Study on the competitiveness of the European biotechnology industry

The financing of biopharmaceutical product development in Europe
The Framework Contract of Sectoral Competitiveness Studies – ENTR/06/054

Final report

European Commission European Commission Enterprise and Industry Enterprise and Industry

This report was prepared with the help of funding from the European Commission's Entrepreneurship and Innovation Programme (EIP) under the Competitiveness and Innovation Framework Programme (CIP).

Legal notice Neither the European Commission nor any person acting on its behalf may be held responsible for the use to which information contained in this publication may be put, nor for any errors which may appear despite careful preparation and checking. This publication does not necessarily reflect the view or the position of the European Commission. NB-31-09-224-EN-C ISBN 978-92-79-14055-6 doi: 10.2769/33524 © European Communities, 2009 Reproduction is authorised, provided the source is acknowledged, save where otherwise stated. For use/reproduction of third-party copyright material specified as such permission must be obtained from the copyright holder(s).
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Study on the competitiveness of the European biotechnology industry – The financing of biopharmaceutical product development in Europe
The Framework Contract of Sectoral Competitiveness Studies – ENTR/06/054

Final report

Report prepared by Danish Technological Institute for the European Commission, DG Enterprise and Industry

Copenhagen/Brussels, October 2009


ECORYS Nederland BV W Registration no.1-5 . 24316726 ECORYS Macro & Sector Policies T +31 (0)31 (0)10 453 87 53 F +31 (0)10 452 36 60 2.ecorys. Box 4175 3006 AD Rotterdam Watermanweg 44 3067 GG Rotterdam The Netherlands T +31 (0)10 453 88 00 F +31 (0)10 453 07 68 E netherlands@ecorys.

1  From biotechnology sector to the biopharmaceutical sector 2.3  Conclusion 1  5  5  6  6  6  8  9  11  11  12  12  14  14  16  17  17  20  23  23  25  27  27  27  29  30  33  35  37  37  39  41  41  42  43  45  46 .2.  The framework and methodology 3.1.  The biopharmaceutical sector 4.3  Business dynamics within the biotechnology sector 4.4  R&D cost for developing drug candidates 4.2.1  The overall conceptual framework 3.  Strategies for product development 6.5  Conclusion 5.  Executive summary 2.3.1  Different forms of capital 5.3  Comparing the capital supply for life sciences in the US and Europe 5.1  The pipeline of the biopharmaceutical sector 6.2  Implementation of the survey 3.3.3  Drug development .2  Challenges facing the European venture capital industry 5.3.1  Financing gaps in biopharmaceutical product development 5.1  Number of drug candidates in the pipeline  Capital supply in Europe 5.defining the different development stages 3.3  Defining the biopharmaceutical industry 2.1  Establishing the inventory of biopharmaceutical enterprises for the survey 3.4  Selection of case studies 4.5  Conclusions 6.2  Defining business activities 2.3  Representativeness of the interviewed enterprises 3.2  Grouping the biopharmaceutical enterprises 6.1  Different sources of capital 5.3.4  Impact of the financial crisis 5.1.2  Objective of the study 2.1  Background  Methodological approach 3.  Introduction 2.2  Strategies for bringing the drug candidates to the market 6.Table of Contents 1.2  Venture capital investment strategies 5.  The capital base available for the biopharmaceutical sector 5.1  Development of biopharmaceutical products 4.2  The biopharmaceutical sector – key figures 4.2.

7.2  Regulatory measures related to product development and commercialisation 61  8.1-8 .6.3  Weaknesses 9.7  Conclusions 47  47  48  51  52  52  53  54  54  56  8.  Financing strategies 7. France Oryzon Genomics. distortions and negotiations 64  9.2  Strengths 9.  Policy and regulation 57  8. Italy Innate Pharma.5  Impact of capital shortage 7.4  Opportunities 9.3  Improving framework conditions for the biopharmaceutical sector and venture capital Bibliography Annex 1: List of interviewed expert Annex 2: Case studies Symphogen A/S.6  Conclusion and recommendations 9. Switzerland Cellzome.2  Internal barriers 7.5  Threats 9. United Kingdom 67  67  68  69  71  71  73  74  75  77  79  87  88  89  95  101  107  113  119  125  129  2.2  Recommendations focusing on increasing the access to finance for biopharmaceutical companies 9.5. Spain Arpida. Denmark BioArctic Neuroscience AB.1  Regulatory environment 57  8. Germany MolMed.1  Recommendations addressing early stage drug development 9.6  Exit strategies of investors  International markets – barriers.6.2  Access to capital 7.  Strategic outlook– conclusion and recommendations 9.3  Need for capital 7.4  Impact of financial crisis 7.1  Capital raised for drug development 7.1  SWOT analysis 9. Sweden Apogenix.1  Public policy and regulation related to funding 57  External barriers 7.

In turn. this biopharmaceutical sector has become one of the most research-intensive sectors with a great potential for delivering innovative human medicines in the future. Objectives of the study The European Commission has launched a study on the access to finance for biopharmaceutical companies in Europe to analyse these challenges and to formulate evidence-based policy recommendations that can support the competitiveness and innovative capacity of the European biopharmaceutical sector. the biopharmaceutical sector is facing 1) a structural funding problem relating to the sector’s risk profile. many biopharmaceutical companies – especially in the early stages of product development – are struggling to gain access to funding for their R&D activities. Investors are therefore focusing their investments on late-stage biopharmaceutical companies or investing in other sectors that are considered less risky than the biopharmaceutical sector. In addition. Moreover. The challenge for Europe The European biopharmaceutical sector faces a huge challenge concerning access to finance. Executive summary A small and specialised sector of research-intensive SMEs in the biotechnology industry focuses on the discovery and development of innovative biopharmaceutical medicines for human healthcare. This also includes firms specialized in the development of research tools for this objective (“platform firms”). 2) a supply side problem due to the challenges facing the European venture capital industry. The biopharmaceutical sector is defined as enterprises focused on discovery and development of biopharmaceutical products for human healthcare. Consequently. and enterprises involved in the production of biosimilars. biotechnology enterprises providing services to biopharmaceutical and pharmaceutical enterprises. Developing new biopharmaceutical products is very capital-intensive and it takes up to 10-15 years to bring a new product to the market. These characteristics make the biopharmaceutical sector less attractive to investors compared to other sectors. In terms of capital supply. a dedicated effort to support the biopharmaceutical sector in Europe can promote economic growth and employment in Europe. but excludes bio-manufacturing enterprises. eight in-depth case studies of European 1 . new statistical data gathered through a survey of biopharmaceutical companies in Europe (carried out in May 2009 where 87 enterprises participated in the survey ). much more capital is invested in life sciences in the US than in Europe. the financial crisis has limited the funding available to investments and made investors more risk-adverse.1. and 3) a historical funding problem due to the financial crisis. based on tools and approaches from modern biotechnology. and improve public health by ensuring that new innovative medicines are developed. and the European venture capital market is not sufficiently developed to support the biopharmaceutical sector. As a result. The study is based on desk research of reports and existing studies. Within the last 10-15 years. there is a high risk of failure compared to other sectors.

more than 40% of the biopharmaceutical enterprises will need to raise capital within the next year to maintain their current activity level. but with a bias towards the smaller and younger enterprises as this has been a key sampling criterion for the European Commission. often have only limited a wider perspective – European innovation. on the one hand. economic growth and employment. and only few (17%) biopharmaceutical companies in the survey indicate that they intend to bring products to the market on their own. If the funding situation continues to be critical. the product pipeline of many of the large pharmaceutical companies is drying out and the research projects in the biopharmaceutical sector thus constitute an opportunity for the pharmaceutical companies to ‘fill up’ their own pipelines with promising biotechnology-based drug candidates. The demand for capital The survey of biopharmaceutical enterprises in Europe shows that they lack access to capital. The financial crisis has especially limited the access to capital via an IPO or venture capital. This may eventually have a negative impact on drug development activities in Europe. This result is very much in line with the results of other studies. 2 . and .biopharmaceutical companies (carried out in May and June 2009) and interviews with experts. late-stage companies are also struggling to gain access to capital at the moment. Product development strategies in Europe There is a symbiotic relationship between the biopharmaceutical sector and the pharmaceutical sector. On the other hand. In line with expectations. The dominant product development strategy is aimed at either entering into alliances and/or outlicensing the drug candidates to reach the market. manufacturing and marketing (late stage) The survey of biopharmaceutical companies in Europe shows that the early-stage companies are finding it more difficult to gain access to funding. However. The survey is representative of the European biopharmaceutical sector. the survey shows that the financial crisis has had a negative impact on the access to capital for enterprises in the European biopharmaceutical sector. Biopharmaceutical enterprises. The need for better access to capital is evident in all phases of product development. 75% of the biopharmaceutical enterprises in the survey indicate that the financial crisis has made access to capital more difficult. Approx. the biopharmaceutical enterprises indicate that they will probably have to postpone new R&D activities or reduce the number of drug candidates. This symbiotic relationship is reflected in the survey of European biopharmaceutical enterprises. but three major funding gaps relating to the different stages of product development can be identified: • First funding gap: obtaining funding for platform development and pre-clinical development (early stage) • Second funding gap: obtaining funding for clinical trials phases 1 and 2 (middle stage) • Third funding gap: obtaining funding for clinical trials phase 3. Among the surveyed enterprises. and they may gain access to capital by selling/out-licensing drug candidates or establishing alliances with pharmaceutical companies.

The supply of capital in different development stages of biopharmaceutical product development is undergoing several changes.The capital supply in Europe Comparing the investments in life sciences in the US and Europe. Venture capital is the most important capital source for European biotech companies. A possible explanation for this under-funding of companies in Europe is that the European venture capital industry is more fragmented than the US VC industry and that there is less capital available to the funds in Europe than in the US. Studies indicate that Europe has 64% more VC funds than the US. The early stage is increasingly dominated by private investors such as business angels as well as public incubators and state-backed investors. Moreover. Several European countries have launched new funding initiatives to ensure that the national biotechnology sectors are in a better position to deal with the financial crisis and the risk that their funding may dry out. the financial crisis constitutes a serious threat to the future development of the sector. the analysis shows that the US is the world leader in life sciences investments accounting for two thirds of the total venture capital investments in life sciences. for instance. European funds manage 50% less capital in total. Data on the average amount of capital invested in companies suggests that European venture capital funds support too many companies with insufficient funding. and the performance of the European biopharmaceutical drug developing companies depends on access to capital from venture capital funds or large pharmaceutical companies. the government has launched a package of measures to help the Norwegian biotechnology industry through the financial crisis. the European VC funds may even be too small to ensure sufficient capital for follow-on investments or develop the expertise needed to invest in the biopharmaceutical sector. The European venture capital industry The amount of capital invested in each biopharmaceutical company largely determines the company’s level of activity and the strategic options available to the company. while their share of early-stage investments has declined thus making early-stage funding a more serious challenge for new biopharmaceutical companies. In Norway. One of the major changes is that venture capitalists have increased their share of late stage investment. sector such as the biopharmaceutical sector. capital-intensive. This gives the US biopharmaceutical companies a comparative advantage over European biopharmaceutical companies. For a highrisk. Yet. while the share of the EU Member States is 20%. 3 . and other initiatives are currently discussed in other European countries to ensure that the biopharmaceutical sector can survive the crisis. Impact of the financial crisis The financial crisis has had a negative impact on investments in all industry sectors even though it difficult to estimate how much the total venture capital market has been reduced.

The analysis suggests that future financing regimes should ensure that the sector has better opportunities to access finance in the product development process. Consequently. Based on the analysis. This could include speeding up the centralised procedure for marketing authorisation (EMEA) and adopting the successful Young Innovative Companies (YIC) scheme in European countries. the European Commission should recognise the unique structural characteristics of the biopharmaceutical sector (capital-intensive. However. 2) The lack of capital is especially a challenge for biopharmaceutical companies in the early stages of product development. However.Recommendations Currently the biotechnology industry has insufficient access to finance. we propose the following policy actions to make it easier for European pharmaceutical companies to gain access to capital: 1) Increasing public co-investments in venture funds focusing on biopharmaceutical companies is only part of the solution. the effects of these different models have not yet been analysed. The fund should focus on investing in biopharmaceutical companies based on principles of economies of scale and specialisation to provide sufficient funds and act as highly qualified and professional fund within biopharmaceuticals. The effectiveness of biopharmaceutical R&D and commercialisation needs to be improved to ensure that the sector is competitive and able to attract private funding. 4) The establishment of such a fund will increase the public co-investments in the European biopharmaceutical sector. the scheme does not currently consider the structural characteristics of the biopharmaceutical sector. and policy makers should therefore consider expanding the current timeframe of the YIC scheme from eight to 15 years. Consequently. high risk of failure) by considering sector-specific policy measures targeting the special needs of the biopharmaceutical sector. 5) Finally. innovative capacity and competitiveness of the European biopharmaceutical sector. policy makers need to support early-stage investments to ensure that innovative companies continue their development activities. The fund should operate on market conditions to ensure that funding is allocated to biopharmaceutical companies with a substantial market potential. the European Commission should consider a mapping and an in-depth analysis of the effects of different models used within and outside Europe (good practice). Such sector-specific measures would constitute a new approach in European industrial policy (compared to the current horizontal approach) that could successfully support the future development. 4 . public authorities and the investor community. the framework conditions for both biopharmaceutical companies and the venture capital industry in Europe should be improved to better support the development and competitiveness of these two industries. However. 3) Policy makers should consider increasing the availability of risk capital to biopharmaceutical companies by establishing a European Biopharmaceutical Innovation Fund. long time to market. One solution is to support micro-funds and investments by business angels in early-stage biopharmaceutical companies through public co-investments and tax incentives. European and national policy makers will also need to consider the geographical reach of the existing funding mechanisms at European and national level to ensure that global funding opportunities are exploited. New accelerating tech transfer models need to be explored by the biopharmaceutical sector. In fact.

The potential scientific and socio-economic impacts of the sector are thus substantial (European Commission 2006. In its 2007 Communication on the midterm review of the Strategy on Life Sciences and Biotechnology. European enterprises only have access to a fifth of the private equity finance that US enterprises have. However.europa.This makes biotechnology vital in the context of realising the major European goal of becoming ‘the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion’. These characteristics of the biopharmaceutical sector affect the willingness of external investors to invest in the development of new biopharmaceuticals. 20% of all marketed medicines and represent around 50% of all new medicines in the pipeline (Europabio (2009). JRC/IPTS. 30th May 2006 2 11 5 . Source: European Biopharmaceutical Enterprises (2008): Annual highlights 2007/2008 3 The 2007 European Innovation Scoreboard indicates that the EU is experiencing a declining gap with the US in earlystage venture capital.1 Background The European biopharmaceutical sector is an important platform for developing innovative products and services that may contribute to Europe’s competitiveness in the world market and ensure the health and well-being of citizens around the world. the Commission argued that the growth and economic sustainability of Europe's biotech enterprises are being held back by three main European Parliament website.europarl. According to the Europabio 2006 study.3 The substantial differences in the availability of and access to capital for biotech enterprises in Europe and the US have lead European stakeholders such as Europabio to conclude that the European biotech industry “shows signs of chronic underfunding”. The time to market is relatively long and the risk of failure when developing new biopharmaceuticals is very high.4 The European Commission has addressed the funding problems facing the European biotech industry on several occasions. The lack of adequate access to funding may in turn have a very negative effect on the level of innovation in the European biotechnology sector and the sector’s global Bio4EU 2008).1 The importance of the biopharmaceutical sector in relation to the pharmaceutical industry is growing.000 million.2 European biotech enterprises are unable to raise as much capital as US biotech enterprises.htm European Biopharmaceutical Enterprises estimates that – on average – the process of developing and bringing a new drug to market takes between 10 to 15 years with an estimated average cost of more than €1. Other industrial sectors also use scientific discoveries in the biopharmaceutical sector to develop novel products and improve production methods. biopharmaceuticals require large investments. Thus.2. Danish Technological Institute (DTI) conducted the study in cooperation with the ECORYS SCS Consortium. http://www. and US enterprises are able to raise twice as much venture capital compared to European enterprises. 2. Introduction This report is part of the framework contract on Sectoral Competitiveness Studies (ENTR/06/054). medicines deriving from biotech innovations (biopharmaceuticals) are estimated to account for approx. Source: Pro Inno Europe (2008): European Innovation Scoreboard 2007 4 Europeabio press release.

defined as ‘the application of science and technology to living organisms. the financing problem was explicitly addressed and two likely causes for the inadequate access to finance in Europe were identified. as well as parts. On this basis. 2. Based on this data. In this analysis. The Communication was followed by an analysis of the overall competitive position of the European biotechnology sector in July 2007. In this context. to alter living or nonliving materials 5 EU website. we analyse the ways that biopharmaceutical enterprises benefit from various funding sources and what strategies they have adopted to achieve growth and revenue generation. we analyse and describe the challenges that Europe faces regarding supply of risk and debt capital.3. namely underdeveloped venture capital markets and the fragmentation of financial markets (European Commission 2007b). Furthermore. national and European levels.5 This size criterion implies that we have excluded large enterprises from the study. the biopharmaceutical industry is defined according to a definition of biopharmaceutical products as well as to business activities related to the development new biopharmaceutical drugs and medicine. even though large enterprises have been excluded from the study. the Commission suggested that policy measures could improve framework conditions to make enterprises more attractive for earlyand late-stage investors and increase the overall availability of investment capital for European biotechnology enterprises. etc. However. the study only includes small and medium sized biopharmaceutical enterprises. 2.1 From biotechnology sector to the biopharmaceutical sector Modern biotechnology .htm 6 . products and models thereof. We also provide good practice examples that may provide inspiration to policy makers and stakeholders at the regional. small and medium sized enterprises are defined as independent enterprises with fewer than 250 employees. These two dimensions define the target group of the study and will be discussed in further detail below. A key element in the study is the collection of new and unique data on the funding situation for European biopharmaceutical enterprises and its impact on strategies and performance. they are still relevant as partnering companies or as a source of funding together with banks. venture capital funds. http://europa.3 Defining the biopharmaceutical industry The study's focus on “biopharmaceutical product development” means that it only deals with one subsector within the biotechnology industry. insufficient supply of risk capital and shortcomings in the cooperation between science and business (European Commission 2007). 2. According to the official EU definition of SMEs.2 Objective of the study The study aims at analysing the access to finance for European companies developing biopharmaceutical products.constraints: Europe's fragmented patent system.

for the production of knowledge. food processing.g. increasing the efficiency of substances used in industrial production). tissue engineering) • Stem cells • Gene therapy • Enzymes • Recombinant vaccines and therapeutic vaccines 7 . IPTS 2007): • Recombinant insulins • Other recombinant hormones • Growth factors (including erythropoietin’s) • Recombinant blood factors • Recombinant thrombolytic • Interferon’s and interleukins • Monoclonal and engineered antibodies • Cell-based therapies (e. Exhibit 2. Biotechnology used in the treatment of human beings is often referred to as ‘Red biotechnology’. on the other hand. cf. and diagnostics using biotechnology as the main technological platform. The specific types of biopharmaceutical products that are relevant to this study include (Rader 2005.1. including agricultural production. medical devices. refer to use of biotechnology in agriculture (e.. namely biopharmaceuticals for human healthcare including different biotechnology-based therapies and preventives.g.1: The biotechnology sector – technologies and products Red biotech (biomedical) Biopharmaceuticals Medical devices Green biotech Diagnostics White biotech Red biotech can be further divided into three subsectors. This includes diagnosis of health risks and the prevention and treatment of illnesses.. industrial production and healthcare.g. increasing the resistance of plants to specific diseases) or for industrial purposes (e. ‘Green’ and ‘White’ biotechnology. Exhibit 2. goods and services’ (OECD 2005) ..enables the development of new products and services in a wide range of economic sectors. This study of the financing of biopharmaceutical product development focuses exclusively on biotech-based therapies and preventives.

2008). There are many definitions of ‘biopharmaceuticals’ and this complicates the definition and identification of biopharmaceutical enterprises (Rader 2005). may result in the exclusion of enterprises that have left the drug discovery phase and are either carrying out clinical trials or applying for drug approval. As the study only focuses on biotech for human healthcare (´red biotech’). This definition of drug discovery firms (DDFs) refers to enterprises that “do very little else than biotech research” (Valentin et al. 8 .2. The OECD distinguishes between biotechnology active enterprises defined as “a firm engaged in key biotechnology activities such as the application of at least one biotechnology technique to produce goods or services and/or the performance of biotechnology R&D” and dedicated biotechnology enterprises defined as “biotechnology active firm whose predominant activity involves the application of biotechnology techniques to produce goods or services and/or the performance of biotechnology R&D” (OECD 2005). Focusing on research only. we can use the OECD definition of biotechnology enterprises as a starting point for defining a biopharmaceutical enterprise.3.2: Defining a ‘biopharmaceutical enterprise A narrower definition of biopharmaceutical enterprises can be found in a recent comparative analysis of Danish and Swedish drug discovery firms (Valentin et al.2. cf. however. Exhibit 2. These two OECD definitions are very broad and may include enterprises that do not carry out research and development of biopharmaceutical products.2 Defining business activities The study only focus on enterprises specialised in biopharmaceutical drug discovery and product development (referred to as ‘biopharmaceutical enterprises’ in the following). 2006). Exhibit 2.

Therefore. manufacturing and marketing The access to finance for biopharmaceutical companies largely depends on an assessment of the risks and uncertainties related to these different development stages. John. development.3 Drug development . This study focuses explicitly on the different development stages to better understand the challenges facing companies in the process of developing new drugs and to provide policy recommendations that Examples of specialised service companies are Clinical Research organisation (CRO) specialised i clinical trials and procedures for approval of new medicine as well as Contract Manufacturing Organisation (CMO) specialised in bringing or scaling test and research results into manufacturing 7 The value chain of development of new biopharmaceutical product consists typically of several business activities such as basic research. biotechnology enterprises providing services to biopharmaceutical and pharmaceutical enterprises6 and enterprises involved in the production of biosimilars. some firms become specialized in the development of research tools and services based on their technology platform (platform firms) as a service to make the R&D process more efficient and predictable. Rose (2004)) 6 9 . Damian and Barnard. we have excluded bio-manufacturing enterprises. prototype development. The main challenge for many drug-discovering companies is to move from the early stage in the value chain to reach the market with new products. clinical trials.test on large groups of people Later stages including authorization.testing in a larger group of people (100-300) Clinical trial phase 3 . Enterprises that have actually managed to introduce a product on the market may also be part of the target group if they are currently involved in biopharmaceutical R&D. The target group thus constitutes an important part of the category defined by OECD as Dedicated Biotech Firms.testing in a small group of people (20-80) Clinical trial phase 2.defining the different development stages Drug development is very often understood as a ‘trial and error’ process from the initial research results to the final market introduction of the new product. applied research. we define the target group for this study in line with the OECD definition of a dedicated biotech enterprise. Such a continuous and stepwise development model typically consists of the following stages: • Development of a technological platform – identification of (the technological potential • • • • • for) new drug candidates Pre-clinical test involving in vitro (test tube) and in vivo (animal) experiments Clinical trial phase 1. 2. verification and validation. Hine. based on tools and approaches from modern biotechnology including firms specialized in the development of research tools for this objective (“platform firms”).3. The biopharmaceutical firms will typically develop new medicines based on a technology platform. and companies will face different financial challenges in the respective stages of the development process. the target groups of this study are enterprises focused on discovery and development of biopharmaceutical products for human healthcare. The challenge for the biopharmaceutical sector is to develop new medicine based on new scientific knowledge and research results. Thus. manufacturing and marketing (Kapeleris. This technology platform represents scientific knowledge and tools for drug development. Some of these firms will give up their ambition to develop their own new drug candidates and become pure service providers while other firms are hybrids operating both as a platform company and a drug discovery firm (Lanza 2009).7 However. However.

we group the stages into early-stage development (development of technological platform and pre-clinical test). 10 . manufacturing and marketing). mid-stage (clinical trials phases 1 and 2) and late-stage development (clinical trial phase 3.take these differences into account. authorization. However.

g. The study will distinguish between the supply of capital to biopharmaceutical enterprises (supply situation) and the impact of the supply situation on strategy and performance of biopharmaceutical enterprises. Framework conditions include a wide range of factors that may affect the demand and supply of capital as well as enterprise strategies and performance such as regulation and structure of capital markets..1 The overall conceptual framework The European Commission has requested an in-depth analysis of the demand for and supply of capital for biopharmaceutical enterprises – in a global perspective as well as focusing on developments in the EU’s internal market. The underlying logic is that the supply situation has an impact on the choice of strategy and thus. 3. approval procedures as 11 . We structure the analysis of the financing of biopharmaceutical enterprises according to the following analytical model: Exhibit 3. Such a mismatch may result in a change in strategy by biopharmaceutical enterprises – for instance by relocating from a region with limited access to capital to other regions with better access to capital – and may also affect enterprise performance.. on the performance of enterprises.1: Conceptual framework Changes in the supply of capital (e. progress in the development of new drugs) may result in a mismatch between demand and supply of capital. in turn.g.3. we will briefly describe key elements of the analytical approach that will guide the analyses. In addition. The framework and methodology The aim of the conceptual framework is to define the key concepts and delimit the scope of the study. decreased risk tolerance among investors) or in the demand for capital (e. regulation of biotech research and product development.

Instead. Interviews with experts (venture capital funds.2 Methodological approach Our methodological approach to examining and analysing the competitiveness of the European biopharmaceutical industry with a particular focus on the financing of biopharmaceutical product development in Europe is based on the following sources of data and information: • • • • Desk research (literature review) focusing on relevant European and foreign publications and the collection of statistical data (OECD. researchers and government officials). The survey provides mainly quantitative data on the financial situation. industry representatives. the national and regional biotech organisations have ‘local’ knowledge about enterprises in their region or Member State. The survey and case studies constitute the main evidence base for this study. attitudes towards entrepreneurs). the contact information for the biopharmaceutical enterprises was collected via the regional and national cluster organisations in Europe. In several cases they have been able to 12 . Biopharmaceutical clusters represent a high concentration of relevant enterprises as well as a concentration of potential capital suppliers such as venture capital funds and big pharmaceutical companies. The enterprise were interviewed in May and June 2009 Case studies of eight biopharmaceutical enterprises in Europe. Moreover. degree of public involvement in R&D. access of enterprises to international markets (Romain & Pottelsberghe 2004. EFPIA etc. strategic choices and perceptions in the industry. based on tools and approaches from modern biotechnology which also includes firms specialized in the development of research tools for this objective (“platform firms”). These interviews provide mainly information on key issues related to the financing of biopharmaceutical product development and help identify good practice examples. Below. flexibility of labour markets. A key challenge is to identify and select biopharmaceutical enterprises for the survey. In fact.1 Establishing the inventory of biopharmaceutical enterprises for the survey The ‘biopharmaceutical industry’ does not exist in official statistical industry classifications (i. and much of the basic statistical data on the sector is therefore not available (European Commission 2007b).g. Europabio. OECD 2008). Survey of 87 European biopharmaceutical enterprises carried out as telephone interviews. The list of experts interviewed is enclosed in Annex 1.well as cultural aspects (e.2. we describe our approach to preparing and carrying out the survey and case studies. there is no official Eurostat data on the sector and there is no public register of biopharmaceutical enterprises in Europe. Eurostat. risk attitude in society. 3.e.. Unfortunately. EBE. The case studies are enclosed in Annex 2. The target group ‘biopharmaceutical enterprises’ was defined as small and medium sized enterprises focused on discovery and development of biopharmaceutical products for human healthcare. These case studies provide qualitative information on enterprise strategies and impacts of the capital supply situation on performance. 3.).. NACE codes). much of the existing data on the sector is based on surveys carried out among a selection of biopharmaceutical companies.

