America’s love affair with biotechnology is well charted. In the last three years it has been the best performing investment sector, supported by the success of smaller research-led firms and the continued growth of some of the industry’s bigger hitters.
The S&P benchmark that tracks biotech shares registered a 70% gain last year and is up 20% already this year.
However, this enthusiasm has so far failed to cross the Atlantic. In fact, the story in Europe has been a markedly different one.
With fewer success stories, and a track record of consuming cash rather than generating investment returns, the European biotech sector has been viewed with a mixture of suspicion and cynicism.
The warmer welcome in America, which is reflected in a far higher stock market rating, will no doubt have figured in the thinking of management at Britain’s Oxford Immunotec (NASDAQ:OXFD) and GW Pharma (LON:GWP), which took Nasdaq listings last year.
Meanwhile, UniQure, a Dutch specialist in gene therapy, chose the US for its main listing, raising US$81.9mln in the process.
The pull is clear, but there are indications that European investors are starting to wake up to the potential of and invest in biotechs.
It is interesting to watch the performance of Nanobiotix (EPA:NANO), the Euronext-traded developer of nano-technology that could revolutionise radiotherapy.
Okay, strictly speaking this is not biotechnology, or biopharma. But the share price movement reveals a significant appetite for healthcare-related stocks.
This is particularly true if they offer a potential breakthrough cancer treatment that has a huge addressable market as Nanobiotix does.
It has more than tripled in value in the last three days; this, after it announced an earlier than anticipated launch of the first product from its NanoXray platform.
What’s more, the volume of shares now being bought at increasingly higher prices points to institutional demand, dealers said.
Of course, one isolated example of this kind doesn’t suggest a trend.
The Stoxx Europe TMI Pharmaceuticals & Biotechnology Index hints at an upsurge in interest in biotech.
In the last year it was up 22% and in the past month it has advanced 3%.
However, it is worth pointing out that the Stoxx benchmark and the FTSE 350 Pharmaceuticals & Biotechnology Index here in the UK are heavily influenced by the performance of their mega-cap constituents from traditional pharma.
So, they aren’t reflective of the performances of the likes of Allergy Therapeutics (LON:AGY), Skyepharma (LON:SKP) and Medgenics (LON:MEDG), which respectively have advanced 65%, 63% and 35% in the last month.
Scrutiny of Britain’s index of pharma and biotech stocks reveals there were twice as many winners than losers last year.
One barometer of sentiment is provided by the capital markets – and more specifically the willingness of investors to part with their cash to back biotech companies.
And if we judge the market on that basis, things do indeed appear to be looking up.
On Wednesday, Summit Corp (LON:SUMM), which is developing a treatment for the muscle wasting disease Duchenne Muscular Dystrophy and an antibiotic of C.difficile, revealed it was in the process of raising up to £22mln.
This is the equivalent of half the company’s market capitalisation and is around four or five times more than a company of Summit’s size might have expected to extract from the market say 12 or 24 months ago.
It seems the mentality of investors is changing as they appear willing to properly fund companies such as Summit, which now has two-years' worth of cash, or enough to take its two lead compounds through phase-II clinical trials.
Shrewdly, Summit chief executive Glyn Edwards chose to tap into the enthusiasm Stateside for the biotechnology.
“We have gone for a hybrid here,” Edwards told Proactive Investors.
“We have brought in UK institutions in to this fundraise, but we have also got a substantial contribution from US expert healthcare funds.
“That’s really allowed us to get this fundraise underway with some really high quality investors.”
Possibly even more eye-catching was the news that allergy firm Circassia is planning to tap the market for around £175mln when it comes to the market next month.
As broker Cenkos points out, this would make it one of the largest IPO fundraisings globally for a “long time”.
Circassia’s co-founder Steven Harris believes investors are viewing the sector less sceptically.
“There has been too much focus on the failures and not enough on some great success stories,” he told the Financial Times recently.
“There is a willingness to invest in the right stories where trials are well advanced and the risk is less.”