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


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1  The overall conceptual framework 3.4  R&D cost for developing drug candidates 4.1.2  Implementation of the survey 3.1  Development of biopharmaceutical products 4.Table of Contents 1.2  The biopharmaceutical sector – key figures 4.  The framework and methodology 3.2  Strategies for bringing the drug candidates to the market 6.1  Background 2.3  Comparing the capital supply for life sciences in the US and Europe 5.3.2  Defining business activities  Financing gaps in biopharmaceutical product development 5.2.1  Establishing the inventory of biopharmaceutical enterprises for the survey 3.2  Objective of the study 2.4  Selection of case studies  Representativeness of the interviewed enterprises 3.2  Capital supply in Europe 5.1  The pipeline of the biopharmaceutical sector  Number of drug candidates in the pipeline 6.  Executive summary 2.3.2  Methodological approach 3.3.defining the different development stages 3.4  Impact of the financial crisis 5.3.3  Drug development .1  Different forms of capital 5.2  Challenges facing the European venture capital industry 5.3  Business dynamics within the biotechnology sector 4.3  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 .  Introduction 2.2  Grouping the biopharmaceutical enterprises 6.5  Conclusion 5.  The biopharmaceutical sector 4.  The capital base available for the biopharmaceutical sector 5.1  From biotechnology sector to the biopharmaceutical sector 2.2  Venture capital investment strategies 5.1  Different sources of capital 5.  Strategies for product development 6.3  Defining the biopharmaceutical industry 2.5  Conclusions 6.

4  Opportunities 9. Sweden Apogenix.1-8 .5  Impact of capital shortage 7.2  Internal barriers 7. Denmark BioArctic Neuroscience AB. distortions and negotiations 64  9. Italy Innate Pharma.6.2  Recommendations focusing on increasing the access to finance for biopharmaceutical companies 9.6  Conclusion and recommendations 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.1  Regulatory environment 57  8.1  SWOT analysis  Conclusions 47  47  48  51  52  52  53  54  54  56  8.2  International markets – barriers.1  Capital raised for drug development 7.3  Need for capital 7. France Oryzon Genomics.2  Access to capital 7.2  Regulatory measures related to product development and commercialisation 61  8.6.  Strategic outlook– conclusion and recommendations 9. Germany MolMed.3  Weaknesses 9.2  Strengths 9. United Kingdom 67  67  68  69  71  71  73  74  75  77  79  87  88  89  95  101  107  113  119  125  129  2.5.4  Impact of financial crisis 7.1  Recommendations addressing early stage drug development 9.1  Public policy and regulation related to funding 57  8. Spain Arpida.1  External barriers 7. Switzerland Cellzome.  Policy and regulation 57  8.5  Threats 9.6  Exit strategies of investors 7.6.  Financing strategies 7.7.

there is a high risk of failure compared to other sectors. 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 defined as enterprises focused on discovery and development of biopharmaceutical products for human healthcare. 2) a supply side problem due to the challenges facing the European venture capital industry. Developing new biopharmaceutical products is very capital-intensive and it takes up to 10-15 years to bring a new product to the market. The study is based on desk research of reports and existing studies. The challenge for Europe The European biopharmaceutical sector faces a huge challenge concerning access to finance. based on tools and approaches from modern biotechnology. and 3) a historical funding problem due to the financial crisis. biotechnology enterprises providing services to biopharmaceutical and pharmaceutical enterprises. As a result. Within the last 10-15 years. and improve public health by ensuring that new innovative medicines are developed. In terms of capital supply. eight in-depth case studies of European 1 . the financial crisis has limited the funding available to investments and made investors more risk-adverse. In addition. but excludes bio-manufacturing enterprises. These characteristics make the biopharmaceutical sector less attractive to investors compared to other sectors. much more capital is invested in life sciences in the US than in Europe. new statistical data gathered through a survey of biopharmaceutical companies in Europe (carried out in May 2009 where 87 enterprises participated in the survey ). Consequently. Moreover. and enterprises involved in the production of biosimilars. This also includes firms specialized in the development of research tools for this objective (“platform firms”).1. 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. and the European venture capital market is not sufficiently developed to support the biopharmaceutical sector. 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. 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. a dedicated effort to support the biopharmaceutical sector in Europe can promote economic growth and employment in Europe.

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. Approx. but with a bias towards the smaller and younger enterprises as this has been a key sampling criterion for the European Commission. If the funding situation continues to be critical. This may eventually have a negative impact on drug development activities in Europe. 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. and . Product development strategies in Europe There is a symbiotic relationship between the biopharmaceutical sector and the pharmaceutical sector. and they may gain access to capital by selling/out-licensing drug candidates or establishing alliances with pharmaceutical companies. The financial crisis has especially limited the access to capital via an IPO or venture capital. and only few (17%) biopharmaceutical companies in the survey indicate that they intend to bring products to the market on their own. This result is very much in line with the results of other studies. However. often have only limited resources. late-stage companies are also struggling to gain access to capital at the moment. economic growth and employment. Among the surveyed enterprises.biopharmaceutical companies (carried out in May and June 2009) and interviews with experts. The need for better access to capital is evident in all phases of product a wider perspective – European innovation. The dominant product development strategy is aimed at either entering into alliances and/or outlicensing the drug candidates to reach the market. 2 . The demand for capital The survey of biopharmaceutical enterprises in Europe shows that they lack access to capital. Biopharmaceutical enterprises. In line with expectations. 75% of the biopharmaceutical enterprises in the survey indicate that the financial crisis has made access to capital more difficult. more than 40% of the biopharmaceutical enterprises will need to raise capital within the next year to maintain their current activity level. This symbiotic relationship is reflected in the survey of European biopharmaceutical enterprises. the survey shows that the financial crisis has had a negative impact on the access to capital for enterprises in the European biopharmaceutical sector. 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 one hand. On the other hand. the biopharmaceutical enterprises indicate that they will probably have to postpone new R&D activities or reduce the number of drug candidates. The survey is representative of the European biopharmaceutical sector.

Yet. In Norway. Studies indicate that Europe has 64% more VC funds than the US. European funds manage 50% less capital in total. Venture capital is the most important capital source for European biotech companies. the government has launched a package of measures to help the Norwegian biotechnology industry through the financial crisis. the financial crisis constitutes a serious threat to the future development of the sector. 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. This gives the US biopharmaceutical companies a comparative advantage over European biopharmaceutical companies. Data on the average amount of capital invested in companies suggests that European venture capital funds support too many companies with insufficient funding. The supply of capital in different development stages of biopharmaceutical product development is undergoing several changes. 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. One of the major changes is that venture capitalists have increased their share of late stage investment. Moreover. sector such as the biopharmaceutical sector. 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. for instance. capital-intensive. and the performance of the European biopharmaceutical drug developing companies depends on access to capital from venture capital funds or large pharmaceutical companies. 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. and other initiatives are currently discussed in other European countries to ensure that the biopharmaceutical sector can survive the crisis. 3 . 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. For a highrisk. The early stage is increasingly dominated by private investors such as business angels as well as public incubators and state-backed investors. 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. while the share of the EU Member States is 20%.The capital supply in Europe Comparing the investments in life sciences in the US and Europe.

Consequently. However. high risk of failure) by considering sector-specific policy measures targeting the special needs of the biopharmaceutical sector. The analysis suggests that future financing regimes should ensure that the sector has better opportunities to access finance in the product development process. Consequently. New accelerating tech transfer models need to be explored by the biopharmaceutical sector. 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). 3) Policy makers should consider increasing the availability of risk capital to biopharmaceutical companies by establishing a European Biopharmaceutical Innovation Fund. Based on the analysis. 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. This could include speeding up the centralised procedure for marketing authorisation (EMEA) and adopting the successful Young Innovative Companies (YIC) scheme in European countries. 4 . and policy makers should therefore consider expanding the current timeframe of the YIC scheme from eight to 15 years. the European Commission should recognise the unique structural characteristics of the biopharmaceutical sector (capital-intensive. the effects of these different models have not yet been analysed. long time to market. 5) Finally. However. In fact. 2) The lack of capital is especially a challenge for biopharmaceutical companies in the early stages of product development. 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. 4) The establishment of such a fund will increase the public co-investments in the European biopharmaceutical sector. 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.Recommendations Currently the biotechnology industry has insufficient access to finance. public authorities and the investor community. 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. policy makers need to support early-stage investments to ensure that innovative companies continue their development activities. 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. 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. One solution is to support micro-funds and investments by business angels in early-stage biopharmaceutical companies through public co-investments and tax incentives. The fund should operate on market conditions to ensure that funding is allocated to biopharmaceutical companies with a substantial market potential. However. the scheme does not currently consider the structural characteristics of the biopharmaceutical sector. innovative capacity and competitiveness of the European biopharmaceutical sector.

biopharmaceuticals require large investments. The potential scientific and socio-economic impacts of the sector are thus substantial (European Commission 2006. European enterprises only have access to a fifth of the private equity finance that US enterprises have. JRC/IPTS.europarl. 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. 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 competitiveness. and US enterprises are able to raise twice as much venture capital compared to European enterprises. the Commission argued that the growth and economic sustainability of Europe's biotech enterprises are being held back by three main European Parliament website. In its 2007 Communication on the midterm review of the Strategy on Life Sciences and Biotechnology. http://www. 2. However.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”.4 The European Commission has addressed the funding problems facing the European biotech industry on several occasions.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 €1.1 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. Other industrial sectors also use scientific discoveries in the biopharmaceutical sector to develop novel products and improve production methods. Danish Technological Institute (DTI) conducted the study in cooperation with the ECORYS SCS Consortium.000 million.1 The importance of the biopharmaceutical sector in relation to the pharmaceutical industry is growing.2. According to the Europabio 2006 study. 20% of all marketed medicines and represent around 50% of all new medicines in the pipeline (Europabio (2009). Thus.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’.2 European biotech enterprises are unable to raise as much capital as US biotech enterprises. Bio4EU 2008). medicines deriving from biotech innovations (biopharmaceuticals) are estimated to account for approx. The time to market is relatively long and the risk of failure when developing new biopharmaceuticals is very high. Introduction This report is part of the framework contract on Sectoral Competitiveness Studies (ENTR/06/054). 30th May 2006 2 11 5 .eu/summits/lis1_en. Source: Pro Inno Europe (2008): European Innovation Scoreboard 2007 4 Europeabio press release. These characteristics of the biopharmaceutical sector affect the willingness of external investors to invest in the development of new biopharmaceuticals.

small and medium sized enterprises are defined as independent enterprises with fewer than 250 employees. as well as parts. However. These two dimensions define the target group of the study and will be discussed in further detail below. Based on this data. etc. the study only includes small and medium sized biopharmaceutical enterprises. 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. The Communication was followed by an analysis of the overall competitive position of the European biotechnology sector in July 2007. We also provide good practice examples that may provide inspiration to policy makers and stakeholders at the regional. to alter living or nonliving materials 5 EU website. national and European levels. Furthermore. 2.5 This size criterion implies that we have excluded large enterprises from the study.2 Objective of the study The study aims at analysing the access to finance for European companies developing biopharmaceutical products.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. 2. According to the official EU definition of SMEs.constraints: Europe's fragmented patent system. 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 6 . they are still relevant as partnering companies or as a source of funding together with banks. On this basis. http://europa. Furthermore. namely underdeveloped venture capital markets and the fragmentation of financial markets (European Commission 2007b). we analyse and describe the challenges that Europe faces regarding supply of risk and debt capital. In this analysis. venture capital funds. we analyse the ways that biopharmaceutical enterprises benefit from various funding sources and what strategies they have adopted to achieve growth and revenue generation.1 From biotechnology sector to the biopharmaceutical sector Modern biotechnology . even though large enterprises have been excluded 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.3. In this context. the financing problem was explicitly addressed and two likely causes for the inadequate access to finance in Europe were identified. products and models thereof. insufficient supply of risk capital and shortcomings in the cooperation between science and business (European Commission 2007). 2.defined as ‘the application of science and technology to living organisms.

increasing the efficiency of substances used in industrial production). on the other hand.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. Exhibit 2. medical devices. cf.g. ‘Green’ and ‘White’ biotechnology..1.enables the development of new products and services in a wide range of economic sectors. 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. refer to use of biotechnology in agriculture (e. Biotechnology used in the treatment of human beings is often referred to as ‘Red biotechnology’. This study of the financing of biopharmaceutical product development focuses exclusively on biotech-based therapies and preventives. food processing.for the production of knowledge... namely biopharmaceuticals for human healthcare including different biotechnology-based therapies and preventives. This includes diagnosis of health risks and the prevention and treatment of illnesses.g. industrial production and healthcare. Exhibit 2. The specific types of biopharmaceutical products that are relevant to this study include (Rader 2005. and diagnostics using biotechnology as the main technological platform. goods and services’ (OECD 2005) . including agricultural production. tissue engineering) • Stem cells • Gene therapy • Enzymes • Recombinant vaccines and therapeutic vaccines 7 . increasing the resistance of plants to specific diseases) or for industrial purposes (e.g.

cf.2.3.2: 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. These two OECD definitions are very broad and may include enterprises that do not carry out research and development of biopharmaceutical products. 2006). 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. Exhibit 2. There are many definitions of ‘biopharmaceuticals’ and this complicates the definition and identification of biopharmaceutical enterprises (Rader 2005).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). however.2. As the study only focuses on biotech for human healthcare (´red biotech’). we can use the OECD definition of biotechnology enterprises as a starting point for defining a biopharmaceutical enterprise. 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. This definition of drug discovery firms (DDFs) refers to enterprises that “do very little else than biotech research” (Valentin et al. 2008). 8 . Exhibit 2.

However. we have excluded bio-manufacturing enterprises. 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). The challenge for the biopharmaceutical sector is to develop new medicine based on new scientific knowledge and research results. 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. 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.7 However. manufacturing and marketing (Kapeleris.3. Hine.testing in a larger group of people (100-300) Clinical trial phase 3 . Rose (2004)) 6 9 . biotechnology enterprises providing services to biopharmaceutical and pharmaceutical enterprises6 and enterprises involved in the production of biosimilars. This technology platform represents scientific knowledge and tools for drug development. and companies will face different financial challenges in the respective stages of the development process. Damian and Barnard. applied research.testing in a small group of people (20-80) Clinical trial phase 2. The target group thus constitutes an important part of the category defined by OECD as Dedicated Biotech Firms. 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. clinical trials. prototype development. The biopharmaceutical firms will typically develop new medicines based on a technology platform.3 Drug 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. verification and validation. 2. development. 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. based on tools and approaches from modern biotechnology including firms specialized in the development of research tools for this objective (“platform firms”). Thus. John. 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.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.test on large groups of people Later stages including authorization. the target groups of this study are enterprises focused on discovery and development of biopharmaceutical products for human healthcare.Therefore.

