Recent activity at two British biotechs is illustrative of the issues being encountered by the wider European biotech sector.
The problems at neurology specialist Vernalis stem from last year's not-approvable letter from FDA for a new indication for
its menstrual-migraine treatment Frova (frovatriptan). Vernalis Chief Executive Simon Sturge is leaving and won't be replaced,
and the company is cutting its workforce by more than half—including closing its US commercial operations and its research
site west of London. And reproductive-health specialist Ardana has put itself up for sale, indicating that it also will scale
back its operations to save money.
The biotech industry in Europe has never produced an Amgen-size company. "I turn round to investors and say, 'That's your
fault!'" says Sam Fazelli, analyst at Piper Jaffray. "If [the science] is working, why don't you let it happen?"
Part of the problem is that biotechs are now being set up for a trade sale at the outset, with the exit route for the early-stage
funders and venture capitalists being envisaged as selling the company to Big Pharma, rather than the more traditional route
of an IPO and floating on the stock market. While some companies will always fail, those whose technology succeeds (or looks
like it's going to) are swallowed up and vanish from the market, leaving no stand-alone companies to build up the biotech
sector in its own right.
Consultant Martyn Postle, director and founder of Cambridge Healthcare and Biotech, agrees that, at the moment, Europe is
building acquisition fodder rather than sustainable biotech businesses. "They don't have the chance of seeing big returns
as these go to whichever company buys them—[local companies like] GlaxoSmithKline and AstraZeneca claim their piece, but a
lot goes overseas," he says. And the acquisition is proof that the business has promise. "The money from the trade sale would
not be there if the company didn't think it could make a return," he adds.
Glyn Edwards, chief executive of London-listed company Antisoma, believes that this makes it more difficult for companies
to gain funding in the future. "There aren't big enough investors," he claims. "And the only way we will get them is for a
flagship company to be a success in the public markets. If all the successful ones are acquired, it may make a nice return
but, ultimately, the industry will disappear."
He adds that there is a select group of well-funded small companies for which the outlook should be good—as long as they have
enough cash to tide them over until the IPO window reopens. "But where is the net cohort of big private companies?" he says.
"There are some, but investment has dropped off."
Bruno Montanari, principal in the life sciences group at investor Atlas Ventures, believes that there are fewer and fewer
funds of sufficient size to finance companies through those difficult first few years. "It's important to have a deep-pocketed
venture capitalist to sustain the company through to the next IPO window," he says. But he adds that a "quick and dirty" trade
sale isn't what he is always looking for. "If I can wait a year or two more, I may get two, three, four times more than by
selling it quickly."
The key issue in Europe is that the funding situation is different than in the United States. In the United States, much of
the funding comes from specialist healthcare funds; in Europe, there is a fairly diverse shareholder base and the funding
comes more from generalist mid-cap investors who are less well acquainted with the vagaries of the pharma business. "These
can't possibly have the same level of expertise as the US funds have," Antisoma's Edwards claims.
There is now a sign that private-equity investors are beginning to move down the value chain, notably the specialist PE fund
Celtic Pharma, which was set up in 2005 and is now in active acquisition mode. "It's just a drop in the ocean," says Edwards.
"But it shows that there are people out there who think there are some seriously underrated companies. There are some companies
that can be sustainable. They don't necessarily have to sell their own products, but they will have to have some form of revenue
stream, such as a copromotion deal. And if we have more companies, we would have a virtuous circle where investors begin to
see the potential returns again, and more money will come into the sector."
Sarah Houlton is Pharmaceutical Executive's global correspondent. She can be reached at email@example.com