LONDON _ European biotechnology companies are moreoptimistic about the near-term future than their U.S. counterparts,according to an Ernst & Young study published recently in the firm'ssecond European annual report called "European Biotech '95:Gathering Momentum."
Among key developments of the year, the report highlights thegrowing importance of the London Stock Exchange (LSE) as asource of public funds, the rise of corporate partnerships and therevival of interest in biotechnology in Germany.
Ernst & Young received replies from 200 of the 485 biotechcompanies questioned. The survey found that while companies inNorth America have commercial development as their major focus,many European companies are "still looking to build their R&Dpipelines through deals with universities and public researchinstitutes." However, some 45 percent of European health carecompanies told Ernst & Young that they plan to launch productswithin the next three years. The European biotech industry iscurrently worth about ECU 38 billion ($34 billion). This is predictedto rise to ECU 90 billion ($80 billion) by the end of the decade.
The survey revealed that "most of the pivotal business decisionsmade by European CEOs in the past 12 months involved expansionsthrough hiring more people, increasing capacities and positioning thecompany for future growth." By contrast, Ernst & Young's survey ofNorth America found that 10 percent of CEOs expected to lay offlarge numbers of employees over the next two years.
Louis Nisbett, CEO of Xenova Group plc, in Slough, said that he issurprised that companies plan to increase staff levels. "That struckme as quite curious," he told BioWorld Today, "when companies arealso talking about increasing outsourcing activity."
Capital Markets In London Surge
Since the LSE made it easier for biotech start-ups to sell shares to thepublic, London has surged ahead as a source of venture capital. Thereport said that in 1993, "the amount of U.K. venture capital investedin biotech almost doubled while investment dropped off just abouteverywhere else in Europe."
The report points out that by the end of 1995, Europe should see thestart of its own version of NASDAQ, the European Association ofSecurities and Dealers Automated Quotation (EASDAQ).
Jason Avery, a senior manager at Ernst & Young's biotechnologyoffice, sees EASDAQ as a challenge to the LSE's leadership inEurope. The LSE has changed its rules several times, but it still hassome way to go, according to CEOs who responded to the survey."While a significant proportion drew comfort from the fact that thequestion of biotech start-ups was still on the agenda at the LSE, manywere disappointed that the new proposals were not more radical,"said the report.
Nisbett rejects some of the criticism of the LSE's new regulations. Hesaid that while the new regulations are "not right still, they are muchmore acceptable."
Watch Germany For Industry Growth
There are signs that other countries in Europe are striving to catch upwith the U.K. "Germany seems to be pulling quite nicely in biotech,"said Avery. "That is a country to follow." As the report puts it:"Germany could possibly become a significant target for foreigncompanies hoping to take advantage of its excellent science base."
Some states in Germany have launched initiatives to help biotechcompanies with financing and infrastructure needs. There are evensigns of change in public opinion. "The German public seems to beprepared to accept human health care applications of modernbiotechnology," said Alfred Mller, of Ernst & Young in Stuttgart.
Germany's venture capital funding of biotechnology is the secondhighest in Europe, after the U.K. It accounted for 21 percent of theECU 57.5 million ($48 million) invested in biotech by Europeanventure capitalists in 1993. On the other hand, said the report,"biotech start-ups would benefit if German institutional investorswould take an interest in high-yield/high-risk ventures such asbiotechnology, and by that, foster technological progress."
"Germany is a good place providing you bring your own money,"said Alexander Korda. His company, Korda & Co., has invested inMorphoSys, a company set up in Munich to develop new antibodieswith a process that Korda describes as "molecular evolution."MorphoSys already has collaborative deals with Glaxo, BoehringerMannheim and the University of Munich.
Germany is attractive, said Korda, for a number of reasons. "There islots of soft money available from the federal and local governments."It is also new territory for university-industry connections. "Thewhole area is untrammeled by collaborations," said Korda. "Thereisn't anybody competing to work with these people."
Korda said that the whole biotech climate in Germany has changedcompletely over the past two years. But there are some down sides,he adds. "There is no venture capital at all." He also estimates thatcosts in Germany are some 40 percent higher than they would be inLondon.
The Ernst & Young survey asked companies about developmentplans. "European biotech companies are becoming more active inpartnering strategies," said Bill Pike, Ernst & Young's NationalBiotechnology Partner in the U.K. "Many of the big pharmaceuticalcompanies are actively involved in transatlantic deals with Americanbiotech firms, while the start-ups are building links with publicresearch institutes and universities," he added.
The survey showed that "CEOs are now much more interested inroyalty payments and equity investment, in contrast to five years ago,when the key to alliances was considered to be up-front fees andmilestone payments."
While this may be true of some companies, Xenova sees productrevenue as essential in funding future development activity. "Tocontinue to invest in new product development you need a moresecure source of investment than public markets or drug companies.Ultimately you need self-financing from product sales," said Nisbett.
Not all partnerships are equal, warns Avery, of Ernst & Young. "Onething that will emerge over time," he said, "is the difference betweenclever people who are partnering and the not so clever people. It isnot just enough to partner. You have got to have a strategy behind it."n
-- Michael Kenward Special To BioWorld Today
(c) 1997 American Health Consultants. All rights reserved.