12:00 AM
 | 
Oct 14, 2002
 |  BioCentury  |  Strategy

Europe's tight corset

European companies are starting to feel the pinch from both the capital markets and the slowdown in pharma partnering. Over the last three months, Europe has seen only 13 pharma deals - with none of the reported values over $90 million - which biotech historically has relied on to boost cash during bear market conditions.

As a result, both product and service companies are tightening belts, particularly those below $60 million in market cap. During the third quarter, six product companies and three tool/service companies all announced that they were restructuring.

Investors expect to see more. June Scott, director of Sagitta Asset Management, said she expects to see more European public companies battening down and focusing on lead programs as they begin to realize that the markets are not going to open for some time to come.

Among private biotech plays, venture capitalist Andreas Wicki, CEO of HBM Partners, sees about 10 European companies that are going to run out of cash in the coming months.

As in the U.S., product setbacks are a prime driver. But in Europe, there also hangs a feeling that the shakeout could go deeper than cuts in headcounts and programs.

Those that have, restructure

Despite having more cash than any other non-profitable European biotech, Oxford GlycoSciences plc (LSE:OGS; OGSI, Oxford, U.K.) has been facing uncertainty over FDA registration of its Vevesca to treat Type I Gaucher disease. Thus OGS last month took steps to prioritize resources and save money by splitting into three separate business units - oncology, proteomics and inherited storage diseases (ISD) - with each reporting separate financial results.

The company believes the makeover will save £4.7 million by year end and £10 million ($15.6 million) a year thereafter. OGS will save cash from the reduction in head count as automation of its proteomics technology and software development are completed. At June 30, the company had £153.4 million ($239.3 million) in cash and a pre-tax loss of £21.4 million ($33.2 million) for the first six months. Currently, OGS burns about £3.8 million a month and anticipates bringing this down to about £3 million.

OGS will focus itself on developing oncology candidates. The other two units - proteomics and ISD - will be expected to reach profitability in 2003 and 2005, respectively.

The oncology unit will receive the largest slice of OGS's cash and will develop in-house targets and seek to in-license compounds. CEO David Ebsworth, who joined OGS in July, plans to use the proteomics business to bring in revenue through contract work, and to deliver targets for the oncology business.

In terms of the ISD unit and Vevesca (Zavesca in Europe), Ebsworth intends to pursue a U.S. approval and seek approval in Israel. In June, OGS received a non-approvable letter from the FDA(see BioCentury, July 1).

"We have changed our strategy on Vevesca - we are not going to market the drug ourselves," he said. "One single orphan drug is not going to fund an organization."

If no suitable cancer drug candidate can be found, Ebsworth has another plan. "It depends what we can do with oncology from a strategic perspective," he said. "If we can do the right deal and have clinical programs, we'll invest in these. If not we'll have to find the right company to come together with us, in a...

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