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Tuesday, March 18, 2008

Come to Germany for Bargain Biotechs

Germany’s undervalued biotech firms are starting to attract the attention of US and UK venture capitalists, according to Peter Heinrich, CEO of publicly-listed MediGene. “There are positive signals in the last few months," he suggests, that life may be returning to the sector, which has remained a biotech wasteland since the spectacular bust early this decade.

Or maybe not quite a wasteland: rich individuals and families such as that of Dietmar Hopp have to some extent filled the gap left by most VCs in the last couple of years. But the Hopps have been stung too—not least by GPC Biotech’s crash and burn following poor Phase III results of prostate cancer drug satraplatin last fall.

That was the last thing Germany needed—a country where the fate of one biotech can still strongly influence investors' appetite for the entire sector. But MediGene hopes it can provide a more positive counter-story (and reverse the apparently inexorable fall in its own share price).

Already, it claims to be the first German biotech with products that have actually reached the market (Eligard is sold by Astellas for prostate cancer; Veregen was recently launched in the US by partner Bradley (now Nycomed) for genital warts). And this year, the biotech hopes to join in the marketing game itself, with plans to build its own dermatology-focused sales force in Europe.

But no, insists Heinrich, we're not going spec-pharma. MediGene is also maintaining R&D investment in oncology and auto-immune disorders, with data expected shortly from late-stage programs. “Ours is a dual model, allowing investors the upside of late-stage, in-house programs” with the protection against downside risk provided by revenues from marketed drugs, he summarizes.

Heinrich’s clear in his reasons for focusing downstream efforts on dermatology: it’s a niche area allowing for low-cost sales forces, Big Pharma isn’t interested, and there remain, he argues, plenty of US specialists who’ll need a European partner, despite recent consolidation in the sector (mentioned in this blog post).

MediGene’s dual-strand model is hardly new, though. Plenty of other European biotechs, especially in the UK, have been forced by risk-averse investors down this de-risked parallel-track route. The results have been mixed, as Vernalis’ recent collapse illustrates. Doing two things at once may appeal to investors in theory; in practice it’s hard to pull off.

So long as MediGene struggles to revive confidence in the sector, though, Germany should remain a bargain-hunter's hot-spot.

2 comments:

Raj Nihalani, M.D, RAC(US) said...

It’s not just the beer and bratwurst that entice British and US venture capitalist, but an impressive hub of biotechnology.
The pace of improvement, dedicated scientist and its position at the forefront of research are all good reasons for venture capitalist to look favourably on Germany. Germany now has more biotech companies than any other European country, and although firms tend to be small with almost half employing fewer than 10 people industry analysts predict the sector's turnover will exceed ~1 billion 2008-2009. The country is also near the top of the international league when it comes to the number of compounds in the drug pipeline.
Since 2004, the biotech and medical device industry has felt a promising revival, aided by investment from venture capitalists. Government spending on research and development is now running at a healthy 2.5 per cent of GDP, with a substantial slice of that directed towards biotech and life sciences research. The number of life science companies now hovers around 500.
VCs are using clinical and regulatory consultants to help them access the regulatory and clinical paths to make their portfolios profitable.
The biotech recovery is most apparent in Munich, Heidelberg and Berlin, home to the country's largest clusters of biotech, pharma and life science companies. Between them, these cities also offer a diverse choice of environments in which to live. Munich has over 90 life science companies. Among its prestigious universities and research institutions are the Ludwig Maximilian University and the Max Planck Institute for Biochemistry (MPIB).Heidelberg’s German Cancer Research Centre, the European Molecular Biological Laboratory (EMBL) and the Max Planck Institute for Medical Research make it a big hitter when it comes to academic biotech. Berlin, the national capital, it had five universities, it has four specialist institutes of higher education and about 100 research establishments related to the life-sciences, including the German Human Genome Project and Charité University Hospital, Europe's largest teaching hospital.

Raj Nihalani, MD, RAC(US)
Irvine, Ca

Anonymous said...

Interesting article and comment by Dr. Nihalani. Germany and the EU in general have some very interesting opportunities available. Since this artical however focuses on Germany I'll limit my comments to this subject based on experience. My first visit to Germany was in the early 90's to acquire a single product. At that time we made an almost unheard of deal, developed the product here in the US and eventually sold it to big pharma for a nice profit. My last deal began in 2003 and finally closed the deal this year (mid-2008)for a German biotech company. The timeline on this deal and the story behind it would make a interesting read. Germany in the 90's wanted to create a biotech industry to compete with the US - plain and simple. And it had all the right components (brains, ideas and was a wash with capital - from government, banks and VC funds) What it did lack however was the guidance of industry experience (or too much brain and not enough business savvy). Today many are struggling to stay a float and the funds that were there are not any longer. Hence there are good buys (companies and ideas) if you can sort it out.