Tuesday, May 22, 2007

The Euro-Next Biotech Bubble?

Just when Europe’s biotech sector appears to have regained some of the confidence lost after the last boom-and-bust, there are signs that history might be about to repeat itself.

At least, in the Benelux countries and on Euronext. The strong post-IPO performance of a good handful of Belgium, Dutch and French biotechs has prompted some of Europe’s investors to warn of a potential “Euronext bubble”—along the lines of that seen on Germany’s now-defunct Neuer Markt during the late 90s.

Stocks such as TiGenix, which listed in March in Belgium, or Metabolic Explorer which IPO’d in Paris in April are up more than 30%--performing a lot better than their UK counterparts on AIM. “Yet I refuse to believe they’re really worth that much more,” said William Brooks, Senior Investment Manager at Belgium-based Quest Management, at BioEquity Europe in Glasgow yesterday.

Brooks told the IN VIVO Blog that this almost-bubble is being driven by “inexperienced” Benelux banks, and a high proportion of “retail dentists and doctors”, lured by government-driven tax incentives and faced with meagre interest payments on bank savings. Companies are floating too early, and raising sub-optimal amounts—it’s the German Biotech Boom all over again.

So are sensible investors staying away this time? Apparently not. “You can’t not take part,” says one, even if it means dipping in and out in six months. Aspiring biotechs are seizing the opportunity: Amsterdam Molecular Therapeutics yesterday announced its intention to float in Holland—and it’s in gene therapy, hardly the sexiest, or safest, field to play in.

Meantime the UK market has seriously lost its flair, according to Gareth Powell, fund manager at AXA Framlington, in part because UK investors haven’t seen a real winner to get excited about. Any activity there is “is being driven by M&A activity, not by us,” chorus the buy-side investors. As for internationally-focused US investors: they still haven’t forgotten British Biotech, says MPM’s Kurt von Emster.

So with Benelux frothy, and the UK anemic, where should an aspiring young biotech list in Europe? Germany’s treading water. Like the UK, it has painful memories. Switzerland would seem a good bet—home to Europe’s biggest biotechs and plenty of healthcare-savvy investors, and with—as yet—no major disappointments. Addex happily became Switzerland’s newest public biotech earlier this week, raising CHF137 million at the upper end of its range.

If you’re not of Roche or Novartis pedigree, though, Switzerland might not prove a wise choice either. “If I were a VC-backed start-up, I wouldn’t go there, either,” warns William Blair, investment director at Scottish Widows.

Still, there’s always Australia. “We’re seeing now in Asia and Australian biotech what we saw in Europe ten years ago,” remarked MPM’s von Emster. “There’s an Australian biotech in my office almost every day; they’ve taken a huge step,” he says.

Look out, Europe.

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