The Maturing of Europe's Biotechs

Addex Pharmaceutical's successful initial public offering suggests Old World biotechs are set to deliver products with big potential for returns

by Jennifer L. Schenker

Vincent Mutel made a risky move when he left a cushy job with Basel pharmaceutical giant Roche to co-found a startup in Europe, long seen as a biotech backwater. But his bet paid off big-time on May 22 when his company, Addex Pharmaceutical, raised $128 million on the Swiss Exchange—valuing it at $348 million—the biggest biotech initial public offering in either Europe or the U.S. in the past three years.

For Addex, whose potential drugs include compounds targeting migraines and gastroesophageal reflux disease, the successful IPO means "we can move forward and grow the company to be even more successful in the future," says Mutel, who was previously head of the pharmacology group in Roche's central-nervous-system diseases department.

For investors, it's proof that European biotech is no longer about science for its own sake, but instead increasingly focused on delivering products for unmet medical needs with big potential for return. "We have reason to rejoice," says Antoine Papiernik, a general partner at Paris venture capital firm Sofinnova Partners, one of the founding investors in Addex.

A Decade Behind the U.S.

Indeed, Addex isn't Europe's only recent success. In the first quarter seven European biotechs went public, raising a total of $289 million—nearly three times the amount during the same period in 2006. By comparison, there were just five biotech IPOs in the U.S. in the first quarter, raising a total of $268.4 million, according to market watcher BioCentury.

To be sure, IPOs the size of Addex's are still unusual In Europe. And overall, the Old World is about 10 years behind the U.S. in the development of its biotech sector, analysts say. But overall financing of European biotech surged 45% last year, to $6.34 billion, and venture capital investments reached an all-time high of $2.02 billion, according to figures from Ernst & Young.

Britain remains the leader. Last year's largest flotation, for instance, was Renovo, which raised $113.33 million on the London Stock Exchange. But a growing number of IPOs are now taking place on the Continent, especially on the Danish, Swiss, and Benelux exchanges, says Francesco De Rubertis, a general partner at venture capital firm Index Ventures, which was a founding investor in Addex and some 14 other European biotech companies.

Positive Financial Results

Between January, 2006, and May 7 of this year, some 31 biotech companies have floated on European exchanges, raising on average $39 million on top of pre-IPO valuations of $82 million. While the numbers are lower than for their U.S. counterparts, which raised an average of $58 million on pre-IPO valuations of $175 million, the aftermarket performances have been better in Europe, BioCentury says.

Of the European IPOs since the start of 2006, only seven are now below their debut prices and the group as a whole has provided investors a median return of 23%. In the U.S., by comparison, 12 of the 31 U.S. IPOs since the start of 2006 are below the starting price and the median investor return has been just 8%.

That also reflects generally positive financial results for European biotech. Overall, the sector has shown double-digit revenue growth over the past two years, according to the annual Ernst & Young Global Biotechnology Report, released on Apr. 16. From a 12% revenue decline in 2003, revenues for the business in 2006 increased by 13%, to $17.94 billion, and market capitalization grew 43%, to $83.7 billion.