Two contrasting items landed on my desk in February. The February issue of Real Deals headlined the “Death of biotech” as an investment asset class. European IPOs are dead, VC investment is at a decadal low, and the current crop of companies will need an unachievable €3.5bn more capital to achieve their goals. By contrast, January’s Genetic Engineering News (GEN), a US-published trade magazine, had a review of biotech’s triumphant emergence as a growing, successful, profitable industry ripe for investors. The number of public US companies with less than a year’s cash has halved in the last two years. There were three biotech IPOs in 2009 and ten in the first half of 2010. Total net income of public companies was $3.67bn (€2.65bn). How can two magazines look at the same industry and get such contrasting views?
It is certainly true that there is more money in the US, at all stages. The generosity of the UK capital markets is legendary (literally – anyone who has tried to raise money in the US will know that money flows there as readily as the fountains in Atlantis). But throughout the funding cycle the US does it bigger. The US’s SBIR grant programme provides $2bn annually in grants for new technology development, and one-third of those in biotech were over $1m – the UK equivalent, SBRI, is funded to £20m (€23.1m) spread among dozens of programmes and hundreds of companies. UK R&D tax credits, providing tax relief or cash payback for research, cost the Treasury £700m in 2009, most of which went to large companies. The US’s recent QTDP project provided almost identical types of support, but to the tune of $1bn per annum for biotech SMEs alone, averaging $9m support per company. At all stages of private company development, US VCs invest between two and five times as much per round as EU VCs investing in comparable companies.
But history has taught us that pouring money into a hole labelled biotech is not the path to success. There is another factor, and that is investor expectations, attitudes and business model. In short, GEN is talking about biotech as a business. Real Deals is talking about it as an investment asset. Only in the US are these two perspectives even approximately aligned.