An innovative enterprise environment with focus on research and development activities and access to capital. 2. In this way. the Council of European BioRegions (CEBR). In some cases the organisations have also been able to provide detailed contact information for local biopharmaceutical enterprises.htm 8 13 . Europe INNOVA and the European Commission. Switzerland and Germany Germany  Germany  Hungary  Italy  Spain  Sweden  UK  Region  Copenhagen and the Scania (Skåne) Region  Marseille Alsace. Cambridge Our contact with the regional associations and cluster organisations enabled us to put together a list of biopharmaceutical enterprises. An appropriate geographical distribution in order to ensure that the study provides a representative picture of the state of affairs in Europe.9 The clusters were then evaluated according to the following criteria: 1.europa. However. 3. we identified a list of 429 biopharmaceutical enterprises (SMEs). The list was based on information provided by the European Cluster Observatory8.identify enterprises that are relevant to the study. South Baden and Northwest Switzerland  Berlin Brandenburg Metropolitan Region Rhine‐Neckar‐region  Kozep‐Magyarorszag (Budapest) Lombardy Milano Catalonia  Stockholm and Uppsala England.2: Selected biopharmaceutical regions   1  2  3  4  5  6  7  8  9  10  Country  Denmark/Sweden  France  France. some potential or pure platform firms could be included in the samples as they also represent the first stage of product development and/or hybrid forms between product development and service providers. This definition of biotechnology contains several industry classifications.2 below: Exhibit 3. A high concentration of small and medium sized enterprises involved in biopharmaceutical product 9 Competitiveness in Biotechnology: ec.clusterobservatory. Finally. As the focus of this study is limited to biopharmaceutical enterprises only a limited number of the clusters identified in the Observatory are relevant for this study. We put together a list of biopharmaceutical/biotech regions and clusters in Europe. we screened the homepage of each of the companies to ensure that the core activity of the companies was biopharmaceutical product development. The European Cluster Observatory has identified 36 biotechnology clusters (Identification of the used NACE codes has not been possible). EuropaBio. The ten selected biopharmaceutical regions are shown in Exhibit 3.

2 Implementation of the survey The survey data was gathered via telephone interviews with CEOs or CFOs of biopharmaceutical companies. estimated the number of biopharmaceutical enterprises in Europe to be approx.2. Studies carried out by business associations have.3.3).3: Implementation of the survey    The total sample Total number  Vertical  of enterprises   percentage     1  2   30  12  27  51  12  20  25  88  41  33  46  385  8 3 7 13 3 5 6 23 11 9 12 100 The interviewed enterprises Number of enterprises     3  8 1 6 6 3 4 11 24 9 12 3 87 Vertical  percentage   4   9 1 7 7 3 5 13 28 10 14 3 100   Response  rate  (percentage)  5=3/1  27  8  22  12  25  20  44  27  33  36  7  23    Denmark  Belgium  France  Germany  Hungary  Italy  Spain  Sweden  Switzerland  The Netherlands  UK  Total  A total of 87 interviews were carried out with either a CEO or a CFO. Whenever possible the interviews were carried out immediately or else an appointment for an interview was made. Exhibit 3. however. The survey was implemented in four steps: • Development of the questionnaire • Pilot test of the questionnaire by interviewing two biopharmaceutical enterprises and subsequent revision of the questionnaire • Sending out a letter of introduction concerning the survey to all enterprises in the survey • Contacting the enterprises by phone. The interviews were carried out by English speaking interviewers. Exhibit 3.3 Representativeness of the interviewed enterprises It is difficult to assess the representativeness of the sample of enterprises identified through the regional associations and cluster organisations as there is no official data on biopharmaceutical enterprises in Europe.2. 14 . Unfortunately. cf. 800 (EuropaBio 2006. 3. This number of interviews corresponds to a response rate of 23 percent. the contact information for some 50 enterprises was not up to date or incorrect. This reduced the number of potential interview cases to 385 enterprises (cf.

• Research oriented (61% of the employees are researchers and 84% of all business activities are dedicated to product development). this bias will not have significant impact on the analysis as the focus of the study is on the overall conditions for the biopharmaceutical enterprises in Europe and not on differences between the Member States. This suggests that the identified sample of 385 enterprises represents more than half of the biopharmaceutical enterprises in Europe. is overrepresented in the survey. Sweden. section 4. In other words.2). on the other hand. we will refer to the survey as the DTI-biopharmaceutical survey or as the DTIbiopharmaceutical surveyed enterprises. we consider the sample to be representative of the European biopharmaceutical sector. In this study. cf. sections 4. However.3 for a general characteristic of the sector. but the reader should keep in mind that the survey only gives a partial picture of the biopharmaceutical sector. Looking deeper into the characteristics of the enterprises that participated in the survey. We do find that the number of respondents in the UK and to some extent also in Germany is very low. 10 The same goes for the entire sector. the survey largely represents the segment of young biopharmaceutical enterprises with significant growth potential rather than the segment of large and more established enterprises. but with a bias towards small and young enterprises as this has been a key sampling criterion for the European Commission.4: Number of employees in the interviewed enterprises (N= 87) In conclusion. cf. cf. it is difficult to know whether the country distribution of enterprises is representative for the whole population of European biopharmaceutical enterprises.2 and 4. Exhibit 3. Exhibit 3. Unfortunately. we find that the interviewed enterprises are: • Small enterprises (66% of the enterprises have less than 20 employees. • ‘Young’ enterprises (71 % of the companies are established in year 2000 or later)10.4). This bias does not erode the value of the survey.3 15 .Section 4.

16 . The case studies are based on web research and on an interview with the CEO or CFO using a common semi-structured interview guide for all the case studies. Furthermore. Switzerland. Our aim has been to cover different types of enterprises in different regions. The case studies represent biopharmaceutical enterprises with drug candidates in different phases of product development and also enterprises with products on the market.3. The case studies are enclosed in Annex 2. the selection of enterprises in different regions has enabled us to examine the impact of differences in regional financing conditions and regulatory frameworks. Italy. Spain. The information provided by the organisations was validated before the companies were contacted.2. We have carried out eight case studies of enterprises located in Sweden. Germany and the UK. The regional/cluster organisations were asked if they could recommend any local enterprises within the target group.4 Selection of case studies The regional/cluster approach was also used to identify and select enterprises for the case studies. Denmark. France.

The most reliable data sources for a quantitative overview of European biopharmaceutical enterprises are OECD’s biotechnology statistics and sector analyses carried out by. the chemical sector or simply as ‘research and development’. The biopharmaceutical sector The aim of this chapter is to give a short presentation of the biopharmaceutical sector based on available statistical information as well as highlighting the characteristics of the sector. As a result.1 Development of biopharmaceutical products The biopharmaceutical sector is a relatively young sector compared to the pharmaceutical sector which introduced Aspirin® to the market more than a century ago.4.. the biopharmaceutical enterprises are included in the statistics for the pharmaceutical sector. recombinant human insulin was approved and soon after introduced to the market (European Federation of Pharmaceutical Industries and Associations 2008). This trend also represents a movement towards an increasing complexity in the development of medicines.typically the entire biotechnology sector . The initial focus on drug discovery and development based on biotechnology was later complemented by research focusing on a better understanding of the causes of diseases by mapping the human genome. e. they are also facing an increasing need for funding research and early drug development (Ernest & Young 2008). Instead. 4. in 1982. biopharmaceutical product development is carried out by pharmaceutical companies as well as by independent biopharmaceutical enterprises established on the basis of research carried out at universities or in pharmaceutical companies (spin-out). a range of scientific and technological breakthroughs in biotechnology and nanotechnology has had a tremendous impact on product development in the pharmaceutical sector. The implication is that the biopharmaceutical enterprises are not only facing increased challenges when turning fundamental research into drug development and new medicines. in most cases the statistical presentation will include other sectors . Since then. the sector does not have its own classification in the Eurostat database. However. Overall. EuropaBio and The European Federation of Pharmaceutical Industries and Associations. The first (modern) biopharmaceutical technologies were introduced about 40 years ago when the first DNA technology experiment was performed. based on tools and approaches from modern biotechnology which also includes firms specialized in the development of research tools for this objective (“platform firms”). these data sources apply different definitions of biotechnology/biopharmaceutical enterprises and are subject to a range of methodological reservations that need to be taken into account when analysing the biotechnology sector.than the defined target group for this study – enterprises focused on discovery and development of biopharmaceutical products for human healthcare. Some 10 years later. Exhibit 4.g. the introduction of modern biotechnology brought a shift from tissue and cell biochemistry to a focus on molecular structures. cf. Today. Unfortunately.1. 17 .

In the same period the number of patents application originating in US was significantly higher.790 patents in 2000.1: A chronology: Research and drug development focus within biopharmaceuticals Source: European Federation of Pharmaceutical Industries and Associations 2008: The Pharmaceutical industry in figures. by 2005 the number of new patents had dropped and seems to have stabilized at a level of 2. 18 . the total number of “healthcare” patent applications in EU27 is assumed to be below the number of patent applications in the US (Eurostat 2007).Exhibit 4. while Germany is the only EU Member State to follow the US. cf. The development and discoveries in biotechnology (e. 65% of US patent applications are within “healthcare” (red biotech)..200 to 2. In other words. but in recent years a converging trend in the number of patents applications between EU27 and US has been observed. Exhibit 4. biopharmaceuticals) at the beginning of the 1990s resulted in a wave of patents. From 1994 the number of biotechnology patents applications increased significantly in the EU27 countries from 1.315 in 1994 to 2.300 patents per year.g. However. Among all the US biotechnology patents.2.

etc. green biotech and white biotech (cf. 11 19 . In 2008. Exhibit 2. The number of drug candidates in the pipeline (clinical trials phase 1-3) in the European biotechnology industry increased in the period 2006-2008. whereas in 2008 almost half of the applications were for generics. 350 were in clinical phase 1. the total number of drug candidates in the pipeline was estimated to exceed 1. hybrid products. Source: Eurostat database 2009. more than 600 in phase 2 and about 160 drug candidates in clinical trials phase 3 (Ernst & Young 2009).1) as well as larger companies is included. Exhibit 4. The number of applications for new medical products was rather stable from 1996 to 2005 when the number of positive evaluations increased dramatically.3.000 of which approx. analysing the pipeline of the biotechnology companies Ernst & Young (2009) is apparently applying a more narrow definition somewhat equal to the definition of biopharmaceutical companies. Looking at the initial evaluation applications by type of application. Another interesting point is that Ernest & Young (2009) finds that the smaller European biotech companies have less success with regard to approvals.Exhibit 4. cf. EU 27 and US. we observe (especially in 2006 and 2007) an increase in the number of application for new medicinal products. Ernst & Young (2009) is applying a definition of “biotechnology” corresponding to the both red biotech. This might indicate a change of focus in the (bio)pharmaceutical industry from developing new medicines to exploring the potential of existing medicines. However.11 The development in the number of patents does not seem to have had any impact on the number of drug candidates in the pipeline yet.2: Number of biotechnology patent applications to the European Patent Office by priority year. The European Medicines Agency assesses applications for marketing authorisation for new medicines (biopharmaceuticals as well as traditional pharmaceuticals) for human use.

Bio4EU 2008). spent about €7. The biopharmaceutical sector is (still) a relatively small industrial subsector compared to other sectors that are also characterised by a high international orientation (high export share) and A definition: biotechnology enterprises includes enterprises whose primary commercial activity depends on the application of biological organisms. In contrast. 4% to approx. 10% (JRC/IPTS.163 biotechnology enterprises in Europe (excluding large pharmaceutical enterprises and enterprises in the supplying sectors). EU currently holds a comparatively weak position in the development and marketing of biopharmaceuticals.6bn on R&D and generated a revenue in excess of €21. 12 20 . including 42.5bn in 2006 (EuropaBio 2006. the sector employed over 96. number of initial-evaluation applications1995 . In the same period. Studies covering dedicated biotechnology enterprises12 have identified 2.500 in R&D. Bio4EU 2008). Of all available products in the world market (154 products). According to these studies. US companies have developed 54% of the products.Exhibit 4. European Commission 2006). the accumulated number of biopharmaceuticals on the market increased from approx. the sector is one of the fastest growing sectors and one of the world’s most wealth-creating industries. Swiss companies have developed 10% of the products on the world market (JRC/IPTS. 30 to 85 in 2005 in the EU. systems or processes.2008 Source: Annual reports of the European Medicines Agency Since 1996. 4. while only 15% of the products have been developed by EU companies. the EU market for biopharmaceuticals as a share of all pharmaceuticals increased from approx. or on the provision of specialist services to facilitate the understanding thereof.500 people. Nevertheless.3: Outcome of initial-evaluation applications for medicines for human use.2 The biopharmaceutical sector – key figures The biopharmaceutical industry is not a large industrial sector in terms of number of enterprises or employees.

Exhibit 4.13 The R&D intensity of the biotechnology sector can be illustrated by the EU industrial R&D Investment Scoreboard (JRC/IPTS and DG Research 2008) in which an analysis of industrial research among the world’s top 1402 companies found that 15 sectors constitute 93. service.163 dedicated biotechnology enterprises identified in Europe (see above) can be divided into four sectors: biodiagnostics.0%) The pharmaceutical & biotechnology sector even exhibited double-digit R&D growth over the last three years.R&D. technology hardware & equipment (18. while US companies account for 49%.3% of the total R&D. EU companies (including Switzerland) account for 28% of the investments in R&D. cf.800 employees.4: European biotechnology industry by subsectors Biodiagnostics 18% Agbio and  environment  11% Human  healthcare 37% Services 34% Source: EuropaBio 2006 13 Eurostat 21 . and human healthcare.3) and automobiles & parts (17.4.intensity such as “radio. Bio4EU 2008). not least the pharmaceutical industry. precision and optical instruments” with respectively 771.2%). television and communication equipment” or “medical. it is not possible to estimate the economic importance of the sector for other industries due to lack of data (JRC/IPTS.600 and 1.046. The biopharmaceutical sector is considered a driver of innovation in a range of industries. The 2. and new biopharmaceuticals are likely have a positive impact on the healthcare sectors and healthcare in general. However. Exhibit 4. agrobio and environment. Within pharmaceuticals & biotechnology. The top three sectors were pharmaceuticals & biotechnology (19.

The majority of biotechnology enterprises are located in Germany. cf. Exhibit 4. However. drug discovery. The availability of capital in Europe is also limited compared to the US (EuropaBio 2006).5: Number of biotechnology enterprises in 2004 Source: EuropaBio 2006 Looking at the size of the enterprises in relation to number of employees. Especially Denmark and the UK are characterised by relatively large enterprises. whereas countries such as Sweden and the Netherlands are characterised by small enterprises. For Europe. red biotech 22 . Exhibit 4. but global competition is fierce. European biotechnology enterprises produce fewer products and employ fewer people than their US counterparts. Many countries and regions strive to attract this rich source of taxable wealth and potential in job creation. the main global competitor is currently the US biopharmaceutical sector. There are more biotechnology enterprises in Europe than in the US. This sector is the largest group comprising 37% of the total number of enterprises in the biotechnology sector corresponding to approx. vaccines. such as the biopharmaceutical sector. With countries such as India and Singapore moving up the global value chain. the competitive pressure on the researchintensive sectors in Europe. Germany and France. 14 Biomaterials. drug delivery. The number of biotechnology enterprises in European countries differs significantly. Many of the biotechnology enterprises in the new Member States are recently established and the biotechnology industry in the new Member States is mainly involved in manufacturing activities. the leading countries are the UK.5. will probably increase further. the UK. innovation and growth.The business activities of the human healthcare sector14 largely represent the definition of the target group for this study. genomics. Denmark. In the new EU Member States data on the biotechnology industry is still sparse and fragmented. France. gene therapy or healthcare cell therapy. 800 enterprises.

This means that even though there is a strong entrepreneurial spirit and a rapid development of new enterprises in Europe.000 m. A recent study estimates the average capitalized cost per approved biopharmaceutical in 2006 to be approx. Furthermore. The total cost of R&D increased significantly from the mid-1990s to 2007 from approx. The implications of a fragmented patent system in Europe include high uncertainty. which have mostly occurred in Germany. resource-intensive approval procedures and costs associated with manufacturing (if the trials are successful).3 Business dynamics within the biotechnology sector During the mid 1990s the number of biotechnology enterprises doubled in Europe.(source: Eurostat) 15 23 . they employ almost 50% of the total number of employees and earn about four fifth of the total revenue. €1. quality drop and prohibitive costs.G 2007). China and South Korea thus constituting a financial burden on especially small biopharmaceutical enterprises in Europe (van Pottelsberghe 2009).4. 10% of the enterprises in Europe were formed before 1989. In Europe.(index 2005= 100) estimates the prices to have increased from index 79 in 1997 to 105 in 2005 indicating a significant increase in R&D cost in real terms equivalent to a 78% increase in real terms. The size and the relatively young age of the European biotechnology enterprises may therefore be an important issue in relation to the competitiveness of the sector. €27bn reflecting an increase in R&D activities15 (European Federation of Pharmaceutical Industries and Associations 2008). the risk of failure in biopharmaceutical research and development is extremely high compared to other research-intensive sectors. the majority of the biotechnology enterprises are small and generate very limited revenues (EuropaBio 2006).A. The study observes that these costs as well as the time it takes to bring a new drug to the market have increased significantly the last 10 years (DiMasi and Grabowski 2007 and DiMasi J. €8bn to approx. Promising new substances often reach an advanced stage of research before the results of clinical tests demonstrate that they do not Current prices: Harmonized Indices of Consumer Prices (HICPs for EU 27. costs associated with clinical trials. The increase in R&D costs is resulting in an increased need for funding (European Federation of Pharmaceutical Industries and Associations 2008). 4. Scandinavia and the UK. Restructuring activities instituted to gain critical mass have been the main reason for the mergers and acquisitions. In the years after 2001 the industry was characterised by consolidation through mergers and acquisitions. This resulted in a slight decrease in the number of biotechnology enterprises in Europe. and Gabowski H. The new enterprises were mostly small in relation to number of employees.4 R&D cost for developing drug candidates It is costly to discover and develop a new drugs/medicines due to expensive research processes. which are at least four times higher than in the US. and between 2003 and 2004 the number of European biotechnology enterprises decreased by 2% (EuropaBio 2006). 25% of the biotechnology enterprises are less than 2 years old and they employ just over 5% of the employees in the sector. In contrast. An additional point is that European R&D costs are higher than in other world regions due to the fragmented European patent system.

The cost of every successful drug includes the cost of all the failures. The relationship between the biopharmaceutical sector and the pharmaceutical sector is a symbiotic relationship. the time it takes for a drug to travel from the laboratories to marketing authorisation can take up to 10 to 13 years or even longer. the window for generating market revenue can be very short (5-7 years). Of every 500 product candidates entered into the approval process.6: Typical phases from research to the market for a drug candidate Source: European Federation of Pharmaceutical Industries and Associations 2008 Most patents expire after 20 years. Exhibit 4. On the one hand. Of those five product candidates. only one will be approved (DiMasi et al 2003). Exhibit 4. as biopharmaceutical enterprises tend to have limited resources and may gain access to capital by selling/out-licensing drug candidates or establishing alliances with pharmaceutical companies. cf. and considering the long time it takes to bring a biopharmaceutical product to the market. only an average of five will progress into the human testing phase. Finally.6. 24 .perform as required to have any market value. the product pipeline of many of the large pharmaceutical companies is drying out and the research projects in the biopharmaceutical sector thus constitute an opportunity for the pharmaceutical companies to ‘fill up’ their own pipelines with promising biotechnology-based drug candidates. On the other hand.

• • • All in all. 25 . The number of the new drug candidates in the pipeline has increased to more than 1.300 patent application per year from European companies. 10%.5 Conclusion In conclusion.200 – 2. The number of biopharmaceuticals has almost tripled in 10 years and has reached a market share of all pharmaceuticals of approx. €1.4. Increasing the R&D investments in biopharmaceutical R&D will be one of the key success factors in realising the full potential of the sector. So has the average cost of gaining approval for the drug candidate. it should be noted that: • • Biopharmaceuticals is a dynamic research area where new scientific discoveries generate a technology platform for developing new drug candidates. More research is carried out. the biopharmaceutical sector is still a minor industrial sector but with a significant growth potential. The development in the number of patents does not seem to have had any impact on the number drug candidates in pipeline yet.000 drug candidates in clinical trial phases 1-3. but it has also become costly to take new drug candidates through clinical trials.000 m. R&D investment has almost doubled since the mid-1990s and reached a level of more than €27bn in 2007. but the last few years the number of patents seems to have stabilised at a level of 2. A recent study estimates the average capitalized cost per approved biopharmaceutical in 2006 to be approx. The number of biopharmaceuticals patents has increased significantly. but on average only 1% will process into human test and fewer will be approved.

26 .

e. out-licensing drug candidates. PIPEs (Private Investments in Public Equity). In the later stages we find IPOs (Initial Public Offerings) and public equity are also important sources of funding.public funding is often used (grants. This is illustrated below in Exhibit 5.g. 5.1. According to the report.1: Key financial actors   Low level of  involvement  High level of  involvement  Discovery  Family and friends  Government (e.. e. more than two thirds of the European biotech companies participating in the survey also planned o raise capital through grants. In the very early stages of product development . loans)  Business angels  VC and CVC  VC and CVC  Note: CVC is an abbreviation for Corporate Venture Capital. forming alliances with (bio)pharmaceutical companies. FP/CIP). Exhibit 5.often before the product ideas turn into a business idea .g.1.. The capital base available for the biopharmaceutical sector 5.1 Different sources of capital The composition of capital sources for biopharmaceutical product development tends to vary with the development stage of a product.g.). Exhibit 5. venture capital is the most important capital source for European biotech companies. There are different ways of raising capital for drug development such as applying for public grants (national as well as European.1 Different forms of capital An overall assumption is that the potential investors in biopharmaceutical product development can be organised along two axes: The first axis is related to the process of product development (innovation) and the other axis to the degree of involvement by the investor in the enterprise. making grants the second most important source of funding for European biotech companies after venture capital. companies investing in biopharmaceutical companies.  grants)    Early development  stage  Government loans  Late development  stage  Banks (e. 27 . and bank loans. attracting venture capital. In a report by Ernst and Young (2007)..5. etc.2 shows some of the key sources for funding in the early stages of product development (and business development).g. Initial Public Offerings (IPO) and follow-on offerings.

16 16 EIB website.2: Sources of funding typically for early-stage product development Source: OECD (2008) Private equity is an important source of capital in biopharmaceutical product development. family.eib. http://www. which usually covers the early development stages. developing a new product or making strategic acquisitions. i. Mezzanine finance can be considered an alternative to banks who are often reluctant to lend money to high-risk projects as well as private equity investors who will often demand shares in exchange for capital.) in small and medium sized companies to help with specific growth challenges such as entering a new market.Exhibit 5. Mezzanine funding is a hybrid form of capital combining features of equity financing with classical debt features. Finally. Mezzanine financing is thus an opportunity for companies involved in high-risk R&D to raise capital without diluting existing shareholders’ rights. to the point where the company needs capital to expand commercial operations (EVCA 2009).. This refers to investments (often minority stakes held by informal investors such as friends. a mezzanine finance provider will be compensated for the risk associated with lending money by getting a share of the upside when the borrowing company achieves its growth objectives. for instance by buying out all or the majority of the shares in a company (EVCA 2009). from the first concept to the point where the company has developed its first product. business angles. buyouts typically involve mature businesses and a change of control over the company.htm 28 . In contrast to traditional bank loans. The different types of private equity include venture capital. Other types of private equity include growth or expansion capital.

the investment strategy of corporate VC funds (e. VC funds get involved in the management of their portfolio companies. differences in the structure and development of national technology sectors are probably also an important element in explaining national differences in investment strategies.g. execute an IPO or complete a trade sale to a larger company (EVCA 2009). However. One example is Novartis’s venture funds that include a ‘traditional’ venture fund focusing on financial returns and an option fund focusing on providing funding for innovative start-up companies during their 29 . Specifically. large pharmaceutical enterprises) may differ from the strategies pursued by other types of VC funds. and they may use their experience and expertise to help them raise further early-stage capital.g. bank-backed VC firms in Israel and the UK invest in late-stage activities compared to other funding sources. there are country specific variations.5.1. investment strategies within CVC funds may differ. the CVC funds may pursue financial as well as strategic objectives in their investment strategies. while bank-backed VC firms in Germany and Japan do not differ from other VC funds (Mayer et al 2001). However. One example is Switzerland which is characterised by a very close and long-standing relationship between the financial sector and the life sciences sector. The differences in investment strategies may reflect differences between different countries with regard to financial systems and traditions. start up).   Tight link to operational  capability of investor    Loose link to operational  capability of investor  Source: Chesbrough 2002 Strategic investment objective  Driving – advancing current  business strategy  Enabling – complementing  current business strategy  Financial investment objective  Emergent – exploring potential  new businesses  Passive – financial returns only  Adding to the complexity..3: Exhibit: Different types of relationship between CVC and a portfolio company (e. VC firms backed by banks and pension funds often invest firms in the late stage of enterprise activities. The close relationship and the expertise of the Swiss financial sector in the life sciences domain could be one of the key elements in explaining the relative success of Switzerland in terms of providing access to capital for biotech companies (Ernst & Young 2008b). However. VC firms relying on private investors favour early-stage activities.2 Venture capital investment strategies Venture capital funds are not a homogenous group of investors. According to a comparative analysis of VC funds in four countries. The most dominant types of VC funds are: • Bank-backed VC firms • State-backed VC and incubators • Corporate venture capital (CVC) • Pension funds • Insurance companies • Individual investors such as Business Angels There is evidence that the type of VC fund affects its investment activities. In contrast to VC funds that are guided by a financial investment objective. Exhibit 5. Typically.. the investor could be interested in acquiring the technological platform under development in the portfolio company. For instance.

4: Private equity investments in Europe Source: EVCA 2009 According to Ernst & Young (2009). and if investors continue to focus on the ‘old’ blockbuster business model.novartis-venturefunds. biopharmaceutical enterprises will face even more difficulties in the future with regard to gaining access to funding. the field of capital providers in the very early product stage to increasingly consists of small private investors (e. This serves as early validation for the start-up company’s technology or programmes which may attract other investors and provides Novartis with an opportunity to gain access knowledge and technologies that may be of strategic interest to Novartis in the future (Ernst and Young 2008).. As a 30 .17 Venture capital funds are increasingly moving up in the market and are less inclined to take on very early-stage companies.4.g. while venture financing ‘only’ experienced an minor backdrop of 15% compared to 2007 (in the US. the initial equity investment is coupled with an option to a specific therapeutic programme managed by the portfolio company. venture financing fell 19%). 17 Novartis website. In the case of the option fund. orphan diseases) or even personalised medicines. Technological developments suggest that the next generation of innovative drugs are not ‘blockbusters’ but rather personalised medicines. The main cause was a collapse of public-equity financing (IPO and follow-on and other offerings) from €4bn to less than €1bn. business angels). These types of drugs have a different expected return of investment (ROI) than traditional blockbuster medicines. Exhibit 5. http://www. and investors may thus be less inclined to invest in them. NESTA 2008) A key issue concerning the current ‘blockbuster business model’ underlying many investment decisions is that biopharmaceutical research provides an opportunity to develop specialised medicines for small groups of patients (rare diseases. Exhibit 5. European biotechnology financing dropped dramatically from 2007 to 2008 due to the financial crisis. 5.earliest stages. public incubators and state-backed investors (Vaekstfonden 2006. cf.2 Capital supply in Europe Private equity investments in Europe have increased considerably in the last decade.

early-stage investments have gained more attention among European investors. venture capital investments in the US generate more value than investments in Europe. 31 . Exhibit 5. US companies are better at generating value than European companies. the UK. cf.5. In terms of the distribution of investments by development stage. This performance gap mainly reflects regional industry differences rather than differences in the competencies of venture funds as US-based venture funds do not perform better in Europe than European venture funds (Hege et al 2008). the share of late-stage investments has increased in both the US and Europe.6. Exhibit 5. and France were all above the average for Europe (0. Exhibit 5. however. the Netherlands. After 2000/2001. In other words. cf.58% of GDP).In terms of private equity investments as percent of GDP.5: Private equity investments in European countries as% of GDP in 2007 Source: EVCA 2009 Overall. Sweden.

