Four years of painful consolidation and restructuring finally paid dividends in 2005. Revenues of public companies increased by 17 per cent, compared to a 5 per cent decrease in 2004, with total revenues of €11.7 billion. At the same time market capitalisations rose by 26 per cent, to €43.4 billion.
And, after shrinking 3 per cent in 2004, R&D expenditure was up by 22 per cent for publicly traded companies, and 15 per cent for the sector as a whole. On average, public companies invest a third of total revenues on research.
Over 242 compounds are in Phase II or Phase III clinical development – a 38 per cent increase over 2004 – and 14 products were submitted for marketing approval. The overall pipeline grew by 28 per cent, from 409 drugs in development in 2004, to 523 in 2005.
A significant increase in the number of IPOs means there are now 122 quoted companies – an increase of 22 per cent, and an all time high for the sector.
Overall, 2005 was the best year for financing in the history of the industry in Europe, save for the genomics bubble year of 2000. European biotechnology companies raised a total of €3.2 billion. And for the first time in the 30-year history of the sector, there were more public offerings in Europe, with 23 IPOs, than the US, with 13.
The total raised in European IPOs in 2005 was €560 million. While the post-IPO performance was mixed, it was far better than that of previous years, and again ahead of the US. At the end of the year, 65 per cent of European companies that went public during 2005 were trading at or above the IPO price – with an average premium of 28 per cent.
Smallish amounts of money
What the statistics mask however, is the relatively small amounts of money raised. Most IPOs were in the range of venture capital financing rounds, and 2005’s class of IPOs can be expected to come back to the market for more money soon.
Follow-on offerings also perked up in 2005, with private investment in public equity becoming common in Europe for the first time.
Stirrings in the IPO market are good news for hard-pressed VCs. Although in many instances a public offering did not represent an immediate exist route for the VC investors, it did give grounds for hope. As a result VC investment hit Euros 1.4 billion – more than in the boom year of 2000 – and an all-time high for the sector.
But, highlighting how hard it is to get new companies off the ground, only 6 per cent of VC money went into start-ups. This forced European governments to come up with new schemes to encourage company start-ups, with Germany setting up a Euros 500 million fund dedicated to VCs that invest in spin outs, and France establishing Le Fonds de Fonds Technologique, with €150 million per annum to invest via VCs.
Mergers and acquisitions were also on the rise in 2005, with an all time high of 66 transactions. This contributed to a solid increase in market valuations and represents a serious alternative exit route for investors.
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