Health and life science sectors are showing signs of robust growth, according to Deloitte and Touche’s pan-European mediscience review. The report, titled Surviving Uncertainty, says venture capital backing for the sector remains strong with €565 million invested in 42 biotech companies in the first half of this year. Venture capital invested in the sector exceeded €1 billion in both 2000 and 2001 and is on track to reach this level again in 2002.
The report also shows venture capital is not being used to create new companies, but that larger chunks are being invested in a reduced number of pre-existing businesses. Increasingly, companies that raised seed finance are facing difficulties finding early stage venture capital. VCs appear to be prepared to back companies that have put their IPO plans on ice. For example Meristem Therapeutics, which raised €21 million in June, Personal Chemistry, which raised SEK290 million in July, and Trigen, which raised £7.1 million at the beginning of the year.
While the window for IPOs remains tightly shut Deloitte and Touche found there is confidence that opportunities will return, although the timing and location remains uncertain. As the Neuer Markt continues to struggle, London’s claim to be Europe’s leading biotech market looks to have more weight.
There has been an increase in investments in therapeutic-focused spinouts from big pharmaceutical companies, which are armed with late stage products and experienced management teams. Meanwhile VCs are seen to be shying away from technology platform companies, and those offering me-too or easily commoditised technologies are also struggling to get support. Geographically, locations such as France and the Medicon Valley (spanning Denmark and Sweden) are catching up with the UK and Germany in terms of the volume of funding attracted.
Although a degree of correlation is to be expected, the biotech sector so far seems to be relatively immune to the drop in company valuations on the public markets. However, negative indicators include some companies raising new rounds of funding at lower valuations than previous rounds.