The Maturing of Europe's Biotechs

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Filling the Pipeline

The success of Addex is a case in point. In less than five years, it managed to raise 106 million Swiss francs ($86.3 million) in venture capital, develop an in-house methodology that promises more selective drugs with potentially fewer side effects, and begin filling a pipeline with products that could hit the market as soon as 2012.

That Addex had an IPO, rather than being bought by a larger pharmaceutical firm, also reveals changing patterns in Europe. Big Pharma companies are hungry for new drugs to put into their pipelines, and British biotechs tend to be more mature and further along in the drug development cycle. That means more are acquired in trade sales, says William Powlett Smith, leader of Ernst & Young's British biotech team. In fact, eight of the top 10 biotech deals last year involved British companies. Continental European startups are increasingly choosing an IPO as their exit strategy, though many are eventually acquired anyway.

Despite the impressive recent numbers, there remain a number of areas where Europe needs to catch up with the U.S. For one thing, notes Sofinnova's Papiernik, Europe still lags well behind in the amount of financing raised in secondary offerings. What's more, in Britain, secondary offerings have been hampered by pre-emption rights that require any new issue of shares be offered to existing investors first, limiting the amount of shares that can be placed on the open market without prior shareholder agreement. New pre-emption guidelines were issued last year, but Simon Best, chairman of Britain's Bioindustry Assn., says "the situation in the U.K. is still not ideal."

Europe also suffers from a lack of specialized biotech investment funds, a shortage of analysts covering young biotech companies, and a lack of experienced managers to run companies, says Philippe Pouletty, honorary chairman of France Biotech, an industry association, and a co-founder of Truffle Venture, a Paris venture capital fund that invests in biotech companies.

Still, closing the gap with the U.S. is now a realistic aspiration, Pouletty says. More companies with market caps of a billion dollars or more are likely to emerge, he predicts. And thanks to outfits like Addex, no one can claim Europe is a biotech backwater any longer.

Schenker is a BusinessWeek correspondent in Paris.