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Leveraging larger capital pools in Europe

On 5 February 2018, the 4th annual Biotech and Money/Medtech and Money World Congress opened with a keynote panel discussion on European capital markets. The discussion was led by Clive Cookson, Science Editor at the Financial Times, and included: Chandra P. Leo, Investment Advisor at HBM Partners; Sander Slootweg, Managing Director at Forbion Capital Partners; Hubert Birner, Managing Partner at TVM Capital Life Science; Tim Haines, Managing Partner at Abingworth; Naveed Siddiqi, Partner at Edmond de Rothschild Investment Partners; Mårten Steen, Partner at HealthCap.

The panel commenced on a positive note for European biotechs, with Siddiqi pointing to the large funds that have been raised over the last two to three years. Even though the public markets in Europe are more challenging than in the US, for Siddiqi, there are signs that these markets are maturing.

However, the panellists acknowledged that the US is still the go-to destination for most companies due to the greater depth of capital pools available there. “All roads still lead to the US, either through a de novo listing or a dual listing,” said Haines. “Most European public companies have had to dual list to really get access to significant capital.”

There are generally two approaches to going public for European life sciences companies, explained Birner, the first of which is to list on a European exchange and then later list in the US. A potential risk of this approach is that companies may be unable to access the amount of capital they need during follow-on finance raises in order to grow their businesses as they would like. The second approach is to go straight for a US IPO, which could provide the advantage of raising more capital earlier on in a company’s development. The latter approach may be more appropriate for a drug discovery or drug development-focused company while companies with a broader or more balanced business model, such as a service business element, may be able to succeed through the former approach, added Birner.

Although the chances of achieving a higher market cap and higher liquidity may be greater through a US listing, that is not to say that it is not possible in Europe or that a US IPO is without its own challenges. Aiming for a US listing requires a significant amount of preparation, including lengthy non-deal roadshows to ensure that companies are on the radar of US investors, said Slootweg.    

Can European public markets catch up with the US?

Despite the emphasis on opportunities available to life sciences companies through US capital markets compared to those in Europe, when the panel was asked whether we should give up on the idea that European markets will ever catch up with the US, the resounding answer was ‘no’. “We need public markets to build sustainable champions for the benefit of Europe and to maintain a competitive position,” said Haines. “We have all the attributes to be successful here, but we are still constrained by the public markets. Venture will do its part but without access to hundreds of millions of dollars for each individual company, we will not be able to keep building this industry.”

One way of helping to foster growth is to highlight examples of companies that have been successful in Europe, and also share this messaging with US investors, noted Steen. “Success breeds success and it’s important that we communicate success stories that we’ve seen,” he added.

How is Chinese capital impacting the life sciences sector?

The panellists also noted that a growing interest in European life sciences companies from Chinese investors could have the potential to significantly influence the finance landscape over the longer term. However, the panellists added that Chinese capital is largely directed towards later stage assets at present, and that there is currently less interest in higher risk, earlier stage opportunities.

What is exciting investors?

Cookson concluded the discussion by asking each of the panellists about the science that excites them the most right now. Cell and gene therapies, rare diseases and orphan drugs, as well as the immuno-oncology space were among those highlighted by the panel. “We live in a time where we have a really high innovation pace and we see breakthrough technologies that make it possible to go after the root cause of disease,” said Steen. “There’s still a lot of unmet medical need that we need to tackle, but we need new tools to do that. I think today we are seeing these tools become reality.” Meanwhile, Leo drew attention to what he referred to as perceived ‘boring' investments. As he explained, there remain low-hanging fruits that may not involve breakthrough technologies but that can still translate into real benefits for patients.

Find out more about the Biotech and Money/Medtech and Money World Congress 2018, and stay up to date with information about the 2019 World Congress here.

Louise Fordham
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