New biopharmaceutical firms still attractive

Apoxis CEO Jean-Pierre Rosat has managed to convince investors of his company's worth Keystone Archive

Biopharmaceutical companies have once again attracted the lion's share of venture capital money in Switzerland, according to the latest 2004 figures.

The investment trend that sees the largest proportion of venture money flowing to life science, at the expense of other high-tech segments, looks set to continue.

Last year, the biopharmaceutical segment attracted a total of €120 million (SFr 184.5 million) or 66 percent of the annual totals. In 2004, venture investment in Switzerland was SFr281 million.

The segment also provided the year’s highest profile liquidity event or ‘exit’ for venture capital investors with the initial public offering of Basliea Pharmaceutica in March.

The venture investment trend looks likely to continue this year in light of several large investment rounds that have taken place in recent weeks.

Difficult climate

In mid-February, The Genetics Company raised SFr25 million in a third round of financing.

The investment was led by early investors Nextech Venture of Zurich and Novartis Venture Fund, the venture capital arm of Novartis, who brought in new investor Varuma, a Basel-based private equity investment company.

Despite being a popular category, the climate for fundraising is still difficult though, according to Andreas Ziegler, CFO and COO of The Genetics Company. “Investors supporting pre-clinical stage drug discovery projects are not easy to find, especially in Europe,” said Ziegler.

Earlier this month, Lausanne-based Apoxis announced a SFr23.3 million second round of funding led by Danish pharmaceutical giant Novo Nordisk and joined by previous investors Banexi Ventures Partners of Paris and HealthCap of Stockholm, as well as private investors.

Apoxis raised SFr11.75 million in its first round of financing in 2003. The company is working on a cancer therapy program.

Clinical trials

In January, Santhera Pharmaceuticals announced it had raised a total of SFr41.5 million in the previous twelve months from a large syndicate of international and local investors.

It is a drug research and development company developing small molecule drugs targeting neuromuscular and metabolic diseases.

The public capital market in Switzerland this year is also likely to see activity by biopharmaceutical firms looking to raise money to carry out clinical trials and related investments.

The Swiss Stock Exchange says that among others, several biopharmaceutical companies are ready for an initial public offering or are preparing for it.

Yvonne Wegman, head of issuers and investor relations at SWX, said that in general life science companies have to be “much more mature” when going public compared to a few years ago.

“Ideally, they are having a broad product pipeline and several products in clinical phase II and III,” she added. “They should also show a solid record of the past, excellent management skills, a clear strategy and growth potential for the future.”

Fewer investors

The focus on product development is also evident in the venture capital sector.

Investors want firms active in the development of therapies and new drug candidates and typically want to see phase II, or human trial, data. Having enough cash on hand for up to 12 months is also important as it gives the startup an advantage while negotiating new financing.

According to Schlieren-based Esbatech’s CFO, Thomas Loeser, much has changed in the financing climate for young biotech firms in Europe in past five or six years.

“Early stage biotech companies have to very early on find a strong international syndicate of investors who have the commitment, capital, and endurance to follow a firm through all its phases of development,” said Loeser.

A key difference is the consolidation of the VC market. “Fewer firms are active in the field and there is more specialization now in terms of stage of deal and sectors,” he added.

Consolidation means though that there will be greater competition amongst startups for venture money, a situation exacerbated by the fact that several newer venture capital funds raised in Europe in recent months are specifically targeting later stage firms.

by Valerie Thompson