January 15, 2006 (Vol. 26, No. 2)
There was a new mood of optimism about French biotech at the recent 9th European Biotech Crossroads meeting in Lille. The reason was that France recently had its first biotech IPOs since 1999 with the float on Euronext of ExonHit Therapeutic (www.exonhit.com) and BioAlliance Pharma (www.bioalliancepharma.com).
As well as ExonHit and BioAlliance, there are six French companies that could list in the next year. So there is a glimmer of hope for French biotech, stated Denis Lucquin, a managing partner of venture capital firm Sofinnova Partners.
Many at the conference agreed that Frances biotech industry has been in the doldrums for several years, while the U.K. and Germany have been able to thrive. In Germany we have a set of visible public biotech companies such as Qiagen and MorphoSys with solid revenue and successful product introductions. This is not the case in France. We also have a number of strong IPO candidates too, which makes German biotech more attractive than French, stated Hubert Birner, Ph.D., a general partner at the Germany venture capital company TVM.
Since the sale of Genset, Frances fastest growing biotech, we have had a lack of success stories. Many of our public companies, for example NicOx, Transgene, and Cerep, all have similar market capitalizations today as they did when they listed several years ago, and this is making French investors fearful that they will not get their money back if they invest in French biotechs, Lucquin added.
A Poor Year
According to France Biotech (www. france-biotech.org), 2005 was a bleak year in which there was a small increase in seed capital raised by companies in France. However, it was the severe decrease of second-round funding that has caused the most problems.
The French biotech industry is heavily reliant on VC funding with 80% of their money coming from this source. This investment gap means that many companies can start up in France but cannot get to that all-important stage where they have compounds in Phase II.
One way that many French biotechs are making their existing cash go round is to register for Young Innovative Enterprise status, a government initiative introduced in 2004. This allows companies that spend at least 15% of their expenses in research and development exemption from social security costs for employees involved in R&D projects.
Many of the French analysts and VCs at the conference believe that funds will not be raised in 2006 by increased merger and acquisition activity among French biotechs, but will come instead from alliances.
There may also be hope on the horizon for some additional funding in the form of a new commitment made by French life insurance companies to invest an additional 6 billion in SMEs with a high growth potential by 2007.
The Way Forward
With French biotechs having an estimated 46 products in Phase II and III clinical trials, many at the Biotech Crossroads agree that France has the potential to build a successful biotech industry.
France offers a range of scientific competencies and has a good reputation in oncology, but it needs to be able to commercialize it properly. For that it needs to attract more foreign VC funding, said Dr. Birner. One way to do this is to ensure that senior management of the company is right. There is a lack of experienced senior managers in the French biotech industry and it may be more suitable to have a foreign CEO or at least to have international senior managers with the right skills supporting the CEO, Birner continued.
I have a slightly pessimistic view because I dont believe foreign investors will back many French firms, and the Euronext is not mature enough to support too many IPOs, Lucquin noted. I hope the recent float of BioAlliance will be a success, but I doubt that French investors in France will buy into such a business model. The direction this IPO takes will be a key indication of whether there is the appetite in France to make our own biotech industry a success.