Life Sciences Outlook 2012 Dutch biotech companies ... - NautaDutilh

Life Sciences
Outlook 2012
Dutch biotech
companies:
from start-up
to exit

Preface.
NautaDutilh and Niaba reached out to professionals
in the academic, investment, government and
business communities. The result is the present
outlook, which brings together the perspectives
of these different professionals. One finding in
this outlook is that the interactions between those
communities are becoming more frequent and
more intense. Better results often start with a better
understanding of the various interests, roles
and limitations; hopefully this outlook can make
a contribution in this respect.
This survey and our series of interviews confirmed,
first of all, that the Dutch biotech industry is densely
populated with highly professional, committed and
open-minded individuals.
Whether they are in a lab, a start-up or a more
mature company, or whether they are providing the
money or regulating the market, people in the life
sciences and biotech industry are all well aware that
the ambition to create new drugs, products and
therapies should be nurtured and promoted.
While there is a natural tendency to focus on the
science and the potential benefits, the people
involved do not forget that it is also a business, and
that it is often the business decisions that determine
success or failure.
NautaDutilh and Niaba wish to thank all of the
many professionals who took the time to share their
valuable insights.
The NautaDutilh and Niaba team members
responsible for this outlook are:
NautaDutilh Netherlands Life Sciences Team:
John Allen
Christiaan de Brauw
Paul van Dongen
Bas van Hunnik
Bart van Kempen
Niaba:
Jan Wisse
Irma Vijn
Annika van Rosmalen
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
3

Table of
contents.
Preface 3
Introduction 6
Key developments in the life sciences world 6
The general economic climate 7
1. Start-up 9
Academic institutes as the Petri dish
for biotech companies 10
Too small, too early? More structure
needed for spin-offs? 11
Matching the guy in the lab with the suits
and ties 14
Funding it all: seed capital 15
The role of government 16
2. Investing 19
Separating the wheat from the chaff 19
The big squeeze 20
Big Pharma steps in 21
Weeding out the nonsense 22
The view from the receiving end 24
Towards a symbiotic relationship 24
3. Strategic co-operation 27
Sharing a future together 27
A lack of ambition or healthy realism? 28
Exceptions 29
How to manage the relationship between
biotech and Big Pharma 29
Implications 30
4. Exit strategy 33
Sale to Big Pharma as a much preferred
exit route 34
The end of the line for management 35
“An IPO? Can’t get it done!” 35
But what if? 38
Conclusions 40
Methodology 42
About NautaDutilh 44
About Niaba 45
Key contacts 46
Disclaimer 51
Room for notes 52
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
5

Introduction.
This outlook and the survey on which it is based
aim to identify and describe current trends and
developments in the Dutch biotech sector.
The survey took the form of a ‘self-assessment’
by approximately 90 key industry professionals.
Part of this assessment concerned the relevant
strengths and weaknesses of the Dutch sector,
compared to competing international biotech
clusters. NautaDutilh and Niaba were also keen
to collect industry views on what the role of the
government is and should be, and where there is
room for improvement.
This report is structured to reflect the life cycle of a
biotech company, from start-up (Chapter 1) to further
financing (Chapter 2), strategic collaborations and
alliances (Chapter 3) and, finally, exits (Chapter 4).
While the companies addressed in this outlook are
mainly in the biotech sector, a significant group of
medical devices and medtech companies also took
part in the survey. Where relevant we have tried to
address the specific situation of those companies.
We start the outlook with a brief overview of the
effects of the current economic climate and other
developments facing the life sciences industry at
large, and biotech companies and their stakeholders
in particular.
Key developments in the life
sciences world
Today, the stakeholders involved in biotech
companies (whatever their stage of maturity) should
take a number of developments into account:
• Focus on healthcare economics: The pressure to
curb ever-increasing healthcare costs is affecting
everything and everyone, from government
budgets and healthcare insurers to pharmaceutical
and biotech companies that develop new drugs
and therapies. This is expected to bring about
a stricter selection at the entrance to the innovation
pipeline. Only innovations that promise to deliver
significant improvements in healthcare benefits or
cost reductions will receive funding and ultimately
succeed in entering the market, whereas in
the past there was more room for therapies or
treatments that brought marginal improvements
or merely provided ‘more of the same’. As a result,
more and more companies are now focussing
on areas where large healthcare benefits may be
expected, such as personalized medicine and
orphan diseases.
• Changing role of government: innovation sponsor
and industry partner. In its role as ‘innovation
sponsor’, the Dutch government has identified ‘Life
Sciences & Health’ as one of nine ‘top sectors’.
The national cluster organization prepared a plan
for the sector and also drafted an ‘innovation
contract’. This contract was recently signed and
a €2.8 billion support package for the sector was
agreed upon. 1 A large part of this sum will come
from the industry. The government’s contribution
6
1) See: http://www.rijksoverheid.nl/ministeries/eleni/nieuws/2012/04/02/innovatiecontracten-ondertekend-2-8-miljard-naar-topsectoren.html

will flow through the Netherlands Organization
for Scientific Research (NWO) and various
research institutes (such as TNO). An example of
how government is partnering with the industry
can be found in its overhaul of reimbursement
policies. This overhaul has forced pharmaceutical
companies to very significantly reduce the prices
of many drugs. Furthermore, the first steps are
being made towards a system of conditional
reimbursement. This will facilitate a fast market
entry for new drugs after marketing authorisation
has been obtained.
• The ‘Top Sector Life Sciences & Health’ steering
group has formulated a dual objective 2 intended
to make the Netherlands a global leader, from a
business perspective, by 2025: “Business activity
must be growing among the fastest three in Europe
(in terms of turnover and profitability); employment,
the development portfolio and turnover from
exports must be growing faster than the European
average; and more than 10% of turnover must be
invested in R&D.”
• Struggling Big Pharma. It is hardly news that
Big Pharma faces considerable challenges in
the current environment: “From 2000 through
2010 the market value of the top 20 biopharma
companies declined by more than 30% – a loss
of an astounding $720 billion.” 3 This decline is not
necessarily caused by the present performance;
net income of these companies grew by 140% in
the same period. Instead, the drop in market value
primarily reflects investors’ reduced expectations
for the industry’s future prospects. Among the
challenges facing the industry are the ‘patent cliff’
which could wipe off tens of billions of dollars in
revenue from blockbuster drugs in the coming
years, the ongoing struggle to improve R&D
productivity, 4 the continued pressure – especially in
Europe – on healthcare budgets (leading inter alia
to policies favouring generic entrants) and everstricter
regulation.
The general economic climate
This outlook was compiled in the midst of an
economic recession, with major cuts in government
spending in the works and ongoing uncertainty in the
financial markets. This uncertainty is reflected in our
survey: 39% of the respondents think that the current
economic crisis will hit the biotech sector harder than
other economic sectors (31% think it will be hit to
the same extent), mainly through a scarcity of capital
(more on this in Chapter 2).
At the same time, some optimism clearly remains:
the number of emerging biotech companies is
expected to increase, according to 60% of the
respondents. From an international perspective,
32% and 39% of the respondents expect the role
and importance of the Netherlands biotech sector to
respectively “increase” or at least “remain the same”.
A 65% majority of the respondents anticipate that the
government’s ‘top sector’ policy will have a “positive”
(56%) or “very positive” (9%) effect on the Dutch
biotech sector.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
2) Source: “Introducing the Life Sciences & Health steering group - Facilitating the Life Sciences & Health top sector”, Cahier no. IV, p. 86 (Nov 2011).
3) Source: “Can R&D Be Fixed? Lessons from Biopharma Outliers”, The Boston Consulting Group, p.3 (2011).
4) See for example: “Changing pharma’s innovation DNA”, Bain & Company (2010).
7

1. Start-up.
Biotech is a very different game. “You don’t start a
biotech company in your basement,” as one founder
of several biotech companies puts it. The ideas on
which companies in this sector are founded only
spring to life in an environment where the proverbial
lab rats live alongside an electron microscope
worth the price of a nice suburban semi-detached,
and where stacks of permits and other paperwork
are required before one can tinker with genetically
modified organisms and radioactive materials.
In 1939, Hewlett-Packard was famously started in
a garage with a seed investment of $538, an act that
is now seen as the symbolic foundation of Silicon
Valley. In 1975, two friends needed eight weeks of
programming to create their first software product
from scratch and to subsequently generate sales of
$1 million in Microsoft’s first year in business.
In 2004, Facebook was launched from a dorm room
at Harvard and is now, eight years later, headed for
an IPO that values the company at around $100
billion. Modest conditions at birth are apparently no
impediment for tech companies to grow quickly
and flourish.
There is another element that is needed, however.
“The industry is not geared up for discovery. For that,
you need an environment where not everything is
governed by strict procedures,” says a researcher
with experience in both academia and industry.
“In my field of research, my competitors in Big
Pharma have never discovered anything,” proclaims
a (former) university researcher. “Almost by definition,
the discoveries and breakthrough innovations in
biotech come from young people with new ideas
who are employed in government-funded jobs.”
The natural place, then, to start looking for signs
of a vibrant biotech sector are the research labs of
universities and other publicly funded institutions.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
9

