3:53 PM
May 26, 2017
 |  BioCentury  |  Finance

Europe’s bellwether challenge

Why Europe may have what it takes to grow a new generation of bellwethers

A healthy biotech ecosystem comprises a continuum from big pharma and bellwether biotechs at the top to private newcos at the bottom, with a mixture of liquidity events -- predominantly M&A -- to reward investors. Now that undisputed bellwether Actelion Ltd. has been removed, the question is whether the region has what it takes to grow new ones.

Attaining bellwether status certainly cannot be every company’s goal, nor should any other outcome be viewed as a bad one. But bellwether biotechs play a crucial role in attracting capital, influencing policy, achieving scientific and technological excellence, and providing a source of inspiration and experienced leaders to go forth and found new companies.

“You need that success story that inspires everybody,” Galapagos N.V. founder and CEO Onno van de Stolpe told BioCentury. “Without a bellwether, you clearly don’t have the role model that inspires others from the entrepreneurial side to go in that direction.”

The region’s track record of producing independent biotechs with sustainable commercial and R&D success that is reflected in a large valuation is not good.

Actelion, which is being acquired by Johnson & Johnson for $30 billion, is one of just five biotechs in Europe to reach bellwether status. And once that deal closes, only two will remain: cancer antibody play Genmab A/S and neurology and rare diseases company Shire plc. The other two were British Biotech plc, which infamously imploded in 1998, and Celltech Group plc, which was acquired by UCB S.A. in 2004 for £1.5 billion ($2.6 billion).

“Without a bellwether, you clearly don’t have the role model that inspires others from the entrepreneurial side to go in that direction.”

Onno van de Stolpe, Galapagos

Genmab has reached $12.7 billion in market cap as of May 26. Not everyone would include Shire because it has largely aggregated rather than discovered products, and its R&D spend as a percentage of revenues is closer to that of specialty pharma companies. However, the company was founded in 1986 with venture backing and has reached a $54.8 billion market cap.

Actelion’s rise to bellwether status was fueled by a combination of financial luck -- having raised an enormous sum in an IPO during the genomics bubble -- and pure ambition.

The luck isn’t reproducible, but the ambition is, and there are signs that some European investors and companies are up to the challenge.

The pool of bellwether contenders is larger than ever before, with 15 therapeutic biotech companies above a $1 billion valuation, excluding inverters and diagnostic, tools and service companies.

While access to capital from European sources continues to be limited -- in particular growth capital on the public markets -- more European biotechs are seeking and receiving the cash they need from U.S. investors, on both the private and public side.

And the lion’s share of funding is chasing the kind of innovative platforms and assets that are requisite for commercial success -- a key ingredient of a bellwether.

Structural barriers do remain. Preemptive rights for follow-ons on European exchanges can limit access to capital, while policy issues like employment laws and taxation can be impediments to growth.

But investors and executives also added that, today, Europe has more management teams with the ambition and skill to resist short-term decision making, and bring investors around to the long view that is necessary to produce a bellwether.

“The difference between one biotech being sold for $500 million and Actelion is just sheer determination from the management team,” Sofinnova Partners’ Antoine Papiernik, one of the biotech’s original investors, told BioCentury.

Bellwether lessons

By and large, would-be bellwethers of the past lost their independence or shrank to a fraction of their peak value for two reasons. One was an inability to get to market with transformative, innovative products to provide meaningful revenues. The other was a lack of innovative pipeline programs to attract capital after more advanced candidates had failed (see “Fallen Bellwethers”).

Actelion and Genmab both owe their success -- and valuations -- to decisions to focus on products.

“Under any market conditions, under any circumstances, creating an Actelion is a difficult thing to do, because you really bet the company on one asset,” Medicxi’s Francesco De Rubertis, who was an original investor in Genmab, told BioCentury.

Actelion had a huge leg up by starting out with well-studied late-stage assets and an IPO sold at the top of a bubble. But it was co-founder and CEO Jean-Paul Clozel’s ambition, along with the ability to quickly build a sales force around a commercially successful Orphan franchise, that allowed the company to weather several clinical setbacks (see “Actelion’s Journey”).

Genmab’s path to bellwether status may be more reproducible. The company has increased its market cap more than 25x from about $500 million in 2010 on the back of an enabling partnership around a blockbuster product, investment in new technologies and the pursuit of U.S. capital.

“You have to be able to align the right investors that are not in it for the quick buck, but are looking further out toward long-term value.”

Ingmar Hoerr, CureVac

When Jan van de Winkel took over as president and CEO in 2010, the company was in a crisis. Its market cap had cratered from a high of $3 billion in mid-2007, and its one marketed product, anti-CD20 cancer drug Arzerra ofatumumab, was producing little in sales.

van de Winkel’s solution was to generate partnering revenues while building an innovative internal pipeline.

The key inflection point was in 2012, when Genmab granted J&J exclusive rights to anti-CD38 mAb Darzalex daratumumab, which was in Phase I/II testing to treat multiple myeloma.

While Genmab kept no commercial rights to the mAb, van de Winkel said J&J could run the clinical development program much faster and more broadly than Genmab could have done. “They went from a couple small trials to over 40 trials in record time, doubling the number of Phase III trials very quickly,” he told BioCentury. “You need a military clinical development engine to do that.”

FDA granted Darzalex accelerated approval for MM following at least three lines of therapy in November 2015. It has since added second-line MM to its label, and data in first-line MM are expected this year. In 2016, J&J reported $572 million in Darzalex sales.

He added that in 2012 Genmab didn’t have the cash required to commercialize a product, but now it does. At March 31, the biotech reported DKK4.8 billion ($683.4 million) in cash.

“Next time, I can actually afford to pay for 50% of the salaries for all these people, and I couldn’t do that before now,” van de Winkel said. “We want to find the next big drug, and then hold on to the ownership rights. That is what really creates large companies.”

To generate additional partnering revenues and develop an internal pipeline it could commercialize itself, Genmab also in-licensed an antibody-drug conjugate technology from Seattle Genetics Inc., and developed two additional antibody technologies in house: DuoBody technology to develop bi-specific mAbs, and HexaBody technology, which induces the assembly of antibody hexamers at the cell surface to enhance immune effector function.

The technologies have resulted in at least 11 deals, with five molecules in clinical testing. The most advanced is HuMax-AXL-ADC, which is in Phase I/II testing for solid tumors.

Genmab does not yet know which product it will seek to commercialize, but it is preparing to build a commercial organization by adding two directors with extensive commercial experience to the board.

“With our board we want to identify and define what the best commercial setting would be for our next product, once we identify that,” van de Winkel said. “We are in that mind-set already, but thinking about how to do oncology commercialization in a leaner and meaner way than current companies are doing.”

Another key decision was van de Winkel’s relentless push to attract U.S. investors into the company’s stock, despite not having a U.S. listing. “To be successful in Europe, you really have to look at biotech in an international way and effectively target the global stock markets,” he said.

Today, U.S. investors account for about 45% of the biotech’s shareholder base, according to van de Winkel.

Sidebar: Actelion’s journey

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