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

in turn.g. decreased risk tolerance among investors) or in the demand for capital (e. 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.3. 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. The framework and methodology The aim of the conceptual framework is to define the key concepts and delimit the scope of the study. The underlying logic is that the supply situation has an impact on the choice of strategy and thus. regulation of biotech research and product development.. 3. on the performance of 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.. In addition.g. progress in the development of new drugs) may result in a mismatch between demand and supply of capital. We structure the analysis of the financing of biopharmaceutical enterprises according to the following analytical model: Exhibit 3.1 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.1: Conceptual framework Changes in the supply of capital (e. approval procedures as 11 . we will briefly describe key elements of the analytical approach that will guide the analyses.

These interviews provide mainly information on key issues related to the financing of biopharmaceutical product development and help identify good practice examples.e.. access of enterprises to international markets (Romain & Pottelsberghe 2004. 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. A key challenge is to identify and select biopharmaceutical enterprises for the survey. Unfortunately. NACE codes). The list of experts interviewed is enclosed in Annex 1. In fact. degree of public involvement in R&D. Europabio. the national and regional biotech organisations have ‘local’ knowledge about enterprises in their region or Member State. OECD 2008). there is no official Eurostat data on the sector and there is no public register of biopharmaceutical enterprises in Europe. EBE.1 Establishing the inventory of biopharmaceutical enterprises for the survey The ‘biopharmaceutical industry’ does not exist in official statistical industry classifications (i. Survey of 87 European biopharmaceutical enterprises carried out as telephone interviews. Interviews with experts (venture capital funds.2. we describe our approach to preparing and carrying out the survey and case studies. The survey provides mainly quantitative data on the financial situation. strategic choices and perceptions in the industry. industry representatives. risk attitude in society. Moreover.well as cultural aspects (e. These case studies provide qualitative information on enterprise strategies and impacts of the capital supply situation on performance. the contact information for the biopharmaceutical enterprises was collected via the regional and national cluster organisations in Europe.. 3. The target group ‘biopharmaceutical enterprises’ was defined as small and medium sized enterprises focused on discovery and development of biopharmaceutical products for human healthcare. In several cases they have been able to 12 . attitudes towards entrepreneurs). Instead. EFPIA etc. Below. flexibility of labour markets. much of the existing data on the sector is based on surveys carried out among a selection of biopharmaceutical companies. 3.2 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. Eurostat.). The enterprise were interviewed in May and June 2009 Case studies of eight biopharmaceutical enterprises in Europe. based on tools and approaches from modern biotechnology which also includes firms specialized in the development of research tools for this objective (“platform firms”).g. researchers and government officials). and much of the basic statistical data on the sector is therefore not available (European Commission 2007b). The survey and case studies constitute the main evidence base for this study. The case studies are enclosed in Annex 2.

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

2. This number of interviews corresponds to a response rate of 23 percent. 14 . This reduced the number of potential interview cases to 385 enterprises (cf. Studies carried out by business associations have.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.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. the contact information for some 50 enterprises was not up to date or incorrect. Exhibit 3. Unfortunately.2.2 Implementation of the survey The survey data was gathered via telephone interviews with CEOs or CFOs of biopharmaceutical companies. 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.3. estimated the number of biopharmaceutical enterprises in Europe to be approx. cf. 800 (EuropaBio 2006. however.3). 3.

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

16 . Denmark. Furthermore. the selection of enterprises in different regions has enabled us to examine the impact of differences in regional financing conditions and regulatory frameworks. France. Germany and the UK. Our aim has been to cover different types of enterprises in different regions. Switzerland.3. The information provided by the organisations was validated before the companies were contacted. We have carried out eight case studies of enterprises located in Sweden.2.4 Selection of case studies The regional/cluster approach was also used to identify and select enterprises for the case studies. Spain. The case studies are enclosed in Annex 2. The case studies represent biopharmaceutical enterprises with drug candidates in different phases of product development and also enterprises with products on the market. 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. Italy. The regional/cluster organisations were asked if they could recommend any local enterprises within the target group.

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 chemical sector or simply as ‘research and development’. they are also facing an increasing need for funding research and early drug development (Ernest & Young 2008).typically the entire biotechnology sector .than the defined target group for this study – enterprises focused on discovery and development of biopharmaceutical products for human healthcare.4. Overall. This trend also represents a movement towards an increasing complexity in the development of medicines. the sector does not have its own classification in the Eurostat database. the biopharmaceutical enterprises are included in the statistics for the pharmaceutical sector. EuropaBio and The European Federation of Pharmaceutical Industries and Associations. in most cases the statistical presentation will include other sectors . cf. 17 . The implication is that the biopharmaceutical enterprises are not only facing increased challenges when turning fundamental research into drug development and new medicines. 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. The most reliable data sources for a quantitative overview of European biopharmaceutical enterprises are OECD’s biotechnology statistics and sector analyses carried out by. a range of scientific and technological breakthroughs in biotechnology and nanotechnology has had a tremendous impact on product development in the pharmaceutical sector. based on tools and approaches from modern biotechnology which also includes firms specialized in the development of research tools for this objective (“platform firms”). Today. 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). e. Since then. However. the introduction of modern biotechnology brought a shift from tissue and cell biochemistry to a focus on molecular structures. Instead.g.. Exhibit 4. As a result. recombinant human insulin was approved and soon after introduced to the market (European Federation of Pharmaceutical Industries and Associations 2008). Some 10 years later.1. 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. 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. in 1982. The first (modern) biopharmaceutical technologies were introduced about 40 years ago when the first DNA technology experiment was performed. Unfortunately.

1: A chronology: Research and drug development focus within biopharmaceuticals Source: European Federation of Pharmaceutical Industries and Associations 2008: The Pharmaceutical industry in figures.Exhibit 4. 65% of US patent applications are within “healthcare” (red biotech). In other words.2. by 2005 the number of new patents had dropped and seems to have stabilized at a level of 2. Among all the US biotechnology patents. cf.200 to 2. biopharmaceuticals) at the beginning of the 1990s resulted in a wave of patents. The development and discoveries in biotechnology (e. In the same period the number of patents application originating in US was significantly higher.315 in 1994 to 2. However. while Germany is the only EU Member State to follow the US.g. From 1994 the number of biotechnology patents applications increased significantly in the EU27 countries from 1. Exhibit 4. the total number of “healthcare” patent applications in EU27 is assumed to be below the number of patent applications in the US (Eurostat 2007).790 patents in 2000. 18 ..300 patents per year. but in recent years a converging trend in the number of patents applications between EU27 and US has been observed.

we observe (especially in 2006 and 2007) an increase in the number of application for new medicinal products.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. The number of drug candidates in the pipeline (clinical trials phase 1-3) in the European biotechnology industry increased in the period 2006-2008.1) as well as larger companies is included. cf. more than 600 in phase 2 and about 160 drug candidates in clinical trials phase 3 (Ernst & Young 2009). Exhibit 2. Ernst & Young (2009) is applying a definition of “biotechnology” corresponding to the both red biotech.000 of which approx. 350 were in clinical phase 1. This might indicate a change of focus in the (bio)pharmaceutical industry from developing new medicines to exploring the potential of existing medicines. etc. hybrid products. Another interesting point is that Ernest & Young (2009) finds that the smaller European biotech companies have less success with regard to approvals. The number of applications for new medical products was rather stable from 1996 to 2005 when the number of positive evaluations increased dramatically. EU 27 and US. 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. Exhibit 4.3. The European Medicines Agency assesses applications for marketing authorisation for new medicines (biopharmaceuticals as well as traditional pharmaceuticals) for human use. However.2: Number of biotechnology patent applications to the European Patent Office by priority year.Exhibit 4. whereas in 2008 almost half of the applications were for generics. 11 19 . In 2008. Looking at the initial evaluation applications by type of application. green biotech and white biotech (cf. Source: Eurostat database 2009. the total number of drug candidates in the pipeline was estimated to exceed 1.

2 The biopharmaceutical sector – key figures The biopharmaceutical industry is not a large industrial sector in terms of number of enterprises or employees. According to these studies. EU currently holds a comparatively weak position in the development and marketing of biopharmaceuticals. In contrast. Swiss companies have developed 10% of the products on the world market (JRC/IPTS.Exhibit 4. 4% to approx. 10% (JRC/IPTS. 30 to 85 in 2005 in the EU.2008 Source: Annual reports of the European Medicines Agency Since 1996. European Commission 2006). Studies covering dedicated biotechnology enterprises12 have identified 2.5bn in 2006 (EuropaBio 2006.163 biotechnology enterprises in Europe (excluding large pharmaceutical enterprises and enterprises in the supplying sectors). In the same period.6bn on R&D and generated a revenue in excess of €21.500 people. the accumulated number of biopharmaceuticals on the market increased from approx. while only 15% of the products have been developed by EU companies.500 in R&D. Bio4EU 2008). the EU market for biopharmaceuticals as a share of all pharmaceuticals increased from approx.3: Outcome of initial-evaluation applications for medicines for human use. the sector employed over 96. the sector is one of the fastest growing sectors and one of the world’s most wealth-creating industries. systems or processes. Of all available products in the world market (154 products). number of initial-evaluation applications1995 . US companies have developed 54% of the products. Bio4EU 2008). spent about €7. including 42. Nevertheless. 4. 12 20 . or on the provision of specialist services to facilitate the understanding thereof. 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.

EU companies (including Switzerland) account for 28% of the investments in R&D.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. Bio4EU 2008).4: European biotechnology industry by subsectors Biodiagnostics 18% Agbio and  environment  11% Human  healthcare 37% Services 34% Source: EuropaBio 2006 13 Eurostat 21 .800 employees. The top three sectors were pharmaceuticals & biotechnology (19.600 and 1. television and communication equipment” or “medical.2%).3% of the total R&D. The 2. precision and optical instruments” with respectively 771. while US companies account for 49%. technology hardware & equipment (18. Within pharmaceuticals & biotechnology.4. Exhibit 4. it is not possible to estimate the economic importance of the sector for other industries due to lack of data (JRC/IPTS. Exhibit 4.intensity such as “radio. and human healthcare. not least the pharmaceutical industry.3) and automobiles & parts (17. agrobio and environment. The biopharmaceutical sector is considered a driver of innovation in a range of industries. However. service. cf.046.R&D. and new biopharmaceuticals are likely have a positive impact on the healthcare sectors and healthcare in general.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.

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

000 m. 4. The total cost of R&D increased significantly from the mid-1990s to 2007 from approx. 25% of the biotechnology enterprises are less than 2 years old and they employ just over 5% of the employees in the sector. the risk of failure in biopharmaceutical research and development is extremely high compared to other research-intensive sectors. 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. which have mostly occurred in Germany. China and South Korea thus constituting a financial burden on especially small biopharmaceutical enterprises in Europe (van Pottelsberghe 2009). the majority of the biotechnology enterprises are small and generate very limited revenues (EuropaBio 2006). 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.4. Scandinavia and the UK. The new enterprises were mostly small in relation to number of employees. Restructuring activities instituted to gain critical mass have been the main reason for the mergers and acquisitions. An additional point is that European R&D costs are higher than in other world regions due to the fragmented European patent system.A. This resulted in a slight decrease in the number of biotechnology enterprises in Europe. €8bn to approx. The implications of a fragmented patent system in Europe include high uncertainty.(source: Eurostat) 15 23 .G 2007). which are at least four times higher than in the US. costs associated with clinical trials. Furthermore. A recent study estimates the average capitalized cost per approved biopharmaceutical in 2006 to be approx. and Gabowski H. resource-intensive approval procedures and costs associated with manufacturing (if the trials are successful). The increase in R&D costs is resulting in an increased need for funding (European Federation of Pharmaceutical Industries and Associations 2008). 10% of the enterprises in Europe were formed before 1989. quality drop and prohibitive costs. 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. and between 2003 and 2004 the number of European biotechnology enterprises decreased by 2% (EuropaBio 2006). €27bn reflecting an increase in R&D activities15 (European Federation of Pharmaceutical Industries and Associations 2008).4 R&D cost for developing drug candidates It is costly to discover and develop a new drugs/medicines due to expensive research processes.(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.3 Business dynamics within the biotechnology sector During the mid 1990s the number of biotechnology enterprises doubled in Europe. This means that even though there is a strong entrepreneurial spirit and a rapid development of new enterprises in Europe. €1. In the years after 2001 the industry was characterised by consolidation through mergers and acquisitions. In contrast. they employ almost 50% of the total number of employees and earn about four fifth of the total revenue. In Europe.

24 . only one will be approved (DiMasi et al 2003). 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. Exhibit 4.6.perform as required to have any market value. On the one hand. Finally. The cost of every successful drug includes the cost of all the failures. only an average of five will progress into the human testing phase. the window for generating market revenue can be very short (5-7 years). On the other hand. and considering the long time it takes to bring a biopharmaceutical product to the market. 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. Exhibit 4.6: 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. 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. The relationship between the biopharmaceutical sector and the pharmaceutical sector is a symbiotic relationship. cf. Of every 500 product candidates entered into the approval process. Of those five product candidates.

So has the average cost of gaining approval for the drug candidate. but on average only 1% will process into human test and fewer will be approved.300 patent application per year from European companies.200 – 2. it should be noted that: • • Biopharmaceuticals is a dynamic research area where new scientific discoveries generate a technology platform for developing new drug candidates. €1. 25 . • • • All in all. A recent study estimates the average capitalized cost per approved biopharmaceutical in 2006 to be approx. The number of the new drug candidates in the pipeline has increased to more than 1. The number of biopharmaceuticals has almost tripled in 10 years and has reached a market share of all pharmaceuticals of approx. The number of biopharmaceuticals patents has increased significantly. but the last few years the number of patents seems to have stabilised at a level of 2. but it has also become costly to take new drug candidates through clinical trials. 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.000 drug candidates in clinical trial phases 1-3. R&D investment has almost doubled since the mid-1990s and reached a level of more than €27bn in 2007. 10%.4. The development in the number of patents does not seem to have had any impact on the number drug candidates in pipeline yet.5 Conclusion In conclusion.000 m. the biopharmaceutical sector is still a minor industrial sector but with a significant growth potential. More research is carried out.

