Credit crunch hits European biotech
pharmafile | October 1, 2008 | News story | Research and Development |Â Â 2008, YIR, biotechÂ
Europe’s biotech sector is being hit hard by the credit crunch, with small and medium-sized companies being starved of funding from venture capitalists.
As a result, Europe’s dream to compete with the US biotech sector and create a heavyweight to rival Amgen or Genentech could be over, as increasing numbers of the continent’s biotechs are bought out by big pharma.
Neal Ransome, the European pharmaceutical sector leader at PwC, said: “The current climate for biotech to new raise funds is tough, and it means more companies are being forced to sell up.
“Biotech companies have always been attached to retaining their independence, but now they have to be more pragmatic.”
Figures from analysts EPFR show that in 2007, nearly one billion euro in investor funding was provided to European biotech companies. But the first half of 2008 saw this supply dry up almost completely, reducing the sector’s options for funding.
Another established route, the IPO or stock market flotation is also ruled out for biotechs given the tumult the international finance markets are currently experiencing.
Such has been instability in the market that two biotech companies have gone to the wall this year, a phenomenon rarely seen in the sector until now.
Edinburgh-based biotech Ardana called in the administrators in June, while Kent-based Phoqus suffered the same fate the following month, both companies running out of money after failing to attract investment in their products.
The biotech sector has always been risky, but the credit crunch has meant there are fewer investors to put money in the sector. This only adds to an existing disenchantment in biotech among investors, who have been frustrated by slow returns and lack of strategic direction from the boards of some biotech companies.
But while biotech is starved of funds, big pharma is able to seize its opportunity. Reduced investor interest is driving more biotechs into the arms of pharma, which are now more likely to buy out companies than agree a more complex licensing deal.
A recent example of the trend is Jerini, the German company specialising in peptides which was set up in 1994. The company was preparing to launch and market its first product Firazyr without any assistance, and had already invested in its own sales and marketing team, but in July it decided to sell out to Shire.
Jerini was among the better-established European biotech companies, with revenue streams from providing specialist services to pharma, and listed on the stock market.
Its relatively low market value made it an attractive target for Shire, and a buy out represented a simpler option than a licensing agreement. Shire’s chief executive Angus Russell has admitted that current turmoil had strengthened its hand in the deal.
Venture capitalists sit on the executive boards of many of Europe’s biotech companies, and will back a sale to big pharma, as it is seen as the only feasible route in the current climate.
Martyn Postle, director of Cambridge Healthcare & Biotech, says: “Any venture capitalists left interested in biotech will ask themselves the question, ‘Which pharma company is going to buy it?'”
He said VCs are now unwilling to invest in anything where there isn’t a clear trade sale exit.
But he points out that the sector was already struggling, and that the economic turmoil has only made a bad situation worse.
“It was crisis time before the credit crunch. If a person is very ill and you kick them, they don’t notice they’re being kicked.”
Reorganisation better than liquidation
But commentators say consolidation is not necessarily negative if the science is still developed somewhere.
Consolidation activity is at a high in the UK, as biotech BTG has just agreed a merger with Protherics, the British critical care and cancer specialist.
The companies say it will create a UK leader in biopharmaceuticals, which will have a valuable portfolio of pipeline and marketed products, sufficient cash resources and development expertise.
Analysts expect such reorganisation will continue as the economic climate worsens, and the differences between what makes a biotech and a pharma companies may blur.
Good science will still get funding in the future, though this could be delivered direct from industry to academic research units, and may cut out any new start-up biotechs.
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