THE recent decision by the Midlothian-based biotech group PPL Therapeutics to scrap a £42million investment is a stark illustration of the struggling fortunes of Europe’s biotechnology sector.
Against the background of the first shrinkage in Europe’s biotech sector in ten years, PPL saw its annual loss widen by more than 40 per cent to £20.1m.
That, coupled with production delays in its recAAT treatment for emphysema, spelled the end o
f hopes for the manufacturing plant at Gowkley Moss - and with it ended the hopes of securing 200 highly-skilled jobs for Scotland, which has played a leading role in Europe’s biotechnology sector.
PPL, like its peers, works in a flagship sector where turning promise into profits can take up to 20 years.
The latest annual review of the sector in Europe shows its first retraction in a decade, forcing cash-strapped companies to slash costs and axe staff after knowing little other than rapid growth.
Biotech company valuations have also been decimated, with the average fall between 50 and 60 per cent. In the case of PPL, its value has fallen by 80 per cent over the past year to just under £6.5m.
Using the benchmark of the more established US biotech sector, the report concludes that the current downturn is deeper than past blips. But the report’s author, Dr Glenn Crocker, of the business services group’s health sciences team, believes Europe’s biotech future is still very bright.
According to the report, Britain is Europe’s leading biotech player, commanding about 43 per cent, or £6.6bn, of the sector’s capitalisation, and about 37 per cent, or just under £3bn, of its sales.
Dr Crocker said the downturn had been most severe in Germany and followed a flight from the sector by risk-averse investors in the wake of the bursting of the technology bubble.
As a result, biotech indices are down 80 per cent from their 2000 peak and many of Europe’s 1878 listed and unlisted companies have been left starved of funds.
Dr Crocker said: "We’re seeing a lot of companies cutting costs in order to make the cash that they do have last longer... and because companies are refocusing and drawing in their horns, revenue numbers are going down.
"I think we will continue to see either shrinkage in 2003 or flat. We won’t see any growth."
Venture capital funding for the biotech industry held up better in 2002 than stock market investment, with £785m going into the European industry, the third highest year ever.
Biotech firms received more than a quarter of all venture finance; roughly the same amount as went into software.
But a lot of that cash went into funding late-stage private companies, which hoped to float but had to delay plans for initial public offerings (IPO) given the weak sector sentiment.
The continued funding of larger private firms has, in turn, deprived many early-stage companies of finance and the proportion of all biotech venture capital going to start-ups tumbled to just 35 per cent in 2002 from 70 per cent in 2000, Dr Crocker’s report states.
Despite the current woes, Dr Crocker sees a promising future for the European biotech sector.
The number of profitable companies is rising - reaching four in the UK. The average loss per public company has halved over the past four years, reaching £5m.
He said: "The size of the European biotech industry is roughly equivalent to that of the US around 1994/5, a time when the sector was going through another of its down cycles.
"Since then, the US industry has grown more than three-fold. This is the potential future that awaits the European industry when the current storm subsides."
