EU biotech sector 'will enjoy resurgence in popularity'

The European biotech sector is likely to see a renewed surge in investment from big institutional investors in the coming years.

Dr Brian Hargreaves, senior partner, healthcare at venture capital group 3i, told the Financial Times Global Pharmaceuticals and Biotechnology conference in London that investors had suffered a 'horror story' in recent years, with many 'getting their fingers burned' by pumping money into biotechs only to see their stock market values slide.

But he believes the European biotech sector is set for a resurgence as big pharma groups continue shying away from developing their own drugs and buying small biotech companies. 'Biotech will come back into favour with the capital markets. The sector is starting to mature and seeing more successes and fewer failures in terms of product launches.'

He added that it was up to the venture capital business to be "smarter" and stressed the investment picture is improving. 'Pharma companies are more receptive to acquisitions. This trend will increase, which will bring in more institutional investors.'

However, the sector would continue to see relatively few flotations as small biotech shares are generally 'illiquid' and are therefore unpopular with professional investors, he said.

Meanwhile, a report by The Financial Times Research Centre has said that the world's biggest pharma companies have seen their shares rise modestly over the last five years but have seriously lagged behind the stock market performances of other industries.

According to the report, the FTSE All-World index, made up of the world's biggest companies in all major industries, enjoyed a 40% stock market rise over the five years to this September. But the Pharmaceuticals Index, comprising top global pharma companies, went up by a modest 10% over that time.

The report says: 'Measured against the FTSE All-World stock index, the pharmaceutical sector has experienced a rough ride over the past five years. The indices closely shadowed each other until mid 2003, when investor sentiment turned against big pharma. The underperformance gap has increased steadily since then.'

The sector's relatively slow stock market progress coincides with separate FT Research which shows big pharma companies are increasingly buying smaller biotech companies, agreeing joint ventures or licensing-in drugs because of the huge cost of developing medicines.

Shifting away from over-reliance on in-house R&D makes sense, but brings new risks too, the report says. Academic researchers now try to commercialise their work at a much earlier stage, although the majority of biotech start-ups fail, it emphasises.