This suggests that early-stage companies in the UK receive less VC than early-stage companies in the US and Israel. 18 The same trend has been identified in other countries 32 . while the share of early-stage investments in the US and the UK ranges between 20-30%. more than 90% of the funds raised came from foreign funds. while 70% of the funds raised in the UK came from foreign sources. In a recent benchmarking of the venture capital industries in the US.18 Instead. private funds are moving away from early-stage companies towards late-stage companies. The public sector involvement is also increasing relative to private investors.6: Share of early-stage investments in total investments Source: Vaekstfonden 2006 Countries differ in terms of the composition and activities of venture capital. Pension funds are important players in the UK and US VC industries. These differences suggest that the UK – one of the largest venture capital markets in Europe – is not able to keep up with the US and Israel – not least with regard to the size of early-stage investments. private investors. but only play a marginal role in Israel. • Israel and the US invest more venture capital as a percentage of GDP than the UK • VC in Israel is almost entirely dedicated to early-stage capital (80-90% of all VC investments are early-stage. • The average amount of capital invested per early-stage company is significantly higher in the US than in the UK. such as business angels and ‘angel syndicates’. The UK is currently experiencing a change in composition of types of investors engaging in early-stage companies.Exhibit 5. but mainly in the form of coinvestments with private investors rather than free-standing investments (NESTA 2008). are becoming more important in early-stage investments. Israel and the UK the following differences were identified (British Private Equity and Venture Capital Association 2009): • In Israel. while Israel is somewhere in between. According to NESTA.

089%). Later stage venture capital investment in replacements and buy-outs are not included Sweden had the highest share of GDP in 2007 from venture capital investments in life sciences (0.8 33 . cf.8% (OECD 2009). while the EU members of the OECD accounted for 20. pharmaceuticals. cf. health services. Exhibit 5. 2007 Source: OECD (2009) Note: ‘Venture capital’ covers investments in seed.7. followed by Denmark and Switzerland.. million PPP$. Exhibit 5. early development. and medical devices and equipment). The OECD country average was 0.3 Comparing the capital supply for life sciences in the US and Europe The capital base for biotech (life sciences) in the US outmatches the capital base in Europe.7: Total venture capital investments in the life sciences. OECD data covering 25 OECD countries shows that the US accounted for 68. Exhibit 5. start-up.019%.3% of total venture capital investments in life sciences (biotechnology.5. and expansion stages.

In the US. the current financial crisis has put an end to this development for the time being (cf. However.4 below).9%).7%) followed by the US (29.Exhibit 5. Sweden also had the highest life sciences share of total venture capital investments (36. 2007 Source: OECD (2009) Note: ‘Venture capital’ covers investments in seed. and expansion stages. investment activity has increased in the US as well as in Europe. Canada was second (30. section 5. when the tech bubble burst caused a substantial drop in total investment activity. The level of biotech investments in the US and Europe increased until 2001. However. This may be a result of the limited availability of capital as these activities are very capital-intensive. interviewees and several case studies (for instance Bioartic Neuroscience and Apogenix) also indicate that there is a difference in the culture and mindsets 34 . start-up. total venture investments decreased to one fifth of the level before the bubble burst. Since 2004. but rather seek to enter partnerships with other companies or sell off their products candidates. Later stage venture capital investment in replacements and buy-outs are not included. early development.7%.8: Life sciences venture capital investments as a percentage of GDP. The case studies carried out as part of this study (see Annex 2) suggest that European biopharmaceutical companies most often do not intend to take products to the market on their own. The OECD country average was 14.9%).

5bn has already been allocated to projects located in 14 European countries and within a range of industry sectors. the programme will also seek to provide  Spanish and foreign investors with a showcase of the best opportunities in Spanish technology. The European Investment Fund invests in venture capital funds that support SMEs . but generalist funds that invest in companies developing commercial  applications of new technology or deploying technology supports are also included. Through the  creation of an active network fostered by EIF and CDTI.htm 21 European Commission. a total of €2.pdf 35 . and US enterprises are able to raise twice as much venture capital compared to their European counterparts. Together with the European Investment Bank and the European Investment Fund. Source: Pro Inno Europe (2008): European Innovation Scoreboard 2007 20 European Commission website. According to the Europabio 2006 study. http://ec.europa. Exhibit 5. an entity under  the Spanish Ministry of Industry. where the researchers focus more on conducting research than developing their research into business opportunities.particularly technology-oriented SMEs in the early-stages of development – one example is the NEOTEC fund in Spain. only few biotech companies have benefited from the RSFF (examples include Zeltia in Spain and BIA Separations in Austria/Slovenia).9 below. the aim of the initiative is  to complement existing programmes to create 110 new companies in 2008 and 130 in 2010. Tourism and Commerce.19 The substantial differences in the availability and access to capital for biotech enterprises in Europe and the US have made European stakeholders such as Europabio conclude that the European biotech industry “shows signs of chronic underfunding”. the main sectors receiving funding via the facility are renewable energy technologies.20 By the end of 2008.1 Financing gaps in biopharmaceutical product development European biotech enterprises currently do not have access to as much capital as US biotech enterprises.europa. Emphasis is placed on  technology‐oriented funds. €1. life sciences and ICT. One reason for this could be the low or moderate credit rating of many biotech companies because of their lack of income.21 To date. http://ec. 5.of researchers in Europe. the European Investment Bank and the Commission launched a Risk Sharing Finance Facility (RSFF) to boost investment in R&D projects in Europe that have a higher than average risk profile.4bn had been authorised by the European Investment Bank under the RSFF. This suggests that biotech companies – in particular SMEs .9: The NEOTEC fund in Spain The NEOTEC Fund was established in 2006 by the European Investment Fund and CDTI.    19 The 2007 European Innovation Scoreboard indicates that the EU is experiencing a declining gap with the US in earlystage venture the European Commission has launched several initiatives to ensure access to capital for biopharmaceutical companies. European enterprises have access to only a fifth of the private equity finance that US enterprises have. So far.are not well-positioned to obtain funding from the RSFF.3. Exhibit 5. Specifically.  The NEOTEC mandate comprises a fund‐of‐funds and a co‐investment vehicle. In 2007. The fund aims at increasing venture capital  investment in Spain to boost the Spanish SME technology cf. engineering and automotive.

europa. licensing and collaborations. a survey of 200 European and US biotech executives and members of the investment community suggested that the early-stage funding environment in Europe had improved considerably. collaborations. authorisation and marketing. 30th May 2006 Global Lifescience Ventures. 62% of the European respondents considered the European funding environment to be difficult (down from 74% in 2006). Biotech Investment Barometer Reveals Continued confidence in Sector (press release). licensing. corporate venture capital. The relatively limited availability of capital in Europe vis-à-vis the US may have a negative impact on the level of innovation and growth in European biopharmaceutical companies.-known-as-neotec. Nevertheless.htm The funding of the EIF originating from the European Commission’s budget is allocated under the High Growth and Innovative SME Facility (GIF). • Second funding gap: the funding of clinical trial phase I+II. Overall. Typical funding sources include venture capital funds. and business angels.pdf 36 . government-backed investment funds.  The co‐investment vehicle  The co‐investment fund is for direct co‐investments into technological SMEs. and public equity (IPO). investing in venture capital investment vehicles.The notion of a ‘funding gap’ in relation to biopharmaceutical companies is therefore a key issue for policy makers and the VC industry in Europe. hybrid capital (mezzanine). including pre-clinical testing (often referred to as early-stage development). GIF1 covers early-stage investments (seed. GIF is split into two parts.22 In addition. Typical funding sources include seed capital from grants. government-backed investment funds.• • Fund of funds  NEOTEC will act as fund of funds. the limited availability of capital could make European biopharmaceutical decide to look for funding opportunities in the US or even relocate to the US. By the end of 2008. managed by  skilled teams based in Source: EIF website. http://www.   The programme seeks to strengthen Spain's visibility amongst foreign venture capital funds by  encouraging leading technology investors in other countries to include Spain on their investment map  through attractive co‐investment opportunities. http://www. In 2007. • Third funding gap: the funding of clinical trials in phase III. in parallel with  previously selected private equity and venture capital funds. The typical funding sources include venture capital funds. the EIF had made a total of 13 investments amounting to €144m (€108m under GIF1 and €36m under GIF2) targeting SMEs within various industry sectors.eif. corporate venture capital. The total budget is estimated at around €200m. start-up) and GIF2 covers expansion stage investments. buy-outs. European Commission 2007): • First funding gap: the funding of technology transfer and concept development. the companies that develop biopharmaceutical product face three funding gaps (Cooke et al 22 23 Europeabio press release.

24 Grabenwarter (2006). In this perspective.2 Challenges facing the European venture capital industry The amount of capital invested in each biopharmaceutical company largely determines the company’s level of activity and the strategic options available to the company. etc.g.24 5. yet European funds in aggregate manage 50% less capital. it is very difficult to say whether the companies that are trying to raise capital actually ‘deserve’ more capital or if they are simply not able to present projects that are worth investing in. the relatively small size of European VC funds and the need for the funds to diversify their risks by investing in different sectors (e. the market is working to its perfection. such as the biopharmaceutical sector.. Data on the average amount of capital invested in companies suggest that European venture capital funds in Europe support too many companies with too little funding. However. Moreover. but the pooling of resources in specialised life sciences VC funds will also benefit the European biopharmaceutical sector due to improved access to funding and support for business development. Thus.) suggests that they are unable to build up sufficient expertise in the different sectors. This constitutes a threat to high-risk sectors. This possible lack of expertise could make European VC funds more reluctant to invest in complex sectors such as the biopharmaceutical sector and/or result in a situation in which their investment decisions are not based on an informed assessment of the biopharmaceutical company and its prospects for success. the VC funds in Europe may be too small to ensure sufficient capital for follow-on investments. Nesta (2008) 37 . A 2009 survey of venture capitalists showed that 51% of all respondents are reducing the number of companies in which they plan to invest and just 13% are increasing their investment activities (Deloitte/EVCA 2009). According to Grabenwarter (2006) Europe has 64% more VC funds than the US. This could increase the performance of the venture capital industry. as investors may consider investing in less risky business sectors. 5. clean tech. thus increasing the risk of failure for the venture capital fund.4 Impact of the financial crisis Overall. They are simply not able to support companies with sufficient funding for the entire development process (British Private Equity and Venture Capital Association 2009).3. biotechnology. A possible explanation for this under-funding of companies in Europe is that the European venture capital industry is more fragmented than the US VC industry and that less capital is available to the funds in Europe than in the US. medical technology. Moreover. European companies simply receive less capital than their US counterparts. European venture capital funds are currently exploring new paths to achieving higher diversification and maximising their returns – for instance through fund-of-funds strategies where venture capital funds invest in other funds (and thereby de facto outsource the management of a share of their assets to another larger and/or specialised funds). the global financial crisis has made investors reconsider their investment strategies.The identified funding gaps have been interpreted as a ‘market failure’.

Exhibit 5. The aim is to stimulate increased cooperation within the  industry on research and development. the country's main industrial development  agency. Exhibit 5. This testifies to the importance of government involvement in specific sectors for attracting private investments.49m. over the next three years Source: EVCA (2009) A possible explanation for the substantial increase in the interest in clean technologies (63% of the respondents stated that they would increase their investments over the next three years) could be the increase in government/political support for clean technologies in recent years.11. Exhibit 5. These loans may be used as working capital  for the biotech companies. Argentum can now increase its investments in private VC funds focusing on life  sciences in Norway and abroad (www.   • Argentum.11: Norwegian crisis package for the biotechnology sector Key measures in the Norwegian crisis package:   • Innovation loans operated by Innovation Norway.oslo. (fund‐in‐fund) gets increased equity capital  of €  Source: http://www. Funding increased from €37m to € 38 . 48% of the respondents stated that they would not change their involvement in the biopharmaceutical sector over the next three years. The Norwegian government has launched a package of measures to help the Norwegian biotechnology industry through the financial crisis. Exhibit 5. according to the survey. cf. Contracts are to be focused on industry development in  the health sector and internationalisation. the government‐owned investment company.However.argentum. and the only investor in Norway that is  solely dedicated to investing in private equity funds. Several European countries have launched new funding initiatives to ensure that the national biotechnology sectors are in a better position to deal with the financial crisis and the risk that their funding may dry out.   • Additional €8m for R&D contracts.teknopol.   • Tax breaks for individual SMEs: Companies may deduct €0.10: Anticipated level of investment change in select sectors. cf.10.68m in tax breaks ‐ this is an increase  from €0.

5. and the performance of the European biopharmaceutical companies relies on the performance of the venture capital market and the access to capital for biopharmaceutical companies. the government intends to support R&D in high-tech companies by setting up a £750m investment fund focusing on emerging technologies and biotechnology. In France. However. The very early stage is dominated by private investors such as business angels as well as public incubators and stat-backed investors. but also address structural problems in order to improve access to funding for biopharmaceutical drug developing SME. private equity investments have increased in Europe. In recent years. the French biotech industry organisation recommended that the "young innovative company" fiscal status be extended from 8 to 15 years. successful collaboration between biopharmaceutical companies and the venture capital funds appears to be based on a very close and long-standing relationship between investors and the companies that allows the companies to benefit from the investors’ in-depth knowledge and expertise in the life sciences sector.5 Conclusions Venture capital is the most important capital source for European biotech companies. Another success factor is the R&D efforts and the business competencies of the companies.Several other initiatives may be launched at national level to help the biotechnology industry through the crisis. The study indicates that US companies are better at generating value than European companies. This performance gap mainly reflects regional industry differences rather than differences in the competencies of venture funds as US-based venture funds do not perform better in Europe than European venture funds. The study of the financial markets suggests that policy makers should not only focus on bringing more capital into the market. However. In the UK. venture capitalists have increased their share of later-stage investment while their share of early-stage investments has declined thus making early-stage funding a more serious challenge for new biopharmaceutical companies. Among the OECD countries the US accounts for two thirds of the total venture capital investments in life sciences while the share of the EU Member States is 20%. 39 . The current financial crisis has had a negative impact on access to capital even though it difficult to estimate how much the total venture capital market has been reduced.

40 .

In any case. green biotech and white biotech (cf. a survey of biotechnology companies in Europe found that more than 1. 6. The overall profile of the pipeline of DTI-biopharmaceutical surveyed enterprises is very similar to the profile found for the European biotechnology industry as a whole.6. However. One enterprise may decide to bring drug candidates to the market on its own.25 Taking into account the limited differences in the profile of the companies included in the two surveys. a higher share of the biopharmaceutical drug candidates are in the early development stages compared to Ernst & Young (2009) is applying a definition of “biotechnology” corresponding to the both red biotech.1) as well as larger companies is included. In the subsequent phases. Only a limited number of drug candidates are expected successfully to enter the subsequent clinical trial stage. 25 41 . the number of drug candidates is relatively low. In 2008. based on tools and approaches from modern biotechnology including firms specialized in the development of research tools for this objective (“platform firms”). Exhibit 2. analysing the pipeline of the biotechnology companies Ernst & Young (2009) is apparently applying a more narrow definition somewhat equal to the definition of biopharmaceutical companies in this study. (cf.1 The pipeline of the biopharmaceutical sector According to the biopharmaceutical enterprises in the DTI-survey there are currently a total of 458 drug candidates in the pipeline and 100 of these drug candidates are in clinical trial phase 13. Strategies for product development Biopharmaceutical enterprises that develop drug candidates can apply different product development strategies. and the fact that the DTI-biopharmaceutical surveyed enterprises represent approximately 10% of the European biopharmaceutical enterprises. the largest number of drug candidates are (in line with expectations) found the in the pre-clinical phase and in the development of technology platforms. but with a bias towards the small and young enterprises. In this chapter the product development strategy of enterprises will be examined on the basis of the DTI-biopharmaceutical survey carried out in May 2009 (see Chapter 3. the pipeline identified in the DTI-biopharmaceutical survey seems to correspond to the pipeline identified in the Ernst & Young study. According to the DTI-biopharmaceutical survey.1).2). the choice of product development strategy will have an impact on the enterprise’s demand for capital and its overall business strategy.4).000 products were in the pipeline (clinical trial phase 1-3) of the European biotechnology industry (Ernst & Young 2009). Biopharmaceutical enterprises typically start out with a technology platform from which several drug candidates can be explored and developed. section 4. while another enterprise may decide to bring the product to the market by entering into partnerships or out-licensing the drug candidate to another enterprise. Exhibit 6. The survey includes 87 enterprises focused on discovery and development of biopharmaceutical products for human healthcare. (cf. The surveyed enterprises are representative of the European drug discovering biopharmaceutical industry. However.

May June 2009 The survey data indicates a sharp decline in the number of drug candidates from pre-clinical to clinical trial 1. In fact. Furthermore. Such a portfolio of drug candidates can be seen as an attempt to ensure a continuous flow of drug candidates so that the 42 . Exhibit 6. very few enterprises in the biopharmaceutical sector only have one drug candidate in the pipeline. 6. A possible explanation for these findings is that completing clinical trial 1 is relative quick. the enterprises often have drug candidates in both early stages of product development and in the late stages. Exhibit 6. while the number of drug candidates increases in clinical trial 2. the majority of the biopharmaceutical enterprises have between of one to six drug candidates in the pipeline. while completing clinical trial 2 is more difficult and takes more time (Ernst & Young 2008). This may have implication for the enterprises' ability to attract external financing and especially venture capital.3).2. The data on the pipeline suggests that the DTI-biopharmaceutical surveyed enterprises (the part of the biopharmaceutical sector characterised by the small and R&D oriented enterprises) will be focusing on research and development rather than business development and commercialisation for the time being.1: Number of drug candidates in pipeline by phase of drug development.2. According to the data.1 Number of drug candidates in the pipeline One way to counter the high risk of failure associated with biopharmaceuticals – and increase the rate of success – is to have several drug candidates in the pipeline. This can be explained by differences in the research orientation of the company samples (se section3. cf.the drug candidates in the biotechnology pipeline identified by Ernst & Young (2008).1. N = 458 Source: DTI-biopharmaceutical survey in Europe. A research-intensive sector such as the biopharmaceutical sector is expected to have a high number of drug candidates in the pre-clinical phase. has early-stage drug candidates that can form the basis for the survival of the company if later-stage candidates fail to reach the market. Exhibit 6. we have grouped the biopharmaceutical enterprises according to the stage of development of the companies’ most advanced drug candidates.2: Number of drug candidates in pipeline. in case of a capital shortage. Moreover. the pipeline should not be too diverse (see case study of Apogenix in Appendix 2). there is a limit to the number of drug candidates that companies can afford to have in the pipeline. the drug candidates may be used as leverage in negotiations with potential investors and partners or be sold/out-licensed to raise capital. Consequently. 6. May June 2009 Nevertheless. the product candidates must be sufficiently developed to be of interest to other companies (see the case study of Arpida. companies have to match the need to build up a strong pipeline and the financial means available to the company.2 Grouping the biopharmaceutical enterprises In order to analyse the capital needs and strategies at a more detailed level. This will provide us with a better understanding of the specific 43 . N = 87 Number of  enterprises  Number of drug candidates  Source: DTI-biopharmaceutical survey in Europe. Symphogen and Bioartic Neuroscience in Appendix 2). Companies may thus benefit economically and strategically from out-licensing or selling compounds to other companies.1. the company can out-license or sell product candidates to raise money for the further development of its lead products. However. Moreover.

Enterprises with products on the market Exhibit 6.3: Grouping the biopharmaceutical enterprises according to the stage of development of the companies’ most advanced drug candidates. gaining access to capital) that biopharmaceutical enterprises face at different development stages. Enterprises with drug candidates in clinical phase 2 5. For instance. enterprises with products on the market often have drug candidates in the early development stages. May June 2009 Obviously. financial and strategic management of an enterprise as well as build up its reputation in the investor community. N= 87 Number of  enterprises  Source: DTI-biopharmaceutical survey in Europe. Enterprises with drug candidates in clinical phase 1 4. The financial challenges for enterprises with products in the market are thus expected to differ significantly from the challenges facing enterprises with drug candidates in the early development stages. this grouping of enterprises is not perfect. Enterprises that have drug candidates in the pre-clinical phase 3. Going through the different development stages. The six groups are: 1. Enterprises with drug candidates in the late stages 6. Enterprises that are still in process of developing their technological platform 2. is a learning process that will strengthen the operational. 44 . as many of the companies will have drug candidates in different phases. however.challenges (e.g.

Either because they are unable to raise sufficient capital or because they simply wish to remain a research-oriented 45 . biopharmaceutical enterprises may (as illustrated in several of the case studies in Annex 2) benefit from gaining access to the research.even before the drug candidate has been launched on the market.6. The majority of DTI-biopharmaceutical surveyed enterprises do not intend to bring drug candidates to the market on their own.both in terms of drug development as well as for successfully entering the market with other candidates in the pipeline. May June 2009 Note: Data is aggregated due to multiple answers Number of  responses   15  73  72  53  1  214   Percent N = 87  17%  84%  83%  61%  1%  ‐  The dominant product development strategies are 1) bringing some of their drug candidates to the market by entering into an alliance with another company (84% of the enterprises). By choosing to enter into an alliance. collaboration) with  another company  We intend to out‐license the drug candidate to another company  before the product(s) can be introduced to the market  We intend to sell the drug candidate to another company before the  product(s) can be introduced to the market  Others  Total  Source: DTI-biopharmaceutical survey in Europe. manufacturing and marketing competencies of the partner. The enterprises mostly apply a mix of strategies such as taking some drug candidates to the market on their own. but manufacturing. This lack of business competencies and financial means may serve as a barrier to companies that are interested in bringing their own products to the market. and biopharmaceutical SMEs often find it very difficult to attract competent and experienced managers (see case study of Apogenix and to some extent also Bioartic Neuroscience). which can be an advantage for the enterprise in the future . while developing other drug candidates with external partners. and 2) out-licensing the drug candidate to another company (83% of the respondents). cf. sales and marketing are also very resource-intensive. Enterprises may also decide not to take any of their drug candidates to the market. N = 87    We intend to bring one or several drug candidates to the market  ourselves  We intend to enter into an alliance (partnering. Exhibit 6. For a while.2 Strategies for bringing the drug candidates to the market Drug development and clinical trials require considerable investments. this will enable the enterprise to continue operations without raising capital from other investors or via grants.4: Exhibit 6. They require a set of business competencies that are often not available in small research-intensive enterprises – good researchers are not necessarily good managers. Alliances or out-licensing will typically entail a milestone payment to the biopharmaceutical enterprise .4: Product development strategies.

i. This observation indicates that limited access to capital (and lack of competencies) may force an increasing number of the drug developing enterprises to become platform enterprises or to leave business in the long run. 46 . Most of the enterprises are developing their technology platform or have drug candidates in the pre-clinical trial stage. Only 17% of the companies in the survey intend to take products to the market on their own.. manufacturing and marketing competencies as well as capital. a technology platform enterprise (Lanza 2009).enterprise working as a supplier of innovative drug candidates to large (bio)pharmaceutical enterprises. the dominant product development strategy is aimed at either entering into alliances and/or out. According to the DTI-biopharmaceutical surveyed enterprises. Competencies and capital may determine which strategy the enterprises apply as well as the ambition of the entrepreneurs.licensing the drug candidates to reach the market. Through this strategy. 6. the enterprises may be able to benefit from gaining access to research. Only one out of ten enterprises has products on the market. The overall pipeline profile is characterised by many early-stage drug candidates while only 21% of the drug candidates are in the clinical trial phase 1 or later phases.e.3 Conclusion The majority of the DTI-biopharmaceutical enterprises have between one to six drug candidates in the pipeline.

1: Average amount of capital raised for current pipeline (million Euros) by a group of biopharmaceutical enterprises. cf. we examine how biopharmaceutical enterprises have financed their product development and how their financing strategies change from one stage of product development to another.0  87. 7. In this chapter.0  25.9  11. Exhibit 7. The need for capital increases significantly after clinical phase 1.1. This can be explained by the capital-intensive tasks of carrying out clinical tests and – if successful – starting the manufacture and sales of new products (see Section 6.5  Number of  enterprises   6  33  8  20  8  12  87  Source: DTI-biopharmaceutical survey in Europe.7  151.On average enterprises with drug candidates in the later stages have raised more capital than enterprises in the earlier stages. N = 87   Development of platform  Pre‐clinical  Clinical phase 1  Clinical phase 2  Late stages  Products on market  Total  Average amount of  capital raised  (million Euro)   7. €36m to finance their current pipelines26. Therefore biopharmaceutical enterprises need to attract investors. Financing strategies Drug discovery and development is a long and costly process which exceeds the financial capacity of most (if not all) small and medium sized biopharmaceutical enterprises.2 The respondents indicate that private equity (including venture capital.) constitutes the main source of capital for biopharmaceutical enterprises followed by grants and income from business activities.1) Exhibit 7. apply for grants and gain access to capital from the financial market.1. cf.1 Capital raised for drug development To date. We will also assess their need for further capital as well as the impact of shortage of capital on the strategies of the biopharmaceutical companies.2: 26 Data does not include income generated from business activities 47 .9  6. business angels.0  289. The current financial crisis is adding to the challenge of gaining access to capital as funds dry out or investors become reluctant to invest in high-risk sectors such as the biopharmaceutical industry. May June 2009 Note: The grouping is defined in section 6. Exhibit 7. the DTI-biopharmaceutical surveyed enterprises have been able to raise an average of approx. etc.7.

Exhibit 7. N= 83   Grants  Equity  IPO  Loans  Income from  business activities  12%  Mean  17%  60%  4%  3%  Source: DTI-biopharmaceutical survey in Europe. average share of total capital raised. According to observers.2: Main sources of capital.27 The respondents also indicated that it has become increasingly difficult to gain access to loans (except for government loans) and venture capital. the respondents indicate that within the last year it has become increasingly difficult to gain access to funding via an IPO or through follow-on offerings.4. N= 83   Grants  28% 22% 12% 13% 7% Equity  41% 63% 66% 75% 58% IPO  0% 0% 7% 2% 14% Loans  11% 2% 1% 2% 5% 3% Income from business  activities  21%  9%  14%  3%  15%  30%  Development of platform   Pre‐clinical  Clinical phase 1  Clinical phase 2  Later‐stages  Products on market  13% 33% 13% Source: DTI-biopharmaceutical survey in Europe. 27 Ernst & Young (2009): Global Biotechnology report 2009 48 . May June 2009 A closer study of the data for each of the different groups of biopharmaceutical enterprises reveals some interesting differences. cf.2 Access to capital Overall.Exhibit 7.g.3: Main sources of capital – average share for all respondents by group of biopharmaceutical enterprises. the IPO window is currently shut down. selling products or (research) services) constitutes an important source of capital for platform enterprises and enterprises with products on market Exhibit 7. May June 2009 7.3: • Grants constitute an important source of capital for platform enterprises and enterprises with product candidates in pre-clinical research • IPOs and follow-on offerings constitute an important source of capital for later-stage enterprises and enterprises with products on the market • Loans constitute an important source of capital for platform enterprises • Income from business activities (e. cf. Exhibit 7..

Exhibit 7. May June 2009 Mean  3.33  3.75  4. 33% of the enterprises have been able to raise less than €1m.39  3.5.4: Difficulties in obtaining funding compared to the situation 12 months ago (scale from 1 “easier” to 5 “harder”). N = 87   Friends and family  Business angels  Venture capital facilitated by an incubator.65  4.60  4. a research centre  Government‐backed venture capital (regional/national innovation funds)  Venture capital  Alliance/partnership with other company (project deals)  IPO (Initial Public Offering and subsequent public offerings) Other   Bank loans  Industrial bond  Loans guaranteed by the state/Government loans Other types of loans  Source: DTI-biopharmaceutical survey in Europe. cf.09  3.76  4. With regard to current financing.54  4. the DTI-biopharmaceutical survey suggests that later-stage enterprises and enterprises with products on the market do not find it as difficult to gain access to venture capital as companies in the earlier development stages. a university or.21  4. 49 . Nevertheless. and approx. 31% of the enterprises have been able to raise between €1 – 5m within the last 12 months. Most of the DTI-biopharmaceutical surveyed enterprises have been able to raise capital in the last 12 months.45  Although it has become more difficult to gain access to venture capital for the different groups of biopharmaceutical enterprises. a relatively high share of these late-stage companies finds that gaining access to funding via alliances and partnerships has become more difficult.58  4.43  4. Exhibit 7.