Academic institutes as the Petri dish
for biotech companies
The level of academic and clinical research ranks as
the fourth most important precondition for starting
successful biotech companies, according to our
respondents (see Figure 1). 5
a par with Harvard, Stanford or Beijing,” says one.
“The same is true for stem cells and vaccines. Those
areas should be the focus of the Netherlands life
sciences sector; we are world-class players there.”
The academic medical centres, all in close proximity,
with existing collaborations as well as shared
Figure 1. What are the most important preconditions for starting a successful
biotech company?
Availability of early stage / seed investment capital
84
22 20
"Entrepreneurial spirit" of scientists, management talent and
serial entrepreneurs
Quality and availability of experienced executive, business
development and commercial management
66 34 16
15 52 12
Level of academic / clinical research
54 12
9
Availability of venture investment capital
27 30
16
Availability of highly educated researchers and staff
9 14 7
Favourable regulatory and intellectual property climate
4 4
Availability of tax stimuli for both companies and investors
4 3
0 20 40 60 80 100 120 140
Weighted scores
■ Most important ■ Important ■ Also Important
Perhaps this is so because the academic quality
in the Netherlands is somewhat taken for granted.
The level of research in medicine and life sciences
in the Netherlands is generally considered as very
good among our interviewees, and in some areas
as even better. “Fundamental cancer research in
the Netherlands is of absolute world-class level, on
‘biobanks’ and patient databases, are considered
to be another strength. They are part of an
infrastructure that makes the Netherlands potentially
very well suited for the clinical adoption of therapeutic
and technological innovations.
10
5) Where respondents were asked to give multiple answers, their scores have been weighted by a factor of 3 for their highest ranking, 2 for their
second ranking and 1 for their third ranking.

The opinions of our respondents on how well this
high-quality research translates into spin-offs from
academia – in terms of both number and commercial
potential – are more mixed. While a combined
48% rate the result as “adequate” (39%) or “very
good/sufficient” (9%), an equally large number
consider it to be “insufficient” (47%). Interestingly,
respondents from government or academia often
have a favourable opinion (75% and 60% of them,
respectively), whereas investors are generally more
critical (70% answer “insufficient”).
This suggests that it is necessary to take a closer
look into the process by which scientific discoveries
are turned into business plans.
A common point of criticism is that the technology
transfer function in the Netherlands is very
fragmented – indeed, this is how the entire academic
landscape is often viewed – with each institute
running its own shop. This makes it harder and more
time-consuming for investors to scout for investment
candidates. Another commonly expressed view is
that many spin-offs from universities are too small
and are launched too early to survive, and could
benefit from maturing longer within a university.
“The number of spin-offs from Belgian universities is
much lower, but in terms of quality they are clearly
better,” says one venture capital investor. “For that
reason we are more likely to invest in Belgium than
in the Netherlands.”
Too small, too early? More structure
needed for spin-offs?
The mixed assessment of the ‘spin-off potential’ from
universities and other research institutes matches the
wide range of opinions on the technology transfer
offices (TTOs) that have been established in most
institutes specifically to manage this process. Some
interviewees are harshly critical of the TTOs and
consider them “amateurish” and, in negotiations
about the terms and conditions for the transfer of IP,
as “showing a lack of realism and a total disregard for
the enormous amount of risks others need to bear
to bring such IP to commercial fruition.” Others have
a more positive perspective and prefer to emphasize
that “most TTOs have improved a lot in the past few
years” or that “some TTOs are doing quite well.”
In this regard, the ones that are specifically
mentioned are the TTOs in Leiden and Rotterdam,
as well that of the Netherlands Cancer Institute (NKI).
A key precondition for the fostering of ideas into
successful spin-offs is perhaps quite a practical one:
there must be clarity and structure for a scientist
in terms of his/her position as a university scholar,
on the one hand, and as an entrepreneur with a
potential business, on the other hand. For example,
clarity is needed with regard to what is permitted
under employment contracts (e.g. the number of
hours to be spent on the entrepreneurial activities),
with regard to attracting outside investment and
with regard to the entitlement to IP rights. Another
point which is sometimes raised is that while existing
university facilities are usually sufficient for the
purpose of carrying out initial research, the facilities
for the follow-on phase are often suboptimal and
are not a priority for academia or, at any rate, for the
university’s management.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
11

“You don’t start
a biotech company
in your basement.”
Founder of several biotech companies
12

It is frequently suggested that technology transfer
would benefit if those few individuals who possess
both an academic track record and experience in
building successful companies could be involved
in the process. At present, those responsible are
sometimes administrators or department heads,
whose main performance indicators relate more to
the department’s smooth operation and scholarly
success rather than to entrepreneurial output.
On an institutional level, universities should adopt
valorisation as the third pillar (next to research and
education) of their existence.
Several interviewees suggested that government
funding for entrepreneurial activities in the early seed
phase should be increased, more focused and
better structured.
Given these criticisms and suggestions for
improvement, it is not surprising that in many
interviews the Flemish VIB (‘Flemish Institute for
Biotechnology’) is mentioned as a ‘best practice’
in the technology transfer of biotech that could be
emulated in the Netherlands (see box on ‘VIB’).
Adoption of the ‘VIB model’ would ideally achieve
the following:
• The ‘Netherlands Institute for Biotechnology’
(‘NIB’) would be run by a very experienced,
well-connected industry champion with a high
reputation. Its focus would be on the developing
of start-up companies, which would be ready
for a further venture capital-backed existence.
Decisions on the selection of discoveries to be
taken on board would be made – similarly to the
way VCs operate – with strong input from top ‘NIB’
scientists.
• A clear and transparent organizational framework
for scientists who seek to develop their ideas,
discoveries and innovations into a proof of concept
and start-up business. The ‘NIB’ would provide
(follow-on) research and other facilities.
• A clear and incentivising structure on IP rights and
future entitlements from the business, with a fair
distribution between the university, the researcher/
entrepreneur and the ‘NIB’/financing party.
• Universities would co-operate and possibly
compete in having their ideas validated and taken
up by the ‘NIB’. Participating universities could,
for instance, each get a fixed basic amount of
remuneration based on the overall results of the
‘NIB’, with ‘tracking stock’ or a similar device
enabling them to receive additional revenue from
companies originating from their own university.
• A focused and efficient structure which the
government could initiate by making a relatively
limited investment, starting for example at €20
million per year (e.g. for at least 5 years). This would
have the potential, within a relatively short period,
to result in a self-supporting institute, with revolving
funding, that would simultaneously serve the
policy goals of healthcare economics and of Dutch
economic development.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
13

Best practice in life sciences technology transfer: the Flemish Institute for Biotechnology (VIB).
Researchers, entrepreneurs and investors alike, many of whom have worked with the institute directly,
share a very positive opinion of the VIB: “They are a joy to work with” and “They have put in place an
excellent structure for technology transfer in the life sciences. We could just copy that in the Netherlands,”
are just two of the remarks from our interviews.
Founded in 1995, the VIB today comprises research groups from four Flemish universities. It focuses on
excellent fundamental research as well as on the translation of that research into economic and societal
value. This focus on excellence does not exist solely on paper: “The research groups are subject to tough
scientific review by peers: any bad ones are thrown out. It’s really about scientific excellence; political
manoeuvring is not accepted.” The VIB acts as a portal between these groups and the outside world;
external funding and technology transfer are channelled through the VIB to and from these groups.
“VIB has what our institutes, despite their own denials, lack: the very best Belgian scientists who search
for ideas and structure in order to spin out IP and start-ups in a very professional manner.”
VIB in numbers (2010)
• €37.5 million in funding from the Flemish regional government (56% of total funding).
• €13.5 million in revenues from technology transfer activities.
• 83 R&D or licensing agreements with commercial partners.
• Since 1997, 11 start-ups have raised €434 million in capital, roughly half from foreign investors.
• VIB start-ups employ 471 people.
• 10 publications in Cell, Science and Nature.
Matching the guy in the lab with
the suits and ties
Obviously, great science alone cannot be the single
ingredient for a business plan. An entrepreneurial
spirit among researchers is considered even more
important by the respondents to our survey (see
Figure 1). It is the ambition and the willingness to
take on an idea and to try and achieve benefits in
the very distant future, and requires a lot of stamina
and patience on the road to possible commercial
success.
Many interviewees point to an ongoing cultural
shift within academia in that respect. “When Dinko
Valerio left university and started Crucell in 1993,
that was just not done. It was looked upon as
something for people who weren’t smart enough
to ever become professors. Today you’re seen as
more of a hero when you take that step,” says one.
University researchers, particularly younger ones, are
increasingly open to exploring commercial success
for their ideas.
14

