Performance Counts

Europe's best-performing biotechs took on more risk, raised the most money

BioCentury's eighth annual review of the financing needs for European biotech shows a record number of biopharma companies have reached the clinic and beyond.

While in total these private and public biotechs also have registered the largest amount of money needed to finance the next three years of runway - €3.5 billion ($4.8 billion) - the individual companies are showing a continued trend toward burning less money to advance their programs.

The question is whether they are more efficient, or in fact starving their opportunities to create success. If the latter, then Europe arguably would be creating a new iceberg, with a growing financial demand hidden beneath the surface until it becomes time to pour more money into these programs.

The very first set of 54 private biotechs to go through the BioCentury survey - the European Iceberg Class of 2003 - provides some important clues as to which companies will sail on successfully.

While it may seem obvious, to avoid hitting the iceberg, companies need to perform. Indeed, the BioCentury analysis shows that money and performance are related. While the 54 companies have raised at least $5.5 billion since their founding, just 24 of them captured two-thirds of the money from investors.

The most successful fundraisers took nine products to market, advanced programs to later stages in the clinic or provided the best returns on M&A transactions.

The review found some surprising reasons for success. Contrary to conventional wisdom, companies that tried risk-sparing strategies were not the hallmarks. Reprofiling and service models have not led the way.

Instead, the winners have been the European players that laid the groundwork to be globally best-in-class companies.

They did this by partnering with strategic intent, not just to survive.

They are building on top of robust technology platforms and deep therapeutic expertise.

And they are focusing on the innovative, differentiated products now demanded by the marketplace.

Class of 2003

Breaking down the private company Class of 2003 shows that nine of the 54 (17%) have produced marketed drugs - some after they were acquired by other companies.

Five companies (9%) were acquired for at least two times the money put up by their investors; including two of the companies that reached the market.

In addition to five active companies that have reached the market, another 12 (22%) have advanced in the clinic.

Less progress is evident in the 10 (19%) companies that have not been able to advance in the clinic.

Meanwhile, 13 (24%) were either sold for less than invested or the purchase price was undisclosed; and nine (17%) went out of business.

Experienced investors will recognize the barbell they expect from portfolios. More interesting is where the money has gone.

The nine companies that got drugs to market accounted for $1.8 billion (34%) of the total raised and the companies that provided at least double cash-on-cash investor returns accounted for another $611 million (11%).

Taking out the overlaps results in 12 companies (22%) that took in $2 billion (37%) of the total, including IPOs and subsequent public rounds.

The other 12 that have advanced in the clinic have raised another $1.7 billion (31%).

All in all, the 24 companies (44% of the total) took in 68% of the money.

The 10 companies that made less progress in the last seven years still raised $1.2 billion (22%) of the money. The jury is still out on some of these stories, some of which have fallen back after suffering later-stage blow-ups - a fate that could yet befall the Class of 2003 companies that have advanced their clinical programs.

Finally, the 22 companies that did not provide interesting M&A returns or that disappeared through bankruptcy, liquidation or receivership accounted for just $706.1 million (13%) of the money raised.

If money is attracted to performance, then it is important to recognize the risk profile of the companies that have moved forward or provided the biggest exits.

Of the five companies that gave investors a >2X return, three were platform or biology companies.

Of the 12 companies that have advanced in the clinic, 10 are platform or biology companies. Two are specialty pharmas.

The management teams of upwardly mobile companies also have been flexible and opportunistic. All five of the bigger takeouts got their lead compounds from external sources: three from big pharma, one from a research institute and the reprofiler built on top of a marketed drug.

Of the nine that developed marketed drugs, eight acquired the assets through in-licensing or M&A.

Half (27) of the Class of 2003 still exist as independent biotechs. This includes 17 of the 21 companies that went public via IPOs, reverse mergers or direct listings.

Based on this year's capital supply and demand survey, BioCentury estimates that private European biotechs with clinical-stage or marketed compounds will need to raise some €2.3 billion of the €3.5 billion the European sector will need to fund operations to the end of 2012 (see "Advancing But Frugal," A15).

Going forward, the question is what lessons the Class of 2010 can take from the Class of 2003. In fact, many of these stories provide case studies for performance-minded management.


The classic way to divide biotech companies is between those with a technology platform that allows them to churn out multiple compounds against multiple diseases, and those without a platform.

The latter rely on biology or disease expertise or in-licensing.

Platform companies that are successful typically find they need all of these capabilities as well, and hence tend to be

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