26 .

attracting venture capital.g. out-licensing drug candidates. venture capital is the most important capital source for European biotech companies.  grants)    Early development  stage  Government loans  Late development  stage  Banks (e.1 Different sources of capital The composition of capital sources for biopharmaceutical product development tends to vary with the development stage of a product. 27 . According to the report. In the very early stages of product development .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.5. FP/CIP). making grants the second most important source of funding for European biotech companies after venture capital. companies investing in biopharmaceutical companies. Exhibit 5.1.often before the product ideas turn into a business idea . loans)  Business angels  VC and CVC  VC and CVC  Note: CVC is an abbreviation for Corporate Venture Capital. more than two thirds of the European biotech companies participating in the survey also planned o raise capital through grants. In the later stages we find IPOs (Initial Public Offerings) and public equity are also important sources of funding.1: Key financial actors   Low level of  involvement  High level of  involvement  Discovery  Family and friends  Government (e.. This is illustrated below in Exhibit 5. PIPEs (Private Investments in Public Equity). 5.1. e. The capital base available for the biopharmaceutical sector 5. and bank loans. In a report by Ernst and Young (2007). e.)..public funding is often used (grants. forming alliances with (bio)pharmaceutical companies.g. etc. Exhibit 5.2 shows some of the key sources for funding in the early stages of product development (and business development).g.g. Initial Public Offerings (IPO) and follow-on offerings. There are different ways of raising capital for drug development such as applying for public grants (national as well as European..

which usually covers the early development 28 .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. Mezzanine funding is a hybrid form of capital combining features of equity financing with classical debt features. Mezzanine financing is thus an opportunity for companies involved in high-risk R&D to raise capital without diluting existing shareholders’ rights.eib. i. from the first concept to the point where the company has developed its first product. business angles.. 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. Finally. etc. 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. family. The different types of private equity include venture capital.e. developing a new product or making strategic acquisitions. to the point where the company needs capital to expand commercial operations (EVCA 2009). Other types of private equity include growth or expansion capital.) in small and medium sized companies to help with specific growth challenges such as entering a new market. This refers to investments (often minority stakes held by informal investors such as friends. for instance by buying out all or the majority of the shares in a company (EVCA 2009).Exhibit 5. In contrast to traditional bank loans. buyouts typically involve mature businesses and a change of control over the company. http://www.16 16 EIB website.

However.1. investment strategies within CVC funds may differ. 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. For instance. 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 CVC funds may pursue financial as well as strategic objectives in their investment strategies. bank-backed VC firms in Israel and the UK invest in late-stage activities compared to other funding sources. and they may use their experience and expertise to help them raise further early-stage capital. In contrast to VC funds that are guided by a financial investment objective. 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). VC funds get involved in the management of their portfolio companies. execute an IPO or complete a trade sale to a larger company (EVCA 2009). while bank-backed VC firms in Germany and Japan do not differ from other VC funds (Mayer et al 2001). Specifically. VC firms relying on private investors favour early-stage activities. However. start up). VC firms backed by banks and pension funds often invest firms in the late stage of enterprise activities.5.   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. However.. the investment strategy of corporate VC funds (e. large pharmaceutical enterprises) may differ from the strategies pursued by other types of VC funds.3: Exhibit: Different types of relationship between CVC and a portfolio company (e.2 Venture capital investment strategies Venture capital funds are not a homogenous group of investors. differences in the structure and development of national technology sectors are probably also an important element in explaining national differences in investment strategies. the investor could be interested in acquiring the technological platform under development in the portfolio company. The differences in investment strategies may reflect differences between different countries with regard to financial systems and traditions.g. According to a comparative analysis of VC funds in four countries. Typically. Exhibit 5.g. 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 . there are country specific variations.

cf. European biotechnology financing dropped dramatically from 2007 to 2008 due to the financial crisis. venture financing fell 19%). Technological developments suggest that the next generation of innovative drugs are not ‘blockbusters’ but rather personalised medicines. http://www. business angels).2 Capital supply in Europe Private equity investments in Europe have increased considerably in the last 30 . public incubators and state-backed investors (Vaekstfonden 2006.4.4: Private equity investments in Europe Source: EVCA 2009 According to Ernst & Young (2009). the initial equity investment is coupled with an option to a specific therapeutic programme managed by the portfolio company. biopharmaceutical enterprises will face even more difficulties in the future with regard to gaining access to funding. 17 Novartis website.g. Exhibit 5. Exhibit 5. As a result.17 Venture capital funds are increasingly moving up in the market and are less inclined to take on very early-stage companies.novartis-venturefunds. In the case of the option fund. while venture financing ‘only’ experienced an minor backdrop of 15% compared to 2007 (in the US. and investors may thus be less inclined to invest in them.earliest stages. The main cause was a collapse of public-equity financing (IPO and follow-on and other offerings) from €4bn to less than €1bn. orphan diseases) or even personalised medicines. and if investors continue to focus on the ‘old’ blockbuster business model. the field of capital providers in the very early product stage to increasingly consists of small private investors (e. These types of drugs have a different expected return of investment (ROI) than traditional blockbuster medicines.. 5. 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). 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.

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). cf.5. early-stage investments have gained more attention among European investors. In other words.In terms of private equity investments as percent of GDP.6. the share of late-stage investments has increased in both the US and Europe. 31 . the Netherlands. and France were all above the average for Europe (0. Exhibit 5.58% of GDP). Exhibit 5. however. cf. Sweden. Exhibit 5. In terms of the distribution of investments by development stage. the UK. venture capital investments in the US generate more value than investments in Europe. After 2000/2001.5: Private equity investments in European countries as% of GDP in 2007 Source: EVCA 2009 Overall. US companies are better at generating value than European companies.

18 Instead. • 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. 18 The same trend has been identified in other countries 32 . while 70% of the funds raised in the UK came from foreign sources. private funds are moving away from early-stage companies towards late-stage companies. Pension funds are important players in the UK and US VC industries. while Israel is somewhere in between.6: Share of early-stage investments in total investments Source: Vaekstfonden 2006 Countries differ in terms of the composition and activities of venture capital. but mainly in the form of coinvestments with private investors rather than free-standing investments (NESTA 2008). This suggests that early-stage companies in the UK receive less VC than early-stage companies in the US and Israel. more than 90% of the funds raised came from foreign funds. private investors. are becoming more important in early-stage investments. • The average amount of capital invested per early-stage company is significantly higher in the US than in the UK. 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. According to NESTA. The public sector involvement is also increasing relative to private investors. such as business angels and ‘angel syndicates’. In a recent benchmarking of the venture capital industries in the US. Israel and the UK the following differences were identified (British Private Equity and Venture Capital Association 2009): • In Israel. but only play a marginal role in Israel.Exhibit 5. The UK is currently experiencing a change in composition of types of investors engaging in early-stage companies. while the share of early-stage investments in the US and the UK ranges between 20-30%.

pharmaceuticals. start-up.3% of total venture capital investments in life sciences (biotechnology. early development. while the EU members of the OECD accounted for 20. cf.8 33 . Exhibit 5. health services. OECD data covering 25 OECD countries shows that the US accounted for 68. Exhibit 5. 2007 Source: OECD (2009) Note: ‘Venture capital’ covers investments in seed.5. Exhibit 5.3 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. and expansion stages.7..8% (OECD 2009). followed by Denmark and Switzerland.089%). and medical devices and equipment). The OECD country average was 0.019%. million PPP$. cf.7: Total venture capital investments in the life sciences. 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.

The level of biotech investments in the US and Europe increased until 2001. when the tech bubble burst caused a substantial drop in total investment activity. total venture investments decreased to one fifth of the level before the bubble burst. 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.7%. early development. interviewees and several case studies (for instance Bioartic Neuroscience and Apogenix) also indicate that there is a difference in the culture and mindsets 34 . In the US. but rather seek to enter partnerships with other companies or sell off their products candidates. However. start-up. Canada was second (30. Since 2004.8: Life sciences venture capital investments as a percentage of GDP.7%) followed by the US (29. This may be a result of the limited availability of capital as these activities are very capital-intensive. Later stage venture capital investment in replacements and buy-outs are not included.9%).Exhibit 5. Sweden also had the highest life sciences share of total venture capital investments (36. the current financial crisis has put an end to this development for the time being (cf.9%). and expansion stages. However. investment activity has increased in the US as well as in Europe.4 below). The OECD country average was 14. section 5. 2007 Source: OECD (2009) Note: ‘Venture capital’ covers investments in seed.

Exhibit 5. One reason for this could be the low or moderate credit rating of many biotech companies because of their lack of below. Through the  creation of an active network fostered by EIF and CDTI. only few biotech companies have benefited from the RSFF (examples include Zeltia in Spain and BIA Separations in Austria/Slovenia).eu/invest-in-research/funding/funding02_en. and US enterprises are able to raise twice as much venture capital compared to their European counterparts. where the researchers focus more on conducting research than developing their research into business opportunities.europa.9: The NEOTEC fund in Spain The NEOTEC Fund was established in 2006 by the European Investment Fund and CDTI.3.htm 21 European Commission. €1. life sciences and ICT. the European Commission has launched several initiatives to ensure access to capital for biopharmaceutical companies. Tourism and Commerce.1 Financing gaps in biopharmaceutical product development European biotech enterprises currently do not have access to as much capital as US biotech enterprises. 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. engineering and automotive. The European Investment Fund invests in venture capital funds that support SMEs . According to the Europabio 2006 study. Emphasis is placed on  technology‐oriented funds. In 2007. http://ec. the programme will also seek to provide  Spanish and foreign investors with a showcase of the best opportunities in Spanish technology. but generalist funds that invest in companies developing commercial  applications of new technology or deploying technology supports are also included.20 By the end of 2008. The fund aims at increasing venture capital  investment in Spain to boost the Spanish SME technology sector.5bn has already been allocated to projects located in 14 European countries and within a range of industry sectors.    19 The 2007 European Innovation Scoreboard indicates that the EU is experiencing a declining gap with the US in earlystage venture capital. cf. European enterprises have access to only a fifth of the private equity finance that US enterprises have. the aim of the initiative is  to complement existing programmes to create 110 new companies in 2008 and 130 in 2010. This suggests that biotech companies – in particular SMEs .particularly technology-oriented SMEs in the early-stages of development – one example is the NEOTEC fund in Spain.of researchers in Europe.  The NEOTEC mandate comprises a fund‐of‐funds and a co‐investment vehicle. Specifically. an entity under  the Spanish Ministry of Industry. a total of €2.pdf 35 .are not well-positioned to obtain funding from the RSFF.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”.europa.4bn had been authorised by the European Investment Bank under the RSFF.21 To date. Together with the European Investment Bank and the European Investment Fund. 5. http://ec. the main sectors receiving funding via the facility are renewable energy technologies. Source: Pro Inno Europe (2008): European Innovation Scoreboard 2007 20 European Commission website. So far. Exhibit 5.

authorisation and marketing.europa. 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 The funding of the EIF originating from the European Commission’s budget is allocated under the High Growth and Innovative SME Facility (GIF).eif. start-up) and GIF2 covers expansion stage investments. Typical funding sources include venture capital funds. The total budget is estimated at around €200m. Source: EIF website. http://www. in parallel with  previously selected private equity and 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. GIF1 covers early-stage investments (seed.   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. founders.• • Fund of funds  NEOTEC will act as fund of funds. GIF is split into two parts. 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. • Second funding gap: the funding of clinical trial phase I+II. corporate venture capital. government-backed investment funds.pdf 36 . • Third funding gap: the funding of clinical trials in phase III. http://www.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. In 2007. and public equity (IPO). 30th May 2006 Global Lifescience Ventures. hybrid capital (mezzanine).-known-as-neotec. The typical funding sources include venture capital funds. government-backed investment funds. investing in venture capital investment vehicles.22 In addition. buy-outs.  The co‐investment vehicle  The co‐investment fund is for direct co‐investments into technological SMEs. licensing and collaborations. collaborations. European Commission 2007): • First funding gap: the funding of technology transfer and concept development. Typical funding sources include seed capital from grants. the limited availability of capital could make European biopharmaceutical decide to look for funding opportunities in the US or even relocate to the US.23 22 23 Europeabio press release. the companies that develop biopharmaceutical product face three funding gaps (Cooke et al 2006. managed by  skilled teams based in corporate venture capital. including pre-clinical testing (often referred to as early-stage development). licensing. 62% of the European respondents considered the European funding environment to be difficult (down from 74% in 2006). Nevertheless. By the end of 2008. and business angels. Biotech Investment Barometer Reveals Continued confidence in Sector (press release).

such as the biopharmaceutical sector. yet European funds in aggregate manage 50% less capital. 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 VC funds in Europe may be too small to ensure sufficient capital for follow-on investments. medical technology. 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. 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.4 Impact of the financial crisis Overall. 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. thus increasing the risk of failure for the venture capital fund. biotechnology. clean tech. However. 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). This constitutes a threat to high-risk sectors.The identified funding gaps have been interpreted as a ‘market failure’. Moreover.24 5.3. the global financial crisis has made investors reconsider their investment strategies.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. According to Grabenwarter (2006) Europe has 64% more VC funds than the US. 24 Grabenwarter (2006). as investors may consider investing in less risky business sectors. the market is working to its perfection.. Moreover. Thus. Nesta (2008) 37 . This could increase the performance of the venture capital industry.) suggests that they are unable to build up sufficient expertise in the different sectors. 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. They are simply not able to support companies with sufficient funding for the entire development process (British Private Equity and Venture Capital Association 2009).g. 5. 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). 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. In this perspective. European companies simply receive less capital than their US counterparts. etc.

teknopol.10: Anticipated level of investment change in select sectors. The aim is to stimulate increased cooperation within the  industry on research and 38 .argentum.11: Norwegian crisis package for the biotechnology sector Key measures in the Norwegian crisis package:   • Innovation loans operated by Innovation Norway. Contracts are to be focused on industry development in  the health sector and  Source: http://www. 48% of the respondents stated that they would not change their involvement in the biopharmaceutical sector over the next three years. Argentum can now increase its investments in private VC funds focusing on life  sciences in Norway and abroad (www.   • Tax breaks for individual SMEs: Companies may deduct €0. cf. and the only investor in Norway that is  solely dedicated to investing in private equity funds. Exhibit 5.11.However.oslo.   • Additional €8m for R&D contracts. Exhibit 5.10. This testifies to the importance of government involvement in specific sectors for attracting private investments. Exhibit 5. the government‐owned investment company.68m in tax breaks ‐ this is an increase  from €0. Funding increased from €37m to €111m. cf. according to the survey. (fund‐in‐fund) gets increased equity capital  of €233m.   • Argentum. The Norwegian government has launched a package of measures to help the Norwegian biotechnology industry through the financial crisis. These loans may be used as working capital  for the biotech companies. 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. Exhibit 5. the country's main industrial development  agency. 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.