But trying to turn scientists into entrepreneurs will
only go so far. A much more fruitful approach would
be to “match the guy in the lab coat with the guy in
the suit and tie,” as one venture capital investor puts
it. To do this, according to several interviewees, it is
of crucial importance to have biotech entrepreneurs
and managers from pharmaceutical companies
who have experienced first hand what is required
to take a biotech product from start to commercial
success. The supply of such ‘guys in a suit and tie’
is said to be increasing, as former employees from
Crucell or Organon and professionals returning from
the US, for example, are available to “recycle” their
experience in new biotech start-ups. In addition,
many VCs have a network of experienced CEOs and
business development officers whom they link up
with companies if and when appropriate.
Perhaps these developments – the cultural shift
within academia and the expanding pool of ‘suits
and ties’ – explain why a remarkable 60% of our
respondents expect an increase in the number of
Netherlands biotech companies in the next two to
three years.
“Match the guy
in the lab coat with
the guy in the
suit and tie.”
As one venture capital investor puts it
Funding it all: seed capital
Ranking on top of our respondents’ list of the most
important preconditions for starting a successful
biotech company is the availability of early-stage or
seed investment capital, perhaps because this is the
‘ingredient’ perceived to be in shortest supply. After
all, the second mortgage and the contributions from
‘friends, family and fools’ will only go a short way.
In the Netherlands the number of seed-capital
investors is relatively high: “As a start-up company
you can easily visit five or six funds by bike, and
that should be enough. If your ideas are good and
you present them well, you’ll get money,” says one
venture capital investor.
The scarcity of seed capital is mentioned primarily
in relation to the point made earlier in this chapter
about the lack of maturity of university spin-offs.
“The real bottleneck is a lack of funding and freedom
to operate within universities to take an idea from
merely being a scientific hypothesis to a proof of
concept on which a business case can be built,” says
one venture capital investor. “Financing of academic
research is very much geared towards scientific
output, and not towards commercial or ‘valorisation’
potential.” Here there is a fundamental obstacle to be
overcome: “Investing in this very early stage is hardly
ever a viable activity. From a narrow financial point of
view, most money will be wasted, as most projects
will never generate any returns. But it’s no different
when building a bridge. Here the government has to
jump in.”
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
15

The role of government
“One thing is clear: the government’s role has
changed for good. The times when natural gas
revenues flowed abundantly to the life sciences
sector to sustain three ‘top institutes’ will not
return,” is what one interviewee concludes from the
government’s change of course as a sponsor of
innovation. While this could be seen as proof that
a consistent, long-term government policy towards
the life sciences sector is indeed lacking – an often
repeated criticism in our interviews – it also seems to
be accepted as ‘the new reality’: “I notice that players
in the biotech sector feel forced to co-operate more
and fight less”.
There is a plethora of government facilities through
which start-ups can obtain seed capital. One of
the most important facilities is the Pre-Seed Grants
Initiative of NGI, LSH and ZonMW. Through this
initiative, biotech entrepreneurs may receive up to
€250,000 to fund the costs typically incurred when
starting a small biotech company.
Another facility that is appreciated by our
respondents is the WBSO, which provides for the
beneficial tax treatment of labour costs for personnel
active in research and development. A related
measure is a corporate tax deduction for R&D costs.
However, since most biotech companies are not
profitable for almost their entire lifecycle, not many of
them can actually take advantage of this incentive.
Nevertheless this incentive can be useful for a
number of companies, especially those developing
and marketing medical devices, as they can expect
to become profitable earlier than biotech companies.
Some of our respondents criticize this incentive
because it mainly benefits big industry players that
do not need such incentives. Discussions within the
government and with the ‘Top Sector Life Sciences &
Health’ steering group are ongoing on how to adapt
these measures to make them more suitable for
unprofitable SMEs.
Other important forms of government support are
innovation credits and fund-of-fund investments.
Innovation credits are only granted to companies
which also have private funding. Many of our
respondents appreciate this approach because they
consider the private funding as a type of ‘quality
control’ for the government funding. Our respondents
regularly noted that pure government grants or
subsidies are often a waste of money because they
are given to too many companies with little prospect
of success. When the government acts as a coinvestor
this problem could be reduced. With fundof-fund
investments, the government invests in VC
funds which in turn invest in biotech companies.
This is also regarded as an effective and smart form
of government support.
16

“I notice that players
in the biotech sector
feel forced to
co-operate more
and fight less.”
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
17

2. Investing.
At the point that a scientific discovery or an innovative
idea has been nurtured sufficiently to reach the ‘proof
of concept’ stage, and once a business plan has
been written, a management team assembled and
some initial funding secured, the young company has
in fact only taken its first baby steps. In an age where
the development of a new drug can easily take ten
years and can cost upwards of €1 billion, what lies
ahead is the long march through the proverbial ‘valley
of death’. Many promising biotech companies that
have set out on this journey have not survived, due to
a lack of intermediate funding. The bad news is that
the climate is becoming even harsher than before.
Separating the wheat from the chaff
To find out which biotech start-ups even stand a
chance, we asked respondents what the main criteria
are for venture capital investors when deciding
whether or not to invest in a company (see Figure 2).
There seem to be two ‘schools’ of thought on
investing in biotech. “Do you invest in the science,
or do you invest in the team? That’s a fundamental
difference,” is the way a banker puts it. The former
is seen as ‘European’ (and ranks first in our survey),
the latter as ‘American’. The first school focuses
on the innovative idea on which the business case
rests. Assuming that this idea is novel and promising
enough, and the IP is well protected, the rest follows:
“Above all else we look for breakthrough science.
Figure 2. What are the determining factors for investors when considering
whether to invest in Dutch biotech companies?
Clarity of the business case
Trust in management
Patented technology
Stage reached by the company in the
development pipeline
Clear exit strategy and horizon
Therapeutic or technological field of activity
Number of products in the pipeline
Governmental incentives
Stable regulatory environment
2
6
4
6 3
4
0 20 40 60 80 100 120 140 160
Weighted scores
114
51 46
28
42 34 4
21 36
13
21
8
18
16
28
10
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
■ Most important ■ Important ■ Also Important
19

Science is a given, management you can fix,” says
one investor who subscribes to this school of thought.
The second school holds that the science, especially
in biotech, is so uncertain and unpredictable,
that the crucial factor behind success is to have
management that is flexible, creative, driven,
energetic, experienced and opportunistic enough to
change course whenever setbacks occur or when
new opportunities present themselves.
Regardless of which approach they favour, investors
look for commercial potential at an increasingly early
stage of a company’s life. Here again a big difference
between the US and Europe is reported. “From
day 1, an American start-up is able to tell you how
it is going to make money. European companies
start their presentations to investors with slides
showing strings of DNA, mice or state-of-the-art
technology. When you ask them how they are going
to make money, sometimes they don’t have a clue,”
exaggerates one interviewee.
Many entrepreneurs complain about wasting a lot of
time talking to VCs “who boast that they receive 400
proposals each year and invest in only 4 of those”;
these entrepreneurs feel they are being stalled, or
that the life cycle or the composition of a VC’s fund
matters more than their business plans.
Many VCs, as well as an experienced entrepreneur,
counter those criticisms: “If your science is good,
and your management is good, you will find funding.
It may take longer than in the past, but you will find
funding. If you don’t, then probably your story isn’t as
good as you think it is.”
The big squeeze
Asked what is currently seen as a dominant trend in
the Netherlands biotech sector, many interviewees
point to the increasing scarcity of venture capital,
or ‘growth capital’ as it is known at this stage. “It’s
unheard of, the way our industry is being squeezed
right now”, says one partner of a venture capital fund.
In Europe, venture capital fundraising set a record
low: 41 funds raised $3 billion in 2011, a 20% decline
in the number of funds that attracted capital and an
11% decline in capital raised compared with 2010. 6
These numbers point to a concentration of capital in
the pockets of fewer funds. Indeed, many interviewees
suggest that a shake-out is currently taking place
among venture capital funds; some will be forced out
of business as they fail to raise new funds.
Making the rounds among institutional investors and
raising new funds has become quite an ordeal for
many venture capital funds. The banks, insurance
companies and pension funds that make up a big
part of their investor base have become very riskaverse,
and they much prefer liquidity over multi-year
commitments to venture capital funds.
20
6) Source: Dow Jones press release: http://www.dowjones.com/pressroom/releases/2012/01122012-PEFund-0001.asp, accessed 9 April, 2012.

