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Biotechnology industry Switzerland: runny nose or flu?

Many biotechnology companies find it difficult to approve their products. (Illustration by Karsten Petrat)

Many biotechnology companies find it difficult to approve their products. (Illustration by Karsten Petrat)

A field of listed Swiss biotech companies offers a picture of a large hospital bridge. This is how interested investors should behave.

Werner Grundlehner

The small biotechnical company Obseva is not a representative of the local industry; However, last week's announcement is archetypal for the Swiss companies listed. The observatory announced that an important study for the fertility drug nolasiban, which needed approval, had failed. Obseva shares lost up to 50% as a result.

The local biotechnology industry likes to call itself dynamic – it shows no signs of it on the Swiss stock market. Although the number of companies, the number of employees and the amount of investment have been steadily increasing over the years, several listed companies usually have a tragedy. The Nasdaq Biotech Index – a global industry barometer – has been moving aside for the past 18 months, but for many local companies, it has seemed bleak during this period: Basile, Cosmo and Santhera shares have sold about 40% of their market value Polyphor papers have even lost nearly 80 %.

Negative déja vu

Biotechnology investors had an Obsession report. For example, in May, Polypho discontinued the recruitment of patients to develop antibiotics to treat pneumonia they acquired at the hospital due to side effects. In July, Polyphor completed its studies. For example, Santhera: A small biotech company has long relied on Raxone, a treatment for Duchenne muscular dystrophy, a hereditary disease that results in muscular atrophy. However, the European Medicines Agency rejected the request for authorization in late 2017 and early 2018 due to insufficient information. The US regulator also required another study for approval. Santhera had to switch from bridges to loan and sell licenses.

At Cosmo Pharmaceuticals, the 2018 U.S. Admissions Committee identified gaps in regulations for the company’s most important product. The company responded by diverting to the areas of medtech, oncology and direct online sales. Nearly a decade ago, a major setback in Basilea, which was indeed caused by an approval partner but not yet ironed out.

Given these developments, it begs the question of whether Swiss companies lack the knowledge to effectively conduct clinical trials and market approval – and whether they are headed by the wrong executives: Drug development requires different skills than obtaining market approval and becoming commercially successful. Bob Pooler of analytics firm Valuationlab does not see any fundamental problem: "Companies like Basile, Cosmo and Santher have proven with certain applications that they have the ability to bring drugs through approval." Cassiopea and Molecular Partners also had the third and final phase of clinical trials successfully completed.

Pooler also does not believe that Swiss companies misjudged the requirements of the US regulator. But many medications are rare treatments for diseases with limited data, which increases the risk. In addition, product access and policies have changed, resulting in delays.

A small field

Sales by the sale of Actelion, the industry has lost its leading role, with smaller, more promising companies often taking over companies looking to fill their pipeline. "The Swiss biotechnology industry has already become quite small. This means that if two or three companies have to deal with major shortcomings, that affects the overall picture," says Paul Verbraeken of Research Partners. Failures are part of the usual biotech business, there are always delays, and some drugs have never been marketed.

Is the decline in biotechnology stocks a consequence of the lack of attention on the Swiss stock market? Talking to local biotech executives, a Nasdaq technology exchange would rate their company higher. "Most of them probably would," Pooler says. Investors' appetite for risk is higher in the US market and investors can better appreciate the value of the pipeline. US investors, on the other hand, are less "obsessed" with breaking and less worried about capital cuts. Nasdaq has been successfully marketed to European companies. In addition to Shield Therapeutics, Geneuro, AC Immune and Crispr Therapeutics, several Swiss biotech companies have been listed exclusively by Nasdaq in recent years. Santhera and Cosmo are looking for another list in the US.

Verbraeken cites two reasons for poor performance. One was that American politics became aware of the price of drugs. Given that the US is a very important market, lower prices can lower its margin, which negatively affects the industry as a whole. Second, investors were looking for dividend stocks because Biotech is out of the question. Pooler attributed the disappointing stock performance to a lack of transparency, to short-term local risk-averse investors and to some major shareholders who downplayed their stakes.

Successful funds

But as companies have prospered and investors have not noticed, there must be some attractive investment opportunities in the sector. Verbraeken like Basilee shares and Molecular Partners. Basilea has already successfully developed medicines and brought in revenue. The company also has three oncology projects. Molecular Partner titles are a bit more risky, as goodwill depends on 85% of an individual product not yet approved. The chances of this product being approved in mid-2020 would be good. Pooler sees the two companies at a turning point for the better – he believes the same from Santher, Newron, Cosmo and Cassiope.

For the average investor, direct biotech investments are laborious and too risky. Here the stocks of investment firms are offered as promising alternatives. For example, HBM Healthcare and BB Biotech have clearly outperformed the industry and the overall market in recent years. However, these Swiss investment vehicles are mainly engaged in foreign companies and partly in non-listed companies.