Klaus Breiner sets the record straight on seven misconceptions people have about biotech risk capital, in his essay for finews.first.

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1. Biotech venture funds are a stock market version of roulette because so many drug candidates fail or suffer setbacks during the development phase.

A distinction must be made between biologics and chemically derived drugs. In the latter category, one of every 13 drug candidates makes it to the market. With biologic drugs, every third candidate makes it.

Research has made tremendous strides during the past 20 years and scientists today can develop highly targeted therapies and test prospective drugs more effectively during the preclinical stage – with correspondingly higher rates of success in later stages. Once a drug finally receives regulatory approval, it can usually tap into a very large market given the high unmet medical need.

This contrasts with the situation for startups in many other industries, where there might not even be an established market to begin with.

2. For risk capital firms, Switzerland is clearly too small.

Switzerland is an extremely strong player in the field of biotechnology thanks to its excellent university network and the presence of two of the world's three largest pharmaceutical companies, Roche and Novartis in Basel.

Switzerland actually has more biotech firms per capita than most other countries. What's more, about half of all venture capital in Switzerland is invested in biotech firms.

3. In Switzerland, biotech firms operate often unwillingly out of the public eye.

Maybe out of the eye of the general public, but Swiss biotech firms have nevertheless developed many important technologies and products. Actelion, for example, developed the first medication for pulmonary hypertension.

One of the world’s first biotech companies was founded in Switzerland – Biogen – and several of its founders were Swiss medical scientists. Switzerland has spawned many other success stories in the meantime, Molecular Partners, Engmab, Neurimmune, Glycart and Esbatech, for example.

4. There isn’t a lot of capital available for Swiss biotech startups.

There are actually a higher-than-average number of so-called angel investors in Switzerland who invest in biotech startups. Roche and Novartis even operate their own venture funds.

But people have realized that there’s still a lack of funding for early-stage companies in Switzerland and attempts are being made to change that. Numerous new venture capital initiatives have been started, for example the Swiss Entrepreneurs Foundation announced by the country's economic minister Johann Schneider-Ammann.

The amount of funding available is actually plentiful. But many lenders are too reluctant to give money to early-stage firms, be it directly or through venture capital funds. They have also been unwilling to provide funding over a long period of time, although that is exactly what startups need.

5. The U.S. leads the world in biotechnology, Switzerland lags behind.

Switzerland and Europe are also leaders in developing innovative technology and product ideas. The valuations of biotech firms are currently much higher in the U.S., where too much capital is chasing ideas that are not entirely convincing – a typical seller's market.

Europe, by contrast, is a buyer's market where good deals can still be found at a good price.

6. Aging populations will inevitably increase cost pressures in the healthcare system.

Drugs are not only a cost factor, they also produce cost-savings. If a medicine for Alzheimer’s patients can postpone the progression of dementia and thus the need for costly personal care, it will save a lot of money.

Drugs account for only about 10% of total healthcare costs. Personal care and hospital inpatient care still account for the largest percentages of total health spending.

7. The biotech sector isn't attractive with Donald Trump in the White House.

Donald Trump isn't against innovation. A case in point is a CAR T cell therapy launched last year that can cost up to 400,000 dollars per treatment. It is highly effective in treating rare kinds of cancer that also afflict children. He is more interested in lowering the prices of drugs that have been in the market for a long time and cost more and more year after year.

So it's no coincidence that biotech shares advanced after Trump was elected. Last year he put Scott Gottlieb in charge of the FDA. As commissioner, Gottlieb has modernized the agency and introduced changes to shorten the approval pathways for innovative drugs.

Looking at the facts, then, the current U.S. president is more of boon than a bane for the biotech industry.

Klaus Breiner is a Managing Partner at BB Pureos Bioventures and a Senior Investment Advisor Private Equity with Bellevue Asset Management.

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