LONDON ¿ UK biotechnology is ¿streets ahead¿ of mainland Europe and more than holding its own against other high-tech sectors, according to the latest report on the European life sciences industry, released this month by Ernst & Young.

¿Biotechnology share indices may have been down 10 percent or more for the first six months of this year, but the sector has been much less afflicted than the telecoms and software sectors [down 50 percent] and it is streets ahead of European biotech,¿ according to the report, which covers January to June 2001. ¿Public biotech company valuations in Germany alone were down an average 45 percent in the same period.¿

The relative strength of UK biotech is partly driven by maturing product pipelines. UK companies have 130 products in clinical development, compared to 30 for Denmark, which is in second place. The report says it is products and the prospect of earnings that investors are looking for now. While companies with products in development lost 10 percent of their value, platform technology companies fell by 30 percent.

Despite the downturn and a closed IPO window, serious money has been flowing in through private funds. In the first six months of 2001, this amounted to EUR670 million, three times the amount for the same period of last year, though down 27 percent on the record second half of 2000. The amount being raised by private companies is skyrocketing, with the top five fund raisings reaching an average of EUR48 million.

UK companies took a large slice of this pie, since 39 percent of the companies that raised money were British, as were two of the four that had IPOs. ¿These companies internationalized their investor base to achieve the level of funding capable of delivering real potential for companies ¿ to date hampered by over-cautious European investors ¿ to compete globally,¿ said Glenn Crocker, head of biotechnology at Ernst and Young, and co-author of the report.

The increase in private equity has also led to a surge of new company formation in the UK.

At least 20 IPOs were planned for 2001, but only four companies made it to market in the first half of 2001. The current round of large-scale private fund raisings is adding to the backlog of companies waiting to float. Crocker said companies need to ride investor sentiment, not follow it. ¿Pre-IPO companies must ensure that all elements of the fund raising process are in place now so that when sentiment starts to change, they will have smoothed the way, left nothing to chance and are ready to seize the day,¿ he said.

The report also finds there is commoditization in proteomics and genomics, and these platform companies are in a race to become drug discovery and development companies. ¿It is their only legitimate growth strategy,¿ said Crocker. Half the IPOs in Europe in 2000 were platform-based companies, and a third have since been involved in merger and acquisition activity. There also is an emerging trend towards the integration of biotech and information technology companies to form bioinformatics alliances for drug discovery and development, he said.