Value reality check

European investors demand biotechs focus on product reimbursement profile

Europe's economic crisis has created a new reality. Austerity measures at the national level have placed an even higher premium than in the past on controlling healthcare costs, resulting in an increasingly tough reimbursement environment and a contraction of the European pharmaceutical market.

BioCentury's 11th annual European Iceberg survey shows investors are clearly adapting, but they say some young companies are still resisting reality.

Both private and public investors are focusing on companies developing innovative, differentiated assets. In most cases, investors are demanding as much clarity as is feasible on the reimbursement profile of an asset at every stage of development.

Investors and some companies are also recognizing that stricter reimbursement isn't a transient challenge.

As a result, as noted in last year's Iceberg survey, capital efficiency has become the new normal on both the public and private side. While not different than in the U.S., this is particularly important in Europe, where the number of private companies in the clinic continues to grow, particularly those in Phase II, and the gap between capital needed for the next three years and the actual supply of money continues to widen.

Each year, BioCentury's survey aims to estimate the scale of this underlying capital demand in Europe - the "iceberg" - and describes the tests investors are applying to companies seeking more runway.

On the plus side, continued capital scarcity and low valuations have given investors the pick of these companies to invest in, and indeed have attracted some U.S. VCs to Europe.

This, along with greater involvement from corporate VCs, has led most investors to believe that good companies that meet today's tests can still get funding.

What remains thinly populated in Europe is the mid-tier public space, an area that needs to thrive if good private companies are to ever have the chance of going public.

The signs of spring are there. The ongoing biotech bull market has triggered an increase in the number of mid-cap companies, and most investors are hopeful their success will spark a European IPO window.

Indeed, a flurry of IPO activity last week, headlined by the largest offering since 2011, suggests the new offerings window has opened at last, at least in the U.S. (see "Waxing Window," A18).

Focus on reimbursement

Rising pressure on healthcare costs has elevated reimbursement alongside regulatory approval as the co-primary endpoints of drug and diagnostic development. All the European investors contacted by BioCentury recognized the importance of developing products with value to payers - not just products that are safe and efficacious.

"If you have something totally new and differentiated that is safe and efficacious, reimbursement is not an issue," Sofinnova Partners' Antoine Papiernik told BioCentury. He pointed to the first disease-modifying drug for cystic fibrosis (CF), Kalydeco ivacaftor from Vertex Pharmaceuticals Inc., as a prime

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