Biotech start-ups turn to US for finance


Ambitious European biotech firms still look to the US when they need large sums of venture capital, according to EU officials, who fear home-grown talent is crossing the Atlantic. 

Not only is it easier for high-growth start-ups to access funding in the US – enticing young research-based companies to abandon Europe – but Europe's own venture capital industry continues to lose the expertise of talented fund managers. 

Speaking at a conference on innovation in healthcare, Giulia Del Brenna of the European Commission's enterprise arm said biotech SMEs are a major source of dynamism but these companies have a hard time in Europe.

She said that economic prospects are already picking up in the US, but Europe is still dogged by structural problems that predate the current crisis.

"We have a funding gap. It is said that it's easy to raise the first €3 million and it's hard work to get to €25 million – but after that you'd better go to the US. And that is exactly what we don't want," said Del Brenna.

As well as addressing structural problems in the venture capital industry, Del Brenna said some of Europe's best venture capitalists currently work in the US.

"We need to develop the skills and expertise required to calculate the risk and invest. To take these kinds of risk you have to know the sector – that means understanding the science, the regulatory pathway and even reimbursement strategies in 27 member states," she said.

Del Brenna said the Commission is looking to make investments in early-stage biopharmaceutical companies more attractive for micro-fund business angels, as well as removing barriers to cross-border operations of venture capital funds.

Around €6 billion is earmarked for health research in the EU's framework programme (FP7), 15% of which is supposed to go to SMEs. Separately, €2 billion has been invested in the Innovative Medicines Initiative (IMI) – a public-private partnership designed to bring companies and experts together to collaborate on pre-competitive research projects.

Delivering the keynote speech at the conference, Innovation Commissioner Máire Geoghegan-Quinn said the health industry is a key sector of the EU economy and the Commission is committed to addressing "bottlenecks" in the innovation system.

She said developing more personalised and efficient products will help make European companies more competitive. Geoghegan-Quinn said SMEs are the "engines" of innovation but accepted that the escalating cost of clinical trials and long timeframe of product development make it difficult for smaller players to succeed.

Ludo Lauwers, senior vice-president at Johnson & Johnson Pharmaceuticals R&D, said the current model for developing new products is not sustainable. He advocates "open innovation" to help the pharma industry capitalise on new areas such as genomics and proteomics.

He said it took seven years to bring a product to market but it now takes 14 years to complete clinical trials and complete regulatory hurdles – "something no company, no biotech, no knowledge centre can do alone". 

"Most of our scientists need to open their minds too. We are working on a cultural change," Lauwers said.

Mutual trust will be central to the new open innovation model, he said, adding that incentives – such as market exclusivity – will be essential to attract investment.

Claes Post, senior business developer at Linköping University Innovation Office in Sweden, said the Swedish model of technology transfer had produced a vibrant biotech sector. Swedish university professors own their inventions and are entitled to commercialise new drugs and medical devices.

However, he said scientists should stick to science and leave entrepreneurs to bring innovations to market.

Michel Goldman, executive director of the Innovation Medicines Initiative, said the IMI has a unique intellectual property policy which promotes knowledge creation and facilitates disclosure.

To date, 24 SMEs are involved in the first 15 projects which have been announced under the initiative, he said.

"Companies tell us these projects offer a unique opportunity for networking and to make deals. However, they are also wary of the diffusion of commercially sensitive information and the administration burden," said Goldman.

The investment of public money will bring long-term rewards, he said, if new cancer diagnostics can be developed to help doctors prescribe more specific treatments. Goldman also pointed to projects examining adverse reactions to drugs – something which is a major burden on the taxpayer.

Ruxandra Draghia-Akli, director at the European Commission's health directorate, said investment in R&D in the health sector continues to fall at a time when the total cost of bringing a drug to market is around €1.3 billion.

She said around half of all small European biopharma companies feel under threat.

Personalised medicine, immunology, vaccines and epigenomics are among the more promising areas where investment is needed, according to Draghia-Akli, but these are areas where collaboration is needed.

"Health is not something that can be dealt with at a national level, the [H1N1 influenza] pandemic showed that problems can travel across borders," she said.

Jacques Viseur, managing director at Euro Top Cooperation Partners, said 93% of SMEs participating in framework programme projects deemed it to be a success. Participation can still be challenging, he said, but most small businesses go on to form lasting partnerships after the EU funding has ended.

"Typically, SMEs participating in FP7 are young businesses, largely supported by public funds and located in technology parks. Research shows that 43% are university spin-off companies," Viseur said.

Cristina Glad, executive vice-president of BioInvent International, said her firm had taken a coordinating role in an FP7 project which was successful because it was well structured. However, she warned SMEs against joining consortia simply to make up the numbers.

"Small companies are sometimes approached by a consortium just to have an SME on the application form. My advice would be only to get involved if it fits with your core business. Projects where SMEs take part for the wrong reasons are less likely to succeed," she said.

Speaking to EURACTIV, Peter Trill, chief financial officer at TPP Global Development, a UK-based drug development company, said the success of biotech clusters have been an important part of the US industry's success.

TPP Global Development has raised £9.6 million (€11.8 million) to invest in turning promising new molecules into new medicines. Trill said scientific and regulatory knowledge are also key to choosing the right things to invest in.

However, raising funds has not been easy at a time of financial crisis. "This is undoubtedly one of the toughest environments for raising money in the last 25 years – but it's not impossible," said Trill.

He welcomed the efforts of governments to support companies, adding that EU funding – particularly FP7 – is more important than ever.

Europe's venture capital sector was hit hard by the economic crisis but the industry had faced structural difficulties long before the crisis struck.

The financial turmoil has exacerbated the problem, putting innovative industries, such as Europe's biopharmaceutical sector, under severe pressure, according to an EU-sponsored report (EURACTIV 03/12/09). The OECD has also warned that lack of finance will stifle long-term growth (EURACTIV 17/06/09).

The European Commission has said improving the environment for venture capital is an essential component of its plans to make Europe more innovative.

The European Investment Bank (EIB) has pledged to ramp up its support for the venture capital industry (EURACTIV 23/03/10) while Innovation Commissioner Máire Geoghegan-Quinn has expressed frustration with Europe's failure to translate its academic strength into commercial success due to lack of finance (EURACTIV 18/02/10).

  • Autumn 2010: European Commission to publish Research & Innovation strategy.

Subscribe to our newsletters