“We also have ourselves to blame,” says a partner
of one such fund. “In the past decade, returns on
investments in European life sciences or biotech have
just not been good enough. The top funds have done
well, but on average it has been a loss-making affair.”
Big Pharma steps in
Another increasingly active class of investors in
biotech companies are the corporate venture capital
arms of Big Pharma. 8 Their importance is illustrated
by the fact that, in 2010, 12 of the 20 largest venture
Some VC firms respond by differentiating their funds’
strategies in order to better match their investors’
preferences. Whereas in the past venture funds that
invested in both ICT and biotech were common,
today we see specialized funds (sometimes even
within a single VC firm) that invest in just one type of
company, e.g. only privately owned, only late-stage,
or only early-stage companies, and even funds that
invest only in publicly listed companies.
The void left by institutional investors and the venture
capital funds they back has been filled, to some
extent, by the emergence of new types of investors
in life sciences. Family offices and informal investors
(‘business angels’), though professional, are not
driven solely by returns on their investments, but may
also be attracted to biotech’s promises of significant
benefits for humankind. Investments from charities
such as the Bill & Melinda Gates Foundation and the
Michael J. Fox Foundation for Parkinson’s Research 7
can also be quite substantial.
rounds included a corporate venture investor. 9
This trend is in line with Big Pharma’s strategy of
outsourcing larger parts of its research and earlystage
development efforts in order to address the
overall decline of its R&D productivity. “R&D in startup
biotechs is done by people who are very focused
and driven; the survival of their company depends on
their achievements. That gives very different results
than you get from researchers in Big Pharma whose
job is relatively secure, and who need to operate in
a bureaucratic environment where decision making
is slow and subject to corporate politics,” says one
interviewee. Indeed, the primary mandate of some
corporate VC funds is to invest ‘strategically’
(i.e. in line with corporate strategy), rather than to
‘just’ generate financial returns.
However, this does not mean that corporate VCs
stake a claim to and are able to control the destiny
of every biotech company in which they invest.
Usually, they invest alongside ‘traditional’ VCs,
sometimes even together with the VC fund of one
of their competitors. Of course the participation of
multiple strategic players early in the game creates
some challenges in relation to the company’s future
destination. Some ‘traditional’ VCs only want to let
corporate VCs participate if there are at least two of
those, in order to maintain competitive pressure and
7) See: http://www.tobbb.com/content/nieuws/2012_04_17_to-bbb_receives_michael_j_fox_foundation_funding_for_parkinsons_disease_
research.pdf
8) Another way in which Big Pharma invests in biotech is through ‘traditional’ VCs. See for example: ‘Index Ventures Launches New €150m Life
Sciences Fund, with Investments from Two Leading Pharma Companies alongside Existing Anchor Limited Partners’; http://www.indexventures.
com/news#news/index/news_id/321
9) Ernst & Young: ‘Beyond borders - Global biotechnology outlook 2011’, p.66.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
21

22
“Above all else
we look for
breakthrough science.
Science is a given,
management
you can fix.”
Says one investor
to prevent the choice of a final partner being made at
too early a stage. While this may reduce a corporate
VC’s chances of eventually scooping up the
company, even the ‘losers’ will benefit as long as the
competition between VCs drives up the company’s
value. Other VCs are more relaxed and point out that
it is more important to structure the investment in a
way which does not give away their power to control
the company’s destiny. That can be achieved even if
one corporate VC is involved.
Another noteworthy trend is that corporate VCs,
which are increasingly participating in early financing
rounds, are often invited to come on board and
share their expertise: “This trend is primarily driven
by smart financial VCs,” says one interviewee.
“Of course they do so with an eye towards exit
opportunities later on, but they also seek handson
advice from Big Pharma on what is needed to
successfully complete development, for example
how to structure clinical trials or how to avoid cutting
corners where you really shouldn’t.”
However, all these new investors together do not
compensate fully for the reduced firepower of
traditional venture capital funds, many interviewees
emphasize. So how much of a threat does this
scarcity of growth capital pose to the Netherlands
biotech sector?
Weeding out the nonsense
The predominant view, not surprisingly, is that this
lack of capital is distinctly harmful to the Netherlands
biotech sector. “We have very good science coming
out of universities, and we are getting better at building
companies around that science. If we can’t sufficiently
fund those companies at an early stage, the only
option left is to bargain them away to Big Pharma at a
point when they’re not yet worth a lot. That is definitely
not good for the development of the sector.”
Some interviewees offer a more nuanced view,
though. One of them hopes for greater discipline on
the part of investors: “In biotech, where investors
judge science and scientists judge market potential,
there is quite a bit of naivety on both sides. So a lot
of nonsense is out there that is kept alive for a couple
of years by some VC. If a lack of resources could
make investors more critical and weed out some
of this nonsense, that would not be a bad thing.”
Another thinks that the climate will improve with the
passing of time: “It is merely a cyclical phenomenon.
With many start-ups chasing scarce venture capital,
VCs can now be selective and buy high-quality
assets ‘low’, and with cash-rich Big Pharma being
hungry for innovations, they can sell ‘high’. This will
improve returns for VCs in biotech, which will in turn
enable them raise more funds a few years from now.”
It is not just a question of the lower availability of
venture capital, another issue is the terms and
conditions under which capital is dispensed to
start-ups. In the past a company might immediately
receive the entire amount of capital raised in a
financing round; nowadays the capital raised is
made available only in tranches, if and when certain
milestones have been met. A frequently mentioned

“Life sciences are far more difficult than
rocket science. The product you develop
must be novel, path-breaking, safe and effective,
must be right the first time, and must in the end
be accepted by a great many stakeholders
who each have their own, uncoordinated and
sometimes conflicting rationales.”
“Even with a fantastic product, in biotech
there are 20,000 ways in which you can
fail to reach the finish line.”
Venture capital investor
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
23

“The constant worries
over money are an
enormous distraction.”
Says one executive, echoing others
Towards a symbiotic relationship?
While the development of biotech companies
may primarily be a matter of ‘technology push’,
the ‘market pull’ factor is becoming increasingly
important. It has become common practice for
investors to identify, even before they make an
difference between European and US VCs is that
whereas American VCs invest in large chunks
and trust management to act in their mutual best
interest, European investors tend to “drip-feed” their
companies. This style of investing is usually attributed
to the smaller size of European funds, their lower
risk appetite and, as a consequence of that, their
tendency to give management limited leeway.
The view from the receiving end
The worry among entrepreneurs is that the current
scarcity of capital will exacerbate this practice of
drip-feeding and that investors will put them on an
even stricter regimen: “The constant worries over
investment, where exit opportunities lie within big
pharmaceutical companies. On the other hand, the
latter have a vital interest in contributing, inter alia in
the form of venture capital, to a healthy ecosystem in
which many early-stage biotech companies survive.
Big pharmaceutical companies are well aware of
developments in VCs’ portfolios (and may co-invest
through their own corporate VC arm) and approach
these VCs with “shopping lists” for innovations that
would fit their strategic goals. “Spurred by venture
capital investors, Big Pharma and biotech have
formed a true symbiotic relationship in which they
have become dependent on each other for survival,”
is how one interviewee describes this development.
money are an enormous distraction”, says one
executive, echoing others. “Investors just nod when
you talk to them about this, but they don’t really care.
Yet they underestimate the consequences. Every
new round of financing takes up a huge amount of
time and energy that we could otherwise have spent
on actually developing our business. This slows us
down and forces us to lower our ambition level.”
It may be premature to speak of symbiosis. However,
it certainly seems that there is a growing ecosystem
in which scientists, management, seed investors,
VCs and Big Pharma are communicating and
interacting more with each other, and becoming
more inter-linked. Each of these players may initially
be acting in its own self-interest, but ultimately the
development of this ecosystem will serve the greater
So while a lack of venture capital may lead to fewer
good of the industry.
but more promising start-ups, the start-ups that
manage to survive still suffer from the harsh climate.
To avoid being surprised by VC behaviour, some
interviewees from biotech and medtech companies
stress the importance of having a due diligence
investigation into the VC’s capabilities and exit
preferences, as well as its fund policies and horizon.
24

The evolving relationship between management and investors as companies mature: points of
tension and how to deal with those
A start-up run part-time by a professor or PhD holder may find an experienced investor and, in many cases,
will probably rely heavily on the investor’s advice and opinion. At this stage the company is not a real,
independent entity, but just a project. As the company becomes more successful and expands its investor
base, it becomes more of a stand-alone entity. Its investors may have conflicting interests, for instance on
the timing of an exit when they have different entry points or fund horizons. The company will have hired
more and more employees over time, and will have entered into various contracts and relationships with
government and other financing parties, clinical trial service providers and others, thereby expanding its
base of stakeholders and their interests.
From a Dutch legal perspective the management and supervisory boards are required to protect the
interests of the company and its business as well as those of all its stakeholders. While the interests of most
stakeholders may be aligned at the outset, tension may arise along the way. For instance, the interests of
investors looking for a full cash exit as soon as possible, usually through a trade sale to Big Pharma, may
be at odds with management’s ambition for the longer term success of the company’s business and its
continued stand-alone existence. A frequent interesting development in this respect is that, at some point,
management and/or investors will seek an experienced independent chairman of the supervisory board.
Such a chairman will more assertively voice the interests of the company as a whole, thereby offering more
of a counterweight to investors looking to take their money and run. In practice, however, such a chairman
is more likely to serve as a go-between and consensus seeker.
A few examples of issues on which management and investors may not see eye to eye
• Valuation: obviously a paramount issue at the time of the first financing round (valuation of the initial
business plan), during later rounds and, finally, at the time of the exit (when management may find itself
more and more aligned with early investors).
• Terms affecting management financially (e.g. liquidation preference and reps & warranties).
• Identity of new investors: having the right names on board is obviously key, e.g. by validating the pipeline
and attracting further financing rounds, alliances and even exits.
• Exit horizon and type of exit: where investors will usually seek a full trade sale, management may want to
pursue the options for the company to remain a stand-alone entity longer.
• Exit terms, e.g. management reps & warranties to the buyer in a trade sale exit; in an IPO scenario,
the post-IPO governance and level of independence.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
25

