Bellwether thinking

The sentiment of European investors - both on the public equity side and the venture side - is remarkably negative when it comes to homegrown biotech, citing failed business models, thin pipelines and even thinner management. But even though Europe has yet to provide bellwethers on the scale of a Gilead Sciences Inc. or Idec Pharmaceuticals Corp., much less a Genentech Inc. or Amgen Inc., a cohort of companies in the U.K. and on the Continent are poised to take on the burdens of sector leaders.

In addition to being profitable or well capitalized, these companies have products on the market or in late-stage clinical trials, and they are looking to grow, both via internal R&D and purchases of products or companies. Even if only a handful succeed, the European biotech industry that emerges from the bear market of the past three years is likely to look far more robust than the industry that went into the bear market.

Among the public companies, after market leaders Serono S.A. (SWX:SEO; SRA) and Shire Pharmaceuticals Group plc (LSE:SHP; SHPGY), the names most often picked out as bellwethers by investors are Actelion Ltd. (SWX:ATLN), Celltech Group plc (LSE:CCH; CLL), Acambis plc (LSE:ACM; ACAM), and, presuming it can recover from its current crisis, NicOx S.A. (NM:Nicox).

All except ATLN have been around for some time. And all are sustainably profitable with the exception of Nicox (Sophia-Antipolis, France), which may have enough cash to reach profitability (see BioCentury, May 12).

Among the companies investors put in this class are metabolic company Biovitrum AB (Stockholm, Sweden); infectious disease company Basilea Pharmaceutica Ltd. (Basel, Switzerland); immunotherapy play Immuno-Designed Molecules S.A. (Paris, France); cancer companies Cyclacel Ltd. (Dundee, U.K.) and Micromet AG (Martinsried, Germany); and osteoporosis company Proskelia SA (Paris, France).

Also getting favorable mentions are infectious disease company Arpida Ltd., (Basel, Switzerland); cardiovascular company Trigen Ltd. (London, U.K.); immunology play BioXell S.p.A. (Milan, Italy); CNS company Newron SpA (Milan, Italy), GPCR play Axovan AG (Allschwil, Switzerland); metabolic company Hormos Medical Corp. (Turku, Finland); and addiction play Addex Pharmaceuticals SA (Geneva, Switzerland).

In exploring some of these stories, both public and private, it's clear that there is no single route to bellwether status.

Celltech: Big isn't enough

By default, Serono and Shire sit atop Europe's valuation leader board. But despite its $1 billion market cap, SEO (Geneva, Switzerland) doesn't have a blockbuster, instead reaching its top tier position on the back of several mature protein products. SHP (Basingstoke, U.K.), with a valuation of $£2.3 billion($3.7 billion) and franchise in ADHD to defend, often is labeled as a specialty pharma company rather than a biotech.

Celltech (Slough, U.K.) has a similar profile, with £329.6 million ($523.9 million) in product sales and royalties in 2002 and

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