There is a general feeling among investors and other observers that the European biotech sector has not delivered and fund managers complain that there have been very few successes. The author's view is that, although we have not yet reached the heights of the US biotech industry, there have been numerous success stories in Europe. This paper shows that most of the ingredients required for a successful biotech sector already exist in Europe. Most importantly, there is enough cash in Europe to allow companies to bring products to market. The biggest problem is that there is a fragmented equity capital market, which, as well as limiting the pool of capital accessible to individual companies, may also affect the visibility of success. Thus, the success of Actelion and Serono, although known to UK small-cap investors, cannot impact their funds. However, it is time that we stopped complaining about what we do not have and started concentrating on what we do. Companies need to adapt to the realities of the investment environment in Europe. The good news is that we are already seeing some of this reality being taken on board by European companies, where many of them, like the early US biotechs, are aiming at the lower-hanging fruit by picking up products with relatively lower-risk profiles, such as reformulations of existing drugs. This should allow them to start generating their own cash and then take the bigger gambles. Perhaps most important of all and contrary to common belief, as our analysis shows, we do not believe that the amount of cash available to European biotechs is a significant hurdle to achieving success.
Connectivity and growth: Financial centres in investment banking networks