3. Strategic
co-operation.
As said before, there is a logical sequence in the life
cycle of biotech companies which at some point links
“Biotech companies and their venture capital
investors need Big Pharma for their exits; Big Pharma
depends on biotech for innovation”, as one investor
puts it. A majority – 65% – of our respondents seem
to agree (see Figure 3); they think that an alliance
with Big Pharma is the predominant strategic goal
of Netherlands biotech companies, after they have
developed products up to the phase I or II clinical
trials. A further 17% see an early takeover by Big
Figure 3. What will be the predominant strategic goal of Dutch biotech companies?
To develop products up to phase I or II clinical trials and then enter into a strategic
alliance with big pharma to put the products on the market
65
Early takeover by big pharma, before market authorisation is obtained
17
To put products on the market autonomously and to pursue an exit after
market authorisation
To put products on the market autonomously and execute a stand-alone
business plan
them with Big Pharma, whether through a corporate
VC, a licensing deal, a development partnership or, in
the most far-reaching scenario, a complete takeover.
Sharing a future together
With biotech companies, venture capital investors
and the pharmaceutical companies forming an
increasingly close-knit ecosystem, it should probably
not come as a surprise that many young biotech
companies see themselves sharing a future with a
big pharmaceutical company.
8
6
0% 10% 20% 30% 40% 50% 60% 70% 80%
Percentage of respondents
Pharma as the desired scenario for Netherlands
biotech companies. A mere 6% believe that the
predominant strategic goal of companies in this
sector is to put products on the market autonomously
and execute a stand-alone business plan.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
27

A lack of ambition or healthy realism?
The most important reason for biotech companies
to seek an early alliance with Big Pharma is to obtain
(non-dilutive) funding or capital (see Figure 4).
“To think that you can remain independent and
become the next Amgen or Genentech is just not
realistic given the financing requirements for new
drugs and the cost of venture capital. Of all new
biotech products that deserve further development,
95% end up in a licensing deal with Big Pharma.”
more as a (temporary) marriage of convenience than
as a prenuptial agreement. In fact, it’s not uncommon
to have alliances with several pharmaceutical
companies at the same time. But while a future exit
may not be the main reason to form alliances with
Big Pharma, investors certainly don’t mind. “If you
aim for a takeover by Big Pharma – and VCs certainly
do – you need to appear on their radar screen early.
Before an actual deal is done, they need to be able to
follow you for a couple of years.”
Figure 4. What would be the predominant goals of a biotech company
in entering into a strategic alliance?
Obtain (non-dilutive) funding / capital
80
12
Validation of technology / valuation of
the company
Obtain funds, while retaining sufficient
freedom to exit the alliance
Increase the possibility of a complete takeover
14 9
12 9
24 19
Access to new markets through cooperation
with big pharma
10
8
Access the partner's know-how, IP and
development skills
Equity investment by big pharma
10
10 2
20
Access to the distribution capacity of big pharma
6
5
0 20 40 60 80 100
Weighted scores
■ Most important
■ Important
28
The second most important reason is that such an
alliance is seen as a welcome “stamp of approval” for
biotech companies.
Increasing the possibility of a complete takeover
through such an alliance ranks much lower. This may
reflect the fact that such an alliance is indeed seen
That access to a pharma partner’s know-how,
IP and development skills ranks almost equally low
is, according to some interviewees, a reflection of
several things. Among them is an underestimation by
many biotech companies of the difficulties involved
in later stages of development (e.g. regulatory
approvals) and clinical acceptance. Perhaps this

is explained by the fact that the main driving force
behind many biotechs is a ‘technology push’ rather
than a ‘market pull’. “Many biotech companies focus
on a ‘proof of concept’; what Big Pharma also wants
to see is a ‘proof of commercial relevance’,” as one
interviewee puts it.
A factor that contributes to the majority of biotech
companies driving themselves, or being driven, into
the hands of Big Pharma is the fact that the public
capital markets for biotech companies have been
closed, and are expected to remain that way, at least
for a while. “Five years or even three years ago this
picture would have looked very different. Now, the
conviction that there is a capital market for biotechs
is gone. The times that you could approach an
institutional investor with a nice prospectus built on
promises alone are over.” With no access to public
capital, biotech companies have almost nowhere to
turn except to Big Pharma.
Exceptions
A few biotech companies and a number of medtech
companies, however, have an ambition to remain
independent. As one executive describes his vision
for the future: “We really have the ambition to
become a leading company with a large footprint.
Ten years from now we will have partnered some of
our products with the Pfizers of this world, but we will
also have our own, global sales force to serve certain
niche markets. So yes, although everybody tells
us we need much more money than we anticipate,
we still believe that it is possible to develop into an
integrated pharma company. It just might take more
time in the current climate.”
So which companies are best positioned to at
least strive to remain independent, or in any event
keep control of their own destiny, while engaged in
relationships with Big Pharma?
• companies with platform technology and a broad
portfolio, enabling them to use some products to
generate cash for the development of others;
• companies that focus first on the development of
‘low-hanging fruit’, leaving the high-tech stuff for later;
• companies whose products require a relatively
low investment, e.g. low volume trials or a limited
sales force (for example, because the products are
distributed only to specialized hospitals);
• medtech companies, whose products have a
shorter time to market and require a lower level
of investment, thus enabling these companies to
generate their own revenues and profits sooner;
• companies with other cash-generating activities –
developed or acquired previously – which support
the development of products in the pipeline.
How to manage the relationship
between biotech and Big Pharma
Big Pharma often provides the best opportunity for
biotech companies to take the development of their
products a couple of steps further, but engaging in
alliances with Big Pharma calls for a certain degree
of caution on the part of biotechs. “Suddenly a
biotech company becomes one of 250 projects
that are going on within such a huge corporation.”
The priority and funding it receives may change at
any moment for any number of reasons: a change
of corporate strategy, shifts in R&D allocations,
bureaucratic infighting, etc.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
29

The term ‘strategic alliance’ is “largely window
dressing”; the relationships are in reality quite
skewed, with power being in the hands of the party
with the money. “Big Pharma is not in the business
of paying milestones. The only certain payment is
the upfront payment, which is usually quite low.
Subsequent milestone payments may get stalled or
bogged down in legal battles.” Structuring the terms
of an alliance and potential equity investments is
obviously key (See box).
companies are then freed up and can put their talent
and experience to use in new ventures.
There are, however, downsides to such an
ecosystem. “In the Netherlands we will end up with
many small biotech companies. In this way we
are not going to build new Crucells here,” is how
one interviewee puts it. From a national economic
perspective, this means a lack of sufficiently mature
companies that generate taxable income, exports
The end result of a strategic alliance and collaboration, but also of equity investments and exits, will
of course depend on the bargaining power of the parties involved and the competitive field. Clearly, a
company with urgent financing needs will often reach a worse deal than a strong independent player with
no need for a sale or alliance. From the company’s perspective it is key to structure deals so as to get the
benefits in the desired terms (upfront & milestone payments), while not bargaining the company away for
too little. This could be achieved, for instance, by limiting the scope of an alliance (to certain regions, parts
of the portfolio or indications only), by being very careful in agreeing to co-finance the products under
penalty of losing the product, and by agreeing appropriate termination provisions allowing the company
to regain control and a new future if the partnership for whatever reason does not work out. It may indeed
occur that the partner changes its strategy and decides not to acquire control over the company even if it
was planning to do so before. The company is well-advised to have made allowance for that situation in the
termination provisions, including by having a repurchase option for any equity held by the partner.
30
Implications
The ecosystem described above perhaps reflects
– in an ideal world – the most efficient allocation
of means: agile, focused biotechs quickly take
scientific ideas and discoveries through the initial
phases of development. Professional investors select
the ones most likely to succeed, provide capital
and managerial support and broker deals with Big
Pharma. Big Pharma offers good exit opportunities,
takes new products through the final phases
of development and applies its marketing and
distribution power to create successful market entry.
Often management and scientific staff of biotech
and self-supporting business for the long run.
For the sector itself, the risk associated with this
development is that in the longer term, and in the
absence of Big Pharma that has R&D and business
development activities here, there will be a lack of
people who have first-hand experience in building an
(independent) biotech company, taking a company
public or bringing new products to the market.
“You must have occasional success stories! Only
then can you attract the people and the capital you
need to sustain a vibrant, growing biotech sector,”
stresses one interviewee, again echoing several
others.