However. 39 . 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%.5 Conclusions Venture capital is the most important capital source for European biotech companies. However. The study indicates that US companies are better at generating value than European companies. the French biotech industry organisation recommended that the "young innovative company" fiscal status be extended from 8 to 15 years.Several other initiatives may be launched at national level to help the biotechnology industry through the crisis. 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 the UK. private equity investments have increased in Europe. 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. 5. In recent years. The very early stage is dominated by private investors such as business angels as well as public incubators and stat-backed investors. The study of the financial markets suggests that policy makers should not only focus on bringing more capital into the market. 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. In France. but also address structural problems in order to improve access to funding for biopharmaceutical drug developing SME. 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 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. Another success factor is the R&D efforts and the business competencies of the companies. 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.

40 .

the pipeline identified in the DTI-biopharmaceutical survey seems to correspond to the pipeline identified in the Ernst & Young study. However. (cf. 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. 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 3.4).2). Exhibit 2. based on tools and approaches from modern biotechnology including firms specialized in the development of research tools for this objective (“platform firms”). section 4. However. In the subsequent phases. 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. 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.25 Taking into account the limited differences in the profile of the companies included in the two surveys. green biotech and white biotech (cf. Biopharmaceutical enterprises typically start out with a technology platform from which several drug candidates can be explored and developed. The surveyed enterprises are representative of the European drug discovering biopharmaceutical industry.6. (cf. Exhibit 6.1 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. a survey of biotechnology companies in Europe found that more than 1. and the fact that the DTI-biopharmaceutical surveyed enterprises represent approximately 10% of the European biopharmaceutical enterprises. According to the DTI-biopharmaceutical survey. Only a limited number of drug candidates are expected successfully to enter the subsequent clinical trial stage.000 products were in the pipeline (clinical trial phase 1-3) of the European biotechnology industry (Ernst & Young 2009). The survey includes 87 enterprises focused on discovery and development of biopharmaceutical products for human healthcare. Strategies for product development Biopharmaceutical enterprises that develop drug candidates can apply different product development strategies. 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. 6. 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.1). In any case.1) as well as larger companies is included. 25 41 . the number of drug candidates is relatively low. the choice of product development strategy will have an impact on the enterprise’s demand for capital and its overall business strategy. In 2008. One enterprise may decide to bring drug candidates to the market on its own.

the enterprises often have drug candidates in both early stages of product development and in the late stages.2. In fact.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. very few enterprises in the biopharmaceutical sector only have one drug candidate in the pipeline. A possible explanation for these findings is that completing clinical trial 1 is relative quick.2. while the number of drug candidates increases in clinical trial 2. Furthermore. According to the data. Exhibit 6. This can be explained by differences in the research orientation of the company samples (se section3. A research-intensive sector such as the biopharmaceutical sector is expected to have a high number of drug candidates in the pre-clinical phase. 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. cf.3).1. Such a portfolio of drug candidates can be seen as an attempt to ensure a continuous flow of drug candidates so that the 42 .the drug candidates in the biotechnology pipeline identified by Ernst & Young (2008).1: Number of drug candidates in pipeline by phase of drug development. Exhibit 6. May June 2009 The survey data indicates a sharp decline in the number of drug candidates from pre-clinical to clinical trial 1. 6. N = 458 Source: DTI-biopharmaceutical survey in Europe. This may have implication for the enterprises' ability to attract external financing and especially venture capital. 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).

1. Consequently. This will provide us with a better understanding of the specific 43 . 6. Moreover. May June 2009 Nevertheless.2 Grouping the biopharmaceutical enterprises In order to analyse the capital needs and strategies at a more detailed level. Moreover. the drug candidates may be used as leverage in negotiations with potential investors and partners or be sold/out-licensed to raise 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. the company can out-license or sell product candidates to raise money for the further development of its lead products. Companies may thus benefit economically and strategically from out-licensing or selling compounds to other companies. there is a limit to the number of drug candidates that companies can afford to have in the pipeline. companies have to match the need to build up a strong pipeline and the financial means available to the company. Exhibit 6. the product candidates must be sufficiently developed to be of interest to other companies (see the case study of Arpida. in case of a capital shortage. we have grouped the biopharmaceutical enterprises according to the stage of development of the companies’ most advanced drug candidates. Symphogen and Bioartic Neuroscience in Appendix 2). Moreover.2: Number of drug candidates in pipeline. However. the pipeline should not be too diverse (see case study of Apogenix in Appendix 2). N = 87 Number of  enterprises  Number of drug candidates  Source: DTI-biopharmaceutical survey in Europe.

3: Grouping the biopharmaceutical enterprises according to the stage of development of the companies’ most advanced drug candidates. N= 87 Number of  enterprises  Source: DTI-biopharmaceutical survey in Europe. enterprises with products on the market often have drug candidates in the early development stages. is a learning process that will strengthen the operational. Enterprises with products on the market Exhibit 6. For instance. The six groups are: 1. gaining access to capital) that biopharmaceutical enterprises face at different development stages. May June 2009 Obviously. financial and strategic management of an enterprise as well as build up its reputation in the investor community. Enterprises that have drug candidates in the pre-clinical phase 3. Going through the different development stages. as many of the companies will have drug candidates in different phases. Enterprises with drug candidates in the late stages 6. Enterprises with drug candidates in clinical phase 2 5. 44 .g. Enterprises that are still in process of developing their technological platform 2.challenges (e. 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. however. Enterprises with drug candidates in clinical phase 1 4.

and 2) out-licensing the drug candidate to another company (83% of the respondents). Either because they are unable to raise sufficient capital or because they simply wish to remain a research-oriented 45 .2 Strategies for bringing the drug candidates to the market Drug development and clinical trials require considerable investments. cf.both in terms of drug development as well as for successfully entering the market with other candidates in the pipeline.4: Exhibit 6. 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. which can be an advantage for the enterprise in the future . N = 87    We intend to bring one or several drug candidates to the market  ourselves  We intend to enter into an alliance (partnering. 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). Alliances or out-licensing will typically entail a milestone payment to the biopharmaceutical enterprise . this will enable the enterprise to continue operations without raising capital from other investors or via grants. The majority of DTI-biopharmaceutical surveyed enterprises do not intend to bring drug candidates to the market on their own. 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. biopharmaceutical enterprises may (as illustrated in several of the case studies in Annex 2) benefit from gaining access to the research.4: Product development strategies. sales and marketing are also very resource-intensive. For a while. They require a set of business competencies that are often not available in small research-intensive enterprises – good researchers are not necessarily good managers. The enterprises mostly apply a mix of strategies such as taking some drug candidates to the market on their own.even before the drug candidate has been launched on the market. 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).6. Exhibit 6. Enterprises may also decide not to take any of their drug candidates to the market. manufacturing and marketing competencies of the partner. By choosing to enter into an alliance. while developing other drug candidates with external partners. but manufacturing.

Only one out of ten enterprises has products on the market. manufacturing and marketing competencies as well as capital. i. the enterprises may be able to benefit from gaining access to research. 6. a technology platform enterprise (Lanza 2009). Competencies and capital may determine which strategy the enterprises apply as well as the ambition of the entrepreneurs. Most of the enterprises are developing their technology platform or have drug candidates in the pre-clinical trial stage. 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. 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. According to the DTI-biopharmaceutical surveyed enterprises. Through this strategy. the dominant product development strategy is aimed at either entering into alliances and/or out.. 46 .licensing the drug candidates to reach the market.enterprise working as a supplier of innovative drug candidates to large (bio)pharmaceutical enterprises. Only 17% of the companies in the survey intend to take products to the market on their own.e.3 Conclusion The majority of the DTI-biopharmaceutical enterprises have between one to six drug candidates in the pipeline.

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.) constitutes the main source of capital for biopharmaceutical enterprises followed by grants and income from business activities.1: Average amount of capital raised for current pipeline (million Euros) by a group of biopharmaceutical enterprises.5  Number of  enterprises   6  33  8  20  8  12  87  Source: DTI-biopharmaceutical survey in Europe. In this chapter. we examine how biopharmaceutical enterprises have financed their product development and how their financing strategies change from one stage of product development to another. 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. business angels. cf.1) Exhibit 7.1 Capital raised for drug development To date.0  289. Therefore biopharmaceutical enterprises need to attract investors.7  151.2: 26 Data does not include income generated from business activities 47 .1.2 The respondents indicate that private equity (including venture capital.9  6. Exhibit 7. 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. apply for grants and gain access to capital from the financial market. cf. Exhibit 7. The need for capital increases significantly after clinical phase 1.7. 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. 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. the DTI-biopharmaceutical surveyed enterprises have been able to raise an average of approx.On average enterprises with drug candidates in the later stages have raised more capital than enterprises in the earlier stages.1. etc. €36m to finance their current pipelines26.0  25. May June 2009 Note: The grouping is defined in section 6.0  87.9  11. 7.

Exhibit 7. May June 2009 A closer study of the data for each of the different groups of biopharmaceutical enterprises reveals some interesting differences.3: Main sources of capital – average share for all respondents by group of biopharmaceutical enterprises. According to observers.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.. 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.g.2: Main sources of capital. N= 83   Grants  Equity  IPO  Loans  Income from  business activities  12%  Mean  17%  60%  4%  3%  Source: DTI-biopharmaceutical survey in Europe. 27 Ernst & Young (2009): Global Biotechnology report 2009 48 .27 The respondents also indicated that it has become increasingly difficult to gain access to loans (except for government loans) and venture capital.4. cf. cf.Exhibit 7.2 Access to capital Overall. May June 2009 7. Exhibit 7. average share of total capital raised. selling products or (research) services) constitutes an important source of capital for platform enterprises and enterprises with products on market Exhibit 7. 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. the IPO window is currently shut down.

Most of the DTI-biopharmaceutical surveyed enterprises have been able to raise capital in the last 12 months. 33% of the enterprises have been able to raise less than €1m. Nevertheless. Exhibit 7.58  4. 49 .5.65  4.33  3. and approx. cf.60  4.Exhibit 7. May June 2009 Mean  3. 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. N = 87   Friends and family  Business angels  Venture capital facilitated by an incubator. 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.09  3.75  4. 31% of the enterprises have been able to raise between €1 – 5m within the last 12 months.21  4.54  4.39  3.76  4. a relatively high share of these late-stage companies finds that gaining access to funding via alliances and partnerships has become more difficult.4: Difficulties in obtaining funding compared to the situation 12 months ago (scale from 1 “easier” to 5 “harder”). With regard to current financing. a university or.45  Although it has become more difficult to gain access to venture capital for the different groups of biopharmaceutical enterprises.43  4.

6 suggests that the relatively small amounts of capital (up to €5m) were primarily raised by early-stage enterprises. while the relatively large amounts of capital (€5m+) were raised by later-stage enterprises and enterprises with products on the market. N = 87. Capital raised within the last 12 months the DTI-biopharmaceutical surveyed enterprises. Number of  enterprises  Source: DTI-biopharmaceutical survey in Europe.Exhibit 7. Capital raised within the last 12 months by type of enterprise.     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 4.6:.5.9  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. May June 2009 50 . Exhibit 7. N= 87. May June 2009 Exhibit 7.

e. Consequently. 51 . 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. May June 2009 In particular. However. platform companies (16%) and companies with drug candidates in pre-clinical research (approx. cf. N = 85.7. within the next 6 months). Exhibit 7. cannot be certain that they will get the needed funding from investors or partners. Exhibit 7. later-stage companies and companies with products on market still have some time before the lack of capital could become critical. however. the survey results should be treated with caution. Moreover. The companies.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. More than 40% of the biopharmaceutical enterprises will need to raise capital within the next year to maintain their current activity level. and 18% of the enterprises are facing an immediate need for capital or will run out of capital within the next 6 months. According to the DTI-biopharmaceutical survey. 30%) need capital immediately or within the next 6 months.. The findings are similar to the findings from other recent surveys.   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. 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%. 7% of the enterprises are in immediate need of capital if they are to maintain their current activity level. 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. 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). approx.7: Assessment of the need for capital by the DTI-biopharmaceutical surveyed enterprises.7. According to the DTI-biopharmaceutical survey.

9. Exhibit 7. May June 2009 7. In fact.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. 52 .7. case study of Arpida in Appendix 2).8. The platform companies all indicate that the financial crisis has made it more difficult to gain access to capital.5 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. cf. while 24% of the respondents indicated that the financial crisis has had no effect on their access to funding. 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. Biopharmaceutical enterprises are focusing their activities on demonstrating good results. such as achievement of milestones. Exhibit 7. the biopharmaceutical sector is also facing difficulties with delivering the results that their investors have expected (cf. case study of Molmed and Symphogen). As a result. cf. 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. investors are becoming more reluctant to invest in biopharmaceutical companies. to ensure that they can get the capital they need (cf. 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 7. Gaining access to capital is not only determined by the financial crisis. The existing pipeline will also be affected as enterprises may decide to reduce the number of drug candidates.4 Impact of financial crisis Approx.

The increasing shortage of capital is also mentioned as one of the key barriers to gaining sufficient funding (39% of the respondents). 7.10.10: External barriers to getting funding by the DTI-biopharmaceutical surveyed enterprises. Furthermore. May June 2009Note: Data is aggregated due to multiple answers Overall. May June 2009Note: Data is aggregated due to multiple answers 53 . 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.Exhibit 7. 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.9: Expected impacts of a capital shortage on the DTI-biopharmaceutical surveyed enterprises. these different strategic responses may eventually lead to a restructuring of the companies with a subsequent negative impact on employment. 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. cf. Exhibit 7. the DTI-biopharmaceutical surveyed enterprises especially identify the lack of willingness among investors to provide financing to high-risk and long-term projects. Exhibit 7.5.1 External barriers With regard to external barriers to gaining funding.

