VC? Some Biotechs Tap Friends Instead

ZURICH/LONDON (Reuters) – It helps to have rich friends — especially when you are running a biotechnology company in Europe.

As traditional sources of venture capital and public equity funding dry up in a global flight from risk, some young biotech firms are turning instead to an informal network of high net worth individuals.

Switzerland, with its clubby business environment and long history of drug research, is leading the way but rich private investors are also becoming a force in Germany.

Geneva-based NovImmune — a specialist in developing drugs to treat autoimmune disease — raised 58 million Swiss francs ($57.3 million) in just such a private financing round in 2006.

“It was initially a challenge, but no longer,” NovImmune Chief Executive Jack Barbut told Reuters.

“We couldn't go and mix venture and high net worth individuals. We had to go either one way or the other way, so we explored both.

“And in the end — to my surprise, and I think it was probably linked to what stage we had reached — the attraction to the high net worth individual network was sufficiently compelling.”

SPEEDEL LEADS WAY

Basel-based Speedel — now listed with a market valuation of around $500 million — is another company that skipped venture capital, winning support instead from rich individuals including former Roche chairman Fritz Gerber and Nestle vice-chairman Rolf Haenggi.

The move left founder Alice Huxley with a firm hand on the tiller at the cardiovascular disease specialist and a chunky 21.5 percent stake, even after flotation.

AmVac of Zug is also exploring private backers to finance its work on new vaccines, according to industry sources. Officials at AmVac, whose scientific advisory board includes former Pfizer CEO Hank McKinnell, declined to comment.

The appeal of tapping individuals is twofold: they tend to take a longer-term view of their investment, and they leave management with control over the company's board and strategy.

Investment bankers say they are a feature of the landscape as market conditions deteriorate, leaving venture capital groups sitting on problem assets with no obvious exit.

“It's really very ugly now, so people are obviously looking at alternatives,” said one London-based banker.

VENTURE CASH DOWN 21 PERCENT

Venture funding for the biotech sector in Europe plunged last year by 21 percent to 1.2 billion euros ($1.9 billion), according to consultants Ernst & Young.

“People are looking for reasons not to do something. It's not as if they're looking for opportunities, but rather for ways to get out of it, because once you're in it, you have to stay,” said Hans van den Berg, a founder of Venture Partners in Zurich.

In the past, venture capital groups sought an initial public offering to make a return on their money. But with the public equity markets shut, trade sales are top of the list today.

Sometimes the M&A option works; other times it doesn't.

Germany's Jerini this week successfully sold out to Shire for $520 million. Yet, three days earlier, Scottish biotech company Ardana went into administration after failing to find a buyer.

Private individuals remain the exception rather than the rule but their weighting in the financing pot may be on the rise in those places with rich industrialists ready to reinvest.

In Germany, Dietmar Hopp, co-founder of software group SAP, has emerged as a major player in the biotech space, investing in a young firms like Immatics.

Also active on the German scene are brothers Andreas and Thomas Struengmann, co-founders of generic drugmaker Hexal, now part of Novartis, whose interests include a majority holding in anti-infectives firm Aicuris.

By Sam Cage and Ben Hirschler

(Additional reporting by Douwe Miedema in London; Editing by Rory Channing)