Biotech Fundamentally Sound
The consensus that emerged from industry commentators at this week’s BIA CEO and Investor Conference is that the fundamentals underlying Europe’s biotech sector are sound and its R&D successes are much needed by a pharmaceutical industry hungry for new blockbuster drugs. However, “companies, irrespective of their size and maturity, must consider the formal development of risk management principles and disciplines” if they are to survive the downturn in the capital markets, according to Stuart Henderson, who launched Deloitte & Touche’s report on the sector at the Conference.
The public biotech sector is down 66 per cent this year. The Report, ‘Surviving Uncertainty’ shows private equity and venture capital backing for the sector fortunately remains strong with the European mediscience industry raising more than €1 billion during 2000 and 2001 from private equity which is likely to continue in 2002. These investments have tended to be larger amounts in existing companies rather than first investments in new companies.
As Rod Richards, CEO of Microscience commented, having just emerged from a successful private funding round, “It is better to be private and well financed ..for the time being.”
The geographic share of the investments is shifting away from the UK and Germany as France and the Medicon Valley (Denmark & Sweden) gain ground. Meanwhile, venture capitalists are backing product based companies and are increasingly avoiding pure platform companies.
“This industry is not alone in facing challenges in the public markets—in its ability to finance its progress, establish valuable links with partners, manage research and development resources and deal with regulators.” “Value in entrepreneurial health science companies resides in intangibles—the quality of the workforce, strategic partners, intellectual property, reputation, customers and corporate knowledge. Consequently, as they grow, companies must secure and control these sources of value and to manage their growing pains and build better companies,” says Henderson.
Sam Williams, biotech analyst at Lehman Brothers, also pointed out that for the institutions to return to the market, the biotech companies had to deliver. Another biotech company reaching profitability would help (there are only two profitable UK biotechs). Companies needed to expand their technology platforms and he recommended more portfolio companies should merge with public companies.
Key findings from the Report were:
l The market capitalisation of the 125 publicly listed companies in the sector totalled €37 billion at the end of the first half of 2002
l Only 12 percent of the European mediscience population has a market cap of above €500 million. Lack of liquidity and perceived volatility have triggered a retreat by institutional investors from the sector
l There are currently 528 biotech-derived drugs from European companies in the pre-clinical and clinical development stage.
l The bulk of European mediscience activities is occurring in the UK, Germany, France, Switzerland and the Medicon Valley (Northern Denmark and Southern Sweden). The UK, Europe’s most mature biotech group, dominates.
l Employment in the sector is growing at 23 percent a year.
www.deloitte.co.uk
www.biaceo.com
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