The category ‘Other’ includes ‘lack of basic development knowledge’. 52% of the respondents do not think that there are any internal barriers to gaining access to capital. Exhibit 7.6 Exit strategies of investors Private equity investors typically have a long time horizon compared to other types of investors such as. on the one hand. Exhibit 7. EVCA indicates that investors will. 54 . On the other hand.13. cf. Responses concerning the expected time to exit of investors do not suggest that investors are currently fleeing from the biopharmaceutical industry. cf. will probably seek to help the company pull through the current crisis rather than cutting their losses by liquidating the company (EVCA 2009). In fact. Exhibit 7. May June 2009 Note: Data is aggregated due to multiple answers.g. 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. 30% of the respondents even expect their investors to stay with the company the next 5 years. Approx. and ‘problem with intellectual property’. ‘reluctant shareholders’.. e.7. investors may consider focusing their funding on the best performing segment of their portfolio and exit the remaining portfolio companies.2 Internal barriers The DTI-biopharmaceutical surveyed enterprises do not consider internal barriers important. The main barrier identified in the survey relates to the R&D activities carried out in the enterprises. One of the respondents stated that it is very difficult to raise capital without ‘proof of concept’. 41% of the respondents indicated that they do not expect their investors to exit the company within the next 2 years.5. 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.11. 7. This suggests some stability for the management of the company for the years to come. hedge funds. The respondents also mentioned the limited resources of small companies to engage in the identification of and negotiations with potential investors.11: Internal barriers to getting funding by the DTI-biopharmaceutical surveyed enterprises. lack of interest from investor for early-stage drug development because of high risk investment.

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

g. The result is that funds only invest small amounts at a time. seed money. However. European venture capital funds tend to be relatively small because they rarely operate beyond national markets (European Commission 2005a).States. This has an adverse effect on fundraising and investing within the EU. the capital base available to. 2007d): 1) Restrictions on pension funds In some Member States. in small or emerging venture capital markets funds are finding it difficult to expand. specialise and reach a critical mass of deals (European Commission 2007c). even though their business models are actually based on taking calculated risks. grants. This has a negative impact on returns and on the attractiveness of raising funds. a possible source of capital is absent from or face restrictions in the venture capital market. etc. Wherever this is the case.. Current national regimes differ substantially from each other. Operating across borders is complex and costly and small venture capital funds tend to avoid investing outside their home jurisdictions (European Commission 2007c. divergent national policies create significant market fragmentation.. Funds that would otherwise expand their portfolio across borders are hindered due to operational and regulatory obstacles as outlined below. In markets that are in the early stages of development. Venture capital funds and their managers are authorised and regulated according to national requirements. However. loans. they tend to be too risk averse. five key obstacles have been identified as having a negative impact on access to venture capital in the biotechnology sector (European Commission 2007c. e. the catalytic role of statebacked venture capital is beneficial to market growth. 2007). As a consequence. 2007d). sector funds are becoming more common. the European venture capital market is fragmented along national lines and the development and maturity of venture capital markets vary (Europe Innova 2006. Facilitating cross-border private equity transactions between 59 . higher returns. grow. In addition. 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.g. and the challenges of differing taxation regimes can thus be expected to remain in the future (European Commission 2007c).) cannot be employed. which are paid for by investors). All in all. 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. public offerings. This leads to higher organisational costs of raising money (in particular legal and advisory fees. increased flow of venture capital and more efficient venture capital markets. In large Member States with more mature markets. better regulatory framework conditions are assumed to contribute to lower operational costs and risk. Furthermore. Specifically. biotechnology companies is limited. pension funds are not permitted to invest in venture capital funds or face quantitative and geographic restrictions. ‘drip-feed’ firms and often slow down the growth of recipient firms. where traditional means of obtaining finance (e. usually to a small number of chosen private investors).

g.g. complex fund structures with parallel vehicles should be set up to minimise the tax disadvantages resulting from investing across borders. relying on close connections between funds and entrepreneurs. The Commission has taken steps to improve the situation. However. 5) Tax obstacles Tax issues are of paramount importance.. Currently. e. without the necessary support structures (such as investment bankers and lawyers (European Commission 2005a. the conditions for the venture capital market can be improved by. the interaction of which can lead to unrelieved double taxation.. venture capital also needs more liquid exit markets in the EU. 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. The current European venture capital structures cannot accommodate all types of foreign investors from within and outside the EU.. intermediaries and investors could lower these costs. 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.5m per SME over a 12month period. 60 .fund managers. ensuring that no VAT is imposed on the fund's management company and abstaining from taxing foreign funds (Nordic Innovation Centre 2007). making funds established as limited partnerships tax transparent (as is the case in Finland). To ensure that cross-border venture capital investments are not impeded. Venture capital thrives around clusters and universities that produce new ideas and entrepreneurs. Thus. regimes.g. thus facilitating entry and exit for venture capitalists as new investment opportunities become readily available within the clusters. 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. 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. specialise and diversify their portfolios. fund structures should have features that can accommodate the individual legal and fiscal needs of investors. e. funds can be established across the EU under a variety of legal forms. it is also a global business that competes for both funds and investment opportunities. increase their efficiency (e. improve returns. by specialising in certain sectors or industries such as biotech). 2005b). reach economies of scale. Although venture capital is a local business in many ways. and structures. 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. by establishing a new framework for state aid for research and development and innovation. The state aid promotes risk capital investments in young innovative enterprises in their first years of existence to help them overcome initial cash shortages. Below this ceiling the Commission accepts that a market failure is assumed to exist (European Commission 2007c). Therefore. The new guidelines also include a light assessment procedure with a number of elements such as a higher investment threshold of €1.

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

but unable to afford the relatively high prices of innovative drugs. the European patent system has been characterised as ‘fragmented’ resulting in high uncertainty. the protection extends to material derived from the patented material which possesses 62 . In general. Applications for market authorisation for pharmaceutical products in the EU are submitted to the European Medicines Agency (EMEA). For example.. safety and efficacy of a generic product. the US. European Commission 2006a). the main legislation of relevance is Framework Directive 90/219/EEC. a reference product that has already received Community marketing authorisation. exist at Member State. European and international level. However. EU legislation recognises that making appropriate comparisons with the reference product may go some way towards compliance with the requirement to establish the quality. Commercialisation The commercialisation of a pharmaceutical product often involves large-scale tests and clinical trials including extensive documentation. These are generic pharmaceutical products which are essentially similar to. The WTO agreement on trade-related aspects of intellectual property rights (TRIPS) provides an important framework within which to settle such disputes (OECD 2007). 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 a costly process. including protection of biotechnological inventions. Certain regulatory measures relate to biosimilar (or "follow-on biological" in the US) pharmaceutical products. quality drop and prohibitive costs compared to. If the application is refused the product is banned in all Member States. The directive also outlines the extent of the protection of biological material or processes for producing biological material. industrial inventions can be protected by patent rights if certain basic conditions are met. With regards to use of genetically modified organisms (GMOs) in laboratories. To some extent. the risk of failure (which. 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. Authorisations are initially valid for five years and are generally renewable after five years for an indefinite period on re-evaluation by EMEA. ultimately. 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. Systems of patent protection. and share properties with. e. 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. Access to risk capital is therefore critical at this stage. The directive outlines which biotechnological inventions are eligible for patenting and which are not. which has been amended and supplemented by several subsequent directives and decisions (Council of the European Communities 1990. If it is accepted it is valid in all Member States.research and development of products using human tissue. China and South Korea (van Pottelsberghe 2009). In addition.g. 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.

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

steps have been taken to ensure fast market access to innovative products without reducing the level of protection of patients. pharmaceutical regulators and researchbased industries in Europe. the costs and risks associated with commercialisation (e. This makes it difficult for biopharmaceutical companies to operate internationally. such as the US. Also. the challenges posed by copy products. making it difficult to spread the early stages of product development over several countries. For instance. and very importantly. financial costs from extra trials. thus making it harder for biopharmaceutical companies to gain access to finance for their products. To this end. Other important factors that can affect biopharmaceutical companies' access to finance in a global context are: 1. delays and the possible risk of rejection of the application) increase. Thus. 8. An obvious example is China. public policy and legislation related to funding and regulatory measures related to product development and commercialisation can differ enormously from one country to another. whose recommendations is also embodied in the EU regulatory system. 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. 2. 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. where numerous copy products are being manufactured depleting the profits of biopharmaceutical developers (American Chamber of Commerce 2005). However. approval practices and criteria often differ. Differing policies towards to use of GMOs Although most restrictions put on the use of GMOs are related to agricultural biotechnology. attempts are made to create an international regulatory framework that can regulate the international challenges biopharmaceutical companies face. against the developing countries in areas such as Latin America. 2001). the US and Japan have formed the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH 2000). legislation applying to quality and safety standards for research may be different. 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 .2 International markets – barriers.. EU and Japan. However. Thus. This way. Asia and Africa (Goldsmith et al. with legislation forcing companies to obtain individual approvals for marketing and commercialisation in each country. the debate over IPR protection has become a significant global trade issue pitting the developed countries. A European company wishing to market its products in the US thus has to file an application with the FDA. even when the products have already been approved for marketing in the EU. 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.g.Thus.

important aspects of the international funding and regulatory context can affect biopharmaceutical companies' access to finance. Above all. 65 .long time (United Nations 2002). 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. This includes early products such as insulin as well as more recent developments such as the Human Genome Project and gene therapy. Thus. different regulatory measures pose a challenge as companies often have to apply several times for approval of the same product.

66 .

These proposed responses are aimed at improving the sector’s future competitiveness and should thus be taken into account in future policy-making.9. 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. 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. the second part of the chapter presents a list of potential strategic responses for policy makers and stakeholders at European sector level. 67 . 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. The SWOT will therefore also address structural issues that may influence the supply of capital for the biopharmaceutical sector.1 and discuss each topic in the following sections. Opportunities. Based on the SWOT analysis. Weaknesses. 9. Member State level and EU level. The SWOT analysis lists sector challenges and provides guidance for targets and priorities for policies. 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.1 SWOT analysis We present an overview of the four dimensions of the SWOT analysis in Exhibit 9. They do not propose measures for specific countries or regions/clusters. The first part of the chapter features a SWOT analysis (Strengths.

Unfortunately.europa.32 The 31 32 ‘Global’ refers to new chemical entities introduced in four or more of the G7 countries Strategic research agenda.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. The analysis suggests that European research is actually performing well compared to both the US and Japan with regard of drug discovery. the specific data on biotech also shows that Europe is trailing behind the US in the discovery of biotech drugs. This indicates that Europe is catching up with its main competitor in biopharmaceuticals.Exhibit 9. In fact. European initiatives aiming at strengthening biopharmaceutical product development The Innovative Medicines Initiative was launched in 2007 by EFPIA and the European Commission. i.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 number of patent applications in the US and Europe appear to be converging.e. Europe dominates the discovery of new chemical entities in general and global new chemical entities31 in particular. However. a recent analysis challenges the common view that US companies are ahead of European companies in pharmaceutical innovation (Light 2009).eu/sra_en. 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. http://imi. It has resulted in the development of a strategic research agenda (SRA) for Europe concerning the development of biopharmaceuticals and other biomedical products. Furthermore.html 68 . the US.

for instance. Reducing the time to market and the costs of product development may make it easier for biopharmaceutical companies to attract investors. 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. attracts innovative companies from other European or non-European countries and increases the visibility and credibility of the biopharmaceutical companies located in these clusters. A potential problem with leaving drug development decisions completely to the market is that innovative products that. would mainly help small groups of patients with rare diseases may not be developed due to their limited market potential. 33 69 . According to data from Ernst & Young (2006. Thus.33 9. and the time for developing new drugs seems to be increasing. On the one hand. 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). Medicon Valley in Denmark/Sweden and Biovalley in France/Germany/Switzerland.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.000 product candidates in the pipeline (clinical trials phase 1-3). An increasing number of drug candidates in the pipeline A strong pipeline is a precondition for attracting investors to the biopharmaceutical industry. 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). In such cases. policy makers would need to consider financing the development and manufacture of the drugs through public funding. Thus. the dominant strategy of the companies is to enter into an alliance and/or out-license its drug candidates to another (bio)pharmaceutical company. the process of developing biopharmaceutical products is very expensive and very risky compared to other sectors. This implies that the political ambition of creating a strong European biopharmaceutical industry in its own right may not Unfortunately. Furthermore. 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. Strong biopharmaceutical clusters in Europe There are strong biopharmaceutical clusters in Europe – these include Cambridge in the UK. in 2008 there were more than 1. there is no comparable data on the US biotech pipeline. The clustering of companies promotes innovation and economic growth. 2007 and 2008) the number of European drug candidates in the pipeline (clinical trials phase 1-3) has increased for several years. the lack of interest in bringing products to the market could reflect a strategic choice by the companies to focus on their research activities.

the DTI survey of European biopharmaceutical companies shows that the financial crisis has made it increasingly difficult to gain access to funding. In the long term. 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. 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). Consequently. the financial crisis has reduced the financial basis of many venture capital funds. Consequently. This has made it more difficult for biopharmaceutical companies to raise capital. It is vital for biopharmaceutical innovation as well as economic growth and public health in Europe to address this lack of access to capital. Furthermore. 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 average size of VC investments in Europe is lower than in the US suggesting that too little capital is invested in too many companies. In line with expectations. 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. sales. companies may be forced to restructure and reduce the number of employees. In addition. Companies must also have a managerial reputation and credibility to be able to attract investors. 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. distribution and marketing. 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. Instead. Moreover. companies do not pay sufficient attention to business development and establishing networks or business relations with (potential) investors or other (bio)pharmaceutical companies. clean tech. 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. Biopharmaceutical companies lack business skills Good researchers are not necessarily good managers. As a result.materialise. manufacturing. On the other hand. 70 .). they are moving towards the less risky late stages or investing in other less risky sectors (medical devices. 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. 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 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.