May June 2009 50 .     Platform  Pre‐clinical  Clinical  phase 1  Clinical  phase 2  Later‐stage  Product(s)  on market  Total  Between  Between  Less than  Over 10  None/no  1 and 4. N= 87. Number of  enterprises  Source: DTI-biopharmaceutical survey in Europe.6 suggests that the relatively small amounts of capital (up to €5m) were primarily raised by early-stage enterprises.5. while the relatively large amounts of capital (€5m+) were raised by later-stage enterprises and enterprises with products on the market. Capital raised within the last 12 months by type of enterprise. N = 87. Exhibit 7. May June 2009 Exhibit 7.Exhibit 7.6:. Capital raised within the last 12 months the DTI-biopharmaceutical surveyed enterprises.9  5 and 10  1 million  million  capital  million  million  EUR  EUR  EUR  EUR  Number of enterprises  0  4  1  1  0  1  1  2  0  2  6  16  1  5  2  1  29  13  3  6  1  3  27  1  2  3  1  3  11  1  0  3  4  3  11  Do not  know/no  answer  0  1  1  1  0  0  3  Total  6  33  8  20  8  12  87  Source: DTI-biopharmaceutical survey in Europe.

Moreover.7. the critical lack of capital is also evident among companies with drug candidates in clinical phases 1 and 2 (13% and 15% of the respondents respectively). More than 40% of the biopharmaceutical enterprises will need to raise capital within the next year to maintain their current activity level. 51 . A survey carried out in February 2009 by European Biopharmaceutical Enterprises found that more than 20% of European biotech SMEs and start-ups faced potential bankruptcy before the end of 2009 (i. and 18% of the enterprises are facing an immediate need for capital or will run out of capital within the next 6 months.3 Need for capital One of the key issues to be addressed in the survey is the need for capital among the European biopharmaceutical enterprises. cf. N = 85.7: Assessment of the need for capital by the DTI-biopharmaceutical surveyed enterprises. Exhibit 7.7. later-stage companies and companies with products on market still have some time before the lack of capital could become critical. The findings are similar to the findings from other recent surveys. however. cannot be certain that they will get the needed funding from investors or partners. May June 2009 In particular. approx. However. The companies. platform companies (16%) and companies with drug candidates in pre-clinical research (approx.   Immediate need for capital  Less than 6 months  6‐12 months  12‐24 months  Next 2 years  3 – 5 years  More than 5 years  Total  Frequency (N)    6  9  21  26  9  9  5  85  Percent  7%  11%  25%  31%  10%  10%  6%  100%  Cumulative percent  7%  18%  43%  74%  84%  94%  100%    Source: DTI-biopharmaceutical survey in Europe. within the next 6 months). Consequently. a survey by Ernst & Young (2009) suggested that the share of biotech companies in Europe with less than one year’s cash to hand is 37%. 30%) need capital immediately or within the next 6 months. Exhibit 7. According to the DTI-biopharmaceutical survey. the survey results should be treated with caution.e. 7% of the enterprises are in immediate need of capital if they are to maintain their current activity level. The companies were not asked to indicate whether they could expect to get the needed capital (for instance from milestone payments or a new financing round) or not.. According to the DTI-biopharmaceutical survey.

case study of Arpida in Appendix 2). 52 . As a result. Biopharmaceutical enterprises are focusing their activities on demonstrating good results.9. Gaining access to capital is not only determined by the financial crisis. to ensure that they can get the capital they need (cf. cf. such as achievement of milestones. investors are becoming more reluctant to invest in biopharmaceutical companies. A relatively high share of the enterprises with candidates in clinical phases 1 or 2 does not think that the financial crisis has had an impact on their access to funding. Exhibit Impact of capital shortage The DTI-biopharmaceutical survey indicates that one of the main results of capital shortage in biopharmaceutical enterprises is the postponement of new R&D activities. The platform companies all indicate that the financial crisis has made it more difficult to gain access to capital. The existing pipeline will also be affected as enterprises may decide to reduce the number of drug candidates. cf. case study of Molmed and Symphogen).8: Impact of financial crisis on access to funding by type of enterprise   Platform  Pre‐clinical  Clinical phase 1  Clinical phase 2  Later‐stage  Product(s) on market    Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Frequency (N)  6  ‐  26  7  5  3  13  7  7  1  9  3  Percent  100%  ‐  79%  21%  63%  37%  65%  35%  88%  12%  75%  25%  Source: DTI-biopharmaceutical survey in Europe. May June 2009 7.4 Impact of financial crisis Approx. the biopharmaceutical sector is also facing difficulties with delivering the results that their investors have expected (cf. In fact. 75% of the respondents in the DTI-biopharmaceutical survey indicated that the current financial crisis has made it more difficult to gain access to funding. while 24% of the respondents indicated that the financial crisis has had no effect on their access to funding. Exhibit 7. Exhibit 7. If the biopharmaceutical enterprises do not succeed in getting sufficient funding they might have to sell out of their assets at low prices or even sell the whole company to another enterprise.

10: External barriers to getting funding by the DTI-biopharmaceutical surveyed enterprises. Exhibit 7.9: Expected impacts of a capital shortage on the DTI-biopharmaceutical surveyed enterprises.Exhibit 7. N = 87   Increasing shortage of capital   Difficult to get an overview of financing market The investors are reluctant to finance long term drug development Investors have limited interest in high‐risk projects/businesses Investors lack knowledge about the biopharmaceutical sector in general Fragmented internal capital market in EU Barriers to national R&D‐schemes operating across national borders Other  No external barriers  Do not know/no answer  Total  Total  (responses)  Percent (N = 87)  34  39%  8  9%  48  55%  45  52%  16  18%  8  9%  6  7%  5  6%  10  11%  1  1%  181  ‐  Source: DTI-biopharmaceutical survey in Europe. May June 2009Note: Data is aggregated due to multiple answers 53 . cf. May June 2009Note: Data is aggregated due to multiple answers Overall.5. Exhibit 7.1 External barriers With regard to external barriers to gaining funding. cancellation of R&D activities may have a negative impact on the future level of innovation in the sector and thus the availability of innovative medicines for the public. 7. Furthermore.10. N = 87 Total  Percent  (responses)  (N = 87)  New R&D activities will be postponed 66  76%  Ongoing product development project(s) will be postponed   11  13%  The number of drug candidates will be reduced   48  55%  The company might be sold  42  48%  The company might close  11  13%  Other consequences  7  8%  No consequences  3  3%  Do not expect it to happen  2  2%  Do not know/no answer  1  1%  Total  191  ‐  Source: DTI-biopharmaceutical survey in Europe. The increasing shortage of capital is also mentioned as one of the key barriers to gaining sufficient funding (39% of the respondents). the DTI-biopharmaceutical surveyed enterprises especially identify the lack of willingness among investors to provide financing to high-risk and long-term projects. these different strategic responses may eventually lead to a restructuring of the companies with a subsequent negative impact on employment.

Exhibit 7.g. 7.2 Internal barriers The DTI-biopharmaceutical surveyed enterprises do not consider internal barriers important. The respondents also mentioned the limited resources of small companies to engage in the identification of and negotiations with potential investors. lack of interest from investor for early-stage drug development because of high risk investment. on the one hand. This suggests some stability for the management of the company for the years to come. 52% of the respondents do not think that there are any internal barriers to gaining access to capital. cf. ‘reluctant shareholders’. One of the respondents stated that it is very difficult to raise capital without ‘proof of concept’.13. hedge funds. and ‘problem with intellectual property’. will probably seek to help the company pull through the current crisis rather than cutting their losses by liquidating the company (EVCA 2009). Exhibit 7.5. investors may consider focusing their funding on the best performing segment of their portfolio and exit the remaining portfolio companies. May June 2009 Note: Data is aggregated due to multiple answers.. 30% of the respondents even expect their investors to stay with the company the next 5 years. 41% of the respondents indicated that they do not expect their investors to exit the company within the next 2 years. e. Exhibit 7. EVCA indicates that investors will.7. The main barrier identified in the survey relates to the R&D activities carried out in the enterprises. The category ‘Other’ includes ‘lack of basic development knowledge’. They may not always produce positive results or ‘proof of concept’ that can be used to as leverage when negotiating with existing and potential investors. N= 87   Total  Percent  Present the idea (drug candidates) without disclosing the idea  7  8%  Drug development process comes up with negative data findings  15  17%  Conflict of interest between present owners and potential new owners  6  7%  Reluctant to accept new owners in an active management role   9  10%  Difficult to communicate with investors  11  13%  Other   7  8%  No internal barriers  45  52%  Do not know/no answer  2  2%  Total  102    Source: DTI-biopharmaceutical survey in Europe. Approx. Responses concerning the expected time to exit of investors do not suggest that investors are currently fleeing from the biopharmaceutical industry. 54 .11: Internal barriers to getting funding by the DTI-biopharmaceutical surveyed enterprises. In fact.11. On the other hand.6 Exit strategies of investors Private equity investors typically have a long time horizon compared to other types of investors such as. cf.

Exhibit 7.12: Expectations concerning current investors’ time to exit. N = 87

Number of  enterprises 

Source: DTI-biopharmaceutical survey in Europe, May June 2009

The long time horizon for the involvement of private equity investors does not necessarily imply that they are willing to increase their financial commitment to their portfolio company if the company faces financial constraints. Rather, the investors may opt for a reconstruction of the company if it cannot raise additional funding. With regard to exit strategies, 51% of the respondents expect their investors to exit the company via trade sales28, cf. Exhibit 7.13.
Exhibit 7.13: Expectations concerning exit strategies of investors, N = 53

  Total Percent Exit via stock market (IPO)   17 32% Trade sales  27 51% Buy out  18 34% Other  4 8% Do not know/no answer  2 4% Total  68   Source: DTI-biopharmaceutical survey in Europe, May June 2009 Note: Data is aggregated due the possibility of multiple answers. The category ‘Other’ includes ‘partnerships’, ‘selling the company’ and selling the shares to a big pharmaceutical company’.

With the IPO window closed, investors that are expected to exit via an IPO will need to pursue other exit strategies for the time being. Interviewees say that the limited exit options make the biopharmaceutical sector less attractive to potential investors.


Sale of one company to another company


Interestingly, the low number of DTI-biopharmaceutical surveyed enterprises may also indicate that some companies are uncertain about their investors' exit plans. The choice of exit strategies may influence the activities of the portfolio company. According to the DTI-biopharmaceutical surveyed enterprises, the main impact of the investors' exit strategies is that the most uncertain projects or activities are postponed, cf. Exhibit 7.1. The findings from the survey indicate that buy-outs have less effect on the organisation and activities than other types of exit strategies: More than half of the enterprises that expect their investors to exit via a buy-out suggest that this does not affect the enterprise. Enterprises that expect an IPO or a trade sale indicate that most uncertain projects or activities will probably be postponed as a result of this strategy.


In line with the overall picture of financing biopharmaceutical companies, venture capital is the main source of funding biopharmaceutical drug developing enterprises. Grants and loans are only an important financial source in the early stages of drug development, while IPOs and other types of public funding are mostly relevant in the later stages and for product candidates close to the market. Among the DTI-biopharmaceutical surveyed enterprises, more than 40% of the biopharmaceutical enterprises will need to raise capital within the next year to maintain their current activity level. This result is in line with the results of other recent studies on the biopharmaceutical sector. In case the funding situation continues to be critical, the biopharmaceutical enterprises indicate that they will have to postpone new R&D activities or reduce the number of drug candidates. In the long run this might have a negative impact on drug development activities in Europe and - in a wider perspective – innovation, economic growth and employment in Europe. According to the DTI-biopharmaceutical survey, the financial crisis has had a negative impact on access to capital as 75% of all types of biopharmaceutical enterprises that have drug candidate in early stages as well as in later stages indicate that the current financial crisis has made access to capital more difficult. Furthermore, it has become more difficult to obtain funding from all types of capital, especially for IPO, but also for venture capital. It is important to stress that access to capital is not only determined by the financial crisis. If the biopharmaceutical enterprises face difficulties in delivering the results (R&D result, positive clinical trials or professional development of the company) that investors are expecting, the investors may be become more reluctant to invest. In conclusion, gaining access to capital has become very difficult for biopharmaceutical enterprise, but the solution is not only to increase the capital supply, but to also to ensure that the capital is directed towards competent investors and managers.


8. Policy and regulation
The overall aim of this chapter is to analyse the regulatory environment and other framework conditions. We focus on the issues identified by the European Commission. Two key themes are described and analysed. First, we analyse the impact of the regulatory environment (including public policy and regulation of capital markets) on the access to capital for biopharmaceutical enterprises in Europe. Second, we analyse the extent to which trade barriers and/or distortions affect biopharmaceutical enterprises' ability to attract finance in an international setting. The latter also includes an analysis of the adequacy of the current international regulatory framework. One issue not included in the present analysis is the effect of socio-economic factors on biopharmaceutical companies' access to finance. For example, attitudes towards risk-taking may differ from country to country and depend on other social or economic factors. These factors are, however, excluded from the analysis on the grounds that access to capital for biopharmaceutical enterprises is heavily influenced by the types of framework conditions mentioned above rather than attitudes to risk-taking, etc. In addition, socio-economic factors are not easily affected by policy and an analysis would thus not result in any useful recommendations.


Regulatory environment
Public policy and regulation related to funding This section addresses three key aspects of access to finance in the biopharmaceutical sector: • Public policy towards biotechnology (biopharmaceutical) research, • Public co-funding of biotechnology (biopharmaceutical) research (including tax incentives), and • Framework conditions affecting the market for venture capital. It is important to note that public co-funding of biotechnology research may take several forms, each of which pose different challenges for biotechnology enterprise seeking access to finance. For example, the criteria for obtaining state loans and grants differ significantly from the criteria that private venture capital funds may use to make investment decisions. An analysis of framework conditions affecting access to finance in the biotechnology sector has to take account of this. Biotechnology research is a priority in most EU countries' national R&D and innovation policies. Thus, red biotech (biopharmaceutical) remains the most highly funded area within the biotech area (BioPolis 2007). Efforts to improve policy coordination and foster networks between the knowledge base and firms as well as networks between firms have increased. This includes focus on both schemes providing financial support in the form of grants, loans and equity to R&D as well as support for cluster initiatives. The latter is primarily based on increasing the role of regional governments in biotechnology policy-making. Examples of this include clusters in Cambridge (UK), Copenhagen (Denmark), Stockholm/Uppsala (Sweden) and, outside the EU, in Boston, Massachusetts (the US) (IRIS Group 2009).

However. but rather to the funding of research institutions. before the implementation of strategic decisions. the relative importance of biotech R&D funding in total government R&D funding has increased in most Member States. the study identifies limitations in the funding systems in many of the New Member States. Evidence from several countries suggest that companies' chances of obtaining early seed money.The above has a significant effect on access to finance in the biopharmaceutical sector. An analysis of policy effectiveness (BioPolis 2007) shows that policies that include both generic and biotech-specific public support show higher performance levels than policies that do not. One reason for this is that coordination of simultaneous policy actions apparently pays off. and coordination can only be carried out ex post. competitive research funding is not only flexible.g. international sourcing of clinical trials and manufacturing operations.. the Commission has moved forward to harmonising taxation measures. By contrast. tax harmonisation remains a politically sensitive issue for many Member 58 . 2003). the national schemes differ substantially in the different countries and this serves as a barrier for trans-European research collaboration (Ernst & Young 2007). Although this does not directly relate to the funding of companies. offered to companies or organisations conducting the research. network establishment and technology transfer between research institutions and private companies. Nevertheless. although this includes both financial support for biotechnology companies and support for. which is crucial for attracting venture capital in the later stages. peer review process allows ex ante coordination. In addition. A special issue relates to the fact that most biotechnology companies are far from making profits and taxable incomes and may not fully include taxation issues in their current decision-making. where a broad and up-to-date information base and the inclusion of different perspectives are important prerequisites. Previous research suggests that a system where funds are allocated by research councils through a competitive. biotechnology companies increasingly need to be aware of the challenges and possibilities offered by significantly different tax regimes in different countries. To meet these challenges. European Commission 2005a). striking a balance is very important. As the present biopharmaceutical environment is characterised by increasing cross-border alliances. particularly with regard to the complex nature of biotechnology innovation processes. Moreover. Many Member States have developed new policy instruments to allow easier access to funding. it also appears to be a more effective method than direct control of funds by research institutions in achieving a strong international orientation and higher scientific performance (Reiss et al. might be small – perhaps because later-stage companies provide more attractive risk-return profiles (Vinnova 2008. Policies designed to support enterprises may be divided into two main policies: state-backed venture capital funds for early-stage development and/or research activities of companies and various types of tax incentives (Europe Innova 2007). In addition. expansions into new markets and launches of new products. Having only generic research stimulating instruments in place is less effective than biotech-specific instruments. the findings may still hold validity in the domain of private investment in biotech R&D. especially regarding the provision of seed capital (often loans) to new biotech start-ups. National support to private biotechnology research often takes form of tax incentives. e. the funding of research through the allocation of block grants gives autonomy to organisations over the research agenda. However.

Wherever this is the case. Venture capital funds and their managers are authorised and regulated according to national requirements. loans. e. seed money. and the challenges of differing taxation regimes can thus be expected to remain in the future (European Commission 2007c). 2007).) cannot be employed. Operating across borders is complex and costly and small venture capital funds tend to avoid investing outside their home jurisdictions (European Commission 2007c. a possible source of capital is absent from or face restrictions in the venture capital market. etc. where traditional means of obtaining finance (e. Facilitating cross-border private equity transactions between 59 . better regulatory framework conditions are assumed to contribute to lower operational costs and risk. However. increased flow of venture capital and more efficient venture capital markets. Specifically. five key obstacles have been identified as having a negative impact on access to venture capital in the biotechnology sector (European Commission 2007c. sector funds are becoming more common. As a consequence. usually to a small number of chosen private investors). biotechnology companies is limited. This leads to higher organisational costs of raising money (in particular legal and advisory fees. grow. public offerings. In large Member States with more mature markets. European venture capital funds tend to be relatively small because they rarely operate beyond national markets (European Commission 2005a).g. This has a negative impact on returns and on the attractiveness of raising funds. 2007d). All in all. Current national regimes differ substantially from each other. which are paid for by investors). in small or emerging venture capital markets funds are finding it difficult to expand. ‘drip-feed’ firms and often slow down the growth of recipient firms. In markets that are in the early stages of development. divergent national policies create significant market fragmentation. Furthermore. 2007d): 1) Restrictions on pension funds In some Member States. Venture capital poses an opportunity for biopharmaceutical companies to gain access to finance at critical stages of their product cycle (typically in the early stages of development. pension funds are not permitted to invest in venture capital funds or face quantitative and geographic restrictions. grants. However. higher returns. the capital base available to. This has an adverse effect on fundraising and investing within the EU. even though their business models are actually based on taking calculated risks. 2) Lack of private placement regime Another obstacle hindering cross-border business is the lack of a European private placement regime (a private placement or non-public offering is a funding round of securities that are sold without an initial public offering. Funds that would otherwise expand their portfolio across borders are hindered due to operational and regulatory obstacles as outlined below. The result is that funds only invest small amounts at a time.States. specialise and reach a critical mass of deals (European Commission 2007c).g. In addition. the catalytic role of statebacked venture capital is beneficial to market growth. they tend to be too risk averse.. the European venture capital market is fragmented along national lines and the development and maturity of venture capital markets vary (Europe Innova 2006..

Thus. increase their efficiency (e. by specialising in certain sectors or industries such as biotech). Although venture capital is a local business in many ways. The current European venture capital structures cannot accommodate all types of foreign investors from within and outside the EU. without the necessary support structures (such as investment bankers and lawyers (European Commission 2005a. e. The state aid promotes risk capital investments in young innovative enterprises in their first years of existence to help them overcome initial cash shortages. the conditions for the venture capital market can be improved by.. 3) Regulatory framework Removing administrative obstacles for cross-border investments would make it easier even for minor funds – and funds in small countries – to operate over a wide geographical area.g. funds can be established across the EU under a variety of legal forms. 5) Tax obstacles Tax issues are of paramount importance. To ensure that cross-border venture capital investments are not impeded. thus facilitating entry and exit for venture capitalists as new investment opportunities become readily available within the clusters. in particular growth stock markets that provide liquidity as the fragmentation of European markets extends to the growth stock markets that are small and illiquid.g. The European innovation policy pays special attention to supporting clusters and their cooperation that can also help the venture capital industry and its long-term sustainability by providing a deal flow. relying on close connections between funds and entrepreneurs. and structures. 4) Exit strategy A key aspect of any venture capital investment is the exit strategy – the point at which the venture capitalist can sell his shares and release funds for new opportunities. However. 60 . the interaction of which can lead to unrelieved double taxation.5m per SME over a 12month period. making funds established as limited partnerships tax transparent (as is the case in Finland).. it is also a global business that competes for both funds and investment opportunities. Venture capital thrives around clusters and universities that produce new ideas and entrepreneurs. Therefore. improve returns. reach economies of scale.. 2005b). intermediaries and investors could lower these costs. The Commission has taken steps to improve the situation. Currently. complex fund structures with parallel vehicles should be set up to minimise the tax disadvantages resulting from investing across borders. fund structures should have features that can accommodate the individual legal and fiscal needs of investors. The high transaction costs of setting up the structure and the on-going management coupled with the existing legal uncertainty also dissuade venture capital funds from making cross-border investments. venture capital also needs more liquid exit markets in the EU. specialise and diversify their portfolios. Below this ceiling the Commission accepts that a market failure is assumed to exist (European Commission 2007c). regimes. e. The new guidelines also include a light assessment procedure with a number of elements such as a higher investment threshold of € managers. ensuring that no VAT is imposed on the fund's management company and abstaining from taxing foreign funds (Nordic Innovation Centre 2007).g. by establishing a new framework for state aid for research and development and innovation.

Requirements in this area include information required to be given to donors and obtained from them. transport. 61 . Because the Nordic countries are not large enough to support a substantial venture capital industry individually. The second area concerns human blood and blood components. 3. the time horizon for finalisation of the product is long and the risk of failure (or non-commercialisation) is high. eligibility criteria for donors of whole blood and blood components. the network focuses on strategic relationship building between the members and international financial and industrial players. measures relating to the protection of Intellectual Property Rights (IPR) of companies developing and marketing the products (European Commission 2006a). The first area is good laboratory practice. but does not apply to tissue and cells for antilogous graft. and distribution conditions for blood and blood components. The third area concerns human tissue and cells. The Nordic Venture Forum was established to act as a reference group and an advisor for planned projects under the direction of the Nordic Innovation Centre (NICe) within the Nordic private equity market. established in 1999.Another initiative that is trying to overcome the shortcomings of the European market for venture capital is the establishment of a common Nordic venture capital market (Nordic Innovation Centre 2006). Three main areas of European legislation apply to quality and safety standards for product development. In addition. which applies to laboratories involved in the non-clinical testing of all chemicals including pharmaceutical products. At this stage. and quality and safety requirements for blood and blood components. In addition to the above. All three areas can affect biopharmaceutical companies' access to capital by raising the costs and risks associated with developing or improving pharmaceutical products: 1. organs. 2. The responsibility for verifying and endorsing compliance with good laboratory practice lies with the Member States. Limitations are also imposed on 29 One example is the Nordic Venture Network. and 3. which is a private network consisting of leading technology venture capital firms in the Nordic region.1. It includes products that have been derived from human tissue and cells (when intended for use for humans). scientific experimentation involving animals during product development is covered by EU legislation on animal welfare. or blood and blood components. Partly sponsored by national venture capital funds. storage. private initiatives have been sparked in the region.29 8. Product development Access to capital is a key requisite of product development. measures regulating the product development of pharmaceutical products. measures regulating the commercialisation of the products. a Nordic Investment Fund has been proposed in order to drive the development of an integrated Nordic venture capital market forward. 2.2 Regulatory measures related to product development and commercialisation Three key regulatory measures affecting access to finance in the biotechnology sector can be identified: 1.

may result in the product not being allowed onto the market) is present and so is the risk of delays which can significantly diminish profits. The directive outlines which biotechnological inventions are eligible for patenting and which are not. European Commission 2006a). Authorisations are initially valid for five years and are generally renewable after five years for an indefinite period on re-evaluation by EMEA. The WTO agreement on trade-related aspects of intellectual property rights (TRIPS) provides an important framework within which to settle such disputes (OECD 2007). the protection extends to material derived from the patented material which possesses 62 . A special piece of European legislation that specifically deals with biotechnology patents is Directive 98/44/EC on the legal protection of biotechnological inventions (European Parliament and the Council of the European Union 1998). This is underlined by the continuing conflict between the research-based biopharmaceutical industry and generics producers as well as the conflict between the companies holding intellectual property rights and the developing countries afflicted with major diseases. In addition. Applications for market authorisation for pharmaceutical products in the EU are submitted to the European Medicines Agency (EMEA). the risk of failure (which. exist at Member State. European and international level. the European patent system has been characterised as ‘fragmented’ resulting in high uncertainty. China and South Korea (van Pottelsberghe 2009). including protection of biotechnological inventions. In general. Commercialisation The commercialisation of a pharmaceutical product often involves large-scale tests and clinical trials including extensive documentation. the US. the main legislation of relevance is Framework Directive 90/219/EEC. EU legislation recognises that making appropriate comparisons with the reference product may go some way towards compliance with the requirement to establish the quality.. For example. ultimately. The directive also outlines the extent of the protection of biological material or processes for producing biological material. which has been amended and supplemented by several subsequent directives and decisions (Council of the European Communities 1990. safety and efficacy of a generic product. If the application is refused the product is banned in all Member States. To some extent. With regards to use of genetically modified organisms (GMOs) in laboratories. but unable to afford the relatively high prices of innovative drugs. quality drop and prohibitive costs compared to. Certain regulatory measures relate to biosimilar (or "follow-on biological" in the US) pharmaceutical products. This is a costly process. Intellectual Property Rights (IPR) The large investments that are often required to develop innovative biotechnological products and processes combined with the relatively long time horizon mean that the ability to protect intellectual property is a key issue for access to finance. and share properties with. EMEA's opinion is forwarded to the Commission and Member States and then the Commission drafts a decision and forwards it to the Member States and the applicant. These are generic pharmaceutical products which are essentially similar to. a reference product that has already received Community marketing authorisation.g. If it is accepted it is valid in all Member States.research and development of products using human tissue. industrial inventions can be protected by patent rights if certain basic conditions are met. Systems of patent protection. e. However. Access to risk capital is therefore critical at this stage.

