Europe's Iceberg II

A growing group of maturing European biotech companies has quietly reached the expensive part of the drug development process, giving the sector the opportunity to create a new generation of product-oriented companies without the baggage of the genomics bubble.

Indeed, funded by some E3.3 billion since the beginning of 2000, a mounting number of still private companies are approaching clinical milestones. With the bulk of Europe's public biotech sector now orphaned, the development of a product-oriented base could offer Europe a cohort of new bellwether companies whose accelerating clinical progress could rekindle investor interest in the sector.

But this growing maturity coincides with a bear market in which European stock markets are closed to new issues, raising the specter that the breakout of new leadership in Europe could be delayed.

By BioCentury's estimate, total financing demand by European biotech, public and private, is E10.4-E32.8 billion ($11.7-$36.9 billion) through 2005. This includes E9.5-E32 billion ($10.7-$35.9 billion) in demand for private equity, and E900 million ($976 million) in the total shortfall of public company cash in comparison to their cumulative burn rates.

For the key group of companies in Phase II product development and beyond, the aggregate cash needed will be about E1.1 billion ($1.2 billion), including some E299.4 million ($336.2 million) on the public side and E789.5 million ($886.5 million) on the private side.

By comparison, the entire biotech sector in Europe has raised E8.3 billion ($9.4 billion) since the beginning of 2000, including the E3.3 billion ($3.7 billion) poured into private equity.

While the top-line number is staggering, it is also utterly unrealistic. Much of it reflects demand from private companies that will never receive funding and from public companies that have fallen from sight. Indeed, both private and public equity investors indicate that the actual supply of funds will fall many billions of Euros short of projected demand.

Thus the far more important question is whether the companies in Phase II development and beyond will have the capital they need to survive or reach a value-adding inflection point.

The answer from investors is a resounding yes.

As noted by Shahzad Malik of Advent Partners in London: "There is plenty of money in Europe for the best companies, but there is a funding gap for the horde."

Aggregate demand

The European biotech universe can be divided roughly into four groups.

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