.The performance problem of the European venture capital industry can be attributed to several factors.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 ( reduce the number of biopharmaceutical companies in their portfolios or even exit the sector completely. As a result. 9. clean tech). which could result in a reduced number of biopharmaceutical enterprises in Europe. However. However.g. In fact. As a result.g. through funds-of-funds strategies where venture capital funds invest in other funds. 9.4 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. As the price of biopharmaceutical compounds tends to increase with their stage of development and with competition among potential buyers intensifying in later stages. according to interviewees. we expect to see more M&A activities and strategic partnerships in the near future. 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. the European venture capital funds are not as specialised and competent in relation to biopharmaceuticals as their US counterparts are. 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. From the perspective of potential buyers. 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. medical technology. and pharmaceutical companies are – according to industry – desperate to get new compounds into their own pipelines. consolidation could also create larger and stronger European biopharmaceutical companies that could perform better than small companies and be more attractive to investors.. including the relatively small size of the funds and limited specialised knowledge of high-tech sectors such as the biopharmaceutical sector. 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. this is good news as there will be a downward pressure on the price of compounds and companies. pension funds be forced . This could increase the performance of the venture capital industry. Pipelines of big pharmaceutical companies are drying out The pipelines of many leading pharmaceutical companies are drying out. As a result. e. The lack of access to capital could force biopharmaceutical companies to postpone or even abandon risky R&D projects in favour of less 71 . 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.

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

etc. they may become increasingly attracted to the advantages of the US market and this may lead them to deemphasize their local engagement. 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. However. 73 . Exhibit 9. our recommendations will focus on the impact of the financial crisis and the structural problems facing biopharmaceutical companies. the access to risk capital for high-tech entrepreneurs such as biopharmaceutical companies has been on the European political agenda.Capital going to the US As VC in the few relatively successful European clusters grows more experienced and specialised. and this would drain the financial market for capital for other and more promising drug candidates. 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’. Financing biopharmaceutical drug development is a complex matter that goes beyond having access to sufficient funding.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. In line with the SWOT analysis. the capital market (VC. 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. economic growth and employment in Europe. 9. understanding the business logic of the opposite part.2 as well as the relationship between the company and the provider of capital illustrated by mutual trust. 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. cf.6 Conclusion and recommendations The European biopharmaceutical sector faces considerable challenges in connection with gaining access to funding. In the following. sharing information. In recent years. we conclude that an increased capital supply could meet some of the immediate funding problems in the biopharmaceutical sector. The structural problems relate to the performance of the companies (R&D and management skills and capacity). Many biopharmaceutical companies have performed poorly and policy makers should be careful to invest in companies that the financial market has abandoned. The financial challenges have been accentuated by the current financial crisis. The EU and the Member States have launched a long list of different initiatives and measures in this connection .

Some of the case companies (cf.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. There are many different approaches to developing biopharmaceutical products. case studies in Annex 2). However. 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. There appears to be a need for speeding up and encouraging 74 .Exhibit 9. In Europe. the European Commission should recognise the unique structural characteristics of the biopharmaceutical sector (capital-intensive. 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. 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. innovative capacity and competitiveness of the European biopharmaceutical sector. Solutions may include tech transfer and engaging in new ways to commercialise products. high risk of failure) by considering sector-specific policy measures that target the special needs of the biopharmaceutical sector. In fact.6. 9.1 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. have established partnerships with other (bio)pharmaceutical companies. These partnerships give the biopharmaceutical companies access to R&D resources and business-relevant skills and provide revenue. long time to market.

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

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. the financial crisis has put many biopharmaceutical companies in Europe under financial pressure and reduced exit opportunities via public markets for investors . All in all. the study stresses that it is important to maintain the momentum of the product development process in the European biopharmaceutical sector. Furthermore. 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. 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. case study of Symphogen) have. The Norwegian government-owned investment company “Argentum” and the Danish state-backed VC fund “Vækstfonden” (cf. 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.g. Some European countries have already launched strategic initiatives focused on boosting investments in national life sciences sectors (including biopharmaceuticals). 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. In addition.Means • Reform tax systems (e. 76 . 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. geared their initial capital and supported the establishment of specialised private life-science funds. o Finally. e.g... 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. 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. but investors and companies still face the challenge of finding the capital needed for the companies to grow.   Recommendation Increase the availability of venture capital to biopharmaceutical companies Means • Establish a European biopharmaceutical innovation fund to invest in biopharmaceutical product development. 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. 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.

A range of issues must be considered before setting up a fund or a fund-of-funds.. Recommendation Extend the geographical reach of national and European financial instruments to ensure full exploitation of global financing opportunities. This means keeping interference with the fund to a minimum and letting professional fund managers make investments decisions. large pharmaceutical companies) are located in the US. 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. 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 instruments often focus on European investors located. Mezzanine funding provides an interesting alternative to bank loans and venture capital. the European Commission could decide to establish a fund-of-funds to avoid policy interference with investment decisions. European policy makers will need to provide a formal guarantee for the independence of the fund. 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). debt financing is also a potential source of financing of innovation. 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. the diversification strategy of the fund should be discussed. and this may pose a problem in the biopharmaceutical sector because many potential private investors in life sciences (e. However. Alternatively. Finally. To ensure the fund’s credibility in the venture capital market.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. 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 . 9. Moreover.6. Such a fund-of-funds could support the current venture capital funds in investing in biopharmaceuticals without interfering with investment decisions.g. One key issue is that private investors may be concerned about the risk of political interference in the investment decisions of the fund.

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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Switzerland San Raffaele Science Park. Denmark Novartis Venture Funds. Thomas Meyer Ulrich Grabenwater Alan Barrell Isabel Garcia Organisation Vækstfonden. 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.

Medicon Valley Sweden Germany.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. BioCat Switzerland. BioValley UK 88 . BioRN Italy France Spain.

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

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

44 2009 has seen a new funding round where the company raised an additional equity investment of € 33 million. Gilde Healthcare Partners (Netherlands). the company will need an additional capital injection of € 130 million. This not only resulted in seed capital from Novo A/S. In other word. In the start-up phase. Generally. loans and capital raised in the private venture capital market. In 2002. 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. a € 0. Since the initial funding. Novo A/S (DK). technology. 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. Symphogen has addressed the most competent international investors. figure below) has also opened up for co-development and marketing partnerships with other biotechnology and pharmaceutical companies. Symphogen has not generated any profit from its business activities. Symphogen had raised a total of €108 million in equity capital through its international investor syndicate over several funding rounds. approval by the authorities and access to the market. Symphogen had the advantage of having close relations with Novo A/S. Tri-Takeda (Japan) and Genentech (USA) 91 . In 2000. The advantage of having competent investors is that they understand the challenges in connection with developing new drugs with regard to research.86 million as equity). about € 17 million in additional equity was raised from venture capital funds. The investors – mainly venture capitalist – have almost remained the same since 2000. Symphogen raised seed capital from Novo A/S (€ 0. Danske Bank (DK). It has recommended Symphogen to potential investors. LD Pensions (DK). the current pipeline of drug candidates (cf. Until it can break even. Until 2008. 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. which has been essential for getting the opportunity to present Symphogen's business plan.1 million. Its success is based on a. during several funding rounds. The capital was spent on intensive research. This combination of capital and insight is difficult to find in other parts of the capital market . the company has also played an important role in proposing potential venture capital funds. Symphogen has been successful in raising capital. Personal relationships appear to be essential. Depending on the progress of the drug development. Symphogen expects to be financially sustainable in 5 years. 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.Financing situation of the company So far. In addition to equity. these partnerships generate an 44 Essex Woodlands Health Ventures (USA). Sunstone Capital (DK).including the stock market.66 million loan from the Danish State Investment Fund and a start-up grant of € 0.

(Tokyo. and would fund associated research and development costs. The main challenge is to establish a clear agreement that defines 2006. Ltd. funding and shared risk. 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. Ltd. in 2006 Symphogen was awarded a $4. .. 92 . Symphogen received an initial technology access fee from Biovitrum. 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. If successfully commercialized.income to the company even before the drug candidates have reached the market.S. Genentech would make an undisclosed upfront payment to Symphogen.. Meiji will fund all discovery and development activities. Meiji Holding Co. Exhibit 1. Pipeline of Symphogen   Symphogen currently has partnerships with Biovitrum. Symphogen was eligible to receive milestone payments upon the success of certain research and development milestones. and Symphogen is entitled to receive milestone payments upon successful product development achievements. Furthermore. and Genentech: • Biovitrum .in 2008 Symphogen entered into a global strategic collaboration agreement with Genentech. According to the agreement.6 million grant by the U. Symphogen entered into a development and license agreement with Meji Holding Co. but presumably they not only have an economic value but also marketing value. as well as an equity investment in Symphogen. as well as royalties on any products developed and commercialized by Genentech as a result of the collaboration. In addition. Japan). Symphogen received an upfront technology access fee.a worldwide co-development and commercialization agreement signed in 2006. and may receive milestone payments based on progress • Meiji Holding Co. Symphogen will receive royalties on net sales of the product. • Genentech . 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 the market has become more hesitant to invest. the company thinks that the main rule for the managers of state. Nevertheless. The general impression of the venture capital market is that there is still available capital. 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. 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. loans and grants are not considered relevant instruments to meet the financial requirements of drug development candidates. However. which eventually will give a good return on their investments. 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.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.Impact of the funding situation on strategy  Symphogen has sufficient capital to continue its drug development programme until 2011.. 93 . and they continue to refuse offers from potential investors. Except for business start-ups.g. the changing market situation has not had any impact on Symphogen yet. None of the investors seems to have any exit plans for the time being. The managers must have very profound knowledge about biopharmaceuticals and political agendas and complicated administrative legislation should be avoided. The impression is that they have made a positive evaluation of the company's market potential. 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 .

the company's development is largely contingent on the founders' individual financial resources. 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. 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. In 2009. Lars Lannfelt still works as scientist doing research projects within the technological platform of BioArctic.g. The other founder. the region was dominated by a number of very large pharmaceutical companies (e.BioArctic Neuroscience AB. At the beginning of 2002.. BioArctic has had a dedicated focus on Alzheimer's and Parkinson's disease in order to develop immunotherapy for these two neurodegenerative diseases. BioArctic Neuroscience AB was established in 2003 as a spin-off company from Uppsala University. The two men met for the first time in the 1980s. the one of the founders. 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. Regional and national financing conditions BioArctic is situated in the Stockholm/Uppsala biotech-region (IRIS Group 2009). In 2006. In the 1990s. partnerships and out-licensing agreements with other companies. Manufacturing is not a prioritized business activity because the investment to establish production facilities is considered to be too high. 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.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. income has mainly been generated from research collaborations. Their first years in business were challenging because the main business activity was research without generating any commercial income. Prof.e. Until 2006. The CEO stresses that highly skilled researchers and promising research results is BioArctic's main success factor. i. Pär Gellerfors continued his career within the pharmaceutical industry in Denmark and Sweden. CEO Pär Gellerfors. So far. Thus.. The overall ambition is to develop new drugs as well as doing sale and marketing (in some geographic markets). originally started his career in 1980s as a researcher. This scientific breakthrough could eventually enable treatment of these neurodegenerative diseases for which there have not been any treatment until now. 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. BioArctic has 17 employees of which the main part is graduates with PhD working with research and drug 95 . BioArctic moved to its own premises and staffs was employed. The foundation of the company was based on two breakthrough discoveries. The economic performance of the company has developed slowly. had been doing neurodegenerative research for more than 10 years. At the time. As a consequence. In recent years. a key strategic challenge has been their ability to generate income. Astra and Pharmacia). the company was located at the Uppsala University and at the founders' private residences. Professor Lars Lannfelt.

se/ALMI-in-English/) offering business advise. which may cover a minor part of the cost of developing a new drug candidate.karolinskainnovations. Industrifonden (independent foundation founded by the Swedish state in 1979 http://www.48 They are two tech-trans units that commercialise research within life science. start-ups and offering capital for the first stages of business development. Karolinska Innovation AB47 and Uppsala Innovation Center. 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. Karolinska Development AB49 and Uppsala Universitet Utveckling AB50 also act as minor venture capitalist by holding shares in new companies. Today the region is a very strong and attractive region for biotech research.almi. a strong research platform. Both units offer consulting and can finance proof of concepts and seed 49 the region is also characterised by a very good facilities for clinical trials.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. 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 some extent . Furthermore. This problem is related to lack of risk capital to take over from the early-stage funding from the regional and state programmes. Different programmes were launched and cluster organisations were http://www. The point of departure for a revitalisation of the biotech-sector has been a large pool of qualified researchers.uppsalabio. Approximately 200 biotech companies are located in the region. However. 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). Innovationsbron (http://www. 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. loan and equity.Sweden). However.asp) offering equity and loans to companies with the potential to grow in an international market 96 .se/) offers 50 http://www.aspx?id=1356 51 VINNOVA (national agency for innovation .industrifonden. loan and equity. Since 2000.karolinskadevelopment. business development (business plan).managers from the biotech industry.000. Besides these regional initiatives.51 Each of these initiatives can typically offer companies up to offering grants for proof of concepts. An example of such a cluster organisation is Uppsala € These regional initiatives include. the Stockholm/Uppsala region and the government took several initiatives to encourage the development of a biotech cluster. There have also been policy initiatives aimed at commercialising research and encouraging business 48 http://www.http://www.http://www.uic. and . commercialisation and business start-ups. Almi Fôretagspartner(government owned business and information centers . among others.innovationsbron. Parallel to this change in the industrial structure of the biotech sector.uppsalasciencepark.