It applies when there has been a gap between the patent and the marketing authorisation being granted (which usually happens with pharmaceuticals). executive decisions and sales.e.. which may stretch beyond the period of patent protection. pharmaceutical products benefit from data exclusivity for eight years after having received marketing authorisation (with additional market exclusivity for another two years. specific characteristics. marketing.30 The former can of course be remedied (at least to some extent) via judicial means. and it gives a maximum of fifteen years of market protection from the time of authorisation. but also the possibility of disclosure of confidential information such as information on technical product development. expert witnesses. Another factor that can reduce the profitability of biopharmaceutical companies is their pricing systems. i. This threat can come from illegal manufacturing and marketing.the same. For example. A major threat to companies developing innovative biotechnological products and processes is the reduction of profits resulting from marketing of biosimilar (‘follow-on biological’) products. Copy products are typically developed by illegally obtaining scientific dossiers from research and development (R&D) companies or through reverse engineering. etc. A spin-off cost of the attempts made by biotechnology companies to protect their intellectual property rights is the cost of litigation inflicted on both the petitioner and the defendant (Genetic Engineering & Biotechnology News 2006). where a patent holder's intellectual property rights to a certain product are infringed as well as the legal manufacture of biosimilar products not covered by a patent (or where a patent has expired). the delays from the point when a patent is awarded until a product hits the market is therefore a critical issue that may reduce profits and thus ultimately make the biopharmaceutical company a less attractive investment object. Thus. Prices are often set differently in different countries because of varying approaches to subsidising medicines. 63 . The possible consequence for businesses that are dependent on external financing is that the risks and expense of litigation may dissuade lenders or investors. Biosimilar copies of off-patent products that have not undergone bioequivalence testing are sometimes also called copy products (USAID 2006). Furthermore. Pharmaceutical products can also be granted commercial protection (supplementary protection certificate). but rather on health and safety regulations issued by the Food and Drug Administration (FDA) (Love 2001). there are provisions for compulsory licensing and the need to deposit biological material for patent applications. This not only includes the (sometimes heavy) cost of lawyers. Copy products are common in countries that have not adopted or do not enforce patent-protection laws. and a possible one-year extension for new formulations). the barriers to cross border (parallel) trade in biopharmaceuticals are not based on rules regarding intellectual property rights... 30 A distinction is made between biosimilar products and copy products. To minimise the effect of this. while no formal recourse exists for the latter. i. in the US. Copy products are defined as goods that were developed while the innovator product was still protected by patents. Restrictions on parallel trade in pharmaceutical drugs are typically enforced though regulatory barriers. products that are essentially similar to the originally authorised product and where new preclinical and clinical studies are therefore not required. in some cases governments restrict attempts at parallel trading and thus protect biopharmaceutical companies' profits. In addition to patent rights.e.

Differing policies towards to use of GMOs Although most restrictions put on the use of GMOs are related to agricultural biotechnology. legislation applying to quality and safety standards for research may be different.Thus. against the developing countries in areas such as Latin America.2 International markets – barriers.. financial costs from extra trials. and very importantly. delays and the possible risk of rejection of the application) increase. pharmaceutical regulators and researchbased industries in Europe. attempts are made to create an international regulatory framework that can regulate the international challenges biopharmaceutical companies face. public policy and legislation related to funding and regulatory measures related to product development and commercialisation can differ enormously from one country to another. the debate over IPR protection has become a significant global trade issue pitting the developed countries. EU and Japan. some may be relevant to biopharmaceutical companies as well because genetic engineering in health has been the main focus for modern biotechnology for a 64 . For instance. However. The US is a key market for European companies with regard to both aspects. Lack of enforcement of intellectual property rights Intellectual property is increasingly vulnerable in an international context where trade barriers are shrinking and no judicial institutions exist to secure their enforcement. the challenges posed by copy products. 8. even when the products have already been approved for marketing in the EU. distortions and negotiations Access to international markets is a key aspect of both marketing and commercialisation of biotechnology products and of the possibility for biotechnology companies to raise capital globally. thus making it harder for biopharmaceutical companies to gain access to finance for their products. where numerous copy products are being manufactured depleting the profits of biopharmaceutical developers (American Chamber of Commerce 2005). Thus. Other important factors that can affect biopharmaceutical companies' access to finance in a global context are: 1. Also. An obvious example is China. Asia and Africa (Goldsmith et al. steps have been taken to ensure fast market access to innovative products without reducing the level of protection of patients. such as the US. the US and Japan have formed the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH 2000). 2001). making it difficult to spread the early stages of product development over several countries. Thus. approval practices and criteria often differ. A European company wishing to market its products in the US thus has to file an application with the FDA. the costs and risks associated with commercialisation (e. This makes it difficult for biopharmaceutical companies to operate internationally. parallel trading and litigation costs associated with operating in a sector where companies actively seek to protect and enforce their intellectual property rights can reduce the attractiveness of biotechnology companies as investment objects. However. This way.g. To this end. 2. whose recommendations is also embodied in the EU regulatory system. with legislation forcing companies to obtain individual approvals for marketing and commercialisation in each country.

long time (United Nations 2002). 65 . important aspects of the international funding and regulatory context can affect biopharmaceutical companies' access to finance. Above all. This includes early products such as insulin as well as more recent developments such as the Human Genome Project and gene therapy. Thus. In addition. lack of enforcement of intellectual property rights and differing policies towards the use of GMOs can make it difficult for biopharmaceutical companies to attract investment. different regulatory measures pose a challenge as companies often have to apply several times for approval of the same product.

66 .

The purpose of the study is to identify and analyse challenges concerning European biopharmaceutical companies' access to finance to ensure that the sector remains competitive and innovative in the years to come. It should be noted that the policy recommendations relevant to access to finance for companies in the biopharmaceutical sector focus on generic solutions to improve their access to capital. The first part of the chapter features a SWOT analysis (Strengths. and Threats) of the biopharmaceutical sector focusing on small and medium sized biopharmaceutical companies' access to finance which is largely influenced by the structural characteristics of the sector.1 SWOT analysis We present an overview of the four dimensions of the SWOT analysis in Exhibit 9. 67 . 9. Weaknesses.1 and discuss each topic in the following sections. Opportunities. Strategic outlook– conclusion and recommendations The following strategic outlook concerning access to finance for European biopharmaceutical companies is based on the analyses in the preceding chapters and on interviews with company managers and sector experts. Member State level and EU level. The SWOT will therefore also address structural issues that may influence the supply of capital for the biopharmaceutical sector.9. These proposed responses are aimed at improving the sector’s future competitiveness and should thus be taken into account in future policy-making. the second part of the chapter presents a list of potential strategic responses for policy makers and stakeholders at European sector level. They do not propose measures for specific countries or regions/clusters. Based on the SWOT analysis. The SWOT analysis lists sector challenges and provides guidance for targets and priorities for policies.

However.europa. European initiatives aiming at strengthening biopharmaceutical product development The Innovative Medicines Initiative was launched in 2007 by EFPIA and the European Commission.Exhibit 9.html 68 .2 Strengths Strong research base in Europe Although R&D-investments and the number of biotech patent applications is currently higher in the US than in Europe. the data is from 1982-2003 and further analyses are needed to analyse the current position of European biotech research vis-a-vis the US and other competitors. Europe dominates the discovery of new chemical entities in general and global new chemical entities31 in particular. In fact. the specific data on biotech also shows that Europe is trailing behind the US in the discovery of biotech drugs. It has resulted in the development of a strategic research agenda (SRA) for Europe concerning the development of biopharmaceuticals and other biomedical products. i. Unfortunately.e. the number of patent applications in the US and Europe appear to be converging.1: SWOT analysis of the European biopharmaceutical sector STRENGTHS WEAKNESSES o o o o Strong research base in Europe European  initiatives  aimed  at  strengthening  biopharmaceutical product development   Strong biopharmaceutical clusters in Europe   Increased number of drug candidates in the  pipeline o o o o o o A risky and resource‐intensive innovation  process  Very few European companies intend to  bring products to the market on their own  Lack of access to capital  Poor performance of the  biopharmaceutical sector  Biopharmaceutical companies lack  business skills  European venture capital industry is not  performing well OPPORTUNITIES THREATS o o o Lack of funding leading to consolidation European VC industry is exploring new paths  to increase performance   Pipelines of large pharmaceutical companies  are drying out o o o o o o Financial crisis turning into innovation  crisis  Risk of negative impact on long‐term  health and healthcare provisions  Lack of exit options  Regulatory barriers  Flow of investors  Capital going to the US 9. http://imi.32 The 31 32 ‘Global’ refers to new chemical entities introduced in four or more of the G7 countries Strategic research agenda. This indicates that Europe is catching up with its main competitor in Furthermore. the US. a recent analysis challenges the common view that US companies are ahead of European companies in pharmaceutical innovation (Light 2009). The analysis suggests that European research is actually performing well compared to both the US and Japan with regard of drug discovery.

attracts innovative companies from other European or non-European countries and increases the visibility and credibility of the biopharmaceutical companies located in these clusters. Reducing the time to market and the costs of product development may make it easier for biopharmaceutical companies to attract investors. there is no comparable data on the US biotech pipeline. would mainly help small groups of patients with rare diseases may not be developed due to their limited market potential. 33 69 . This implies that the political ambition of creating a strong European biopharmaceutical industry in its own right may not Unfortunately. Thus. Very few European companies intend to bring products to the market on their own Very few biopharmaceutical companies in the survey indicate that they intend to bring products to the market on their own (only 17% of the companies). the dominant strategy of the companies is to enter into an alliance and/or out-license its drug candidates to another (bio)pharmaceutical company. Strong biopharmaceutical clusters in Europe There are strong biopharmaceutical clusters in Europe – these include Cambridge in the UK. policy makers would need to consider financing the development and manufacture of the drugs through public funding. A potential problem with leaving drug development decisions completely to the market is that innovative products that. Medicon Valley in Denmark/Sweden and Biovalley in France/Germany/Switzerland. Furthermore. the lack of interest in bringing products to the market could reflect a strategic choice by the companies to focus on their research activities. In such cases. Thus.33 9.000 product candidates in the pipeline (clinical trials phase 1-3). The clustering of companies promotes innovation and economic growth. On the one hand. 2007 and 2008) the number of European drug candidates in the pipeline (clinical trials phase 1-3) has increased for several years.strategy is intended to strengthen the competitiveness of biopharmaceutical research and product development in Europe by reducing or removing bottlenecks in the product development process. for instance. and the time for developing new drugs seems to be increasing. in 2008 there were more than 1. the process of developing biopharmaceutical products is very expensive and very risky compared to other sectors. An increasing number of drug candidates in the pipeline A strong pipeline is a precondition for attracting investors to the biopharmaceutical industry. Clustering and the establishment of formal cluster organisations may also help to attract potential investors to regions that are not currently in focus in investor communities. According to data from Ernst & Young (2006. but a 2008 survey carried out by The Pharmaceutical Research and Manufacturers of America (PhRMA) found that a total of 633 biotechnology medicines were in development (human clinical trials or under review by the Food and Drug Administration). These sector characteristics may keep many potential investors from investing in biopharmaceutical companies.3 Weaknesses A risky and resource demanding innovation process The development of biopharmaceutical products takes a lot of time.

clean tech. This has made it more difficult for biopharmaceutical companies to raise capital. Research on the sector's access to funding has identified three major funding gaps faced by biopharmaceutical companies in the process of developing new products. the financial crisis has reduced the financial basis of many venture capital funds.). Moreover. companies may be forced to restructure and reduce the number of employees. The survey and the case studies indicate that many new biopharmaceutical companies are trapped by high R&D costs or academic ambition and hesitate to accumulate managerial or business skills.materialise. sales. the survey indicates that the main result of the lack of access to capital is postponement of new R&D activities and a reduction in the number of drug candidates in the pipeline. the DTI survey of European biopharmaceutical companies shows that the financial crisis has made it increasingly difficult to gain access to funding. Consequently. Furthermore. the capital base of the European venture capital industry is eroding and the venture capital industry's lack of market credibility makes it difficult for the funds to attract additional capital from investors. etc. the average size of VC investments in Europe is lower than in the US suggesting that too little capital is invested in too many companies. Poor performance of European venture capital industry The European venture capital industry has not been able to provide the expected returns and investors are becoming more reluctant to invest in the European venture capital industry. the European biopharmaceutical enterprises will mainly contribute to the development of the pharmaceutical industry by filling up the pipelines of leading US or European pharmaceutical companies with biopharmaceutical product candidates. manufacturing. As a result. The biopharmaceutical sector is not performing well Investors and venture capital funds have been disappointed with the results of the clinical trials achieved by biopharmaceutical companies. In line with expectations. Lack of access to capital Recent studies and the DTI survey of European biopharmaceutical companies suggest that the biopharmaceutical companies find it very difficult to gain access to sufficient funding. 70 . Consequently. they are moving towards the less risky late stages or investing in other less risky sectors (medical devices. the strategy could also be the result of lack of business competencies or financial resources to carry out capital-intensive activities such as later-stage clinical trials. Biopharmaceutical companies lack business skills Good researchers are not necessarily good managers. In addition. Companies must also have a managerial reputation and credibility to be able to attract investors. Instead. In the long term. companies do not pay sufficient attention to business development and establishing networks or business relations with (potential) investors or other (bio)pharmaceutical companies. It is vital for biopharmaceutical innovation as well as economic growth and public health in Europe to address this lack of access to capital. distribution and marketing. On the other hand. Venture capital industry in Europe is not able to keep up with the US OECD data indicates that the US is a global leader with regard to the amount of capital invested in life sciences (OECD 2009).

From the perspective of potential buyers. In fact.4 Opportunities Lack of funding leading to consolidation The financial crisis is putting a lot of financial pressure on many investors and they may decide – or due to regulation of. according to interviewees. medical technology. which could result in a reduced number of biopharmaceutical enterprises in Europe.g. e. As a result. including the relatively small size of the funds and limited specialised knowledge of high-tech sectors such as the biopharmaceutical sector. pharmaceutical companies are increasingly moving into earlier phases of the development process to buy up compounds or engage in a strategic partnership with biopharmaceutical companies before their compounds become too expensive. 9.5 Threats Financial crisis turning into innovation crisis The financial crisis has made investors more risk-adverse and many investors are therefore focusing on biopharmaceutical companies in late-stages of product development or even abandoning the biopharmaceutical sector to the benefit of sectors perceived to be less risky (e. biopharmaceutical companies are struggling to gain access to funding and their bargaining power vis-a-vis potential buyers of compounds or the company itself may be limited. the European venture capital funds are not as specialised and competent in relation to biopharmaceuticals as their US counterparts reduce the number of biopharmaceutical companies in their portfolios or even exit the sector completely. VC industry in Europe is exploring new paths to increase performance European venture capital funds are exploring new paths to achieving higher diversification and maximising their returns – for instance. This could increase the performance of the venture capital industry. this is good news as there will be a downward pressure on the price of compounds and companies. and pharmaceutical companies are – according to industry – desperate to get new compounds into their own pipelines. However..The performance problem of the European venture capital industry can be attributed to several factors. 9.. the European venture capital funds may not be able to assess the biopharmaceutical companies or support their development to the same extent as specialised US venture capital funds. As a result. we expect to see more M&A activities and strategic partnerships in the near future. through funds-of-funds strategies where venture capital funds invest in other funds. As the price of biopharmaceutical compounds tends to increase with their stage of development and with competition among potential buyers intensifying in later stages. The lack of access to capital could force biopharmaceutical companies to postpone or even abandon risky R&D projects in favour of less 71 . consolidation could also create larger and stronger European biopharmaceutical companies that could perform better than small companies and be more attractive to investors. clean tech). pension funds be forced . As a result. However. the pooling of resources in specialised life sciences VC funds will also benefit the European biopharmaceutical sector due to improved access to funding and support for business development.g. Pipelines of big pharmaceutical companies are drying out The pipelines of many leading pharmaceutical companies are drying out.

Moreover. Policy makers at national and European level thus need to consider improving the regulatory framework to reduce the time to market for biopharmaceutical products.e. Many of the large pharmaceutical companies are currently located in the US and European drug developing companies may therefore end up becoming US owned. capital flow and privileges. One way to help biopharmaceutical companies to gain access to capital and investors is to strengthen their investor networks and improve the coordination between early-stage investors and late-stage investors. a leading pharmaceutical company. and the financial crisis has shut the IPO window in the foreseeable future. Regulatory barriers making the sector less attractive to investors Regulation and approval procedures increase the time to market for biopharmaceutical products. additional investors with financial pull are needed to provide sufficient capital to the company throughout the different development stages. IPOs are more difficult in Europe than in the US.risky projects. it is very difficult to exit the biopharmaceutical sector. To address this threat to biopharmaceutical innovation. i. the case study in Appendix 2) has been the collaboration with Novo Nordisk. policy makers will need to provide incentives for investors to provide capital to the biopharmaceutical sector or set up public funding mechanisms in accordance with European regulation on state aid. US ownership of European assets may not pose a problem for individual companies. Negative impact on long-term public health and healthcare provision The lack of access to capital not only constitutes a threat to biopharmaceutical innovation and economic growth – it is also a threat to public health. which will place the public sector and. Therefore. Flow of investors The current financial model that finances biopharmaceutical companies in rounds causes a lot of uncertainty about investors.. This is making the sector less attractive to investors. Biopharmaceutical products may also help policy makers in their efforts to deal with socioeconomic challenges such as the ageing European population. but it may have a negative effect on economic growth and employment in Europe. in particular. Such coordination could also provide an exit opportunity for earlystage investors. In general. investors are often unable to raise the capital needed in later stages. 72 . Lack of exit options For the time being. The lack of access to capital could mean that biopharmaceutical companies will be unable to develop new innovative medicines to conquer diseases and emerging threats to public health such as pandemics and bioterrorism. In the early stages. pharmaceutical companies that are capable of raising sufficient money to negotiate and complete transactions. which will make early-stage investments more attractive to the investor community. One of the success factors for the company Innate Pharma (cf. public healthcare provision under considerable financial pressure. in the early phases of the company’s development as well as the continuous financial commitment of Novo Nordisk to the company. trade sales and buy-outs need buyers. This could have a negative effect on the level of innovation in the sector and therefore economic growth in Europe.

market) as well as the relationship between the company and the provider of capital illustrated by mutual trust. Many biopharmaceutical companies have performed poorly and policy makers should be careful to invest in companies that the financial market has abandoned. The EU and the Member States have launched a long list of different initiatives and measures in this connection . economic growth and employment in Europe. In the following. However. we conclude that an increased capital supply could meet some of the immediate funding problems in the biopharmaceutical sector. there is also an element of ‘creative destruction’ that needs to be considered when deciding to support an industry on the ‘other side of the biotech hype’. 73 . our recommendations will focus on the impact of the financial crisis and the structural problems facing biopharmaceutical companies. the capital market (VC. the access to risk capital for high-tech entrepreneurs such as biopharmaceutical companies has been on the European political agenda. Some observers even claim that having too much capital in the market for funding drug development could very easily become a “waste of money” because too many drug candidates with insufficient market potential would be funded. and this would drain the financial market for capital for other and more promising drug candidates. 9. understanding the business logic of the opposite part. Financing biopharmaceutical drug development is a complex matter that goes beyond having access to sufficient funding. The long-term consequences could be that biopharmaceutical companies will be forced to give up their drug development activities with a subsequent negative impact on innovation. they may become increasingly attracted to the advantages of the US market and this may lead them to deemphasize their local engagement.Capital going to the US As VC in the few relatively successful European clusters grows more experienced and specialised. The structural problems relate to the performance of the companies (R&D and management skills and capacity). In recent years. In line with the SWOT analysis. cf. Exhibit 9. etc. The policy recommendations target the different challenges in the specific stages of the biopharmaceutical product development process as well as the overall framework conditions affecting the sector’s development.2 below.6 Conclusion and recommendations The European biopharmaceutical sector faces considerable challenges in connection with gaining access to funding. The financial challenges have been accentuated by the current financial crisis.Our ambition is to address the financial challenges identified in this study by providing recommendations on how to improve access to finance for biopharmaceutical companies. sharing information.

1 Recommendations addressing early stage drug development Exploring the effectiveness of accelerating tech transfer models and commercialization strategies – good practice Reducing the time to market and the cost of development are essential for companies in the biopharmaceutical sector if they wish to increase their attractiveness in investor communities. Solutions may include tech transfer and engaging in new ways to commercialise products. long time to market. These partnerships give the biopharmaceutical companies access to R&D resources and business-relevant skills and provide revenue.2: Intervention areas and related policy recommendations Early stage – first funding gap • Accelerating tech transfer models  and commercialisation strategies Supporting micro funds and  business angels • Mid and late stage – second and third funding  gap Increasing the volume  of venture  capital investments in Europe – The European  Biopharmaceutical  Innovation Fund • Framework conditions Attracting venture capital to Europe Improve framework conditions  for biopharmaceutical sector and venture cap ital industry in Europe • • Our analysis of access to finance shows that it is necessary to focus more on the challenges that biopharmaceutical companies are facing in the product development process. the cases studies also suggest that there is a weak link between research and the early stage of drug and business development because researchers hesitate to move from research to business development. have established partnerships with other (bio)pharmaceutical companies. However. innovative capacity and competitiveness of the European biopharmaceutical sector. high risk of failure) by considering sector-specific policy measures that target the special needs of the biopharmaceutical sector. a prominent model is for university-based researchers to spin out from universities and form their own companies expecting one day to become a large manufacturing biopharmaceutical company. There are many different approaches to developing biopharmaceutical products. the European Commission should recognise the unique structural characteristics of the biopharmaceutical sector (capital-intensive. 9. Some of the case companies (cf. Such sector specific measures would constitute a new approach in European industrial policy (compared to the current horizontal approach) that could successfully support the future development.6. In fact. In Europe. case studies in Annex 2).Exhibit 9. There appears to be a need for speeding up and encouraging 74 .

Recommendation Analyse and promote good practice accelerating tech transfer models. commercialisation strategies or business incubator approaches has not been investigated systematically. an early commercial assessment of research will ensure that the research activities and early drug development are based on a viable business/commercial platform. 34 75 .2 Recommendations focusing on increasing the access to finance for biopharmaceutical companies Making investments in early-stage biopharmaceutical companies more attractive for micro-funds and business angels Interviewees suggest that venture capital funds may not be the most appropriate source of funding for early-stage companies. investing less than £2m in total (including follow-up investments) in each of their portfolio companies. venture capital and committed technical..g. the Leuwen tech transfer and the Karolinska Institute in commercialisation strategies.pdf and report on the US bioscience industry and recent bioscience initiatives published by the Biotechnology Industry Organisation in 2008.pdf 35 NESTA (2009) defines micro-funds as ‘small venture capital funds worth £30 million in total or less. have adopted this model. commercialisation strategies and business incubator approaches in the biopharmaceutical sector to ensure the adoption of good practice in Europe.6. Instead. The analysis should focus on documenting the effects of the various models.34 The case studies of Bioartic Neuroscience and MolMed also illustrate the importance of business incubators for the development of biopharmaceutical companies.eif. Recommendation Provide incentives to micro-funds and business angels to invest in early-stage biopharmaceutical companies See also EIF report from 2005 on Technology Transfer Accelerator. presence of business skills in the early stages of drug and business development. strategies and approaches (European Commission) 9. http://www. Accelerating tech transfer models extend the traditional scope of tech transfer activities that focus on licensing also to include business support. Means • Identification. conditions for micro-funds35 and involvement of business angels could be improved to increase their involvement in early-stage companies in the biopharmaceutical sector. Thus. http://www. For instance. Yet. analysis and dissemination of good practice for accelerating tech transfer models. clinical and market expertise. Various university institutions and cluster organisations in Europe. and the returns of investment for investors in early stage are considered low. the close collaboration between universities and big pharmaceutical companies is considered vital for the successful commercialisation of (biopharmaceutical) research in the US. and business incubator approaches in the biopharmaceutical sector. the effectiveness of the different accelerating tech transfer models.

but investors and companies still face the challenge of finding the capital needed for the companies to grow. the DTI survey of biopharmaceutical enterprises indicates that the companies find it more difficult to gain access to funding in the early development stages than companies in other stages of product development. There is a significant risk that these developments will lead to a reduction in R&D activities in the biopharmaceutical sector with negative consequences for innovation and economic growth. This has made the biopharmaceutical sector less attractive to the investor community. economic size and expertise will attract additional private investors so that the total funds under management will increase.g. 76 . All in all.. It could be set up as a fund that invest directly in biopharmaceutical companies or as a fund-of-funds that invest in other venture funds. The Norwegian government-owned investment company “Argentum” and the Danish state-backed VC fund “Vækstfonden” (cf. This will allow the fund managers to carry out qualified assessments of business projects and support the management of the portfolio companies in their decision-making processes. Furthermore. e. geared their initial capital and supported the establishment of specialised private life-science funds.Means • Reform tax systems (e. the financial crisis has put many biopharmaceutical companies in Europe under financial pressure and reduced exit opportunities via public markets for investors . Some European countries have already launched strategic initiatives focused on boosting investments in national life sciences sectors (including biopharmaceuticals). o Economic size will also allow the fund (or the venture capital funds supported by the fund) to build up world class expertise and a high level of specialisation in biopharmaceuticals. The later development stages are more capital-intensive and require large amounts of capital that micro-funds and business angels often cannot raise on their own. case study of Symphogen) have. tax concessions) to favour investments in biopharmaceutical companies by business angels and micro-funds (Member States) • Public co-investments in micro-funds (Member States and European Commission) These initiatives may increase the availability of capital for biopharmaceutical companies. the study stresses that it is important to maintain the momentum of the product development process in the European biopharmaceutical sector.g. In addition.   Recommendation Increase the availability of venture capital to biopharmaceutical companies Means • Establish a European biopharmaceutical innovation fund to invest in biopharmaceutical product development. o Finally.. Increasing the volume of venture capital investments in the European biopharmaceutical sector The analysis suggests that biopharmaceutical enterprises face several funding gaps when developing new products. The fund should be guided by the following principles: o Economic size will allow the fund to provide sufficient means to support biopharmaceutical product development in portfolio companies from the earliest research to the late stages of drug development.

and this may pose a problem in the biopharmaceutical sector because many potential private investors in life sciences (e. Recommendation Extend the geographical reach of national and European financial instruments to ensure full exploitation of global financing opportunities. European policy makers will need to provide a formal guarantee for the independence of the fund. Will the fund only invest in biopharmaceuticals or should it spread the risks and invest in the biopharmaceutical sector as well as other sectors? The proposed fund should be fully integrated with the existing institutional framework consisting of the EIF and EIB to ensure that their activities are coordinated and synergies are exploited. Alternatively.6. However. Policy makers should consider the merits of mezzanine funds with regard to high-risk investments and consider providing capital to the biopharmaceutical sector via such funds (Member States and European Commission). traditional bank loans are ill suited for biopharmaceutical companies due to the high risks involved in biopharmaceutical product development and the limited revenues in the sector. the diversification strategy of the fund should be discussed..3 Improving framework conditions for the biopharmaceutical sector and venture capital Attracting venture capital to Europe The European venture capital industry has not performed well and investors are becoming increasingly reluctant to invest in venture capital funds. Such a fund-of-funds could support the current venture capital funds in investing in biopharmaceuticals without interfering with investment decisions. Mezzanine funding provides an interesting alternative to bank loans and venture capital. This means keeping interference with the fund to a minimum and letting professional fund managers make investments decisions. The EIF is co-investing together with private investors in VC funds that focus on underfinanced sectors such as the life sciences to attract other private investors. the European Commission could decide to establish a fund-of-funds to avoid policy interference with investment decisions. large pharmaceutical companies) are located in the US. Finally. One key issue is that private investors may be concerned about the risk of political interference in the investment decisions of the fund. Moreover. However. debt financing is also a potential source of financing of innovation. the instruments often focus on European investors located.g. 9. To ensure the fund’s credibility in the venture capital market.A range of issues must be considered before setting up a fund or a fund-of-funds. Means • Reform of existing European and national financial instruments to ensure global focus of activities (national and European policy makers) • Remove regulatory barriers to cross-border operations of venture capital funds (national and European policy makers) 77 .

