot of companies cutting back and some going out of business," he tells Next Wave Europe, there are "still new companies starting up," and money being invested. In fact, he points out, the amount of venture capital (VC) going into European biotech is still at its third highest level ever and "only just short of the record levels of the last couple of years."

But although venture capitalists are still putting cash into biotech, the number of biotech companies going public has plummeted, from nearly 40 in 2000 to just three in 2002. That's because biotech is seen as a high-risk sector, explains Crocker. As such, it is very dependent on the health of the wider economy. "I don't see any sign of an upturn yet," he warns, because "investors need to feel comfortable with low-risk investments first." Therefore "2003 will probably be harder" than 2002.

Nonetheless, Crocker describes the current situation as a "temporary blip." He expects the European biotech job market to be "back to 10% to 20% growth in a couple of years."

But with US biotech also experiencing a downturn, what if you can't wait a couple of years before starting your job search? What should you look for in a company, in order to assess whether it's likely to survive? Assuming it's not already profitable, "the main thing to look at is how many years of cash the company has got" on hand asserts Crocker--in other words the size of its current investment--and how quickly it is spending it. If the company has less than 2 years' cash on hand you should be concerned; less than 1 year's, "very concerned," he suggests. Other factors to consider include the level of experience of the management team, who the VC investors are, how deep their pockets are, and how experienced they are in terms of guiding new companies to success.

In a sector that has seen public investment fall dramatically, from ?5.5 billion in 2000 to just ?123 million last year, the VC factor is critical. Increasingly, new companies are seeking further cash injections from their VCs at a stage in their development at which, under more favourable economic conditions, they would most likely have pursued an initial public offering.

If VCs are being obliged to spend their money to keep existing investments going, doesn't that mean that new entrepreneurs can forget it, at least for a while? Crocker doesn't think so. "There's always investment money available for good propositions," he assures. Nevertheless, he believes that the current situation has given the sector a "dose of reality." The days of the R&D outfit that could expect to take 10 years to reach profitability are gone, he says--today, a fundamental aspect of any business plan is to show how the company will make money in the medium term.

So, where should we look for the first signs of recovery? Although Germany has been "worst affected," with many companies going out of business, the UK actually saw a slight increase in the number of companies in 2002. Meanwhile, countries to watch are Switzerland, described by Crocker as "very strong," and Sweden, which is "changing its tax structure to make entrepreneurship more attractive." As for technologies, vaccine-based companies--the likes of PowderJect and Acambis in the UK and Berna Biotech in Switzerland--are "doing better than most," claims Crocker, because vaccines are an "expanding market."

So, if you're in or will soon be entering the job market, don't give up on biotech just yet? But be prepared to do a bit more homework than usual in investigating prospective employers and their financial situation.