As a consequence of this attitude towards venture capitalist. As mentioned above. the founders are not enthusiastic about sharing the ownership of the company with others. the board of directors (and a scientific board). 52 VINN NU is a competition for new companies that base their operations on R&D results.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.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 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. 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. The first capital that the company was able to raise came from: • 2003 VINN NU award (SEK 300. The funding resulted in Ph. in its first years in business. find subsequent funding and. theses which helped develop the technological platform of the company. Karolinska Innovation AB and Uppsala Utveckling AB hold a small number of shares. In this pre-start-up period the university research activities were funded by R&D-programmes. 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. the founders hold the majority of the shares while a number of students. access to capital was a serious problem for BioArctic and as the company did not generate much income. in the long term. Today.their drug candidates. This initiative has not proven its effect yet. Financing situation of the company BioArctic was based on considerable research efforts before the establishment of the company.vinnova. who the founders believe can contribute to the development of BioArctic by their experiences and knowledge. However.D. http://www. consisting of personally appointed individuals. at this stage of development it was crucial for BioArctic to obtain the intellectual property rights (IPR) for their research results. 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.htm 97 . and in 2004 Karolinska Innovation AB and in 2005 Uppsala Utveckling AB became shareholders. 53 Teknikbrostiftelsen: Encouraging technology transfer from university to business. Thus. become successful Swedish companies. CEO Pär Gellerfors also had to work as a lecturer at Uppsala University.

indicating that the basic research idea was a feasible technological platform for developing new drugs. BioArtic is developing a device which in combination with a growth factor. (http://www. Impact of the funding situation on strategy Looking at BioArctic as a company. In 2007. The project is carried out by a mutual steering group. In other words. BioArtic does not consider the venture capital market to be of any importance to the company. So far. etc.eisai. BioArctic and Eisai entered a long-lasting partnership agreement (including an exclusive licensing agreement with milestone payments linked to the progress of the project). 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. BioArctic was paid according to agreed milestones. BioArctic has established close research collaboration with the Japanese company Eisai. as well as by marketing other R&D reagents. 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. and not as embedded research at the university. 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).. gain control of the company. BioArctic focuses at opportunities to generate income through research collaboration and partnerships.54 This is of a great commercial and strategic importance. The major risk is that clinical trials fail. The main barrier to raising additional capital – equity – is internal as the founders want to keep control of the company and not let others. To minimize the risk of failure and its impact on the 98 . Sweden) • BioArctic has developed new proprietary transgenic mouse model for evaluation of Alzheimer drugs (The APPArcSwe) • In-licensed from Swenora Biotech AB.g. venture capitalist. Eisai has developed the world leading drug (Aricept®) for the treatment of Alzheimer’s disease. the agreement with Eisai is so far the most important access to capital and the main road to reaching the market. 54 Eisai is Japanese based international oriented company among others with an interest of developing drugs addressing Alzheimer's disease. e. BioArctic is trying to increase its technological platform through new research in collaboration with universities and research institutes.Instead of venture capital. In order to generate some – and so far a small .additional cash flow.. The consequence of this funding strategy is that BioArctic largely depends on the progress and success of its project partnership with Eisai. 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. these activities have only generated a small additional income.

One the one hand. 99 .) are mainly dedicated to R&D. keeping the funding strategy of BioArctic in mind. 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. but seems to have established a promising partnership with Eisai. On the other hand. the CEO would welcome industrial development programmes with grants for clinical trials (early-stage drug development). BioArctic has discovered that it is difficult to involve big biopharmaceutical companies in the early-stages of clinical trials. The company has developed at a moderate speed. However.In accordance with the development strategy of BioArctic. He also calls for special tax incentive schemes that would reduce the taxation of R&D companies. etc. grant schemes (R&D programmes. BioArtic recognizes the financial gap which could be filled by venture capital. to becoming more oriented towards drug development.

100 .

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

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.


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

106 .

In 1999. As a consequence of the increased activity following the IPO.15 per share. It was based on the knowledge of a group of scientists in the field of gene and cell therapy. The increase in staff was necessary to 57 The case is mainly based on an interview with Holger Neecke. Today MolMed has 91 employees. It mainly focuses on research. The company is located in the San Raffaele Biomedical Science Park in Milan in the Lombardy region. he was appointed one of the 22 members of the Scientific Council of the European Research Council (ERC). when the Swiss pharmaceutical company Roche took over Boeheringer Mannheim. and the information from MolMed’s homepage. 59 In 1996 Boehringer Mannheim was the second largest diagnostics company in the world. 58 107 . development & manufacturing services for investigational gene therapies for rare diseases. In 2005. Claudio Bordignon was Scientific Director of the San Raffaele Scientific Institute until the end of 2006.2 million. The gross financial resources raised amounted to € 56.116. (http://findarticles. MolMed thus became one of only three worldwide IPOs of biotech companies in 2008. In 2000. and the first biopharmaceutical spin-off company from an academic research institute to be listed on the Italian stock exchange.61 2008 was a landmark in MolMed’s history. Italy Company characteristics57 MolMed is a biopharmaceutical company operating in the field of medical biotechnology.MolMed. MolMed was established in 1996 as a spin-off of the San Raffaele Scientific Institute. They studied the existing pipeline and the relevant market and bought the necessary intellectual property rights to be able to create the pipeline. the quarterly report 2008. They have an in-house GMP facility that meets both EMEA and FDA requirements for the production of clinical-grade bulk drug substances. Currently. Thereby. the MolMed management decided to take the company a step further and develop a product development pipeline. www. On 5 March 2008 MolMed was listed on the Milan Stock Exchange. Director Business Development. bringing up $3 billion in 1996 sales. MolMed’s GMP activities include: production of own cell-based therapeutics. In 1997 it was bought by Swiss drug maker Roche Holding Ltd. 61 Since July 2003. the body that will recommend strategic research investment guidelines to Europe in the next few years. MolMed went from being a biopharmaceutical service company to a biopharmaceutical research and development company. the equity shares of MolMed were sold to the venture capital fund EDCP (now named Airain). to provide GMP services. Science Park Raf and the Arain venture capital fund are the main investors in MolMed. Professor Claudio Bordignon58 led the spin-off and still heads the company as its chairman and chief executive officer. MolMed took on 14 new employees in 2008. however. MolMed has been formally authorised for the production and release of medicinal products for human use.molmed. and is also in charge of the technology transfer activities. Currently. at a price of €2. The company was incorporated as a venture between Boehringer Mannheim59 and Science Park Raf60 to provide cell therapy services.952 shares with no nominal value. The listing was achieved through a global offer of 26. development and clinical validation of innovative therapies for the treatment of cancer. It continued. clinical-grade cell manipulation 60 Science Park Raf is the management company of the San Raffaele Biomedical Science Park in Milan. representing 25% of post-IPO corporate

260 companies invested in biotechnological R&D in Italy. 108 . Out of the 91 employees. Lazio. MolMed’s management board consists of 11 persons representing academic. Scientific and technological parks are very active in the life science area. out of which 190 were exclusively concerned with the healthcare sector (Blossom and Company 2009). a clinical centre with status of Research Hospital of National Interest (Istituto di Ricovero e Cura a Carattere Scientifico. 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. the largest Italian scientific research institute. The strong and continuous relationship with the San Raffaele Scientific Institute represents a major resource for MolMed. which runs 250 clinical trials per year. Emilia and Sardinia. the science park has a professional tech-transfer team that manages international intellectual property rights. Regional and national financing conditions The Italian biotech industry is growing rapidly as in the rest of Europe. MolMed appreciates the advantages of being located in a science park. The San Raffaele Biomedical Science Park. primarily. 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. where MolMed is located. 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. MolMed is one of three spin-offs from the scientific institute. 80% hold a university degree and more than 40% hold a postgraduate degree. Piedmont. MolMed's proximity to the San Raffaele Hospital. In 2008. 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). pharmaceutical. The importance of the Italian science parks can be connected to the limited number of private equity and venture capital funds in Italy. More than 50% of the biotech SMEs are located in science park incubators established in the seven biotech regions. Moreover. and they especially benefit from these hubs which constitute an important social capital of scientific. Furthermore. and clinical management expertise.IRCCS). allows the company to carry out the clinical 62 The regions are Lombardy. includes the San Raffaele Scientific Institute. through an option to research projects conducted by the Institute in the field of molecular therapies for cancer and AIDS. and a private university which helps companies gain access to qualified students in medicine and biotechnology. the largest private Italian hospital. Friuli Venezia Giulia.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. technological and organizational skills (Biopolo 2009). The focus on research and development is shown in the company's workforce combination. 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. Tuscany.

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

Due to very complicated regulatory processes. and in 2003 the company signed an out-licensing and development agreement to conduct clinical studies and to market MolMed’s TK in Asia. 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. a potential future challenge is to obtain further capital for the company. 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. it is still a challenge for MolMed to gain a successful foothold in the market. and start phase III clinical tests in 2010. the company's most important markets are the European markets and then the Japanese market due to the partnership with Takara. As early as 2001. Due to the current financial situation. The strategic outlook for MolMed with regard to TK is to expand phase III trials in Europe. Presently. Moreover. and then expansion of phase III trials in the US With regard to NGR-hTNF. However. including 10-15 key clinical centres. co-marketing or out-licensing partnerships. the Japanese markets are very difficult to enter without a local partner. the goal is to keep achieving good phase II results.Exhibit 1. the aim is that post-2010 110 . 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. MolMed signed a non-exclusive in-licensing agreement for Takara Bio’s RetroNectin for the EU and US. MolMed's key strategic challenge is to find the right partners for co-development or out-licensing partners. However. MolMed plans to make clinical trials in the US. Moreover.

12% of the shares in the company respectively. Other investors are Delfin S. resulting in sales of shares for €56 million. The main shareholders of MolMed are currently (2009) Science Park Raf and the private investment fund Airain Lda which hold 21. and Arner Bank with 2.. € 40 million per year. it has gone through several financing rounds. and the reason for deciding for an IPO was mostly lack of alternatives. Fininvest.5 million in cash (quarterly result May 2009). the reputation of its investors. US Study Next. Italy has the third highest number of project proposals in Europe in the EU’s 6th framework Programme (Biopolo 2009).for instance. namely H-Equity S. 63 Boggs.àr. As opposed to today.àr. Apart from Arner Bank.MolMed will be able to finance further research and development activities through partnerships. Therefore.àr. In 2000. or € 80 million if the investments from not-for-profit organisations for health care in general are included.. public support for biopharmaceutical companies has been very limited. Moreover. 111. Financing of the company Since the company went from being a service company to a product development company. MolMed now has €30. and that they will not have to go back to the capital market. Special Reprint. Moreover. No. which means that MolMed is financed until the end of 2010. but plans had to be postponed due to the burst of the ICT-bubble in the second half of 2001. The MolMed's success can be attributed to the promising data from its products and technology.14% and 21.01%.p. in 2001 it was not unusual for biopharmaceutical companies to aim for an IPO. The financing possibilities were limited. the MolMed management considered going for an IPO. the fact that other companies were withdrawing their share offers from the market is likely to have given MolMed an advantage (Boggs 2008). 111 . This generated a €20 million capital increase. Thus. In addition to Science Park Raf and the investment fund Airain. MolMed gained support from three large Italian investors in 2004. Volume 19.66% of the shares.l. SICAR with 8. with 8. H-Equity S. and public investment is approx. 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.A. € 1500 million per year.63 Due to the IPO.19% of the shares.l. MolMed managed to raise an IPO of 25% of shares.l. The offer was priced at the low end of its anticipated €2. Public grants and reliefs Biotech has not been a main priority for the Italian government. In 2008. which owns 17.15 to €2. many companies are avoiding the IPO market due to the current unfavourable market conditions. Private biotech investment is estimated to approx.75 per share range. 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. BioWorld Today. and the experience of its management and staff.àr. Jennifer (2008): MolMed’s Cell Therapy in Pivotal European Trial. MolMed succeeded in becoming listed on the Milan Stock Exchange. and Delfin S. all the investors invested in the company before it was listed on the Milan Stock Exchange.33% of the shares.l. They are closely followed by Fininvest S. Italian biotech companies have been very active in various EU programmes .

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

primarily for cancer indications. a member of the Executive Board and Chief Scientific Officer.Innate Pharma. Mr Boissel joined Innate Pharma in September 2002 as CFO. 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 company developed its first drug candidate on the Tγδ platform. The products developed by Innate Pharma belong to two classes: immunomodulators targeting innate immunity receptors and cytotoxic antibodies targeting specific tumoral antigens. a subsidiary of Innate Pharma located in the USA. Innate Pharma intends to become an integrated player and thus keep some marketing rights on some of its products. Executive Vice President and Chief Financial Officer of Innate Pharma. In 2008. the company established Innate Pharma Inc. In 2001. France Company characteristics64 Innate Pharma is an immunology biopharmaceutical company aiming at developing first-inclass drugs. and François Romagné. research and collaboration agreements with academic institutions. Innate Pharma was listed on NYSE-Euronext Paris in 2006. Mr. The company was founded 1999 by six immunologists. inflammation or infectious diseases. This was followed by the launch of a Phase II clinical trial in 2006 (IPH 1101).. France. The company currently manages seven proprietary programs. In 2008. Two other programs are out-licensed to Novo Nordisk A/S. including Hervé Brailly. 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. of which two are tested in clinics. The founders have established the scientific basis for the research activities at Innate Pharma through licensing. It is based in Marseilles. Before joining Innate Pharma. The company has 89 employees (2008) of which 75% are involved in R&D. the company acquired the rights to IPH 2101 from Novo Nordisk A/S through an asset transfer agreement. The therapeutic approaches could have an application in several therapeutic areas such as cancer. a large pharmaceutical company. 113 . 64 Based on interview with Stéphane Boissel. the current Chairman of the Executive Board. 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. In the long run. and in 2002 the first clinical trial was launched. In the short term.

according to the company. they are exempt from social costs for all employees in R&D-related activities (approximately 25% of gross salary costs). For instance. several initiatives have been launched at national level to promote the development of small and research-intensive companies. Thus. the potential market for the company’s product may be substantial. The company’s ambition is to become a major player in the emerging field of anti-cancer immunotherapy. Businesses that qualify for YIC status profit from a wide range of different support measures. One example is CIR (Crédit d’impôt recherché). YIC companies are also relieved from corporate income tax for the first three years and pay 50% of normal taxes for the 114 . Regional and national financing conditions The region in which Innate Pharma is located is not at biotechnology-intensive region. companies must be maximum 8 years old and must be investing at least 15% of their expenditure in R&D. a tax credit focusing on stimulating business R&D.Exhibit 1. The Young Innovative Companies (Jeune Entreprises Innovantes) programme is a supplementary programme that was introduced in 2004. The CIR was launched in the 1980s and focuses on companies of any size and in any industry. It is also possible to envisage other indications for the company’s current drug candidates. To obtain YIC status. Pipeline of Innate Pharma The company’s good track record. YIC embodies a range of measures targeting the creation and growth of young research intensive companies in France. However. 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. notably viral infections and chronic inflammation related to autoimmune pathologies.

while venture capital investments fell 27 percent to €132 million in 2008. http://www.html 69 Website.bionity.000 EUR in support.65 One concern related to the programme is that the programme does not take into account the longer business cycles in the biotech industry.washingtonpost. 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. http://www. This would suggest that biotech companies should be able to benefit from the programme for more than 8 years. Based on these figures.europabio.following two years.pdf EuropaBio website.70 Financing situation of the company Innate Pharma has mainly received capital from venture funds and though collaboration and licensing agreements. provided that the FCPI units are held for at least 5 years from the subscription date. http://www. innovative companies. Reform the research tax credit to distribute the credit more evenly between small and medium sized biotechnology companies and larger companies. 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. Investment in listed companies fell 98 percent to just €12 million.pdf 67 Website.hsbcprivatebankfrance.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) Moreover. up to a maximum of 70 Website. 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 115 . 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). http://www.66 The financial crisis has hit France's biotech companies hard. innovative companies. • • • Finally. France Biotech has put forward several recommendations on how to support the national biotech industry. a total of 85 M Euros have been raised since 1999 with grants 65 66 68 Washington Post website. life science funding fell by 79 percent in 2008 relative to 2007 (€143 million in 2008 versus €694 million in 2007). The capital gains are also exempted from capital gains tax and are only subjected to social security contributions. All in all. They can also be relieved from local taxes related to the value of properties and buildings. According to France Biotech. France has experienced capital flight and brain drain due to relatively heavy taxation of high incomes. http://www.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.

