European biotech bounces back

European biotech – back on track with double-digit growth.

In 2006 there were grounds for cautious optimism as European biotech perked up after a miserable four years of restructuring. This year, double-digit revenue growth, supported by sustained success across pipeline, products and financing, show that the pain was worth it, and Europe’s biotech sector has bounced back, according to Ernst & Young’s Beyond Borders: Global Biotechnology Report 2007.

This, Ernst & Young’s 21st annual analysis of the standing of the biotechnology industry, shows the European sector sustained its recovery of 2005, with 2006 marking a four-year turnaround.  From the 12 per cent revenue decline recorded in 2003, revenues in 2006 rose by 13 per cent  to €13.3billion, market capitalisation by 43 per cent to €62.1 billion, financing jumped by a huge by 45 per cent to €4.7 billion, and venture capital funding stood at an all-time high of €1.5 billion.

William Powlett Smith, leader of Ernst & Young’s UK biotech team, told Science|Business the revival was, “due to a combination of lots of factors”.

Pharma’s threadbare portfolios

One of the most influential was the threadbare portfolios of many pharmaceutical companies. “Pharma certainly needs products and is now offering substantial premiums over market value: 60 per cent is the average globally, and Europe has not been excluded from this,” said Powlett Smith.

Such is the desperation that pharma is not just looking for phase III and phase II drugs any more, but looking earlier up the development cycle. “This is favouring Europe because, European companies are less mature and tend to have earlier stage products,” said Powlett Smith. “There has certainly been a boom as far as mergers and acquisitions are concerned.”

The UK biotech sector continues to lead the European revival. In 2006, seven of the 32 IPOs in Europe were UK based, with the most successful that of Renovo, which, on its second attempt, raised €84 million on the main market of the London Stock Exchange.

In addition, eight of the top 10 merger and acquisition deals involved UK companies. The key European figures are as follows:

• Total revenues increased 13 percent to €13.3 billion;

• Public company revenues were up 14 per cent at €9.1 billion;

• Market capitalisation increased 43 per cent to €62.1 billion;

• Net losses for public companies fell by 37 per cent to €876 million;

• Total R&D expenses were up 8 per cent at  €5.6 billion;

• Total financing increased 45 per cent to €4.7 billion;

• There were 32 IPOs, raising a total of €722 million, up 29 per cent on 2005;

• Venture capital investment reached a record high of €1.5 billion;
  

• There were 64 mergers and acquisitions.

Beyond the bare numbers there was significant growth in Europe’s pipeline, with 163 new drugs added to the development pipelines of public companies, bringing the total number of products in development to 692 by the end of the year. Europe’s private companies now have 802 products in their combined portfolio.

Apart from 32 IPOs, the sector also saw a significant boost in follow-on and other financings. And at €1.5 billion, venture capital fundings eclipsed the amounts raised at the height of the genomics bubble.

The year of the deal

But above all, 2006 was the year of the deal – though in contrast to previous years no single deal stood head and shoulders above the rest. “In prior years high totals of deal value were typically driven by a single mega deal, but in 2006 we now have widespread recognition among buyers of the potential value in biotech’s platforms and pipelines,” said Powlett Smith.

“After years of downturn and painful restructuring, the European biotech industry is firmly back on the right path, and is sustaining newfound progress and momentum.”