The European biotech sector: Could it achieve more?
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Sam Fazeli is a managing director and senior research analyst focused on UK biopharamaceutical stocks. He has 10 years experience in the sector and was at Nomura for the past three years where the team was ranked number one in the UK in the September 2004 Institutional Investor Survey of UK Small Cap fundmanagers. He was ranked 8th in the 2005 Extel Pan-European Biotech Survey. His initial focus at Piper Jaffray is on UK biopharmaceutical companies; however, Sam expects to expand his coverage soon into the Continental European biopharmaceutical companies. Sam has a PhD in Pharmacology and has 7 years post-doctoral experience.
Keywords: Europe, capital markets, equity markets, venture capital
Sam Fazeli Piper Jaffray Ltd, 1st Floor, Phoenix House, 18 King William Street, London EC4N 7US, UK Tel: +44 (0) 20 7743 8746 Fax: +44 (0) 20 7743 8737 E-mail: [email protected]
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The European biotech sector: Could it achieve more? Sam Fazeli Date received: 16th March, 2005
INTRODUCTION There is a general feeling among investors and other observers that the European biotech sector has not delivered and fund managers complain that there have been very few successes. The author’s view is that, although we have not yet reached the heights of the US biotech industry, there have been numerous success stories in Europe. This paper shows that most of the ingredients required for a successful biotech sector already exist in Europe. Most importantly, there is enough cash in Europe to allow companies to bring products to market. The biggest problem is that there is a fragmented equity capital market, which, as well as limiting the pool of capital accessible to individual companies, may also affect the visibility of success. Thus, the success of Actelion and Serono, although known to UK small-cap investors, cannot impact their funds. However, it is time that we stopped complaining about what we do not have and started concentrating on what we do. Companies need to adapt to the realities of the investment environment in Europe. The good news is that we are already seeing some of this reality being taken on board by European companies, where many of them, like the early US biotechs, are aiming at the lower-hanging fruit by picking up products with relatively lower-risk profiles, such as reformulations of existing drugs. This should allow them to start generating their own cash and then take the bigger gambles. Perhaps most important of all and contrary to common belief, as our analysis shows, we do not believe that the amount of cash available to European biotechs is a significant hurdle to achieving success.
Is there enough money in Europe? The estimated average cost of developing a new drug has risen from US$138m in 1975 to US$800m in 2003 (PhRMA website). Given this cost and the amount of cash that is available to an average biotech company, how can any of them, be they American or European, ever achieve product success? Data presented in this paper show that the average amount of money that successful US biotech companies rai
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