Improving the framework conditions for biopharmaceutical companies and private equity
According to industry representatives, the regulation of biopharmaceutical companies as well as the European venture capital industry could be improved to better support the development and competitiveness of the two industries. The biopharmaceutical sector is subject to extensive sector-specific regulation due to the potential risks to human health and the environment as well as ethical concerns. Among the key issues we find: ‐ Reduce the burden on biopharmaceutical companies ‐ Speed up the procedures for drug approval The European regulation of the venture capital industry is currently under scrutiny following the financial crisis. One of the key issues is increased transparency with regard to the operation of venture capital funds. Moreover, the regulation of private equity does not take the characteristics of different forms of capital into account. Recommendation Improve the framework conditions for European biopharmaceutical companies and venture capital industry. Means • Adopt the Young Innovative Enterprises scheme in all European countries (adjusted to the national contexts) (EU Member States) and extend the current 8-year limit in the EU State Aid rules to 15 years. • Speed up the centralised procedure for marketing authorisation (EMEA) o A 2007 study analysing approval times for the EMEA and FDA in 2000-2005 concluded that approval times were nearly identical (15.8 months for EMEA vs. 15.7 months for FDA). However, the FDA approved a larger number of products (47) faster than the EMEA.36 EMEA has taken steps to reduce the approval time, but there is a need to continue to explore other options in order to reduce the approval time further. o Good practice examples: The Swiss drug licensing authority, SwissMedic, has set up a task force to speed up the approval procedure. The aim is to ensure that by the end of 2010 drug registration will take just three months instead of the current eight months (Swiss Biotech Report 2009). • Operation of venture capital funds in Europe. Continue the policy dialogue between policy makers and the private equity industry to ensure that new legislation aimed at regulating and monitoring financial operations does not serve as a barrier to venture capital funds and other investors to operate in Europe and invest in innovation activities



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Denmark Novartis Venture Funds. Milan Hungarian Biotech Association EVCA EIF Business Angel ASEBIO 87 .Annex 1: List of interviewed expert Name and position Rolf Hauge Kjærgaard Florent Gros Daniela Bellomo Erno Duda Dr. Thomas Meyer Ulrich Grabenwater Alan Barrell Isabel Garcia Organisation Vækstfonden. Switzerland San Raffaele Science Park.

BioValley UK 88 .Annex 2: Case studies Overview of the case studies: Name of the company Symphogen BioArctic Neuroscience Apogenix MolMed Innate Pharma Oryzon Genomics Arpida CellZome Location Denmark. BioRN Italy France Spain. BioCat Switzerland. Medicon Valley Sweden Germany.

com/ 39 Novo A/S . The company's main business strategy is to develop new drug candidates and bring the drug candidates to the market in partnership with leading biopharmaceutical companies. Symphogen invested considerable amounts of money in R&D to develop its own antibody technology platform. a new class of biopharmaceuticals for treatment of serious human diseases. www. d. The key strategic challenges for Symphogen are primarily to keep very high scientific standards and present promising research and clinical results.e. and two thirds of them work within drug discovery and pre-clinical tests. or master's degrees. In other 40 The first invention recognising this technology platform originally was done at Boston University.symphogen. Overall.owned by the Novo Nordisk Foundation . Through their insight they will also become patient investors (have a long investment horizons). prove (test) their effectiveness and develop production system for a wide range of different drugs. Today. This is the backbone of the company in its efforts to become the leading company in its area of business.Symphogen A/S. i. but more a means than the solution The case is mainly based on an interview with the CEO Kirsten and Symphogen (2009): The Annual Report 2008. such a dedicated focus can only be achieved if access to capital is plentiful and when the “capital” (the venture capitalist) is competent (profound insight and knowledge about the technological platform of the company). Symphogen is based on the fundamental research idea40 that the human body produces antibodies to overcome many different diseases. However.. The number of employees peaked in 2008 with 87 employees but has been reduced while the company adapted to more focused activities.(www. However.has since 1999 established itself as an international venture capital partner in the life science area and has invested in over 50 companies in Denmark.novo. This platform has now been patented. the company claims to be the leading company in developing recombinant polyclonal antibodies (rbAb). The researchers will be able to develop drugs if they can copy and/or clone these antibodies. Europe and North America.39 The third founder is a researcher with extensive international research experience within molecular immunology and biochemistry. Capital is crucial. the number of employees has increased to approx. John Haurum (CSO) and Thomas Feldthus (CFO). the key to Symphogen's success will be the originality of its technological platform and a competent symbiosis between the executive management and board of directors (investors). the company may also become more active in initiating production (possibly by using subcontractors) as well as sale and marketing.novonordisk. 60% of them hold a Ph. The CEO and the CFO have considerable industrial experience from the pharmaceutical industry and have worked with R&D and management of R&D in Novo Nordisk A/S (one of the world's leading pharmaceutical companies within diabetes38) and as an investment manager in Novo A/S respectively. 38 http://www. 70. allocation and dedication to R&D has a very high priority. USA 37 89 . Denmark Company characteristics37 Symphogen A/S was founded in 2000 by the three co-founders Kirsten Drejer (CEO). In its first year in business. Since 2000.

The institutional investors to some extent rely on the competence and expertise of the venture capital funds dedicated to the biopharmaceutical market. The fund recently changed its investment strategy from direct investment (an actual portfolio of nine companies) to indirect investment. university hospitals and a number of very large and globally oriented (bio)pharmaceutical companies. the capital market also seems to be well developed.mva.vaekstfonden. which is also called the “Medico Valley Region”. and the capital managed by venture capital funds increased from approx. The biotech sector took off in the years 1999-2002 when 10 new biotech companies were established every year.Regional and national financing conditions Symphogen is located in Copenhagen in the Danish-Swedish cross-border Øresund Region. The overall impression is that the region is characterised by high skills and competencies in the research and business sector as well as the venture capital are dedicated to the biopharmaceutical 43 Sunstone Capital (http://www. Several of the large pharmaceutical companies have been in business for decades and hold a significant position in the international market. In a European context. Sunstone Capital43 is an example of a venture capital fund. a cluster organisation. The Danish State Investment Fund (Vækstfonden42) has played a significant role in financing biotech companies (different forms of loans as well as equity) for about 15 years by filling the financial gap between research funding and the traditional private venture capital. which is a spin off from the Danish State Investment Fund. the last few years the Danish State Investment Fund has faced increasing problems with finding sufficient capital to continue investing in the increasing number of biopharmaceutical companies with an ever increasing need for capital to bring drug candidates from research to a new medicine. Hopefully. these venture capital funds will be able to attract further capital and invest in more companies.41 Finally. € 800 million (IRIS Group 2009) However. Through its indirect investments. the region also appears to be highly attractive to international investors. the regional venture market is also characterized by very competent cooperate venture capital funds as well as funds established by institutional investors with less knowledge about biopharmaceutical market.sunstonecapital. The Danish State Investment Fund has invested indirectly in some 60 companies. the Danish State Investment Fund invests in other venture capital funds (at present seven venture capital funds). the average venture capital investment per inhabitant is very high in the region where many clinical studies are also carried out. Vækstfonden (http://www. In addition to the above research and industrial platform. € 150 million to approx. Apart from the state-backed venture capital. Medico Valley Alliance. This region is characterised by a huge health care sector with several universities. 41 42 Medico Valley Alliance (MVA) (http://www. has been established to encourage collaboration and joint activities and profile (market) the region 90 .

the company has also played an important role in proposing potential venture capital funds. Until 2008. Its success is based on a. Danske Bank (DK). Symphogen has carefully screened the venture capital market for competent venture capital funds and the management's personal networks have been dedicated to establishing personal relationships with potential investors. In other word.Financing situation of the company So far. figure below) has also opened up for co-development and marketing partnerships with other biotechnology and pharmaceutical companies. The advantage of having competent investors is that they understand the challenges in connection with developing new drugs with regard to research.1 million. the company will need an additional capital injection of € 130 million. loans and capital raised in the private venture capital market. Symphogen had raised a total of €108 million in equity capital through its international investor syndicate over several funding rounds. 44 2009 has seen a new funding round where the company raised an additional equity investment of € 33 million. during several funding rounds. Symphogen has not generated any profit from its business activities.66 million loan from the Danish State Investment Fund and a start-up grant of € 0. The investors – mainly venture capitalist – have almost remained the same since 2000. Tri-Takeda (Japan) and Genentech (USA) 91 . In 2002. LD Pensions (DK). In the start-up phase. In addition to equity. Since the initial funding. Personal relationships appear to be essential. Gilde Healthcare Partners (Netherlands). Symphogen had the advantage of having close relations with Novo A/S. It has recommended Symphogen to potential investors. This combination of capital and insight is difficult to find in other parts of the capital market . Symphogen has been successful in raising capital. Novo A/S (DK). about € 17 million in additional equity was raised from venture capital funds. Generally. a € 0. Symphogen stresses that venture capital is the only possible way of funding new drug discovery companies as the need for capital is huge and the investors' ability to handle the risk management requires profound insight and knowledge about biopharmaceuticals. Sunstone Capital (DK). approval by the authorities and access to the market. technology. Depending on the progress of the drug development. The capital was spent on intensive research. which has been essential for getting the opportunity to present Symphogen's business plan. Symphogen has addressed the most competent international investors.86 million as equity). Symphogen raised seed capital from Novo A/S (€ 0. In 2000. This not only resulted in seed capital from Novo A/S. Until it can break even. Symphogen expects to be financially sustainable in 5 years. these partnerships generate an 44 Essex Woodlands Health Ventures (USA). Competent investors have much more patience and do not panic if some of the research or test results turn out to negative as they have understand how to evaluate the results and consider a strategy to continue the drug development process. the current pipeline of drug candidates (cf.including the stock market. determined and persistent focus on: • High-quality research and a technology platform with great market potential • Establishing personal relationships with investors followed by a clear and open communication • Dedicated process to attract the most competent international venture capital The financing strategy of Symphogen is based on the philosophy of being dedicated to R&D in order to obtain the best research results as a way to attract the most competent international investors. but has relied on grants.

and would fund associated research and development costs. Symphogen considers these partnerships a necessary path to reaching the market for the mainstream products) as the partners contribute with competence and knowledge while Symphogen offers its technology and manufacturing platform. but presumably they not only have an economic value but also marketing 2006. National Institute of Allergy and Infectious Disease (NIAID) for the full preclinical development of an anti-vaccine product for the adverse reactions associated with smallpox vaccination The total value of these agreements cannot be estimated. Meiji will fund all discovery and development activities. Ltd. According to the agreement. Symphogen was eligible to receive milestone payments upon the success of certain research and development milestones.. as well as royalties on any products developed and commercialized by Genentech as a result of the collaboration.6 million grant by the U.income to the company even before the drug candidates have reached the market. (Tokyo. Symphogen entered into a development and license agreement with Meji Holding Co. Symphogen will receive royalties on net sales of the product. Genentech would make an undisclosed upfront payment to Symphogen. Symphogen received an initial technology access fee from Biovitrum..a worldwide co-development and commercialization agreement signed in 2006. Japan). Meiji Holding Co. Symphogen received an upfront technology access fee. Ltd. as well as an equity investment in Symphogen. funding and shared risk. In addition. The total value of the agreement had the potential to exceed $ 330 million and Genentech would obtain an exclusive worldwide license to candidates developed through this agreement. If successfully commercialized. and Symphogen is entitled to receive milestone payments upon successful product development achievements. Furthermore. Pipeline of Symphogen   Symphogen currently has partnerships with 2008 Symphogen entered into a global strategic collaboration agreement with Genentech. and Genentech: • Biovitrum . in 2006 Symphogen was awarded a $4. The main challenge is to establish a clear agreement that defines collaboration. and may receive milestone payments based on progress • Meiji Holding Co. . Exhibit 1. • Genentech . 92 .

business eagles) with a short investment time horizon since early exit is a disadvantage for long-term drug development Policy priorities and recommendations Symphogen knows that sufficient access to venture capital is crucial for the biopharmaceutical industry in order to develop new drug candidates. loans and grants are not considered relevant instruments to meet the financial requirements of drug development candidates. The impression is that they have made a positive evaluation of the company's market potential. Symphogen is very satisfied with the current situation as the company's competent and patience investors enable the company to focus on R&D and drug development. None of the investors seems to have any exit plans for the time being. However.g. 93 . the company thinks that the main rule for the managers of state. the changing market situation has not had any impact on Symphogen yet. which eventually will give a good return on their investments. but the market has become more hesitant to invest. The company tries to avoid investors (e. All the investors have accepted the need for further investments without letting other major investors enter the group of shareholders. Except for business start-ups.or EU-backed venture capital should be to invest in projects/companies with the best qualifications. Challenges with exit strategies of investors The current group of investors have kept their investment in Symphogen for a long time. The managers must have very profound knowledge about biopharmaceuticals and political agendas and complicated administrative legislation should be avoided. and they continue to refuse offers from potential investors.. Nevertheless. The general impression of the venture capital market is that there is still available capital.Impact of the funding situation on strategy  Symphogen has sufficient capital to continue its drug development programme until 2011. This gives the company a good opportunity to focus on drug development without being forced to spend a lot of time on raising additional capital.

94 .

originally started his career in 1980s as a researcher. a key strategic challenge has been their ability to generate income. BioArctic Neuroscience AB was established in 2003 as a spin-off company from Uppsala University. Prof. the company's development is largely contingent on the founders' individual financial resources. In recent years. had been doing neurodegenerative research for more than 10 years. At the time. The other founder. In 2006. Sweden Company characteristics45 BioArctic's overall business focus is to discover and develop new treatment opportunities and diagnostic tools for diseases of the central nervous system. The overall ambition is to develop new drugs as well as doing sale and marketing (in some geographic markets). Regional and national financing conditions BioArctic is situated in the Stockholm/Uppsala biotech-region (IRIS Group 2009). In the 1990s. Their first years in business were challenging because the main business activity was research without generating any commercial income. Astra and Pharmacia).se/ 95 .. the two founders met again and decided to merge their scientific and industrial experiences to establish a drug discovery company based on Lars Lannfelt's research results. Thus. CEO Pär Gellerfors. The economic performance of the company has developed slowly. Pär Gellerfors continued his career within the pharmaceutical industry in Denmark and Sweden.e. The CEO stresses that highly skilled researchers and promising research results is BioArctic's main success factor. BioArctic has had a dedicated focus on Alzheimer's and Parkinson's disease in order to develop immunotherapy for these two neurodegenerative diseases. This growth strategy is a deliberate decision by the founders and it emphasises that they want to have full control of the company and will not let other investors gain a controlling position as shareholders. Lars Lannfelt still works as scientist doing research projects within the technological platform of BioArctic. the Swedish mutation (discovered in 1992) and Arctic mutation (US patent application in 2000) that clarify the central role of protein misfolding in the Alzheimer's disease process. At the beginning of 2002.bioarctic. the region was dominated by a number of very large pharmaceutical companies (e. Manufacturing is not a prioritized business activity because the investment to establish production facilities is considered to be too high. The foundation of the company was based on two breakthrough discoveries. This scientific breakthrough could eventually enable treatment of these neurodegenerative diseases for which there have not been any treatment until now. In 2009. i. So far.. the company was located at the Uppsala University and at the founders' private residences. The two men met for the first time in the 1980s. partnerships and out-licensing agreements with other companies. As a consequence. Until 2006. BioArctic moved to its own premises and staffs was employed. BioArctic has 17 employees of which the main part is graduates with PhD working with research and drug development. the one of the founders.BioArctic Neuroscience AB. Professor Lars Lannfelt. income has mainly been generated from research collaborations.g. This can be illustrated by the very long start-up period when it took several years before the company moved to its own premises and employed its own staff. but international mergers have gradually eroded their position in the region (and in 45 This case study is mainly based on an interview with CEO Pär Gellerförs and http://www.

Almi Fôretagspartner(government owned business and information centers . Karolinska Innovation AB has signed 30 licence agreements and been involved in 40 spinoff companies while Uppsala Innovation Center has been involved in 14 spinoff life science http://www. loan and equity. the weakness of the region is that many companies have severe problems with raising sufficient capital to carry out a long and efficient drug discovery programmes as well as having several drug candidates in their portfolio (Valentin 2008). An example of such a cluster organisation is Uppsala Bio. Karolinska Innovation AB47 and Uppsala Innovation Center. Industrifonden (independent foundation founded by the Swedish state in 1979 http://www. and .managers from the biotech industry. loan and equity.uppsalabio.51 Each of these initiatives can typically offer companies up to approx. which may cover a minor part of the cost of developing a new drug candidate. Furthermore.karolinskainnovations.aspx?id=1356 51 VINNOVA (national agency for innovation .se/In-English/About-VINNOVA/) offering grants for proof of concepts. € 200.46 Large and very competent universities and university hospitals are still a unique asset as huge investments in research are a source for starts-ups of in new research-based biotech companies. 48 http://www. commercialisation and business start-ups. the Stockholm/Uppsala region and the government took several initiatives to encourage the development of a biotech cluster.innovationsbron. The point of departure for a revitalisation of the biotech-sector has been a large pool of qualified researchers.karolinskadevelopment. business development (business plan). These regional initiatives 50 http://www.vinnova. the region is also characterised by a very good facilities for clinical Innovationsbron ( 49 http://www. Since offers grant. Parallel to this change in the industrial structure of the biotech sector. However.Sweden).se/in_english/default.48 They are two tech-trans units that commercialise research within life science. Both units offer consulting and can finance proof of concepts and seed funding. Karolinska Development AB49 and Uppsala Universitet Utveckling AB50 also act as minor venture capitalist by holding shares in new offering business advise.asp) offering equity and loans to companies with the potential to grow in an international market 96 . This problem is related to lack of risk capital to take over from the early-stage funding from the regional and state programmes. Besides these regional initiatives. Different programmes were launched and cluster organisations were established. Valentin also stresses that many companies are established by researcher without sufficient business competence to persuade venture capitalist to see the commercial potential of 46 47 http://www.000. start-ups and offering capital for the first stages of business development. Approximately 200 biotech companies are located in the region. There have also been policy initiatives aimed at commercialising research and encouraging business some extent . a strong research platform. the regional business start-ups also have access to government backed risk capital mainly financing the early-stages of development such as proof of concept.uppsalasciencepark. among others.http://www. Today the region is a very strong and attractive region for biotech research.industrifonden.

As a consequence of this attitude towards venture capitalist. Karolinska Innovation AB and Uppsala Utveckling AB hold a small number of shares. in its first years in the founders hold the majority of the shares while a number of students.their drug candidates. become successful Swedish companies.adconmac. which will force the drug development process and increase the risk of failure • Cannot contribute with knowledge about drugs and drug development • Will limit the possibilities of developing other new drug candidates or following interesting research results • Might squeeze the founders out the management of the company due to a conflict of interests since the ambition of the founders is to control and develop the company into becoming an attractive drug development company. consisting of personally appointed individuals. in the long term. Thus. CEO Pär Gellerfors also had to work as a lecturer at Uppsala University. Financing situation of the company BioArctic was based on considerable research efforts before the establishment of the company. This initiative has not proven its effect yet. 52 VINN NU is a competition for new companies that base their operations on R&D results. The first capital that the company was able to raise came from: • 2003 VINN NU award (SEK 300. find subsequent funding and.D. who the founders believe can contribute to the development of BioArctic by their experiences and knowledge. Karolinska Development AB and Uppsala Universitet Utveckling AB are aware of this weakness and encourage new companies to enlarge the management group with a manager with professional experience from the biotech industry. http://www. access to capital was a serious problem for BioArctic and as the company did not generate much income. As mentioned above. at this stage of development it was crucial for BioArctic to obtain the intellectual property rights (IPR) for their research results.000) organized by VINNOVA52 • A loan from Teknikbrostiftelsen53 in Uppsala • A scholarship from Handelsbanken Some minor investments – but with a high branding value – were made by two regional venture funds. The funding resulted in Ph.htm 97 . the board of directors (and a scientific board).se/InEnglish/Activities/Research-and-Innovation-in-Small-Companies/VINN-NU/ 53 Teknikbrostiftelsen: Encouraging technology transfer from university to business. the founders are not enthusiastic about sharing the ownership of the company with others. and in 2004 Karolinska Innovation AB and in 2005 Uppsala Utveckling AB became shareholders.vinnova. theses which helped develop the technological platform of the company. The aim of VINN NU is to make it easier for new R&D-based companies to prepare and clarify commercially-interesting development projects at an early-stage so that they can progress. http://www. but due to lack of capital they had to issue shares to be able to pay for the licence agreements and this way even some students become shareholders. However. The founders have made a strategic decision not to invite venture capitalists to invest in their company because the CEO finds that venture capital: • Has a too short investment horizon and is impatient to see results. In this pre-start-up period the university research activities were funded by R&D-programmes. Today.

54 This is of a great commercial and strategic importance. The major risk is that clinical trials fail. Eisai has developed the world leading drug (Aricept®) for the treatment of Alzheimer’s disease. Eisai and BioArctic signed an “evaluation agreement” for the period 2004-2007 where BioArctic was paid to evaluate and develop their main drug candidates BAN2401. e.Instead of venture capital. The main barrier to raising additional capital – equity – is internal as the founders want to keep control of the company and not let others. indicating that the basic research idea was a feasible technological platform for developing new drugs. gain control of the company. In order to generate some – and so far a small . BioArctic was paid according to agreed milestones.. 54 Eisai is Japanese based international oriented company among others with an interest of developing drugs addressing Alzheimer's disease. (http://www. Impact of the funding situation on strategy Looking at BioArctic as a company. the agreement with Eisai is so far the most important access to capital and the main road to reaching the market. BioArctic focuses at opportunities to generate income through research collaboration and partnerships. venture capitalist.eisai. To minimize the risk of failure and its impact on the company. So far. The consequence of this funding strategy is that BioArctic largely depends on the progress and success of its project partnership with Eisai. BioArtic does not consider the venture capital market to be of any importance to the company. as well as having other drug candidates in pipeline. which has brought BioArctic into even closer collaboration with Eisai to develop the most advanced project in the BioArctic portfolio.g. and not as embedded research at the university. Sweden) • BioArctic has developed new proprietary transgenic mouse model for evaluation of Alzheimer drugs (The APPArcSwe) • In-licensed from Swenora Biotech AB.. BioArctic is also involved in some minor commercial activities such as: • Selling monoclonal antibodies and kits for the Alzheimer research market (AbetaN™) together with Mabtech (Stockholm. In 2007. BioArctic and Eisai entered a long-lasting partnership agreement (including an exclusive licensing agreement with milestone payments linked to the progress of the project). In other words.additional cash flow. BioArctic has established close research collaboration with the Japanese company Eisai. that can promote spinal cord repair in a rodent animal model of severe spinal cord injury • BioArctic is collaborating with GE-healthcare to develop brain imaging markers ("tracers") to monitor disease progression and to follow treatment effects in Alzheimer’s disease with positron emission tomography (PET). BioArctic is trying to increase its technological platform through new research in collaboration with universities and research institutes. etc. The project is carried out by a mutual steering group. BioArtic is developing a device which in combination with a growth 98 . as well as by marketing other R&D reagents. these activities have only generated a small additional income.

BioArtic recognizes the financial gap which could be filled by venture capital. However. BioArctic has discovered that it is difficult to involve big biopharmaceutical companies in the early-stages of clinical trials. to becoming more oriented towards drug development. the CEO would welcome industrial development programmes with grants for clinical trials (early-stage drug development). 99 . grant schemes (R&D programmes. keeping the funding strategy of BioArctic in mind. He also calls for special tax incentive schemes that would reduce the taxation of R&D companies. The company has developed at a moderate speed. the major big challenge will be: • To establish partnerships with big biopharmaceutical companies • To move the company from even more scientific orientation into the clinical test area • To become a attractive drug development company Policy priorities and recommendations BioArctic has moved ahead from being very research oriented.In accordance with the development strategy of BioArctic. On the other hand. One the one hand.) are mainly dedicated to R&D. etc. but seems to have established a promising partnership with Eisai.

100 .

The main investor in Apogenix GmbH is the Dietmar Hopp Foundation. The most advanced product is about to enter clinical phase 2. Currently Apogenix has 26 employees. invested €15 million in the company. At present Apogenix has three products in the pipeline. €253 million were invested in the period 2003-2007. Apogenix owns nine patent families protecting different drug candidates. in late 2004 the company became insolvent and had to close. Alternatively. The product development strategy of Apogenix GmbH is to develop drug candidates up to proof-of-concept. Australia. Apogenix re-started as a limited liability company (GmbH). Apogenix has already filed patent applications in several important pharmaceutical markets (EU. Heidelberg as well as its scientific founders and its executive management. but relies fully on venture capital and Regional and national financing conditions Apogenix is located in the Heidelberg technology park BioRegion Rheine-Neckar (BioRN) in Germany. one of the SAP founders and a known biotech investor in Heidelberg.biorn.Apogenix. and after that full or partial commercial rights to the respective drug candidates may be out-licensed to other companies. Further shareholders are the German Cancer Research Center (DKFZ). Peter Krammer and Prof.5 million in public grants. In 2008. biotech companies and service providers. The company has not yet generated any capital surplus. information available at www.4 applications in 2001-2005 and biotech venture capital investments. The region ranks second in Germany with regard to biotech patent applications with 71. who both have profound scientific and business experience within the pharmaceutical and biotechnological industries. BioRN was nominated as one out of five most significant high-tech clusters in Germany in the Top Cluster This case study is mainly based on an interview with CEO Thomas Hö and an interview with managing director of Bioregion Rheine-Neckar Christian Tidona. However. BioRN covers eight cities and consists of several universities. as well as information available at their homepage www. Apogenix may opt to continue clinical development and commercialization of an orphan compound on its own. Walczak) still work as scientific advisors to the company. Krammer and Prof. Canada. USA. 55 101 . The company was a spin-off from the German Cancer Research Centre and was established as Apogenix Biotechnology AG. Henning Walczak in 2000.apogenix. and Japan) and has been granted numerous patents. 20 hold an academic degree and work exclusively with research and development of their drug candidates. Apogenix was originally founded by Prof. technology parks. The scientific founders of Apogenix (Prof. The company was rebuilt from scratch and the management was taken over by Thomas Höger and Harald Fricke. In 2005. Since its foundation in 2005 the company has raised € 43 million in two financing rounds and has been awarded € 5. Germany Company characteristics55 Apogenix GmbH is a biopharmaceutical company developing novel drugs for malignant and inflammatory diseases. This happened as Dietmar Hopp (Dietmar Hopp Foundation). Currently.

Contest. The BioRN cluster received € 40 million out of the €200 million federal grants allocated to the five selected clusters. In charge of the development of the cluster is the BioRN cluster management, which is a publicprivate partnership between Rhine-Neckar BioRegion, Heidelberg Technology Park, the RhineNeckar Chamber of Commerce and the Rhine-Neckar Metropolitan Region. The overall aim is to strengthen and brand the region to attract venture capital and large pharmaceutical companies. Large pharmaceutical companies such as Roche, Merck Serono and Abbott already participate in BioRN activities. With the help of grants, the aim of the BioRN Cluster is to develop 70 new drugs, diagnostic products and technology platforms, as well as about 20 innovative services in the field of cellbased and molecular medicine by the year 2013 in the Rhine-Neckar metropolitan region. Furthermore, the ambition of the BioRN cluster is to create 4,000 new jobs within the next ten years. To reach this goal the BioRN Cluster will: • educate highly qualified entrepreneurs and managers, i.e. by establishing a MBA education • attract venture capital • attract big pharmaceutical companies • extend R&D infrastructure To attract experienced management to SMEs, working with biopharmaceuticals, can be a great challenge, and the cluster management has therefore established a new MBA (Master of Business Administration) programme at the Troy University in Heidelberg. The aim is to attract competent students and people with a scientific and technological background to obtain knowledge for working in management positions. The cluster management also aims at creating increased networking and cooperation with biopharmaceutical companies based in the region. The aim is to share the burden of development and marketing costs and thus help to drive innovations in biotechnology towards industrial maturity. One main explanation for the leading position of BioRN is the Dietmar Hopp Foundation. Dietmar Hopp is a well-known biotech investor in the Heidelberg region. He supports biotech companies as a strategic investor, and his biotechnology portfolio is managed by Dievini Hopp BioTech holding GmbH & Co. Dietmar Hopp was one of the co-founders of the leading software company SAP, and he has allocated large sums to setting up foundations that benefit the society which enabled his success. The Rhine-Neckar region currently benefits considerably from the Dietmar Hopp Foundation, which is one of the largest private foundations in Europe. Over the last few years he has invested more than €300 million in German biotech companies, out of which €42.5 million has been invested in Apogenix GmbH.

