Swiss Biotech’s Funding Quandary
Switzerland has been long-established as one of the world’s most innovative countries and boasts a thriving ecosystem of startup biotechs. However, a slow and complex funding cycle means that an increasing number of Swiss biotechs are looking towards the US for funding; a trend that risks destabilising and weakening the innovative domestic ecosystem in the long-term.
“Access to funding is critical for innovative biotech startups, and the Swiss funding landscape is very fragmented”
“What I would highlight as the main differentiator between the Swiss startup environment to that in the US is the funding landscape. Access to funding is critical for innovative biotech startups, and the Swiss funding landscape is very fragmented,” says KPMG’s head of life sciences for Switzerland, Martin Rohrbach. “We have lots of VCs and private equity players, the government plays a role, but it is all fairly disorganized and there is an immense level of competition for capital.” Rohrbach goes on to say that by comparison the US has “very well-established and very large funding networks in the biotech community, so while there is still a lot of competition, there are many more potential sources of capital to pursue.”
Nic Alexakis, CEO of the Swiss Biotech Association, pinpoints that “there is still a bit of a gap in the funding cycle for start-ups and it can be a bit difficult to get the ball rolling; since we do not have the same VC culture here as in the US for instance, companies must find a private lead investor first, then a few co-investors – either individuals or companies – to get them to an IPO.” That said, Alexakis indicates that “we have about 400 biotech companies operating in Switzerland at various stages of development, and in the last two years we have seen a lot more startups – and the financing environment has always been fairly strong, with well over CHF 400 (USD 415) million in 2015.”
Once companies reach the IPO stage however, startups face the disadvantage that “Europe lacks a large, dominant stock exchange for biotech equity financing and this has an impact on the biotech community across Europe,” according to Juerg Zuercher, EY’s biotech leader for the EMEIA region. Relative to the US with the NASDAQ and NYSE as the two big exchanges, and the vast majority of biotech listings taking place on the NASDAQ, “the situation in Europe is more fragmented, with biotech financings taking place in many places – from the Scandinavian stock exchange, to the LSE and AIM in London, the various affiliates of Euronext and not least the Swiss Stock Exchange (SIX)… this makes it very difficult for analysts to follow the biotech sector, as they have to keep track of what is happening on each individual exchange.”
As a result, Zuercher indicates that “a biotech company’s decision regarding where and how to obtain financing can be complicated, as very rarely do we see IPOs in Europe generate the big proceeds regularly seen on the NASDAQ or NYSE. Generally, French companies will go to the Euronext in Paris, and German companies to Frankfurt. Of course, there are exceptions to the rule, with the LSE, SIX, and the US exchanges all worth considering.”
In the long run, this diversity of options may pose a potential risk for the Swiss life science ecosystem as a whole according to Zuercher, particularly in light of several Swiss biotechs – including the high profile CRISPR Therapeutics and AC Immune – having recently chosen to go public on the NASDAQ rather than the SIX. While he admits that “capital is mobile, and for the foreseeable future, even if excellent scientific and innovation activities are being carried out in Switzerland, innovators will also be able to raise capital somewhere else,” for the Swiss financing ecosystem “this could become problematic somewhat sooner, as the SIX risks losing some of the appeal it has no doubt had in the international biotech community in the past.” He concludes that this trend towards US based financing does pose “a long-term risk: if more and more Swiss startups end up with predominantly American investors, some of them may be pressured into relocating to the US,” which could serve to weaken the Swiss innovative ecosystem.
Writer: Alexander Ackerman