Critical mass key to investor support: Vernalis CEO

Small biotech companies face investor resistance to mergers and acquisitions, a leading British biotech CEO told attendees at a briefing in Melbourne on Tuesday.

Simon Sturge, CEO of UK company Vernalis, said many investors were not interested in mergers as they believed their opportunities to exit their investments as planned would be compromised.

But companies are looking at mergers and acquisitions as a way of building up R&D portfolios and creating more sustainable businesses. Out of more than 1800 biotech companies in Europe, only about 20 were making enough cash to be self-sustaining, Sturge said.

"Management, investors and collaborators are all pulling the company in different directions," he said. "But building a degree of critical mass long term has to be good for all players."

Sturge has had plenty of recent experience with mergers. Last year his company RiboTargets merged with British Biotech, and in September, the combined company merged again with the Vernalis group, taking the latter company's name.

The merger was not without its costs -- the number of employees has halved from 271 to 135, and the number of products in pre-clinical and clinical development has gone from eight to four. But rationalisation of the facilities and infrastructure has resulted in a 40 per cent savings in the cost base, Sturge said.

And with US$85 million in the bank -- enough to last for around three years at the current burn rate -- and a market capitalisation of US$195 million, the company is getting to the size that will attract the interest of investors.

"Undertaking further deals in the next six months will be the crucial part," Sturge said.

Sturge is in Australia to look at potential opportunities, he said. Last year, the company acquired a neurosteroid developed by Monash professor Colin Goodchild, which is now in Phase I clinical trials for use as a treatment for pain in cancer patients. The deal was brokered by BioComm with Monash Commercial.

"We have the perception that science [in Australia] is exceptional," he said. "But is Australia a good bridgehead into other parts of the Asia-Pacific? We're exploring that."

The briefing was hosted by the BioMelbourne Network and BioComm.