Financing situation of the company
Apogenix was initially established as a spin-off from the German Cancer Research Center (DKFZ), and there is still considerable cooperation between the two. Due to lack of capital in the start-up phase of Apogenix the Research Center acquired equity stakes in the company in return for financing research and the IPR. Since the re-start of the company in 2005 as a limited liability company, Apogenix GmbH has undergone two financing rounds, an initial €15 million capital injection from the Dietmar Hopp Foundation in 2005 and additional €28 million capital injection was raised in 2008 consisting of €27.5 million from the Dietmar Hopp Foundation and € 0.5 million from the German Cancer Research Institute.

The research plan agreed with Dietmar Hopp was based on a milestone structure which meant, that Apogenix was guaranteed a second financing round if they reached the planned milestone results. The milestones were reached by the end of 2007, and April 2008 saw the second financing round of €27, 5 million from the Dietmar Hopp Foundation. With the existing capital the company expects to have financing until the end of 2010. The additional financing from the research centre was not so much a capital gain as sign of acknowledgement. It was an important sign to send that the research centre was prepared to participate in the project – not least for the main investor, i.e., the Dietmar Hopp Foundation. In addition, Apogenix GmbH has received public grants of about € 5.5 million, mainly from the German Federal Ministry of Education and Research (BMBF). Out of these € 2.6 million are grants from the 2008 Top Cluster Contest.

Product development strategy
Apogenix has three drugs in pipeline, of which one is in the discovery phase, one is in preclinical phase, and the last successfully completed its clinical phase one in May 2009. All of the products are supported by public grants from German Federal Ministry of Education and Research (BMBF). A requirement for receiving public grants is that the company co-funds with working hours, see Exhibit 1 below.
Exhibit 1. Pipeline of Apogenix

Currently all employees in Apogenix participate in public programmes and it is therefore not possible for them to add further financing to the company with these types of grants. The programmes finish at the end of 2009, and at that time they will be able to initiate new partnerships. The strategy is to go into further collaborations with research institutions, ideally with joint applications for public grants. The core business of Apogenix is drug discovery and development. The first option for the company is therefore not to take the products all the way to the market, but to develop the drug candidates up to proof of concept and then fully or partly out-license commercial rights to the drug candidates to other companies to be able to finance the company. However, if they cannot find a company that is interested in licensing their products they may opt to continue clinical development and commercialization of an orphan compound on its own. However, Thomas

Höger, CEO of Apogenix, stresses that research and development are the main interests of the company, and they therefore prefer to focus on research and development of new and innovative drugs. If they should need to commercialize a product on their own, they would have to change the business model, hire new staff and move to another and larger location. Consequently, the business strategy of Apogenix relies to a great deal on the fact that they can enter into partnerships with other companies. Currently, the goal for Apogenix is (while they still have financing) to make a licensing deal with another company within the next 18 months. Thomas Höger describes this as an ambitious, though still realistic plan. If they do not succeed the strategy is to go ahead with one of the following possibilities: • a third financing round (Dietmar Hopp Foundation or other investors). • to merge or acquire, or • to sell the company Apogenix does not have financing to have too many products in pipeline. Therefore, they will need to out-license one or more of their products. However, at the same time it is not considered a reliable business strategy to have too many products, or a pipeline that is too diverse. The reason for out-licensing products is therefore not only of lack of money, it is also considered a strategic solution to out-license drug candidates without having to enter clinical phase I. Outlicensing drug candidates will give revenues, which will enable the company to continue development on the core drug candidate APG101. So far, Apogenix has no partnerships or license agreements with other biopharmaceutical companies. However, they collaborate with research divisions at the German Cancer Research Center to evaluate and broaden the therapeutic potential of their pipeline drug candidates. Moreover, they have a comprehensive licensing agreement with the German Cancer Research Center covering exclusive worldwide rights to develop and market APG101.56

Policy priorities and recommendations
So far Apogenix has shown good research results within a short period. The main reason for the success of Apogenix is estimated to be the combination of: • excellent basic research yielding promising drug candidates • experienced management replacing the research oriented founders and • access to capital with one majority stake-holder. However, it is emphasized that a solid business plan is essential for all of the above factors. The set-up of Apogenix with the founders participating in the company as scientific advisors and leaving the management to an experienced management board seems to have been a great advantage. The fact that the company had the Dietmar Hopp Foundation as its main investor made it attractive to people like Thomas Höger and Harald Fricke to take on the management of the company. As also stressed by the BioRN it is often difficult for biotech SMEs to attract competent and experienced management, which is an important precondition for a high-quality business development.
APG101 is a drug developed for prevention of graft versus host disease (GVHD), which is a common complication of allogeneic bone marrow transplantation, in which functional immune cells in the transplanted marrow recognize the recipient as ‘foreign’, and mount an immunologic attack. The surgery is associated with high mortality and requires highly sophisticated equipment at the hospitals. For that reason only few hospitals perform these transplantations. The procedure is very costly, and a drug that can reduce the mortality is very attractive. Thus, the market for APG101 is limited, but highly cost-effective. The limited market makes it manageable to introduce the products on the market should it be necessary for Apogenix to launch it on their own.


Thomas Höger emphasizes that increased possibilities for financial support for the clinical phases would be particularly helpful for companies like Apogenix as well as improved tax benefits for “young innovative companies”. and requirements are getting still higher. Regional initiatives like BioRN are therefore very helpful for the biotech SMEs in the region. there is not time or economy to participate in research programmes that are structured by academics who work within other and longer timeframes. 105 .Moreover. Especially EU grants and research programmes are unsuited for biotech SMEs because the application procedures are too complex and the grants are too low in relation to the workload to be delivered for a successful application and subsequent reporting. The cluster BioRN administration is located close to the companies. In contrast to the large national and European programmes. there is a certain amount of bureaucracy and it is time consuming to apply for public grants. CEO of Apogenix. Opportunities to achieve support for these stages would therefore be very encouraging. The complexity of the clinical phases is high and very costly. which is driven by milestones that have to be reached within a certain timeframe. and the grants are targeted especially at the biotech SMEs so they have insight knowledge about the potentials and challenges that SMEs are facing. Thomas Höger. but grants are an add-on to the core financing. In general. but when the products reach the clinical phases there is no more support. In Germany public grants are available for research and preclinical studies. For a company like Apogenix. it is emphasized that public grants are nice to have. stresses that grants from the regional BioRN cluster are easier to access for small companies like Apogenix.

106 .

the body that will recommend strategic research investment guidelines to Europe in the next few years. to provide GMP services. The listing was achieved through a global offer of 26.116. and is also in charge of the technology transfer activities. They have an in-house GMP facility that meets both EMEA and FDA requirements for the production of clinical-grade bulk drug substances. Director Business Development.2 million. and the information from MolMed’s homepage. Italy Company characteristics57 MolMed is a biopharmaceutical company operating in the field of medical biotechnology. Currently. It was based on the knowledge of a group of scientists in the field of gene and cell therapy. It continued. bringing up $3 billion in 1996 sales.952 shares with no nominal value. when the Swiss pharmaceutical company Roche took over Boeheringer Mannheim.MolMed. Today MolMed has 91 employees. Science Park Raf and the Arain venture capital fund are the main investors in MolMed. 58 107 . development and clinical validation of innovative therapies for the treatment of cancer. 61 Since July 2003.15 per share. The gross financial resources raised amounted to € 56. Professor Claudio Bordignon58 led the spin-off and still heads the company as its chairman and chief executive officer. The company is located in the San Raffaele Biomedical Science Park in Milan in the Lombardy region. clinical-grade cell manipulation services. at a price of €2. however. Currently.molmed. MolMed thus became one of only three worldwide IPOs of biotech companies in 2008. development & manufacturing services for investigational gene therapies for rare diseases. As a consequence of the increased activity following the IPO. the equity shares of MolMed were sold to the venture capital fund EDCP (now named Airain). MolMed has been formally authorised for the production and release of medicinal products for human use. the quarterly report 2008. In 2005. In 1997 it was bought by Swiss drug maker Roche Holding Ltd. ( MolMed’s GMP activities include: production of own cell-based therapeutics. In 2000.61 2008 was a landmark in MolMed’s history. he was appointed one of the 22 members of the Scientific Council of the European Research Council (ERC). Claudio Bordignon was Scientific Director of the San Raffaele Scientific Institute until the end of 2006. In 60 Science Park Raf is the management company of the San Raffaele Biomedical Science Park in Milan. The increase in staff was necessary to 57 The case is mainly based on an interview with Holger Neecke. On 5 March 2008 MolMed was listed on the Milan Stock Exchange. The company was incorporated as a venture between Boehringer Mannheim59 and Science Park Raf60 to provide cell therapy services. They studied the existing pipeline and the relevant market and bought the necessary intellectual property rights to be able to create the pipeline. MolMed went from being a biopharmaceutical service company to a biopharmaceutical research and development company. the MolMed management decided to take the company a step further and develop a product development pipeline. It mainly focuses on research. MolMed was established in 1996 as a spin-off of the San Raffaele Scientific Institute. www. Thereby. MolMed took on 14 new employees in 2008. and the first biopharmaceutical spin-off company from an academic research institute to be listed on the Italian stock exchange. representing 25% of post-IPO corporate capitalisation. 59 In 1996 Boehringer Mannheim was the second largest diagnostics company in the world.

The strong and continuous relationship with the San Raffaele Scientific Institute represents a major resource for MolMed. The importance of the Italian science parks can be connected to the limited number of private equity and venture capital funds in Italy. The focus on research and development is shown in the company's workforce combination. Emilia and Sardinia. The Italian biotech sector is characterized by a strong geographical concentration with almost 80% of Italian biotech companies located in seven Italian regions62 and with a strong concentration in northern Italy.strengthen the operating areas following the increase in development activities related to MolMed’s investigational new therapies and implement the necessary structural upgrade implied by becoming a public company. MolMed’s management board consists of 11 persons representing academic.IRCCS). In 2008. Regional and national financing conditions The Italian biotech industry is growing rapidly as in the rest of Europe. where MolMed is located. Friuli Venezia Giulia. 80% hold a university degree and more than 40% hold a postgraduate degree. MolMed appreciates the advantages of being located in a science park. and a private university which helps companies gain access to qualified students in medicine and biotechnology. the science park has a professional tech-transfer team that manages international intellectual property rights. out of which 190 were exclusively concerned with the healthcare sector (Blossom and Company 2009). The San Raffaele Biomedical Science Park. allows the company to carry out the clinical 62 The regions are Lombardy. Piedmont. The management of MolMed’s indicates that the experience and good reputation of the management board are very important for the reliability of the company and have improved the company's access to capital. the largest Italian scientific research institute. 108 . Furthermore. technological and organizational skills (Biopolo 2009). includes the San Raffaele Scientific Institute. More than 50% of the biotech SMEs are located in science park incubators established in the seven biotech regions. Scientific and technological parks are very active in the life science area. MolMed's proximity to the San Raffaele Hospital. primarily. To be able to attract investors it is therefore of utmost importance for companies to have a strong network of scientist and within the financial sector which is easier to access when located in a science park. Tuscany. through an option to research projects conducted by the Institute in the field of molecular therapies for cancer and AIDS. 260 companies invested in biotechnological R&D in Italy. MolMed enjoys preferential access to the technology and clinical resources of the San Raffaele Scientific Institute through a number of research and license agreements and. Moreover. the largest private Italian hospital. which runs 250 clinical trials per year. a clinical centre with status of Research Hospital of National Interest (Istituto di Ricovero e Cura a Carattere Scientifico. The few specialised financial operators in the life science business area tend to be more interested in the later stages of product development than in the earlier more venture-like phases (Blossom and Company 2009). MolMed is one of three spin-offs from the scientific institute. Lazio. Out of the 91 employees. pharmaceutical. and clinical management expertise. and they especially benefit from these hubs which constitute an important social capital of scientific.

from research to clinical development and partly marketing. MolMed’s strategy is to focus on TK and NGR-hTNF products. there is a significant unmet medical need and the price is potentially high. small-cell lung carcinoma. and thus represent two different development strategies: • TK is a cell therapy enabling haematopoietic stem cell transplantation (HSCT) also from partially compatible donors. MolMed is seeking co-development or out-licensing partnerships to take NGR-hTNF through its full clinical programme to product commercialization. and not the tumour tissue itself. Product development strategy MolMed’s product development pipeline currently consists of two biotech therapeutics: TK and NGR-hTNF (ARENEGYR) in clinical trials III and II respectively. but can have many different applications in oncology (lung cancer. its potential is not limited to one single tumour type. This also allows the company to manage trial monitoring and permits close interaction with clinical investigators. i. The Asian market will be approached through a partnership with the company's Japanese partner Takara Bio Inc. targets the newly formed tumour blood vessels feeding the tumour mass.validation of its products at primary level in a very cost-effective way. therefore. one of the leading developers and cGMP manufacturers of microbial-based biopharmaceuticals. The current two investigational therapies are fundamentally different. the market potential for NGR-hTNF is therefore larger than TK. The market for TK is small. the NGR peptide. etc). which are showing continuous progress. MolMed entered into the first drug development and manufacturing agreement for the production of the investigational drug NGR-hTNF with Avecia Biologics. NGR-hTNF is a recombinant fusion protein: its targeting moiety.e. In 2008. mesothelioma and ovarian cancer. As opposed to the TK cell therapy. liver cancer. the company decided to discontinue the development of a project for a cancer therapeutic vaccine that was in clinical stage I/II. With respect to the NGR-hTNF product. In June 2008. MolMed is developing potential therapeutic products including other tumour VTAs. This product is currently undergoing a phase III clinical trial for adult patients affected by high-risk leukaemia. Avecia will optimise the drug manufacturing process and scale-up and conduct cGMP manufacture of NGR-hTNF for the planned phase III clinical trials. liver carcinoma. NGR-hTNF (ARENEGYR) is a vascular targeting agent (VTA) currently undergoing phase II clinical trials for colorectal carcinoma. • Exhibit 1 below illustrates the two different development strategies: 109 . MolMed intends to keep most of the development in-house. Apart from these two investigational therapies. as the number of high-risk leukaemia patients is limited. However. and manufacturing.

MolMed plans to make clinical trials in the US. and start phase III clinical tests in 2010. co-marketing or out-licensing partnerships. However. it is still a challenge for MolMed to gain a successful foothold in the market. a potential future challenge is to obtain further capital for the company. However. the aim is that post-2010 110 . the company's most important markets are the European markets and then the Japanese market due to the partnership with Takara. The strategic outlook for MolMed with regard to TK is to expand phase III trials in Europe. The agenda is to do clinical trials in the US to be able to go gain access to the US market. It is therefore a great advantage that the collaboration with Takara Bio started as early as 2003. the Japanese markets are very difficult to enter without a local partner. Takara Bio has expertise in the field of gene and cell therapy and is the largest public Japanese biotech company (by market capitalisation) listed on the Tokyo Stock Exchange. and then expansion of phase III trials in the US With regard to NGR-hTNF. Moreover. Due to the current financial situation. MolMed signed a non-exclusive in-licensing agreement for Takara Bio’s RetroNectin for the EU and US. Presently. the goal is to keep achieving good phase II results. Product development strategies of MolMed TK NGR- TaKaRa Bio I San Raffaele Scientific Institute Avecia Biologics (partnership covers pharmaceutical development and manufacturing of NGR hTNF) Potential new partner MolMed’s business strategy generally relies on establishing strategic alliances with major biotech and pharmaceutical companies to advance the development of its products through codevelopment. Moreover.Exhibit 1. MolMed's key strategic challenge is to find the right partners for co-development or out-licensing partners. As early as 2001. Due to very complicated regulatory processes. including 10-15 key clinical centres. and in 2003 the company signed an out-licensing and development agreement to conduct clinical studies and to market MolMed’s TK in Asia.

Financing of the company Since the company went from being a service company to a product development company. SICAR with 8. Thus. Italian biotech companies have been very active in various EU programmes . the MolMed management considered going for an IPO.àr. in 2001 it was not unusual for biopharmaceutical companies to aim for an IPO. which owns 17. the fact that other companies were withdrawing their share offers from the market is likely to have given MolMed an advantage (Boggs 2008).66% of the shares.. The financing possibilities were limited.01%. it has gone through several financing rounds. In 2000. The MolMed's success can be attributed to the promising data from its products and technology. MolMed succeeded in becoming listed on the Milan Stock Exchange.5 million in cash (quarterly result May 2009). € 40 million per year. Italy has the third highest number of project proposals in Europe in the EU’s 6th framework Programme (Biopolo 2009). Volume 19.75 per share range. 111 . and Delfin S. resulting in sales of shares for €56 million.15 to €2. and Arner Bank with 2. which means that MolMed is financed until the end of 2010.33% of the shares. or € 80 million if the investments from not-for-profit organisations for health care in general are included.12% of the shares in the company respectively. BioWorld Today.àr. and that they will not have to go back to the capital market. Special Reprint. US Study Next. Additional financing rounds took place in 2006 and 2007 when the shareholders added a further capital increase of a total of €16 million and €10 million respectively. Fininvest.63 Due to the IPO. but plans had to be postponed due to the burst of the ICT-bubble in the second half of 2001. many companies are avoiding the IPO market due to the current unfavourable market conditions.MolMed will be able to finance further research and development activities through partnerships. Jennifer (2008): MolMed’s Cell Therapy in Pivotal European Trial. MolMed now has €30. and the experience of its management and staff. MolMed gained support from three large Italian investors in 2004. Apart from Arner Bank.l. In 2008. 111. Moreover. Therefore. Private biotech investment is estimated to approx.14% and 21.l.àr. public support for biopharmaceutical companies has been very limited. all the investors invested in the company before it was listed on the Milan Stock Exchange. 63 Boggs. € 1500 million per year. No.p.19% of the shares. The offer was priced at the low end of its anticipated €2. MolMed managed to raise an IPO of 25% of shares. In addition to Science Park Raf and the investment fund Airain. and public investment is approx. H-Equity S.àr. Other investors are Delfin S.l. This generated a €20 million capital increase.A.for instance. They are closely followed by Fininvest S.l. the reputation of its investors. and the reason for deciding for an IPO was mostly lack of alternatives. As opposed to today. The aim of MolMed is to become self-financing by the end of 2010 to avoid having to make another financial round on the stock market. namely H-Equity S. Public grants and reliefs Biotech has not been a main priority for the Italian government.. Moreover. with 8. The main shareholders of MolMed are currently (2009) Science Park Raf and the private investment fund Airain Lda which hold 21.

This is putting pressure on the company's performance. the financial situation still affects the company. representing an uncommonly strong pole of attraction for innovation-based bio-businesses. Therefore. • Consolidating the tax credit for R&D costs. and as the management is very aware that if many biopharmaceutical companies cannot find financing. the financial crisis affects MolMed in the way that it could become very difficult to go for a second round of financing should it become necessary. MolMed has participated in projects under the EU Research and Development Framework Programme (FP-6). The company benefits from tax credits related to the cost of research and development activities. Policy priorities and recommendations  In Italy. 112 . making it a permanent and automatic measure. they might have to sell out of their assets at low prices. • Consolidating R&D grants: funding of R&D schemes should be made “structural”. For example. public support plays a major driving and aggregating role. MolMed has also taken part in applications for funding from the Italian Ministry of Research under the National Research Programme (PNR). the most important common trait that should be shared by any specific measure is the fact of being constant and permanent. it must be clearly perceived as a steady commitment by individuals and/or institutions willing to undertake research. Furthermore. Impact of the financial crisis Because of MolMed’s recent entry on the stock market. According to Holger Neecke. Based on these assumptions Holger Neecke believes that the Italian biotech industry could take great advantage in particular from a prompt and steady implementation of three provisions: • Awarding the status of “young innovative enterprise” to companies devoted to R&D and established for less than 8 years. € 1 million). in 2004 the Regional Authority of Lombardy awarded MolMed a non-refundable grant. they are currently not that vulnerable in connection with the financial crisis. in other words. devoted to and reserved for real innovative areas like biotechnology. and related calls should not be subject to uncertainty in terms of timelines and allocated resources. development and innovation activities implying entrepreneurial and financial risks. Indirectly. MolMed is currently waiting for final approval of funding that will involve a low-interest loan of 90% of admissible costs. First of all. successfully implemented in EU Member States where the life science-based industry has grown stronger. This will create higher risk aversion and price pressure. Moreover. any policy aimed at promoting innovation should be clearly expressed in order to be fruitful.Grants played a significant role for Molmed in the start-up phase with about one third of its revenue coming from grants (approx. the best way for Italy to preserve its biotech patrimony from being killed off by the short-term cash shortage determined by the global crisis is to put in place effective measures to adopt consolidated best practices in favour of innovation. stock prices took a negative turn even though there was no bad news from MolMed and it was expected that prices would remain steady. Director Business Development. the financial situation puts pressure on the company. However. where MolMed received non-refundable grants for two 3-year projects.

In 2008. This was followed by the launch of a Phase II clinical trial in 2006 (IPH 1101). The company acquired assets from the US pharmaceutical group Schering-Plough Corporation in the TLR field in 2006 and in licensed Toll-like 7 receptor agonist compounds from Cancer Research Technology Limited (IPH 3201). the current Chairman of the Executive Board. 64 Based on interview with Stéphane Boissel. Before joining Innate Pharma. Innate Pharma was listed on NYSE-Euronext Paris in 2006. In 2008. the Company intends to sign partnerships with players in the pharmaceutical and biotech industry with the financial capacity and the expertise to run advanced clinical trials as well as a selling network and experience. primarily for cancer indications. The founders have established the scientific basis for the research activities at Innate Pharma through licensing. The therapeutic approaches could have an application in several therapeutic areas such as cancer. Mr Boissel joined Innate Pharma in September 2002 as CFO. including Hervé Brailly. In 2001. Mr. and François Romagné. Executive Vice President and Chief Financial Officer of Innate Pharma. The company currently manages seven proprietary programs. The company has 89 employees (2008) of which 75% are involved in R&D.. Innate Pharma intends to become an integrated player and thus keep some marketing rights on some of its products. In the short term. It is based in Marseilles. the company developed its first drug candidate on the Tγδ platform. France. of which two are tested in clinics. the company established Innate Pharma Inc. inflammation or infectious diseases. France Company characteristics64 Innate Pharma is an immunology biopharmaceutical company aiming at developing first-inclass drugs. Two other programs are out-licensed to Novo Nordisk A/S. Boissel held several positions within the Lazard Group (1995-2002) in France and other countries (Singapore and Hong Kong) focusing on venture capital and mergers and acquisitions. a member of the Executive Board and Chief Scientific Officer. a subsidiary of Innate Pharma located in the USA. and in 2002 the first clinical trial was launched. research and collaboration agreements with academic institutions. the company acquired the rights to IPH 2101 from Novo Nordisk A/S through an asset transfer agreement. The company was founded 1999 by six immunologists. a large pharmaceutical company. In the long run. 113 . The products developed by Innate Pharma belong to two classes: immunomodulators targeting innate immunity receptors and cytotoxic antibodies targeting specific tumoral antigens.Innate Pharma.

Pipeline of Innate Pharma The company’s good track record. YIC companies are also relieved from corporate income tax for the first three years and pay 50% of normal taxes for the 114 . the potential market for the company’s product may be substantial. a tax credit focusing on stimulating business R&D. Thus. However. The Young Innovative Companies (Jeune Entreprises Innovantes) programme is a supplementary programme that was introduced in 2004. The company’s ambition is to become a major player in the emerging field of anti-cancer immunotherapy. One example is CIR (Crédit d’impôt recherché). Businesses that qualify for YIC status profit from a wide range of different support measures. they are exempt from social costs for all employees in R&D-related activities (approximately 25% of gross salary costs). It is also possible to envisage other indications for the company’s current drug candidates. For instance.Exhibit 1. To obtain YIC status. notably viral infections and chronic inflammation related to autoimmune pathologies. The CIR was launched in the 1980s and focuses on companies of any size and in any industry. Regional and national financing conditions The region in which Innate Pharma is located is not at biotechnology-intensive region. several initiatives have been launched at national level to promote the development of small and research-intensive companies. companies must be maximum 8 years old and must be investing at least 15% of their expenditure in R&D. scientific expertise and its intellectual property rights portfolio are considered by the company to be very important for its ability to attract investors and continue growing. according to the company. YIC embodies a range of measures targeting the creation and growth of young research intensive companies in France. EUR in support.following two years. This would suggest that biotech companies should be able to benefit from the programme for more than 8 years. provided that the FCPI units are held for at least 5 years from the subscription date. Designate half of the government's Strategic Investment Fund to innovative French small and medium sized biotechnology companies so that they may acquire undervalued foreign companies and technologies Removal of the caps on tax-efficient investments in young. France has experienced capital flight and brain drain due to relatively heavy taxation of high incomes.pdf EuropaBio website. Based on these figures. and Extend the "young innovative company" fiscal status from 8 to 15 years Reform of the savings system in order to better channel life assurance and pension funds towards financing for up to a maximum of Financing situation of the company Innate Pharma has mainly received capital from venture funds and though collaboration and licensing agreements. http://www. The capital gains are also exempted from capital gains tax and are only subjected to social security contributions. innovative companies. life science funding fell by 79 percent in 2008 relative to 2007 (€143 million in 2008 versus €694 million in 2007). http://www. while venture capital investments fell 27 percent to €132 million in 2008.69 These funds are an opportunity for taxpayers (having their tax residence in France) to benefit from a reduction in their income tax equal to 25% of the cash subscriptions.68 The French Government has therefore launched a reform of the French wealth tax to make it more attractive for people with high incomes to stay in France.washingtonpost. the French Government is making investments in small and innovative enterprises more attractive to individual investors with high incomes to invest their money in FCPI funds (Fonds Communs de Placement dans l'Innovation).pdf 67 Website.67 • • • Double OSEO Innovation's budget for 2009 and a tripling for 2010 (OSEO is a fund that provides financial assistance to small French companies).com/news/e/96425/ 68 Washington Post 70 Website. innovative companies. All in all. a total of 85 M Euros have been raised since 1999 with grants 65 66 Website.66 The financial crisis has hit France's biotech companies hard. Reform the research tax credit to distribute the credit more evenly between small and medium sized biotechnology companies and larger companies. http://www.asp#I0002f575 115 .yicstatus. • • • Finally. France Biotech has put forward several recommendations on how to support the national biotech According to France Biotech. Moreover. http://www.html 69 Website. They can also be relieved from local taxes related to the value of properties and buildings. Investment in listed companies fell 98 percent to just €12 million.65 One concern related to the programme is that the programme does not take into account the longer business cycles in the biotech industry. http://www.

The financial situation of Innate Pharma is very good. the financial crisis could pose a threat to the company in the medium term. not currently an option for the company. The IPO was very successful and according to Mr. There are substantial differences between the US and Europe with regard to the venture capital market and the bioindustry: There is a larger capital base in the US and the investors are more specialised in the biotech business. however. Impact of the financial crisis The companies that suffer most from the financial crisis are the companies with projects that are not ‘good’.5 million euros) led by Sofinnova Partners. the stock market is difficult at the moment as investors are avoiding high risk business areas such as biotech. the French Government has made it attractive to private investors to invest in high tech (the FCPI funds). Overall. the collaboration agreement has enabled the company to benefit from the knowledge and networks of Novo Nordisk. the companies with good projects will be able to find interested investors – even in time of crisis. Boissel estimates that the company has raised enough capital to continue its activities for at least two years. This. makes is possible for the investors to understand the value of Innate Pharma’s approach and to contribute to the development of the company. the venture capital market in Europe/France is improving. according to Mr Boissel. One of the health care areas that a experiencing much interest from investors following the financial crisis is medical technology which is considered to be less risky and less time consuming than biotech. access to capital (and US investors) for the company is getting easier due to the NYSE-Euronext stock exchange. Some of the usual sources of capital are. The collaboration with Novo Nordisk has ensured that the company both receives venture capital as well as capital for specific R&D projects. For instance. • 2006: Second collaboration and licensing agreement with Novo Nordisk A/S comprising all of the drug candidates in the NK platform and including a reserved capital increase (10 million euros). 3 M Euros). Furthermore. Furthermore. However. For instance. • 2003: First collaboration and licensing deal with the Danish biopharmaceutical group Novo Nordisk A/S for the development of an immuno-modulator targeting a NK cell receptor (IPH 2101).7 million euros. and Mr.and soft loans from the French government constituting only a small part of the total capital raised (ca. • 2002: Second financing round (20 million euros) led by Alta Partners. The financial history of the company is as follows: • 2000: First financing round (4. • 2004: Third financing round (15 million euros) led by Novo Nordisk A/S. According to Mr. Boisel this may be a result of the close collaboration with Novo Nordisk which has provided Innate Pharma with a high level of credibility among investors. As a result. Also. US biotech companies are also in a better position to attract capital as they are more mature and thus considered to be less risky to invest in. European investors seem to be more risk adverse than their US counterparts. 116 . the venture capital market in the US is more attractive to the company than the European venture capital market. In 2006 the company was listed on the NYSE-Euronext market in Paris which raised 33. Boissel.

