Venture capital funding for biotech falls

European biotechnology companies raised €5.5bn in 2007, up 18% from the previous year’s total of €4.6bn, making it the largest amount raised by the industry since 2000.

Beyond Borders, Ernst & Young’s annual biotech report, also reveals that venture capital funding is down by 21%, from €1.52bn in 2006 to €1.2bn in 2007.

The reason given for such a fall is greater selectivity among VCs, but there was some good news at the young end of the market, with seed and first round deals as a share of total venture financing transactions up to 41%, the highest share for five years.

Companies looking for money faired slightly better on the public markets. There was a 9% increase in capital raised from IPOs last year, from €678m in 2006 to €737m in 2006. This was the fourth consecutive year such an increase had occurred, but the public markets proved to be an unwelcoming place for biotech. By the end of 2007, only around 25% of companies who listed during the year were showing positive returns, compared with two-thirds the previous year.

The main source of funding came from follow-on public offerings, debt/convertible debt and private investment in public equity (PIPE) financings, which grew by 44% to €3.5bn, up €1bn from 2006.

Financial performance for the publicly-listed side of the industry fell slightly by 6%, but the report puts this almost entirely down to the purchase of Swiss company Serono by Germany’s Merck, which removed 20% of the industry’s revenue overnight. Accounting for this skewing, performance is actually up 20%.

The product line also showed healthy growth, with 13 approved drugs last year compared to six in 2006. The total number of products approved or in registration grew from 33 in 2006 to 36 in 2007.

Products in the pipeline also rose in number, with pre-clinical and phase I drugs up by 9% to 1,712 and phase II products up 18% to 519.

The total value of M&A deals in 2007 increased by over 600% from just over €2bn in 2006 to €14.8bn in 2007, led by €10.5bn paid for Serono. In fact, the deal total was driven by an increase in high-value deals, with two other deals surpassed €1bn. Early-stage assets were particularly attractive to buyers.