BioWorld International Correspondent

LONDON - After all the painful restructuring of the post genomics bust, Europe is now securely back on a growth path, with 2006 being a record-breaking year for venture capital and other financings, 32 IPOs and high premiums paid in mergers and acquisitions, according to the annual biotech survey by Ernst and Young.

In 2006, the European sector sustained the recovery that began in 2005, with revenues increasing by 13 percent to €13.3 billion, (US$17.9 billion) market capitalization up 43 percent to €62.1 billion, financing growing by 45 percent to €4.7 billion, and venture capital financings reaching an all-time high of €1.5 billion, said the report, Beyond Borders: Global Biotechnology Report 2007, published Monday.

While the upturn is caused by a combination of factors, William Powlett Smith, head of Ernst and Young's UK Biotech group, said a key element was pharma's need to fill its pipeline.

"Pharma certainly needs products, and is now offering some substantial premiums over market value," he told BioWorld International. "Sixty percent is the average globally, and Europe is no exception here."

Europe found favor because pharma is no longer just looking for drugs in Phase II or Phase IIb that are approaching the market, but is willing to take on earlier-stage products and technologies. "European companies are in general less mature, and this has driven a lot of deals involving European companies," Powlett Smith said.

Aligned with that is a growing tendency to acquire rather than to license. "This has led to a boom as far as European M&A is concerned," he added. In total there were 64 mergers and acquisitions, with eight of the top 10 deals involving UK companies.

The UK sector continues to lead its European revivals in terms of the public markets, too, with seven of the 32 European IPOs UK based. In total, the IPOs raised €722 million, up 29 percent over 2005.

Overall, revenues increased 13 percent to €13.3 billion, with public company revenues up 14 percent at €9.1 billion. But if that seems impressive, quoted companies still sustained a net loss of €876 million, though that was a fall of 37 percent.

Market capitalization increased 43 percent to €62.1 billion, while total financing increased 45 percent to €4.7 billion and venture capital funding surpassed the genomics-inspired highs to reach a record €1.5 billion.

Powlett Smith said investors have been attracted back into biotech by the high level of pharma deals. "They note there is some exciting activity going on, and that this is a growth area." The interest also is piqued by the current publicity around other applications of biotech, such as biofuels and the development of environmentally sustainable industrial processes.

However, he said there are still plenty of European investors who regret they fell for the hype of the human genome, and will not be diving back in. But he noted one significant effect of the restructuring is that business models have been de-risked. "They have been adjusted in two ways - on one hand, there is more focus on products that are close to market or buying revenue streams, on the other, companies have simplified their approach and spun out peripheral activities because they recognize investors will not be liberal with their cash."

Another notable advance in 2006 was the expansion of the pipeline, with 163 new drugs added to the development plans of publicly traded companies, bringing the total number of therapeutics to 692. Meanwhile, Europe's private company pipeline totaled 802 products.

Looking forward, Powlett Smith said, "The challenge in years ahead will be to translate two years of sustained progress into an ongoing future of sustainable growth."