Perhaps the Netherlands biotech sector will become
a large-scale incubator or “feeder” for Big Pharma,
rather than an environment in which national
champions can develop. The ambition of the ‘Top
Sector Life Sciences & Health’ to develop successful
new and cost-efficient therapies may still be realized,
but the products will no longer be owned by Dutch
companies at the time they enter the market.
The contribution from biotech to the business
ambition of the ‘Top Sector Life Sciences & Health’
(see Introduction) may therefore be hard to achieve in
such an environment.
Sharing your intellectual property: some things to consider
For many biotech companies the IP portfolio is their most valuable asset. When joining forces with Big
Pharma, it is essential to make clear and practical arrangements with regard to access to each other’s
intellectual property. Note that further improvements to the licensed technology resulting from joint research
and development efforts could give rise to additional intellectual property rights (and discussions as to who
owns these!).
From practical experience, here are a few things to keep in mind when negotiating licensing deals:
• A clear understanding in respect of the ownership of the intellectual property is key. In many jurisdictions
co-ownership of intellectual property may result from a mutual co-operation. Such co-ownership could
in itself give rise to considerable difficulties, e.g. when a sale or licence of the relevant IP is contemplated.
The end result may be a deadlock.
• Royalty calculations and milestone payment criteria should be as clear as possible; independent survey
mechanisms should be seriously considered.
• Under which circumstances can either party terminate the licence or co-operation? Should this always
be all or nothing? A compromise could consist of the loss of exclusivity or the loss of a right to extend the
licence to other fields of use, if certain performance requirements are not met.
• The choice of law and the relevant forum for dispute settlement can have far-reaching consequences.
“We are the eyes on the ground for
Big Pharma, for biotech companies
we are the window on the world.”
Venture capital investor
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
31

4. Exit
strategy.
The last stage in the entrepreneurial life cycle of a
biotech company is the exit phase, in which the
VCs and/or management seek to liquidate their
investment and the company in its present, investordriven
form has served its function. Historically, two
types of exit were typical for biotech companies,
an IPO or a sale of the company or its prize assets.
Clearly, an IPO in today’s market is very difficult and
is far from certain to produce the desired return.
Furthermore, the closely-knit ecosystem of which
biotech companies are currently part is geared
towards matching them with the right strategic
partner at the right time and price. For these reasons,
the preferred exit route has shifted from an IPO to a
sale to a Big Pharma or similar company.
While the exit is the final step in the company’s
development, it may and usually does occur before
a new drug or medical technology produced by the
company has entered the market.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
33

Sale to Big Pharma as a much
preferred exit route
Given the ever-closer relationships between
biotech companies and Big Pharma that have been
described in previous chapters, it should not come
as a surprise that a trade sale to a specific, identified
pharmaceutical company, in a bilateral process, is
seen as the preferred exit route for most Netherlands
biotech companies (see Figure 5).
As previously discussed, the key players in the
biotech ecosystem increasingly, and at an earlier
point in time, explore each other’s interests and try
to identify potential partners. This makes it easier to
choose the right partner at the time of the exit.
But a trade sale to a specific identified buyer was
not the only type of sale chosen by respondents as
the preferred exit scenario. They also chose, in some
cases as a second preference, a controlled auction
with multiple potential buyers, a sale with contingent
value rights and even a dual-track scenario in which
an IPO and trade sale are pursued simultaneously,
the IPO often serving as a base case. In the dualtrack
scenario, the trade sale may be pursued
publicly or in secret, sometimes even without the
knowledge of the company’s officers and advisers
working on the IPO.
Figure 5. Which exit strategies would current shareholders of, and investors in,
Dutch biotech companies prefer in 2012?
Trade sale to big pharma in a bilateral process with
an identified preferred buyer
120
38
Sale in controlled auction process with various identified
potential buyers
Strategic alliances (milestone payments) with or capital
investments by big pharma
39 12
36 36
Dual-track exit scenario where IPO and trade sale are pursued
simultaneously
Technical IPO (investors make new investment, retain control,
create liquidity and expand future financing and exit opportunities)
Sale with cash consideration and contingent value rights
(milestones dependent deferred purchase price)
3
12
6 6
14
26
IPO with exit and loss of control for existing investors
3
10
IPO with existing investors retaining majority control
3 4
Winding up / dissolution of company with sale of assets
to interested parties
2
0 20 40 60 80 100 120 140 160 180
Weighted scores
34
■ First preference
■ Second preference

In each case, a decision will have to be taken as to what constitutes the best exit procedure for investors
at the relevant time. This will be determined by, among other things, the company’s ‘hotness’ and the field
of potential buyers, the need to realize the exit within a particular period, and the extent to which an IPO
would be a realistic option, for instance if a dual-track scenario is pursued.
It goes without saying that creating some competitive pressure usually enhances the seller’s bargaining
position, even if a clear preferred buyer has been identified (e.g. the strategic partner in an alliance or
equity investment). As we have seen in Chapter 3, when entering into such an alliance or investment a
biotech company should be careful to avoid giving so many rights to the strategic partner as to result in an
outsourcing of the decision on the exit procedure and the company’s destiny. Of course the company may
deliberately choose to do this in a particular situation and for the right price.
The form of the trade sale will ultimately depend on the company’s assets. A company with only a single
product will obviously be acquired in its entirety by a sale of 100% of the shares. However, if a company
has a broader portfolio, the relevant product may be separated into a new company, through a legal
demerger or asset sale. The shares in the new company are then sold to complete the transaction. Partially
for fiscal reasons, this is another regularly used transaction structure.
The end of the line for management
While management may be retained for a while after
a takeover to ensure a smooth transition or to deal
with regulators in finishing an approval process, a
takeover usually brings a swift end to management’s
involvement with their former enterprise. If they are
not laid off in order to cut costs, they usually leave of
their own volition as they find it difficult to cope with
the culture, hierarchy and decision-making process
typical of big corporations. Financial considerations
Figure 6. Do you consider an IPO to be a realistic option for
Dutch biotech companies in 2012?
Yes
No
Don’t know
10
15
aside, they can easily afford to leave. “Management
that have completed a successful takeover don’t
have to worry about their future careers. Their skills
and experience are in such high demand that, if they
want, they can start the very next day at another
biotech company.”
“An IPO? Can’t get it done!”
The IPO scores remarkably low as a preferred exit
route for biotechs (see Figure 6). This is despite
75
0% 10% 20% 30% 40% 50% 60% 70% 80%
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
Percentage of respondents
35

36
the fact that several interviewees confirm that
management regularly (but sometimes privately)
harbour such ambitions, as this would allow to them
to keep their jobs, remain involved with the company
they have helped build up from the ground, and bask
in the glory associated with an IPO. Perhaps this
low score is because the nature of IPOs in biotech
has changed: “Takeovers and IPOs are not mutually
exclusive. IPOs are currently financing events, not
exit events anymore,” says the CEO of a biotech
company. Perhaps this low score is also prompted
by the idea among the majority of respondents that,
currently, an IPO is not even a realistic option in the
first place. No less than 75% think an IPO in 2012
is not worth considering for Netherlands biotech
companies. The main reason for this is undoubtedly
the ongoing general crisis in the financial markets,
but there are other reasons as well. These are
discussed below.
In our interviews, the reason cited first and
foremost is the current market sentiment, the
Ziggo IPO and the announced IPO of Douwe
Egberts notwithstanding. “You need to have market
momentum in order to get generalist investors, who
usually provide the bulk of the money in a successful
IPO, to participate in higher-risk investments,” says
a banker. So unless a biotech company “resembles
a cookie factory in its product, sales and financial
outlook “, entrance to the public markets is barred.
“An IPO for a classic product-development, midstage
biotech company today? Just can’t get it
done!” declares a partner of a venture capital fund.
Several factors, apart from the high-risk profile of
biotech companies, make an IPO even more difficult
for them than for other high-tech companies:
• The past decade has seen many biotech stocks
whose price went down after their initial listing.
This has made investors wary of participating in
new IPOs in the sector.
• Valuation of the IPO may be too high, for instance
if the last financing round was relatively high.
Investment banks hungry to get a key role in
the IPO process may also be too optimistic on
valuation in the pitching phase, reducing their
valuation when they get more information after
having secured their role.
• The often highly technical nature of biotech
products requires a buy side that is able to
appreciate their potential and risks. In a bookbuilding
process, a number of specialized investors
must usually be on board first before the bigger,
general investors follow. Such a base of specialist
biotech investors is lacking in Europe, according
to some interviewees: “On the buy side, there
is frightfully little knowledge of the sector”, says
one. In the US, there are many specialist biotech
fund managers, but they hardly ever deliver the
goods: “Management are easily persuaded by
their bankers to embark on a road show to the US,
but I have never seen US investors take part in a
European IPO.”
• Again in contrast to the US, the market in Europe
for biotech stocks is not very deep. This creates
the very real risk of ending up in a vicious circle of
reduced coverage from analysts, lower liquidity,
funds that want to divest and lower stock prices.
To prevent this, biotech companies that can’t
report their earnings every quarter need to use
their shares actively or, as a banker we interviewed
advises his listed biotech clients: “In the absence of
cash flow, you need a news flow.”

