3Q Financial Review

Europe: Picking out the winners

It is impossible to guess when the downturn in European biotech stocks will end. But end it will. And arguably the sector will come out the other side in better shape, as a sufficiently long drought will shake out the weaker public companies. At the same time, if the IPO market remains closed for a significant period, private companies will have a chance to mature using venture money, which ultimately would give public equity investors larger, more advanced companies in which to invest.

There is currently an interesting bifurcation between European stock markets and the ability of companies to sell equity. On the one hand, European biotech stock prices are down significantly, arguably to more reasonable valuations. On the other hand, an abundance of cash has been made readily available, particularly to private companies and selected companies that are already public.

Through June 30, the BioCentury London Index was down 15%, while in the last three months the index has fallen 39% and is now down 48% on the year. Similarly, the basket of European companies is down 61% on the year. Although last week saw a leap of 26% in London and 20% throughout Europe, market watchers are still of the mind that while the bottom may be near, it hasn't been hit.

Hunting for bottom

Indeed, looking for bottoms is impossible, with predictions of a resumption in buying ranging from two months by the investment bankers and analysts, who have a vested interest in optimism, to 12-18 months by the economists.