European biotechs back on venture capital radar

Aug. 8, 2013

Venture capital firms are once again warming to European biotechnology players, which attracted a significant portion of the venture capital invested globally in this sector during the second quarter.

Wall Street has long been enamored with biotech companies but this level of affection has yet to be replicated across the pond. However, venture capital firms are once again warming to European biotechnology players, which attracted a significant portion of the venture capital invested globally in this sector during the second quarter, Reuters reports.

The situation was described quite aptly by Sofinnova Ventures partner Jim Healy. He likened the U.S. market to a tsunami and Europe to a rising tide that is steadily growing. California-based Sofinnova was among the investors that poured a combined 47.1 million Swiss francs ($51.2 million) into Auris Medical during an April fundraiser. According to Healy, Sofinnova is gearing up for another investment in a Swiss biotechnology company, planning a move within a month or two.

Privately-held biotech companies around the world attracted nearly $1.3 billion in venture capital during the second quarter of 2013, data from Thomson Reuters-owned BioWorld Snapshots shows. This translates into a quarter-on-quarter jump of 190%. European companies did particularly well, accounting for 44% of the deals completed during the quarter. As for publicly traded European biotechs, their shares have been on the rise due to growing optimism on the part of investors. This hope for a strong return on investment has propelled the stock of Switzerland's Actelion by 48% this far this year. Norwegian Algeta has fared even better, rising by more than 50%. In the case of Sweden's Orphan Biovitrum, the increase stands at about 36%.

When investors and market observers want to see how the European wind is blowing, they use Switzerland as a weather vane, Reuters notes. The country has a long track record in drug research plus an established network of specialist investors. According to research from the Swiss Private Equity & Corporate Finance Association, Swiss biotechnology companies have raised 73 million francs from venture capital investors so far in 2013. BioVersys, whose experimental drug targets bacterial resistance, completed an oversubscribed fund-raiser late in June and OncoEthix raked in 18 million francs in a July funding campaign.

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While venture capital interest in European biotechs is stirring up, comparison with the U.S. reveals the huge gap between the two markets. The U.S. biotechnology sector raised $23 billion in 2012 as opposed to the $4 billion raised in Europe, Ernst & Young estimates. Moreover, Europe has fewer specialist investors. Other figures further illustrate the gap: at the close of last year, there were 316 listed and 1,859 private biotechs in the U.S. versus 165 and 1,799 respectively for Europe, the Ernst & Young data shows. The market value of Actelion, the biggest European sector player, does not come up to even a tenth of the estimated worth of U.S. biotechs such as Gilead Sciences and Amgen.

The hearty U.S. appetite for biotech investment is partly the result of a more lenient regulatory regime. Other reasons include low cost of capital and the involvement of generalist investors in pursuit of strong profit growth potential. Meanwhile, European investor sentiment has taken a hit from the woes befalling some listed companies. An example is Addex Therapeutics of Switzerland, which reduced the number of its employees to two in May.

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