The hidden crisis in Switzerland's pharmaceutical industry
"If there's no fresh capital flowing in, there eventually won't be enough to cover the expenses", says Alexander Bausch, CEO, and founder of the small pharmaceutical research firm Kinarus in Basel. He has recently experienced firsthand how long and painful a trip to the bankruptcy court can be. A few days ago, the trained pharmacist reached the end of his entrepreneurial journey. The company's balance sheet is filed with the court, and a liquidator is now taking care of the remaining assets.
Kinarus has died a quiet death. Although the publicly listed company was visible to a broader audience on the Six Swiss Exchange, it remained a small operation. The work of fewer than ten employees cost some private shareholders, creditors, and the Swiss Confederation a few million Swiss francs. The research goals in the field of eye diseases were not achieved, but the damage incurred is relatively minor, and not significant enough to create major waves.
Obseva, a research company in Geneva, has been operating for a longer period and on a larger scale than the one in Basel. Nonetheless, it also faces the threat of bleeding out, all while under the watchful eyes of the Swiss stock market audience. Since its founding in 2012, the company has burned almost $500 million. Successes in reproductive medicine have not materialized as hoped. There is no drug on the market that could guarantee revenue and a future for the company. Obseva recently published its report on the first half of the year, and it reads like an oracle: "The company believes its current cash and cash equivalents will only cover operational costs until the fourth quarter of 2023." It warns that "there are substantial doubts about the company's ability to continue operating within the next twelve months (...)."
Even Obseva's fate no longer creates significant waves. At the end of 2022, the company was forced to lay off more than two-thirds of its staff. Research projects with the highest chances of success were outsourced to third-party companies — purely due to a lack of funds and the knowledge that any potential future profits would only be a fraction of what Obseva would receive.
Weakest performers on the index
The fate of Kinarus and Obseva seem typical. Many pharmaceutical research companies in Switzerland are suffering from acute financial shortages. Of the 20 stocks with the worst performance on the Six Swiss Exchange in the past twelve months, every third one represents a small pharmaceutical researcher. "The problem didn't come out of nowhere," states Thomas Heimann, an analyst at Life Sciences Investor HBM Partners in Zug. "Many young biotech companies went public too early because it was relatively easy to raise a lot of money on the capital market." A year after the end of the pandemic, both public and private funding channels have been closed. Those who couldn't save during the golden times are now struggling.
But these days, it's not only small companies that are experiencing anxious moments. Even Idorsia, the giant among Swiss pharma startups, has been caught up in a perilous downward spiral. Founder and CEO Jean-Paul Clozel and his wife Martine, who is the Chief of Research, are running out of money. Idorsia burned approximately CHF 800 million annually until the executives came to the painful realization in the summer that hopes for a quick market success with the sleep aid Quviviq, which was already approved for distribution in the US in the summer of 2022, would not materialize.
Selling Asian business for liquidity acquisition
By the end of June, Idorsia had only CHF 33 million left in its coffers, which, according to the old spending pattern, would have lasted for only two weeks. The Clozels stepped in with a private bridge loan and hastily initiated the sale of the Asia business. The sale succeeded, providing Idorsia with some breathing room. Despite laying off 500 of its 1,200 employees in July, CFO André Muller noted in the half-year report: "The CHF 400 million deal (...) allows us to extend the availability of cash until early 2024."
To secure its existence, Idorsia might try to sell the marketing rights for the sleeping pill to a competitor. This would entail an upfront payment and revenue sharing. Nevertheless, the Clozels dreamed of something bigger. They aspired to replicate their success with Actelion and create a large, independent European pharmaceutical company. But even a successful transaction with the sleeping pill is no guarantee of survival if the company does not achieve other accomplishments soon, such as the market launch of Aprocitentan, a medication for resistant hypertension. Observers, however, believe that the medication will not receive approval in the US before March 2024.
Idorsia's stock price has lost four-fifths of its former value
More and more investors no longer attest Idorsia a chance in this race against time. The stock price has plummeted by almost 80% to around CHF 2.50 in the past twelve months. The company's market value is now approximately CHF 500 million — less than half of what analysts had projected for Quviviq's maximum annual revenue a year ago.
Idorsia cannot hope for generous financial helpers. "We've become more conservative with new investments as we need to reserve our resources in case they're needed for our existing commitments.," explains HBM analyst Thomas Heimann, who speaks on behalf of the investment industry. After the end of the stock market boom, it now takes significantly longer for an investment via an IPO to monetize, he ellaborates, citing the financial constraints of many pharmaceutical companies, which, due to their young age, could not accumulate reserves. Pharma is a key industry in the Swiss economy, but the financial shortage is no good news for the country.