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

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