Bloomberg News

Swiss Biotech IPOs May Revive Industry Starved of Investment

July 08, 2011

July 8 (Bloomberg) -- Swiss biotechnology share sales may help kick-start an industry where investment has slumped by more than two-thirds in the past four years.

Molecular Partners, a Zurich-based firm with an experimental eye medicine in mid-stage testing, is among the companies tipped by analysts for Switzerland’s first biotech initial public offering in four years. The closely held company, formed by a group of researchers from the University of Zurich, started operations in 2005 and counts Johnson & Johnson’s venture-capital arm among its investors.

“There is no plan or pressure to go public, but as the company grows that’s clearly something we would consider at some point if a window were to open,” said Christian Zahnd, the 35- year-old chief executive officer of Molecular Partners.

Investor interest in the Swiss biotech hub that emerged out of the success of Roche Holding AG and Novartis AG, Europe’s biggest drugmakers by sales, has receded after setbacks in developing new medicines. Positive test data on a successor to Actelion Ltd.’s best-selling lung medicine may reopen the window for IPOs and reverse a decline in Swiss biotech stocks.

“A lot depends on the outcome of Actelion’s pipeline,” said Daniel Koller, a Zurich-based fund manager at BB Biotech, which owns a stake in Molecular Partners through its private- equity arm. “If Actelion can successfully show that it has a future, whether it in the end gets bought or continues to remain a standalone, you will see a widening of the sector.”

‘IPO Candidate’

Molecular Partners’ IPO credentials are strengthened by its partnership with Roche and a board that includes Goran Ando, vice chairman of Novo Nordisk A/S, the world’s biggest maker of diabetes treatments, and Kevin Johnson, former CEO of PanGenetics BV, said Samir Devani, an analyst at Nomura Code Securities in London.

“The company has a technology platform that could be used across an array of therapeutic areas,” Devani said. “It has to be a candidate for an IPO.”

The industry has seen just two IPOs since 2006 when there were public offerings from Santhera Pharmaceuticals Holding AG, Newron Pharmaceuticals SpA and Bioxell SpA, according to the Swiss Biotech Report.

“Below the surface there are really interesting second- generation companies that have a lot of potential,” said Jean- Philippe Tripet, managing partner at venture capital company Aravis Biotechnology in Zurich. “They’re not just one-product, pass-or-fail types of companies.”

Investment Slump

Pevion Biotech Ltd., a Basel-based start-up that is working with Mymetics Corp. on vaccines to combat malaria and HIV, is another IPO candidate, according to analysts.

“I’m not sure that we’ll see one this year, but a few Swiss companies at least are considering an IPO,” said Juerg Zuercher, head of Ernst & Young AG’s biotech unit for Europe, the Middle East and Africa.

Investment in the Swiss biotech industry fell to 255 million Swiss francs ($304 million) in 2010, from 370 million francs the previous year and a peak of 885 million francs in 2007, according to the Swiss Biotech Report published in April.

That decline follows industry reversals with Basilea Pharmaceutica Ltd.’s experimental antibiotic being rejected by U.S. and European regulators and Addex Pharmaceuticals Ltd. halting development of its most-advanced product because of safety concerns.

Those setbacks saw Basilea’s market value slump 71 percent to about 601 million francs since the end of 2007. Addex, whose 2007 IPO was the last by a Swiss start-up and the largest by a European biotech in three years, has dropped about 65 percent over the same period.

Acquisition Boost

Actelion, founded in 1997 by Jean-Paul Clozel, his wife Martine and three other drug industry executives to develop medicines that Roche had given up on, may hold the key to reviving investor interest. The biotech prevailed in May in a tussle at its annual shareholder meeting with Elliott Advisors (UK) Ltd., after the hedge fund tried to oust several board members and force Actelion to consider options including a sale.

A positive result in the macitentan study is likely to draw suitors to Actelion, the third best-performing stock in the 17- member Bloomberg Europe Pharmaceutical Index over the past five years, after Danish drugmaker Novo Nordisk A/S and Spain’s Grifols SA. The test results are due later this year or early in 2012.

Amgen, the world’s biggest biotech, has considered a takeover offer for Actelion, two people familiar with the situation said in November. Clozel has said Actelion should remain independent.

‘Biotech Cluster’

An acquisition of Actelion, Europe’s biggest biotech, may boost the Basel hub, said Tripet of Aravis.

“If a U.S. company were to take over Actelion, they’d probably keep the offices and a lot of the research and would concentrate some of their European activities there,” he said. “The biotech cluster in Basel would benefit from it and other examples have shown that acquisitions can be positive.”

While Actelion’s takeover would deprive the Swiss bourse of its bellwether biotech stock, it may to free up capital and increase overall interest in the life sciences industry.

“In the short to mid-term, we’ve seen that M&A plays have been very helpful to local areas,” Koller said. “Selling a company has benefits because investors have money to allocate to other names and because it may also attract more interest to the sector in general.”

Switzerland’s experienced investor base, the presence of strong drug companies and a “large talent pool” for hiring make the Alpine country a good base, said Zahnd of Molecular Partners.

“Switzerland is still an exciting place for biotech,” he said. “Considering the small size of the country, there’s a surprising depth.”

--With assistance from Corinne Gretler in Zurich. Editors: Dylan Griffiths, Kristen Hallam

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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