Analysis shows Swiss biotech index outshines Nasdaq counterpart, but coronavirus challenges are universal
In 2004, the Swiss Stock Exchange spawned its biotech index — the Swiss Bio+Medtech Index (SXI) — as the life sciences sector, headlined by large successful biopharma companies Roche and Novartis, took center stage. In the last five years through January 2020, SXI has produced returns of 59%, outperforming both the Swiss Performance Index (31%) and the NASDAQ Biotechnology Index (35%), a new analysis shows.
The European country, fabled for its neutrality, has become something of a hub for biologic and cell therapy manufacturing, with companies like Biogen, Novartis and Merck investing in infrastructure. Last year, pharmaceutical and biotechnology products accounted for 40% of total Swiss exports.
“Some people would argue Switzerland is an expensive place to be,” said Swiss Biotech Association CEO Michael Altorfer in an interview.
But the high rate of automation in the country reduces the direct cost of labor, there is a stable political environment, the recent overhaul of the tax system favors R&D investment, and Switzerland’s free trade agreements with places such as China and South Korea are all factors that make it an attractive region for the life sciences industry, he suggested.
In 2019, global IPOs in the biopharma sector hit 57, a fall from the high of 77 a year earlier. Of the class of 2019, 11 were European — but not a single Swiss biotech company went public.
Unlike the United States, where early-stage and indeed preclinical companies are increasingly taking the plunge, companies in Switzerland tend to take that route when they are in the latter stages of development, or indeed stick to privately raising capital, Altorfer said.
ADC Therapeutics, for instance, was considering going public but elected instead to do a large private round — CHF 101 million — instead.
In Switzerland, the total value of financings (minus IPOs) in 2019 fell short of the last two years coming in at CHF 1.2 billion, but funding has hovered in and around the CHF 1 billion mark for the last three years. Investors have also reaped generous returns, for instance, via M&A — in 2019, for instance, the combined value of deals involving Therachon, Novimmune and Amal Therapeutics also crossed CHF 1 billion.
Biotech investors tend to reinvest in Switzerland — and about half the investment comes from foreign investors, Altorfer said.
“So these are not people that love their country or people that are investing because their friends are running companies,” he quipped. “But still, it is remarkable that large institutional investors shy away from this sector (in Switzerland).”
With the coronavirus pandemic, things are expected to get a bit hairy over the course of 2020 for industries across the globe, and Switzerland’s life sciences sector is no exception. But in general, the industry is relatively immune to global market friction because well, medicines are not iPhones, and biopharma R&D takes years to reach fruition.
In Switzerland, much like elsewhere, biopharma companies are encountering challenges in starting and conducting clinical trials and patient recruitment.
“It would be stupid if I proclaim that we will get through this without delays,” Altorfer said. “Some companies are lucky because they’re running clinical trials in countries that are not as affected … but in general, we have to expect a significant delay of, I would say, at least half a year — and that’s an average figure.”
“How will this result in distressed companies that need to negotiate financing rounds, based on a lack of data, based on a weak position? Of course, I cannot anticipate the situation for all these 300 companies (in Switzerland) what it will look like and how it will be in each and every case.”