Sinclair Pharma: How Low Risk Can You Go?
Sinclair Pharma was the only health care firm to have floated in Europe in 2003; investors liked its very low risk model: take little development risk then partner for marketing. Yet in taking the specialty model to its extreme, Sinclair's challenge will be to secure enough valuable products to keep investors interested, particularly if European markets warm up and begin to embrace a new, stronger generation of R&D focused firms.
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Since its IPO in March 2004, Ark Therapeutics has been watched closely, as the first European biotech to float in nearly three years. Critics point to a lack of strategic focus, claiming the broad collection of products in the firm's portfolio, including a device, drugs and even a diagnostic, will be difficult to exploit in a small company with limited resources. Yet diversity apparently proved an attractive feature-particularly to generalist investors who see the company as a spread risk bet on biotech. It has also allowed Ark to hide the far higher risk associated with individual follow-up programs, where most of the firm's value lies, behind a sure-bet marketed product.
The flotation of UK biotech Ark Therapeutics, likely followed closely by Switzerland's Basilea, suggest Europe's public markets are waking up. It's too early, as yet, to call the IPO window open, though. And the string of European hopefuls monitoring Ark's progress and hoping to follow in its wake will have to contend with investors who are far more discerning than during the last upturn. Late-stage products remain attractive, but there are few fixed rules.
Discovery research is an ever more difficult investment to justify, so companies are placing greater emphasis on mining discoveries that have already been made but whose real value remains unexploited. Big Pharma, in part inhibited by habit and current infrastructure, has not moved aggressively in the new direction-but the jumpstart model now dominates small-company strategies and will increasingly translate into the rest of the industry.