“IPOs are
currently financing
events, not exit
events anymore.”
CEO of biotech company
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
37

• Biotechs with a low share price – after the
overhang is gone – can be subject to a lowball offer
and risk being acquired at a price far below their
real value and potential. It is therefore advisable
in most cases to create adequate protective
measures that improve management’s bargaining
position and ensure that control over the company
can be retained.
But what if?
Seen from a different angle, 10% of the respondents,
more than a handful, do not rule out the occurrence
of biotech IPOs this year. Some investors even hint
that one or two of their portfolio companies might be
actual candidates. And more than one interviewee
mentioned that in the first quarter of 2012 alone,
four biotech and medtech companies have pulled
off an IPO on NYSE Euronext in Paris 10 . As we have
seen in Chapter 3, some companies are better
placed than others to remain a stand-alone entity
for a longer period of time. Accordingly, it is worth
looking at the criteria for a successful biotech IPO if
general economic and market conditions cease to be
forbidding:
• Credibility of management. “Institutional investors
have been burnt by companies that experienced
failures in a very late stage of product development.
An experienced management team that has been
successful before in bringing products to the
market, selling their company or doing an IPO, is of
crucial importance to provide credibility.”
• An upward-trending cash flow from products
already put on the market or from licensing deals.
This provides a solid base for valuation and greatly
reduces a company’s risk profile.
• A very solid execution strategy for the one or
two years following the IPO. Once listed, biotech
companies are very vulnerable to bad news
regarding development or regulatory issues.
• A partnership or alliance with Big Pharma.
These certainly help, by providing validation. If the
partners also acquire an equity stake, that is
even more helpful: “If a strategic partner were to
participate in an IPO, that would significantly reduce
the due diligence risk for institutional investors.” On
the other hand, a partnership or alliance with Big
Pharma is not considered necessary: “An IPO for
biotech companies is led by specialized investors
who would understand in detail your reasons for
having or not having partnerships.” However, as
we have seen in Chapter 3 biotech companies
structuring deals with Big Pharma are generally
well-advised to retain control of their destiny.
This is even more important in a public, listed
environment where a potential takeover premium
is an important attraction for investors and the
VC’s influence and position is not as strong as in
a private environment. Termination provisions and
adequate provisions on, for instance, the dragalong
or buyback of Big Pharma’s equity stake are
therefore key.
38 10) See also: https://europeanequities.nyx.com/en/listings/ipo-showcase

The technical IPO or even a hybrid alternative: a publicly listed company under the continued
control of VC investors.
• Technical IPO. While for many companies an IPO may not be an exit option in the current environment,
it may be a means of financing that is preferable to a new VC financing round. In this context, a technical
IPO refers to a secondary listing of shares held by the VCs and management. This will normally be
coupled with a new financing round by the existing VCs and perhaps the addition of one or more new
investors through newly issued listed shares. Obviously, a technical IPO does not give the existing VCs
a real cash exit immediately (although based on their funds’ terms they may be able to treat the listed
shares as liquid and therefore as an exit). VCs may also lose their special investor’s rights and majority
board representation after the IPO. The benefits of a technical IPO are that it gives the company a
listing through which it can attract new capital markets financing, also in the future if and when the
circumstances are right. The benefits for management could be to postpone the decision on the
company’s destiny and keep alive the possibility of a stand-alone future with the potential to develop
into a more robust company.
• VC-controlled listed company. As a more innovative structure which builds on the technical listing
referred to above, VCs may retain more control and influence after the IPO than usual. Investors, life
sciences specialty investors, general institutional investors or even public investors, may be interested in
the opportunity to invest in listed shares in a VC-driven biotech company. By doing this they can piggyback
on the experience, resources and talent of VCs and management which are normally out of reach.
Accordingly, a tailor-made governance model with continued VC control of the board and veto and
other rights based on a shareholders’ / investment agreement, or a relationship agreement, could even
be imagined. To the extent those arrangements deviate from the typical listed company’s governance
contemplated by the Dutch Corporate Governance Code they would of course have to be adequately
explained. The controlling VCs would in principle also have to comply with the mandatory offer rules,
but they may be able to benefit from the exception from those rules which applies to an existing group
of controlling shareholders in an IPO. Such a structure was to some extent the approach taken in the
Ziggo IPO, as shown in inter alia a shareholders’ agreement between the pre-IPO owners of Ziggo.
In that agreement, concert arrangements on governance, sell downs (after lock-up periods and subject
to certain orderly market arrangements as set out in co-investor agreements and a shareholders’
agreement) and tag-along rights were put in place for after the IPO.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
39

• High-quality science. Overall the quality of
scientific and clinical research is considered high,
with world-class excellence in certain fields, e.g.
fundamental cancer research.
Conclusions.
The Netherlands biotech sector is well-positioned as
a successful incubator of innovative companies that
will attract partnerships with Big Pharma and may
eventually be taken over by Big Pharma.
Several strengths contribute to this favourable
position, although some threats can be identified
as well.
• Valorisation. ‘NIB’? Although the situation is
improving, there is room for significant further
improvement with regard to the ‘valorisation’ of
research, i.e. the generation of economic and
societal value out of that research:
- fragmentation and a perceived lack of priority
within universities; financing of academic
research and the European academic ‘culture’
are both insufficiently geared towards turning
science into business;
- a perceived lack of government coordination;
such coordination could take the form of
setting up and funding an organization like
the Flemish Institute for Biotechnology (VIB).
The VIB is seen by many in the Netherlands
biotech sector as a ‘best practice’ in both the
promotion of excellent fundamental research
and its ‘valorisation’. A Dutch equivalent of
the VIB could ensure the creation of a clear
structure for researchers, universities and
government and become a self-supporting
professional facilitator of successful new Dutch
biotech companies.
• Government has good intentions, but smarter,
long-term commitments are required. The
government seems to have good intentions for
the biotech sector and supports it with some
useful instruments such as ‘innovation credits’
and smarter co-investing with professional VCs.
40

However, the government could become more
effective by making a longer-term commitment to
the industry, for instance through the creation of an
‘NIB’. The entire sector has a long-term investment
horizon; short-term policies can easily lead to
mismatches.
• Capital scarcity for VCs. In the Netherlands
there is a relatively large base of venture capital
investors in both the seed and growth stages.
Currently, however, they face a very unfavourable
climate for raising new capital. This may result
in a consolidation or even cause some of them
to retreat from the market, potentially posing a
significant threat to the country’s biotech sector.
Government co-investments in the seed and
growth phases and participation by family offices
and charities can only go so far to compensate for
this reduction of available funds.
• Closely-knit ecosystem biotechs, VCs and Big
Pharma. VCs are perceived to be an important
driving force behind the forging of ever-closer
relationships between Dutch biotechs and Big
Pharma; a true ecosystem is developing.
- At an increasingly early stage of the life cycle of
biotechs, they are groomed for a partnership
with or acquisition by Big Pharma. According
to 60% of the respondents to our survey this
is the predominant strategic goal of biotech
companies. Given the increasing costs and
complexity involved in the development of new
drugs, most industry professionals no longer
consider it a realistic option to do this as an
independent company funded only by VC
investors.
- A contributing factor is that IPOs are not
considered to be a realistic exit route for
most biotech companies either now or in the
foreseeable future. This is due mainly to the
market climate, but also to a lack of specialized
institutional investors.
- Big Pharma is increasingly outsourcing R&D
activities (usually via a corporate VC arm) to
early-stage biotech companies, in an attempt
to boost overall productivity in this area.
• The Netherlands as ‘feeder’ nation? The current
trend is for biotech companies to be taken over by
or otherwise become part of Big Pharma, often at
or near the stage of the phase II clinical trials. The
Netherlands may well become a breeding ground
for valuable new medicines, medical devices and
technology which at some point in the biotech
company’s life cycle are passed on to Big Pharma.
Subsequently, the biotech’s management and
researchers become available for new start-ups.
• Creation of Dutch champions? Particularly in view
of the funding situation, it is considered unlikely
that a large, independent and profitable biotech
company will develop in the Netherlands. In the
current scenario, the creation of a new Dutch
champion such as Crucell is likely to be the
exception than the rule.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
41

