European biopharma funding is down 43% so far this year

Funding for European biopharmaceutical companies is down 43 percent for the first three quarters of 2016 compared with the same period last year, with total equity investment dropping to $2.335 million from $4.119 million.

While not completely dead, Europe's IPO market has been in a particularly enfeebled state for most of the year. Europe's biopharma sector raised a paltry $393 million in 14 IPOs over the first three quarters. That's a drop of 78 percent on the $1.778 million raised in 25 transactions during the same period in 2015.

The market for follow-on offerings has also weakened, although not to the same extent as the IPO market. During the first three quarters, just 16 transactions yielded $745 million or an average of about $47 million per deal. It's a fall of 29 percent on the same period last year, during which 21 transactions raised $1.056 million, or an average of $50 million per deal.

The private equity market has held up most strongly – it is down just 15 percent year on year. European firms collectively raised $1.197 million in the first nine months of this year, down from $1.411 million in the same period last year. Average deal size came in at $22 million this year, down from $23 million last year. (See chart below.)

In the IPO market, average deal size is well down also – from $47 million in 2015 to $28 million in 2016. That picture is deceptive, however, as a spate of Swedish microcaps listed on the First North exchange in Stockholm this year, most of which raised just a few million dollars apiece.

Stripping out the smaller transactions – those below $15 million – yields an average deal size of $45 million. Just eight companies contributed to that calculation, however: AC Immune SA ($66 million); Merus NV ($55 million); Wilson Therapeutics AB ($51 million); Shield Therapeutics plc ($47 million); Gensight Biologics SA ($44 million); Geneuro SA ($37 million); Pharnext SA ($34 million); and Asit Biotech SA ($27 million).

Just two European firms have listed on Nasdaq so far this year, Lausanne, Switzerland-based AC Immune and Merus, of Utrecht, the Netherlands, whereas nine had done so during the same period last year. Three of the class of 2015 completed large-scale transactions that dwarf any share issues completed this year: Cellectis SA ($228.25 million); Galapagos NV ($210 million – it raised a further $65 million at the same time on its home exchange); and Adaptimmune Ltd. ($191.25 million).

London's AIM has also been quiet, with just one IPO completed in 2016 so far, that of Shield Therapeutics plc. Three were completed during the first three quarters of last year. Mereo Biopharma plc also gained an AIM listing this year, without raising any cash, although it did complete a private placement just prior to going public.

The Euronext exchange in Paris, Brussels and Amsterdam hosted three IPOs, those of Gensight, Geneuro and Asit Biotech. Pharnext opted for the Alternext junior exchange in Paris, while Wilson Therapeutics went public on Nasdaq Stockholm. The Alternext exchange gained a second biotech stock right at the death – Berlin-based Noxxon Pharma AG listed its shares without raising any new cash. The stock (ALNOX) began trading on Sept. 30 at a nominal price of €21.34 (US$23.83). It edged up to €22 over its first week of trading.

In terms of follow-on offerings, just one firm breached the $100 million barrier – GW Pharmaceuticals plc took in $290 million on Nasdaq in July, on the back of promising clinical data for a cannabinoid drug in two rare epilepsy indications. GW was again among the stand-out performers last year, with a raise of $179 million. That was only bettered by DBV Technologies SA, which took in $245 million.

The U.K. continues to dominate European private equity financing. U.K.-based firms attracted $474 million or almost 40 percent of the total funding, across 16 deals. They accounted for four of the top 10 deals. Switzerland occupied second place, with $228 million across nine transactions, followed by Germany, which took in $183 million in seven deals. All three had comparable deal averages of about $30 million (U.K.), $25 million (Switzerland) and $26 million (Germany). The French sector raised about $87 million across 11 transactions – its deal average is just under $8 million. (See chart below.)

The sharp drop in funding is hardly a surprise, given the unwinding of the biopharma boom on both sides of the Atlantic over the past year. The big question is whether the curve will gradually flatten and the industry will reach a steady state. In the private equity sphere, it looks as if the proverbial "flight to quality" is well underway. Deal sizes remain healthy, particularly in the leading markets of the U.K., Switzerland and Germany.

Good companies with innovative science can still raise cash. It may be no bad thing that firms with less interesting prospects continue to struggle.

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