When on the 8th January 2018 the news travelled that Novo Nordisk made a €2.6bn bid for Belgium’s Ablynx, only to be leapfrogged a few weeks later by the € 3.9bn Sanofi bid, we immediately pictured the next newspaper header: “Belgium loses another crown jewel”. Quite predictably, such a take-over of a biotech company by a larger entity, especially when originating from another country, is framed in the press as a highly deplorable event: “We lose know how, we lose all the money that has been invested. This acquisition is only in the best interest of a few shareholders; investors always want the quick buck instead of patiently growing the value of the company”.
Where does this negative sentiment have its origins, and is it always justified?
Setting the right expectations
The first question to be asked is whether it is a realistic expectation that all biotech companies can and should stay independent. In our last article ‘How to build a European Amgen’ we described how many hurdles a start-up biotech must overcome to reach that ultimate stage: to become an independent, stand-alone megacap biotech company. These hurdles are pretty high; it takes an exceptional CEO, best-in-class technology, a huge amount of capital, and favourable market conditions to reach this goal. In addition, talent and capital are scarce and competition for these limited resources is fierce. This all explains why, out of the thousands of biotech start-up companies, only a handful become the proverbial next Amgen. It also explains why only the larger markets can generate multiple Amgens.
Is the single and ultimate goal the creation of Amgens?
The creation of an independent, self-sufficient biotech company is a highly desirable event in all aspects and it deserves every reasonable support. Such companies create high-quality diversified employment, provide on-the-job training opportunities, generate income for service companies in the ecosystem, generate tax revenues for the government, etc. However, it seems that everybody (the general audience, the public funding bodies, the journalists) see only the next Amgen as a success and everything else as a failure. Given the scarcity of those independent companies, it would mean that more than 99% of the biotech companies are to be seen as a failure. This is where we vehemently disagree with current sentiments.
Don’t demonise the next acquisition of a biotech but celebrate the success. Every acquisition shows that created value has been recognised and allows talent and capital to replenish the ecosystem. - Christina Takke, V-Bio Ventures
Is the acquisition of a Biotech company necessarily a bad thing?
To answer this question, we should take a broader look at the ecosystem level. Biotech companies in an industrial ecosystem are like trees in a forest. Logging a tree can contribute to the sustainability of the forest in which it grew, as long as it is done according to sound forestry management principles. A cut-down tree is a source of wood for making nice furniture and it leaves a glade in the forest allowing seedlings to grow. Similarly, the acquisition of a biotech company is a source of new opportunities and contributes to various aspects of a successful environment: circulation of talent, circulation of capital and creation of wealth.
Circulation of talent
People with a start-up and entrepreneurial mentality often don’t fit into a larger, less flexible organisation. After the acquisition of a small biotech company by a larger entity, these talented people will eventually leave and look for new opportunities or identify and create new opportunities. The valuable experience these individuals have gathered in their previous jobs, and their extensive networks, will be crucial to the success of the next start-up company. Circulating talent helps the next generation of biotech companies to grow; many of the most successful US biotechs are founded by biotech veterans.
Circulation of capital
Biotech start-ups are financed to a large extent by venture capitals, often alongside public grant money. VCs know the nature of this high-risk game and are prepared for cases where an audacious yet sound scientific idea does not pan out and the investment goes down the drain. At the same time, they cherish the acquisition of a company in which they invested, which brings them a return on their investment. In the long run, success of the financial backers of a biotech company allows them to raise new capital and use it to support new start-up companies, letting new seedlings grow in the forest.
Creation of wealth
People at key positions in biotech companies often gain personal wealth in the case of a take-over, e.g. through monetization of stock options. Although European biotech rarely generates billionaires, the gained personal wealth is often sufficient to give individuals the independence to follow their passion and search for the next invention/technology they want to engage with. Perhaps invest in as well. The ecosystem can profit from recycling both talent and capital.
All these above factors have two things in common: they get accelerated when small/ medium size companies are acquired and they all contribute to the thriving of the ecosystem as a whole.
We need to be bold and dare to create large companies, supported by the new generation of crossover funds starting to appear in Europe. We also need to appreciate the crucial importance of acquisitions of smaller biotech companies, supported by public (grant) funding and venture capital, in stimulating the growth and success of an ecosystem.
Christina Takke, Founder and Managing Partner of V-Bio Ventures: “Don’t demonise the next acquisition of a biotech but celebrate the success. Every acquisition shows that created value has been recognised and allows talent and capital to replenish the ecosystem.”