We would like to thank everyone whose input
contributed to the production of this publication,
especially the following individuals who generously
shared their views with us:
Methodology.
ABN Amro:
Maurice Laudy (Executive Director Corporate Finance
& Capital Markets, Head of Healthcare) and Frederik
Gorter de Vries (Senior Associate Corporate Finance
& Capital Markets)
In January and February of this year, NautaDutilh
and Niaba held an online survey in which nearly
500 scientists, entrepreneurs, managers, investors,
bankers, advisers, government officials and
other professionals involved in the Netherlands
life sciences/biotech sector were invited to
participate. Of those invited, 88 completed the
survey. In addition, we conducted over 20 in-depth
interviews with key players from all disciplines.
These interviews allowed us to further explore the
strengths, weaknesses and trends identified in the
survey, provided us with further insights (e.g. into the
strategic goals of key industry players) and enabled
us to identify important success factors. Although
we have quoted freely from these interviews,
NautaDutilh is solely responsible for the contents of
this publication.
Aescap Venture:
René Beukema (Partner) and Patrick Krol
(General Partner)
AM-Pharma:
Erik van den Berg (CEO)
arGEN-X :
Hans de Haard (Chief Scientific Officer)
Audion Therapeutics:
Rolf Jan Rutten (Founder and Managing Director)
BMEYE:
Rob de Ree (CEO) and Frank Wittgen (CFO)
Cryo-Save:
Arnoud van Tulder (CEO)
DNage:
Rein Strijker (CEO)
Forbion Capital Partners:
Bart Bergstein (Managing Partner and Chairman)
42

Galapagos NV:
Onno van de Stolpe (CEO)
GenDX:
Wietse Mulder (Managing Director) and Maarten
Penning (Business Development Manager)
ProFibrix:
Jan Öhrström (CEO) and Jaap Koopman
(Chief Scientific Officer)
Pwc:
Arwin van der Linden (Partner)
The Hubrecht Institute:
Hans Clevers (Director)
Thuja Capital:
Harrold van Barlingen (Managing Partner)
i-optics:
Jeroen Cammeraat (CEO)
to-BBB:
Willem van Weperen (CEO)
Kempen & Co:
Oscar Izeboud (Managing Director Corporate
Finance, Head of Life Sciences) and Ivo Piest
(Executive Director Corporate Finance)
Others:
Ronald Brus (former CEO of Crucell and life sciences
entrepreneur)
Life Science Partners:
René Kuijten (General Partner) and John de Koning
(Partner)
Merck Serono:
Roel Bulthuis (Head of Merck Serono Ventures)
The Ministry of Health, Welfare and Sport:
Hugo Hurts (Director Pharmaceutical Affairs and
Medical Technology) and Frank Flier (Senior Adviser)
The Netherlands Biotech Industry Association
(Niaba):
Jan Wisse (Managing Director)
Pharming Group NV:
Sijmen de Vries (CEO)
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
43

About
NautaDutilh.
NautaDutilh and our life sciences /
biotech expertise
Creative solutions from the lab to the market, from
start-up to exit. NautaDutilh is the legal partner of
choice for life sciences companies. We assist in
every phase of the company’s life cycle, from startup
to initial public offering and beyond. Behind the
scenes, in transactions, before the regulators or in
court if necessary.
From financing, patent and regulatory issues, to
partnerships, IPOs and exit strategies, we provide
direct and pragmatic advice, venturing off the beaten
path, always in search of better solutions.
The Firm
NautaDutilh is one of the leading independent law
firms in the Benelux. We are also among the largest
law firms in Europe, with over 400 lawyers, civil law
notaries and tax advisers in offices in Amsterdam,
Brussels, London, Luxembourg, New York and
Rotterdam. NautaDutilh caters for the international
business community in areas such as corporate,
capital markets and finance law. Other focus areas
include tax, intellectual property, competition,
employment, commercial property and insurance.
For pan-European or global matters, we team up
with top-tier foreign firms from our (non-exclusive)
worldwide network, selected to provide the required
expertise for the matter at hand.
44

About Niaba.
The Netherlands Biotech Industry
Association
For over twenty years, the Netherlands Biotech
Industry Association (Niaba) has brought together
more than seventy of its home country’s biggest and
finest biotech-related companies and organizations.
Its members operate in fields such as human
and animal health, food, feed, agriculture and the
environment.
Niaba counts large, globally operating companies
such as DSM, MSD, Syngenta and Dupont among
its members. However, the association also involves
small- and medium-sized biotech companies like
Prosensa, Pharming and KeyGene, as well as
research institutions and other associations operating
in adjacent fields.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
45

46
Key
contacts.

The Netherlands
The Netherlands
John Allen
Christiaan de Brauw
Partner
Amsterdam
T: +31 20 71 71 869
M: +31 62 02 10 606
E: john.allen@nautadutilh.com
John Allen specializes in intellectual property law
(in particular patent litigation, licensing and advice).
John argued the first case before the European
Court of Justice on the scope of protection of a
patent covering DNA sequences and molecules
(Case C-428/08, Monsanto vs Cefetra). He has also
litigated a number of pan-European patent disputes
in the life sciences sector. John frequently assists in
licensing and spin-out disputes.
Partner, Head of Life Sciences Team
Amsterdam
T: +31 20 71 71 698
M: +31 65 36 80 786
E: christiaan.debrauw@nautadutilh.com
Christiaan de Brauw specializes in mergers and
acquisitions and corporate law. He focuses in
particular on public M&A work and on M&A/
corporate, corporate governance and capital
markets advice and transactions for life sciences
clients. Christiaan is a member of the American
Bar Association and a fellow of the American Bar
Foundation, in addition to publishing and teaching
regularly on M&A-related topics.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
47

The Netherlands
The Netherlands
Paul van Dongen
Bas van Hunnik
Amsterdam
T: +31 20 71 71 589
M: +31 65 13 03 274
E: paul.vandongen@nautadutilh.com
Amsterdam
T: +31 20 71 71 708
M: +31 65 31 06 615
E: bas.vanhunnik@nautadutilh.com
Paul van Dongen specializes in patent law and life
science regulatory law. He holds a Master of Science
degree in Life Science & Technology.
Bas van Hunnik specializes in corporate law
and advises clients in a variety of transactions,
in particular in mergers and acquisitions (both
national and cross-border), controlled auctions and
private equity. He is regularly involved in investment
transactions in the biotech industry and has advised
several biotech start-ups on various corporate
aspects. Bas was also part of the team advising
Johnson & Johnson in its acquisition of Crucell.
Before specializing in corporate law, Bas practised
in several areas of intellectual property law.
48

The Netherlands
Belgium
Bart van Kempen
Florence Verhoestraete
Amsterdam
T: +31 20 71 71 868
M: +31 32 21 40 218
E: bart.vankempen@nautadutilh.com
Bart van Kempen specializes in corporate law
and advises clients in a variety of transactions,
in particular in mergers and acquisitions (both
national and cross-border), controlled auctions and
private equity. He is regularly involved in investment
transactions in the biotech industry and has advised
several biotech start-ups on various corporate
aspects. Before specializing in mergers and
acquisitions, Bart was a member of the commercial
litigation team.
Partner
Brussels
T: +32 25 66 84 52
M: +32 479 52 01 30
E: florence.verhoestraete@nautadutilh.com
Florence Verhoestraete specializes in intellectual
property law with a particular focus on patents,
trademarks and unfair competition. Her clients work
mainly in the food, consumer goods and life-sciences
sectors. She advises on and litigates in relation to
intellectual property, contractual and regulatory
issues.
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
49

Luxembourg
Luxembourg
Margaretha Wilkenhuysen
Vincent Wellens
Partner
Luxembourg
T: +352 26 12 29 32
M: +352 691 12 29 32
E: greet.wilkenhuysen@nautadutilh.com
Luxembourg
T: +352 26 12 29 34
M: +352 621 15 61 78
E: vincent.wellens@nautadutilh.com
Margaretha Wilkenhuysen is a partner in our
Luxembourg corporate practice. She specializes
in cross-border corporate transactions, with a
particular focus on mergers and acquisitions, joint
ventures and international corporate restructurings.
Margaretha also has extensive experience in
corporate finance. Her clients include major
international corporations and she has represented
both domestic and international clients in a variety of
high-end transactions. Margaretha has been involved
in transactions for several life sciences clients, such
as Johnson & Johnson and Pfizer.
Vincent Wellens heads our Luxembourg IP/ICT
& competition practice. His recent work for life
sciences clients includes representing a major US
life sciences player in an ICDR arbitration on the
spin-off of a Belgian university and representing a
major pharmaceutical group before the Luxembourg
regulatory authority with respect to the marketing
authorisation for the generic version of one of its
products. He also lectures on R&D contracts at the
Luxembourg School of Commerce.
50

Disclaimer.
This publication contains general information on
current and upcoming legal and market issues and
trends. It is not intended to be comprehensive or to
provide legal, tax or commercial advice.
Copyright: NautaDutilh N.V.
Date: 9 May 2012
Author: Jeroen Kerkhof
Support: Pier Beerda
Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
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52
Room
for notes.

Life Sciences Outlook 2012 Dutch biotech companies: from start-up to exit
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