Investors are. the biotechnology sector should be made more attractive to asset managers if investments in high tech investments were associated with substantial tax reductions. the collaboration between the public health care sector and the sector could be strengthened. Boissel this option is not really an option for Innate Pharma. This could be done by increasing the liquidity in the capital markets. The company may also be sold to a pharmaceutical company in Europe or the US. there will be redundancies. Such incentives could channel more money into sector. not easy. In the worst case scenario. However. Boissel suggests that a Center of Excellence for clinical trials in Europe could be established. the company is trying to establish partnerships with other pharmaceutical or biotech companies. Policy priorities and recommendations There are several initiatives that could support the future development of Innate Pharma. however. Also. Making exit more easy is also a strategic priority.Instead of focusing on the stock market.) are mainly located in the US. One example to extend the YIC initiative. In terms of capital supply. In general. However. Mr. If the company does not succeed in getting the needed funding. however. clinical research is faster in the US than in Europe. The transformation from a drug development company to a service provider is. the amount of paper work associated with participating in such programmes is too much considering the relatively limited amounts of money available. Innate Pharma has considered participating in European research programmes. there are also many biotech companies interested in ‘selling’ and Innate Pharma is therefore competing with other biotech companies for the available funding. mainly interested in making money and the current investors are always open towards selling the company.. Entering the services sector is often considered a strategic option for biopharmaceutical companies. and according to Mr. The pharmaceutical sector is desperate to find new projects and have a strong interest in projects. Exiting via the stock market is for the time being not possible and therefore the investors may consider selling the company to an interested pharmaceutical company. the company will have to restructure its operations and slow down the development (or even sell) candidates. Challenges with exit strategies of investors There is a very positive relationship between the members of the board – investors take active part in the business decisions. Finally. so that mature innovative companies such as Innate Pharma are also able to benefit from the support measures. Mr.. Boissel thinks that incentives to carry out research in Europe are needed – this would make it easier to attract talent and R&D activities of foreign companies and it would also make it less likely that European companies relocate to other world regions. This would allow the industry to benefit from the expertise of public hospitals and hospitals could sell their clinical services to supplement the government’s funding of activities. The parties that could be interested in buying the company (and who have the financial strength to do so. 117 .

118 .

In 2008. the biotechnology cluster in Catalonia is the third largest biopharmaceutical cluster in Europe in terms of the number of employees (ca. Buesa holds a PhD in Biochemistry from the University of Barcelona and has been actively involved in several biotechnology organisations (ASEBIO (Associación Española de Bioempreses). Of the 60 biotechnological companies in the cluster. is CEO and chairman of the board. over 65% are dedicated to red biotechnology. the company has acquired Crystax. Dr. As part of this strategy. are providing services to biotechnology and pharmaceutical companies. The company is backed by Najeti SCR. around 120.Oryzon Genomics. Dr. especially to drugs’ development (70%) and to diagnosis (25%). Carlos Buesa ASEBIO. According to the European Cluster Observatory. CataloniaBio). The rest of the companies.approximately 60 of the companies are dedicated biotechnology companies and 60 of them are traditional pharmaceutical companies. 25. ASEBIO estimates that 27% of all new Spanish biotechnology companies created in 2007 was located in Catalonia. Spain and was established in 2001 as a spin-off from the Spanish National Research Council (CSIC) and the University of Barcelona. Spain. The founder of the company.5 M. a biopharmaceutical company specialized in the development of new therapeutic molecules for treating cancer. The company is based in Barcelona. Oryzon Genomics develops biomarkers in oncology and neurodegeneration. The BioCat cluster Orizon Genomics is part of a biotechnology cluster in the region of Catalonia. The drug developing strategy for the company is to get involved in international partnerships (companies/academy) and to co-develop new targets oriented to product development or inlicense IP (targets in oncology / CNS / Technology). The company is currently focusing on extending its activities from diagnostics to therapy through biologics. and has an IPO oriented funding strategy. the number of biotechnology companies created in the cluster is higher than any other Spanish region. Oryzon Genomics currently has close to 80 employees and is economically sound with net profits in five consecutive years. Annual report 2007 119 . The further development of the company’s therapeutic programme will dominate the strategic agenda of the company in the time to come. In Catalonia there are around 250 companies involved in biotechnological R&D .72 71 72 The case study is based on desk research and an interviw with Dr.000). He is currently member of the board for Neurotech Pharma and Oncnosis Pharma. Furthermore. Spain Company characteristics71 Oryzon Genomics is a biopharmaceutical company specialised in functional genomics. the company’s revenues were € 6. Carlos Buesa. a privately-owned investment company headquartered in France.

Spain has a generous R&D tax credit.The activities in the cluster are planned and coordinated by 75 Governmental website. cf. either as independent members of the Advisory Board.000 euros in aid to hire international experts for specific projects. has been weak./02_instrumentos/02_Caracteristicas/02_ CENIT 120 . In addition. which has earmarked € 200. including soft loans to innovative start-ups. According to data from 2004. public research organisations and centres. http://www. business development. CENIT projects are 50% co-funded by the public and private sectors. the Spanish government is providing different financial support measures. however. the use of soft loans as opposed to grants has steadily increased (UNU-MERIT 2006). the Government has created a new scheme that offsets 40% of the labour and social charges of R&D workers (OECD 2008b).ingenio2010. Exhibit 1 below: Exhibit 1. The CENIT Programme seeks to stimulate cooperation in R&D and innovation between the private sector.73 National financing conditions At the national level. http://www.php The initiative was launched in June 2009 by BIOCAT and the Ministry of Economy and Finance of the Government of 74 Ingenio website.75 The CENIT programme also includes a venture capital fund of funds (NEOTEC) to create and consolidate technological businesses. an organisation established by the Government of Catalonia and the Barcelona City Council to promote and coordinate biotechnology and biomedicine in Catalonia. A recent initiative in the region is the launch of the ‘Talent for Competitiveness’ programme. Uptake. and the Spanish Government has therefore reduced the R&D tax credit by making the rate proportional to the general corporate tax level until it is phased out by 2011 (subject to government evaluation). In 2005.biocat. The programme is intended to boost the long term competitiveness and internationalization of Catalan biotech companies.000 to fund this program. non-executive directors or strategic international advisors on the Board of Advisors. management and research. Source: Biocat website. the Spanish Government launched INGENIO 2010 in response to the re-launch of the Lisbon Strategy. Companies will be able to hire experts in the following areas: intellectual property. universities.biocat. All professionals must be hired on a temporary basis. Talent for Competitiveness programme The ‘Talent for Competitiveness’ programme makes it possible for biotech SMEs to receive up to € 20.74 This plan intends to increase the allocation of resources to R&D and innovation in general and also contains several strategic actions of which the CENIT Programme is of must interest for the biopharmaceutical sector.asp?menu1=3&menu2=0&menu3=&dir=. science and technology parks and technological centres. http://www. The NEOTEC Fund was established in 2006 by the 73 BioCat http://www.

The technological platform and a strong financial position of the company have resulted in a 76 EIF website. http://www. Pipeline of Oryzon Genomics Source: Oryzon Genomics website.htm 77 ProInno Europe website.measures&page=detail&ID=6925 121 . Tourism and Commerce. Under this business model.cfm? This enabled the company to establish a good track record and demonstrate its financial viability to attract further funding. The Fund aims at increasing venture capital investment in Spain in order to boost the Spanish SME technology sector.eif. In 2003 the company started licensing out candidates and engaging in co-development projects in partnership with third parties. Business model Oryzon Genomics started out as a services company as this is less capital demanding than biopharmaceutical R&D.php?option=com_content&task=view&id=32&Itemid=49 Since 2006. http://www.proinno-europe.europa. three collaboration agreements were signed in 2004 and 2005 with other companies (one agreement with Oncnosis Pharma received funding from the CENIT programme). The NEOTEC initiative specifically addresses this challenge of increasing the venture capital available to Spanish technology-based companies.oryzon.European Investment Fund and CDTI. Oryzon Genomics has run an in-house programme that has dramatically expanded the company’s technological platform allowing it to carry out advanced product development. they are still almost half the European almost 60 % of venture capital in Spain is invested in nontechnology enterprises.76 The venture capital market in Spain is considered to be under developed: Although venture capital investment in Spain has been rising for the past few years. Exhibit 2. an entity of the Spanish Ministry of Industry. http://www.

the impression is that many of the participating research organisations are mainly interested in the money to carry out their own research. Financing situation of the company With regard to financing history. Furthermore. Among the challenges for attracting capital is that Spain is not considered a ‘biotech country’ by international investors. the company’s initial capital base consisted of contributions from “friends. the company could go public via an IPO when the company’s compounds are ready for phase 1 of the clinical trials. The economic situation of the company is currently good. IPOs are currently not an option when it comes to biotechnology 122 . including a soft loan from the a government fund dedicated to start-up companies in high-tech fields as well as loans from regional funds and other funds. as it slows down research activities while at the same time making the services of the company more expensive than CROs on the market. This makes it difficult to assess the projects and it also reduces the capability of venture funds to provide strategic input to their portfolio companies. However. the European research programmes are very bureaucratic and characterised by a long implementation of the projects: It takes 1 – 2 years before the work actually begins. One suggestion for European research programmes could be to let companies find their own partners among European/international research organisations as the companies would then be in a position to choose the research organisations that they considered to be the best to deliver the needed results. Some companies have adopted a mixed business model in which they sell their services for a fee as a means to provide funding for the company’s research activities. even up to regulatory approval. The ambition is to pursue projects at least up to the start of clinical stages and. the company received 1 M € in venture capital. According to Dr. is not good and the government may reduce its support for innovation. Buesa. however. The economic outlook.decision to transform the company into a full blown biopharmaceutical company focusing on developing new therapies. the research programmes in the US are more attractive than European research programmes as companies in the US do not need partners to receive grants. Benelux. this strategy is not sound in the long term. but the long term sustainability of the company may be in question if the funding ‘dries out’ as a result of the financial crisis. Spain has experienced 14 years with non-stop economic growth and massive investments in innovation. the company received 9 M € in venture capital and 11 M € in soft loans and grants. according to Carlos Buesa. Rather. Germany. if warranted by the market and the product. Cluster initiatives such as the establishment of BIOCAT are a way of getting attention among international venture capital funds. However. venture capital funds are focusing on the UK. Policy priorities and recommendations The biggest problem for investors is that there are currently only limited exit options available to investors. The company has some experience with European Framework programmes for research. If possible. In 2008. fools and family” and a range of small loans. Another problem is that venture capital funds in Spain have only limited knowledge of biotech business. In 2003. and the Nordic countries. For example. A total of 1 M € was raised in this first round.

according to Dr. This makes the biotechnology sector less attractive to investors. is to support investors who are interested in entering the biopharma sector – for instance through tax incentives to private investors for investing in this specific sector. Another possible policy action. Buesa. Increasing the liquidity in the market could make it easier for venture capital funds to exit their portfolio companies. 123 .companies.

124 .

com/ 81 Arpida press release. 79 Swissinfo the company in September 2009 announced that it was planning to merge with Evolva. http://www. Evolva will also need to raise sufficient funds for the transaction. he was with ABB and DaimlerChrysler. a large pharmaceutical company. Before joining UBS. http://www. but so far Evolva has received positive feedback from existing and new investors. a privately-held Swiss biosynthetic company developing small molecule drugs and other compounds. Welten has more than 19 years of international experience in finance. and it is listed at the SIX Swiss Exchange Main Segment. Roche is entitled to a share of royalties of between one and nine percent.Arpida.81  The BioValley Cluster Arpida is located in the Swiss part of the BioValley cluster. This cluster brings together Alsace in France.79 The Company went public in 2005 on the Swiss Stock Exchange. Iclaprim is an antibiotic that targets severe infections requiring hospital treatment. Arpida reported the completion of the Phase III programme in complicated skin and skin structure infections. Arpida also stopped further patient enrolment into the trial for its antifungal therapy due to financial constraints. Prior to joining Arpida. He joined Arpida in August 2001 as Chief Financial Officer. In the beginning of 2009 the company was informed that the US FDA had not approved the application for iclaprim and that additional clinical data was required to demonstrate the product’s efficacy. Switzerland Company characteristics78 Arpida is a biopharmaceutical company headquartered near Basel in Switzerland and with operations primarily in Switzerland.80  The merger is subject to definitive agreement and shareholder approval. from Roche.html?siteSect=883&sid=5679104&ty=st 80 Evolva website.arpida. The agreement with Roche gave Arpida all rights to the intellectual property. the management and board of Arpida decided to close down all research activities and reduce the burn rate. and it one of the 78 Based on interview with Harry After a period of trying to sell of its other compounds and identifying potential companies for a ‘reverse merger’ (when a public company acquires a private company with a viable business creating an entirely new public entity). http://www. In July 2007. and in 2008 the company submitted applications for approval to the US Food and Drug Administration (FDA) and to the European Medicines Agency (EMEA). South Baden in Germany and Northwest Switzerland. Apart from the antibiotic programmes. The company was established in 1997 when Arpida’s founders bought the molecule behind the company’s key product candidate. Senior CP and CFO. but holds no opt-in rights. The main focus of the company used to be on novel drugs that address the growing problem of microbial resistance. Arpida also received start-up financing from a venture capital fund sponsored by Roche. he was a director at UBS Warburg in New York following various senior positions within the UBS Group. Mr. Arpida has an antifungal therapy (TLT) which is in Phase III clinical trials in Europe. iclaprim. BioValley is one of the first European initiatives for the promotion and the development of life sciences. As a result.swissinfo.evolva.php?MenuID=0&UserID=1&ContentID=213 125 .

Transgene. Lilly.biovalley. Syngenta and Pfizer. commercial operations in more than 25 countries. Among the major biotech and pharma players located in the region are Novartis. The Bio Valley Cluster Source: Biovalley website. This concentration of biotech companies means that Switzerland has the highest per capita biotech density in the world. which includes Actelion. biotech regions in Europe with approximately 600 life sciences and medtech companies. the industry consists of 159 biotech companies and 70 biotech suppliers. http://www. and over three approved products.000 employees.pdf Actelion was founded in 1997 and now has a robust pipeline. including major global players (pharma and agro). The Swiss approach has left many start-ups in Switzerland 82 83 Biovalley website. http://www. Johnson & Johnson.swissbiotech. the development of the biotech industry in Switzerland has been market driven rather than driven by government (one example of a government driven approach is Germany where the government has been heavily involved in the funding and development of the national biotech industry).biovalley. http://www. Roche.pdf National financing conditions Switzerland is considered a ‘hot spot’ for private financings and it has a strong biotech industry. a biopharmaceutical company that has moved from biotech start-up to becoming a global leader in the biopharmaceutical sector within a decade. 84 Swiss Biotech website.pdf 126 .83 According to the Swiss Biotech Report 2009. 40 scientific institutions and 4 universities with about 280 research groups.82 Exhibit 1.84 According to observers.

as well as universities with strong traditions in science and chemistry producing a steady stream of new biotech companies (Carrin et al 2004). According to Mr. but it has also meant that only the companies with promising candidates in the pipeline are able to stay in business. the sector is able to benefit from a strong financial ecosystem consisting of analysts.3 million. In terms of access to funding. • Third financing round: In May 2004. Arpida successfully completed its Initial Public Offering (IPO) in connection with its listing on the SWX Swiss Exchange and received gross proceeds of approximately CHF97.has been raised to date. Following the FDA opinion. the biotech industry in Switzerland is now facing big problems and thus needs to improve its performance to better attract investors. Transforming the company into a service company is not considered an option – the company neither has the competences needed nor a good reputation in the biotech industry due to the negative opinion from FDA. A total of 309 M Swiss Francs (CHF) – ca. and investors are getting more reluctant to invest in the sector.scrambling for money in the marketplace. There are many factors explaining the success of the Swiss biopharmaceutical sector. HealthCap (Sweden). and investors specialised in biotechnology.6 million shares. raising CHF 19. Instead. In recent years. 206 M Euro . Partners Group (Switzerland) and UBS.7 million (after expenses and taxes). there is a lot of knowhow and resources available to the companies.3 million from international investors. • Second financing round: The company raised CHF 40 million in September 2000. the management considers a reverse merger to be the best viable strategy. Arpida managed to raise a further CHF 12. new investors were FTQ (Canada). The four venture capital companies that invested were Alta Berkeley (UK).7 million shares out of the authorised share capital • In March 2008 Arpida strengthened its financial position by issuing 1. the sector has benefited from the closeness of large pharmaceutical companies such as Roche and Novartis. The compounds in the pipeline are too far away from the market to enable the company to raise more money for continuing research. Welten.   127 . Along with all earlier investors. • First financing round: In July 1998 the company raised CHF 15. 3i Group plc (UK) and HBM BioVentures. The financing history of the company is as follows: • Seed funding was provided by New Medical Technologies (now: HBM BioVentures) in 1997. Financing situation of the company The management of Arpida has been very successful in raising capital. the Swiss biotech industry has not been able to demonstrate good results. CDC IXIS Innovation (France). Also. The same year.9 million (before expenses) by issuing 1. banks. • In March 2007.6 million in relation to the acquisition of the Danish biotechnology company Combio. the Company has restructured it operations and shut down all research activities. As a result.2 million before expenses. Arpida successfully raised an additional CHF 51. however. the company raised CHF51. Around 45% of the capital was raised before the IPO and around 55% following the IPO. • On May 4th 2005.8 million as well as CHF 21.

Private and Public Swiss Biotech Companies Capital Investments   Source: Ernst & Young. There was almost no seed financing taking place and the negotiation terms were clearly dictated by the investors Ernst & Young 2009b). But according to Mr. Exhibit 2 below. 128 . but rather to the poor performance of the companies.    Exhibit 2. many of the Swiss biotech companies are currently blaming the crisis for their inability to raise more capital. Therefore. the Swiss biotech industry was only able to collect capital in the amount of CHF 228 million. cf. Welten the financial problems are not always related to the crisis. In 2008. the biopharmaceutical companies should focus more on increasing their performance to better be able to attract investors.Impact of the financial crisis The financial crisis has made it more difficult for biopharmaceutical companies in Switzerland to raise money. Swiss Biotech Report 2009 Naturally. For instance. which is a decrease of approximately 75 % compared with the record year 2007. investors would still be reluctant to invest in Arpida even if the financial crisis had not materialised simply because the company currently has no market potential.

Exhibit 1 below: Exhibit 1. the company intends to commercialize its technology and assets by building a small molecule pipeline in inflammation and by collaborating with large pharmaceutical companies. The cluster is host to 108 publicly disclosed active venture backed companies87 within different high-tech sectors – the Healthcare & Life Science sector is the largest sector (36% of the venture backed companies in the cluster) followed by Information Technology (24%) and Communications (16%). cf. UK and Heidelberg. Alan Barrell. 86 Based on desk research and interview with Mr. 85 129 . In terms of business development strategy. Based on interview with CEO Tim Edwards. while most other programs are in early preclinical testing. Cellzome’s most advanced program is anticipated to enter clinical trials in 2010. The company employs about 90 people at its two laboratories in Cambridge. Pipeline of Cellzome National financial supply86 Cellzome UK is located in the Cambridge cluster. however.Cellzome. Mr. The management team of Cellzome has a scientific and commercial background. Edwards is also appointed to the Board of the UK's BioIndustry Association. and therefore the actual number of high tech companies is probably higher. is located in the US. and it is backed by experienced biotech investors such as Advent International. Germany. a Cambridge Angel and a Sophia Business Angel 87 This definition does not cover all types of companies in the cluster. United Kingdom Company characteristics85 Cellzome is a privately-owned drug discovery and development company identifying a new generation of kinase targeted drugs to treat inflammatory diseases. Atlas Venture and Sofinnova Partners. Its holding company.

Reaching Outwards. Cambridge is extremely important to the whole UK venture capital market. and clear majority of investment in the Cambridge Cluster is pumped into the Healthcare & Life Sciences. receive much larger funding rounds earlier and can then concentrate on expanding the business (Library House 2007). The decrease in deal size in the Healthcare & Life Sciences sector could reflect that Cambridge life science companies are having problems in raising funds. If successful. about 50% of private equity in the UK is now invested by business angels. on the other hand.In terms of investment. In fact. One of the important sources for capital for early stage biopharmaceutical companies in the UK are business angels. Amount invested into the Cambridge Cluster by sector Source: Library House (2007). according to the report a common complaint of entrepreneurs in the UK is that they have to spend a lot of time and effort continually trying to raise funds to keep the company going. the companies do not need to attract further external investors and biotech entrepreneurs can concentrate fully on developing their businesses rather than spend their time raising funds (Library House 2007). thus eliminating the need to shop around for new external investors at each funding round. The importance of business 130 . Exhibit 2 below: Exhibit 2. The Cambridge Cluster Report 2007 According to the cluster report. However. However. cf. the Cambridge Cluster attracted 18% of all venture capital investment in the UK. Information Technology and Communications sectors (Library House 2007). and according to Alan Barrell. even though the number of deals in the Healthcare & Life Sciences is higher than in other sectors. this development shows that companies in the Healthcare & Life Sciences sector are raising smaller amounts than usual in later rounds and a trend towards raising smaller multiple funding rounds. During the first half of 2007. the level of investments in the Healthcare & Life Sciences sector has declined in recent years (2005-2007). Their counterparts in the US. Looking Inwards. the cluster report also suggests that the reduction in deal size could reflect that a new model for investment has emerged: Companies are increasingly looking for syndicates that have the resources to provide capital to the company at every stage in its lifecycle. a business angel from Cambridge.

seed funds and other entities involved in bridging the equity gap in Europe. contacts and directly relevant experience in establishing and growing entrepreneurial businesses successfully. Business angels are increasingly getting organised in networks.88 One of the key challenges for business angels are the fiscal policies of the member states. and the Cambridge Angels are among the prominent business angel networks in the UK (see Exhibit 3 below). EBAN was established by a group of pioneer business angel networks and the European Association of Development Agencies. It is thus important to increase the bargaining power of the business angels and provide them with an opportunity to exit the companies with a profit. mostly in the Cambridge area.angels for new and nascent businesses has grown over the last decade as venture capital investors are “not able to accommodate a large number of small deals with their attendant due diligence and oversight needs” (NESTA 2009b). Furthermore. The members invest in and mentor high quality start-up and early-stage companies in these sectors. The involvement of venture capital. In In 1999. Source: Cambridge Angel’s website. The typical funding requirements that the Cambridge Angels meet are in the range of £50. may dilute the influence of business angels because venture capital wants influence on board decisions. but several of the portfolio companies have in fact received more than £1m in funding from the member over several funding rounds. and they need additional funding (for instance via public coinvestments or venture capital) to continue their involvement and to be able to support the development of the company. the company bought GSK's CellMap Unit leading to the establishment of Cellzome UK. Exhibit 3. Cambridge Angels The Cambridge Angels are a group of high-net worth investors who have been successful entrepreneurs in technology and biotechnology. EBAN is a non-profit association representing the interests of business angels.html 131 .net/ Business angel groups are also becoming stronger and more organised at the European level. the Cambridge Angels also offer startups the benefit of a wide range of expertise.000 to £500. http://cambridgeangels. business angels networks (BANs).angelgroups. which means that business angels runs the risk of getting sidelined in the process and not getting a fair return on their investments. Germany. Another challenge is that business angels most often can only afford to invest in the very early development stages which are less capital demanding than later stages. says Alan Barrell. Today EBAN represents more than 250 business angel networks in Europe. http://www. but also elsewhere in the south of England. In addition to providing funding for early-stage companies. however. Funding situation of the company Cellzome was established in 2000 as a spin out of the European Molecular Biology Laboratory (EMBL) in Heidelberg.000. a strong bargaining position vis-a-vis business angels. because these policies provide the tax incentives that encourage or discourage business angel investing within a country as well as across borders. 88 EBAN website.eban. venture capital has.

Still. the ‘’old” biotech business model focusing on outlicensing drug candidates to raise money for in-house drug development is not credible. biopharmaceutical companies should recognise that they are primarily suppliers of innovative drug candidates to the big pharmaceutical companies. and Switzerland and Belgium were also considered as location for the company Head office to get better access to stock markets. and a second. Cellzome was awarded two grants. According to Mr. the company raised € 30 million.2m grant from the German Ministry of Research and Education for the discovery of novel treatments for disorders of the immune system. but India is a good candidate. Edwards it now takes more time to get funding. some operations may be moved outside Europe. moving the company to another country for strictly financial reasons feels a bit too artificial for the company management. Cellzome has only outsourced basic biotech operations. so the company is keeping its activities in the UK and Germany for the time being. To date. Many investors have. the other biotech companies that are currently trying to get funding are creating a lot of ‘noise’ which is distracting the big pharmaceutical companies. China is currently not an option due the country’s specialisation in cheap rather than innovative goods. However. Edwards. one for Translational medicine from the MRC. while core biotech operations a kept in the UK and Germany due to the risk of losing IPRs. • In 2008. and according to Mr. Mr.Cellzome has raised money from both private investors and public grants: • In 2001. and business angels get diluted out when venture capital or big pharmaceutical companies enter a biopharmaceutical company. Biopharmaceutical companies neither have the resources nor the competences for bringing products to the market on their own. Cellzome is – unlike many other biotech companies following a strategy of getting funding via partnerships with large pharmaceutical companies rather than trying to approach potential investors or going for an IPO. € 3. Instead. had bad experiences with biotech investments. Edwards. In particular. The company has a history of collaborating with large pharmaceutical companies such as Johnson & Johnson and Novartis. 132 .85m grant from Germany's High-Tech Initiative to Fund Top Regional Clusters. Impact of financial crisis The financial crisis has not had a significant impact on the financial situation of Cellzome. Cellzome and Graffinity Pharmaceuticals were awarded a € 2. Impact of funding situation on the company’s strategies The company management has considered building up a presence in other countries to get better access to capital markets and new technologies. the company raised € 34 million • In 2003. and Cellzome is also part of a major strategic alliance with GlaxoSmithKline. So far Boston in the US has been considered. • In 2005. However. says Mr. This has reduced the attractiveness of biopharmaceutical companies to early stage investors. Edwards considers India’s IPR laws to be very good.

and this promotes collaboration between academia and industry. The UK government has tried to implement this idea in the national healthcare system. 133 . The existing regulatory framework in Europe is focusing on protecting citizens. Edwards European regulators are too risk adverse. These examples may be of interest to other countries when considering different approaches to supporting the biotech industry.Policy recommendations The regulatory approach to handling risks is very important for biopharmaceutical companies. Edwards considers the tax credit for companies in the UK to be very beneficial for young biotech companies. in the UK academia can get commercial funding for research and laboratories. According to Mr. In terms of national framework conditions. Another issue to be considered is that Governments in Europe could facilitate the testing of innovative medicines by allowing trials in their national public healthcare system. Mr. academia in Germany is not allowed to get commercial funding. but to some people ‘risky’ medicines are the only alternative to dying. Also. and European regulators need to develop a greater tolerance for risks so that citizens can decide for themselves if they want to run a risk in order to get better or prolong their lifetime. but so far haven’t had much success. In contrast.

Final report .Study on the competitiveness of the European biotechnology industry The financing of biopharmaceutical product development in Europe The Framework Contract of Sectoral Competitiveness Studies – ENTR/06/054 .