• 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). and Mr. Furthermore. • 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). Overall. The financial situation of Innate Pharma is very good. Also.5 million euros) led by Sofinnova Partners. 3 M Euros). As a result. the French Government has made it attractive to private investors to invest in high tech (the FCPI funds). For instance. however. Boissel estimates that the company has raised enough capital to continue its activities for at least two years. • 2004: Third financing round (15 million euros) led by Novo Nordisk A/S. the companies with good projects will be able to find interested investors – even in time of crisis. 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. 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. Boissel. the venture capital market in Europe/France is improving. the collaboration agreement has enabled the company to benefit from the knowledge and networks of Novo Nordisk. The collaboration with Novo Nordisk has ensured that the company both receives venture capital as well as capital for specific R&D projects. access to capital (and US investors) for the company is getting easier due to the NYSE-Euronext stock exchange.7 million euros. 116 . However. makes is possible for the investors to understand the value of Innate Pharma’s approach and to contribute to the development of the company. For instance. according to Mr Boissel. 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. The financial history of the company is as follows: • 2000: First financing round (4. European investors seem to be more risk adverse than their US counterparts. the stock market is difficult at the moment as investors are avoiding high risk business areas such as biotech. the venture capital market in the US is more attractive to the company than the European venture capital market. This. not currently an option for the company. • 2002: Second financing round (20 million euros) led by Alta Partners. the financial crisis could pose a threat to the company in the medium term. In 2006 the company was listed on the NYSE-Euronext market in Paris which raised 33. Furthermore. Some of the usual sources of capital are.and soft loans from the French government constituting only a small part of the total capital raised (ca. Impact of the financial crisis The companies that suffer most from the financial crisis are the companies with projects that are not ‘good’. 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. The IPO was very successful and according to Mr.

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

118 .

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

cat/butlleti/biotech-smes-to-receive-up-to-20000-euros-in-aid-to-hire-internationalexperts/en/ 74 Ingenio website.ingenio2010. http://www. Source: Biocat website. non-executive directors or strategic international advisors on the Board of Advisors. the Government has created a new scheme that offsets 40% of the labour and social charges of R&D workers (OECD 2008b).cat/talent/indexen. Uptake. The NEOTEC Fund was established in 2006 by the 73 BioCat website.The activities in the cluster are planned and coordinated by BIOCAT. universities. cf.000 to fund this program.biocat.php The initiative was launched in June 2009 by BIOCAT and the Ministry of Economy and Finance of the Government of Catalonia.biocat.asp 75 Governmental website.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. According to data from The CENIT programme also includes a venture capital fund of funds (NEOTEC) to create and consolidate technological businesses. either as independent members of the Advisory Board. management and research. has been weak. In addition. business development. http://www. http://www. including soft loans to innovative start-ups. Spain has a generous R&D tax credit. the use of soft loans as opposed to grants has steadily increased (UNU-MERIT 2006).73 National financing conditions At the national level. Talent for Competitiveness programme The ‘Talent for Competitiveness’ programme makes it possible for biotech SMEs to receive up to € 20. The CENIT Programme seeks to stimulate cooperation in R&D and innovation between the private sector. 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). Exhibit 1 below: Exhibit 1. the Spanish Government launched INGENIO 2010 in response to the re-launch of the Lisbon Strategy. CENIT projects are 50% co-funded by the public and private sectors. Companies will be able to hire experts in the following areas: intellectual property. an organisation established by the Government of Catalonia and the Barcelona City Council to promote and coordinate biotechnology and biomedicine in Catalonia./02_instrumentos/02_Caracteristicas/02_ CENIT 120 . All professionals must be hired on a temporary basis.000 euros in aid to hire international experts for specific projects. public research organisations and centres. however. Furthermore. which has earmarked € 200.asp?menu1=3&menu2=0&menu3=&dir=. science and technology parks and technological centres. the Spanish government is providing different financial support measures.ingenio2010. In 2005. A recent initiative in the region is the launch of the ‘Talent for Competitiveness’ programme. The programme is intended to boost the long term competitiveness and internationalization of Catalan biotech companies.

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

The ambition is to pursue projects at least up to the start of clinical stages and. according to Carlos Buesa. Policy priorities and recommendations The biggest problem for investors is that there are currently only limited exit options available to investors. Benelux. if warranted by the market and the product. and the Nordic countries. Rather. this strategy is not sound in the long term. 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. The company has some experience with European Framework programmes for research. the company received 9 M € in venture capital and 11 M € in soft loans and grants. A total of 1 M € was raised in this first round. The economic situation of the company is currently good. Spain has experienced 14 years with non-stop economic growth and massive investments in innovation. 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. however. However.decision to transform the company into a full blown biopharmaceutical company focusing on developing new therapies. Financing situation of the company With regard to financing history. the company received 1 M € in venture capital. 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. Another problem is that venture capital funds in Spain have only limited knowledge of biotech business. 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. venture capital funds are focusing on the UK. According to Dr. the company could go public via an IPO when the company’s compounds are ready for phase 1 of the clinical trials. even up to regulatory approval. Buesa. 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. fools and family” and a range of small loans. IPOs are currently not an option when it comes to biotechnology 122 . the company’s initial capital base consisted of contributions from “friends. Germany. If possible. is not good and the government may reduce its support for innovation. Furthermore. However. Among the challenges for attracting capital is that Spain is not considered a ‘biotech country’ by international investors. Cluster initiatives such as the establishment of BIOCAT are a way of getting attention among international venture capital funds. but the long term sustainability of the company may be in question if the funding ‘dries out’ as a result of the financial crisis. For example. In 2003. 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. In 2008. The economic outlook. the impression is that many of the participating research organisations are mainly interested in the money to carry out their own research. as it slows down research activities while at the same time making the services of the company more expensive than CROs on the market.

123 . Another possible policy action. 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. This makes the biotechnology sector less attractive to investors. according to Dr. Increasing the liquidity in the market could make it easier for venture capital funds to exit their portfolio companies.companies. Buesa.

124 .

South Baden in Germany and Northwest Switzerland.php?MenuID=0&UserID=1&ContentID=213 125 . the management and board of Arpida decided to close down all research activities and reduce the burn rate. Apart from the antibiotic programmes. In July 2007. Switzerland Company characteristics78 Arpida is a biopharmaceutical company headquartered near Basel in Switzerland and with operations primarily in Switzerland.arpida.79 The Company went public in 2005 on the Swiss Stock Exchange.81  The BioValley Cluster Arpida is located in the Swiss part of the BioValley cluster. Arpida has an antifungal therapy (TLT) which is in Phase III clinical trials in Europe. Prior to joining Arpida. Mr. http://www. the company in September 2009 announced that it was planning to merge with Evolva. 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).Arpida. Iclaprim is an antibiotic that targets severe infections requiring hospital treatment. BioValley is one of the first European initiatives for the promotion and the development of life sciences.html?siteSect=883&sid=5679104&ty=st 80 Evolva website. http://www.evolva. Evolva will also need to raise sufficient funds for the transaction. but so far Evolva has received positive feedback from existing and new 81 Arpida press release. a large pharmaceutical company. iclaprim. Roche is entitled to a share of royalties of between one and nine percent. Arpida also received start-up financing from a venture capital fund sponsored by Roche. This cluster brings together Alsace in 79 Swissinfo website.swissinfo. 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. The agreement with Roche gave Arpida all rights to the intellectual property. Senior CP and CFO. He joined Arpida in August 2001 as Chief Financial Officer. and it is listed at the SIX Swiss Exchange Main Segment. from Roche. http://www. a privately-held Swiss biosynthetic company developing small molecule drugs and other compounds. The main focus of the company used to be on novel drugs that address the growing problem of microbial resistance. he was a director at UBS Warburg in New York following various senior positions within the UBS Group. and in 2008 the company submitted applications for approval to the US Food and Drug Administration (FDA) and to the European Medicines Agency (EMEA). As a result. Welten has more than 19 years of international experience in finance. Before joining UBS. The company was established in 1997 when Arpida’s founders bought the molecule behind the company’s key product candidate. he was with ABB and DaimlerChrysler. and it one of the 78 Based on interview with Harry Welten.80  The merger is subject to definitive agreement and shareholder approval. Arpida reported the completion of the Phase III programme in complicated skin and skin structure infections. but holds no opt-in rights. Arpida also stopped further patient enrolment into the trial for its antifungal therapy due to financial constraints.

Among the major biotech and pharma players located in the region are Novartis.83 According to the Swiss Biotech Report 2009.pdf 126 . Roche. The Bio Valley Cluster Source: Biovalley website. Syngenta and Pfizer.pdf Actelion was founded in 1997 and now has a robust pipeline.82 Exhibit 1. http://www. 40 scientific institutions and 4 universities with about 280 research groups.biovalley. The Swiss approach has left many start-ups in Switzerland 82 83 Biovalley website. Lilly. This concentration of biotech companies means that Switzerland has the highest per capita biotech density in the world. including major global players (pharma and agro).pdf National financing conditions Switzerland is considered a ‘hot spot’ for private financings and it has a strong biotech industry.000 employees. the industry consists of 159 biotech companies and 70 biotech suppliers. 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. which includes Actelion. Actelion. commercial operations in more than 25 countries.largest biotech regions in Europe with approximately 600 life sciences and medtech companies. http://www. Johnson & Johnson. 84 Swiss Biotech website.swissbiotech. three approved a biopharmaceutical company that has moved from biotech start-up to becoming a global leader in the biopharmaceutical sector within a Transgene. and over 2.84 According to

has been raised to date. Welten. banks. Arpida successfully raised an additional CHF 51. According to Mr. Instead. the biotech industry in Switzerland is now facing big problems and thus needs to improve its performance to better attract investors. As a result.6 million in relation to the acquisition of the Danish biotechnology company Combio. new investors were FTQ (Canada). • Second financing round: The company raised CHF 40 million in September 2000. • First financing round: In July 1998 the company raised CHF 15. • Third financing round: In May 2004. The financing history of the company is as follows: • Seed funding was provided by New Medical Technologies (now: HBM BioVentures) in 1997. the Swiss biotech industry has not been able to demonstrate good results. In terms of access to funding. 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. Along with all earlier investors. Financing situation of the company The management of Arpida has been very successful in raising capital. but it has also meant that only the companies with promising candidates in the pipeline are able to stay in business.3 million from international investors. The four venture capital companies that invested were Alta Berkeley (UK). CDC IXIS Innovation (France). Around 45% of the capital was raised before the IPO and around 55% following the IPO.8 million as well as CHF 21. the Company has restructured it operations and shut down all research activities. The compounds in the pipeline are too far away from the market to enable the company to raise more money for continuing research. The same year.scrambling for money in the marketplace. Arpida managed to raise a further CHF 12.7 million shares out of the authorised share capital • In March 2008 Arpida strengthened its financial position by issuing 1. Following the FDA opinion. There are many factors explaining the success of the Swiss biopharmaceutical sector.2 million before expenses. 3i Group plc (UK) and HBM BioVentures. Also. In recent years. Partners Group (Switzerland) and UBS. • On May 4th 2005.6 million shares.9 million (before expenses) by issuing 1. and investors specialised in biotechnology. HealthCap (Sweden). however. the company raised CHF51. A total of 309 M Swiss Francs (CHF) – ca. there is a lot of knowhow and resources available to the companies.7 million (after expenses and taxes). as well as universities with strong traditions in science and chemistry producing a steady stream of new biotech companies (Carrin et al 2004). raising CHF 19. the management considers a reverse merger to be the best viable strategy.3 million. and investors are getting more reluctant to invest in the sector. 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. the sector has benefited from the closeness of large pharmaceutical companies such as Roche and Novartis. the sector is able to benefit from a strong financial ecosystem consisting of analysts.   127 . 206 M Euro . • In March 2007.

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

and therefore the actual number of high tech companies is probably higher. 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. Mr. Pipeline of Cellzome National financial supply86 Cellzome UK is located in the Cambridge cluster. Edwards is also appointed to the Board of the UK's BioIndustry Association. a Cambridge Angel and a Sophia Business Angel 87 This definition does not cover all types of companies in the cluster. 85 129 . while most other programs are in early preclinical testing. The company employs about 90 people at its two laboratories in Cambridge. Exhibit 1 below: Exhibit 1. Its holding company. is located in the US. UK and Heidelberg. Atlas Venture and Sofinnova Partners. Germany. however. Alan Barrell. 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%). 86 Based on desk research and interview with Mr. Based on interview with CEO Tim Edwards. cf. The management team of Cellzome has a scientific and commercial background. and it is backed by experienced biotech investors such as Advent International.Cellzome. the company intends to commercialize its technology and assets by building a small molecule pipeline in inflammation and by collaborating with large pharmaceutical companies. In terms of business development strategy. Cellzome’s most advanced program is anticipated to enter clinical trials in 2010.

Information Technology and Communications sectors (Library House 2007). even though the number of deals in the Healthcare & Life Sciences is higher than in other sectors. Their counterparts in the US. and clear majority of investment in the Cambridge Cluster is pumped into the Healthcare & Life Sciences. about 50% of private equity in the UK is now invested by business angels. 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). a business angel from Cambridge. 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. 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). Exhibit 2 below: Exhibit 2. thus eliminating the need to shop around for new external investors at each funding round. The decrease in deal size in the Healthcare & Life Sciences sector could reflect that Cambridge life science companies are having problems in raising funds. The Cambridge Cluster Report 2007 According to the cluster report. However. Looking Inwards. and according to Alan Barrell. 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. Cambridge is extremely important to the whole UK venture capital market.In terms of investment. receive much larger funding rounds earlier and can then concentrate on expanding the business (Library House 2007). 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. If successful. The importance of business 130 . cf. In fact. the level of investments in the Healthcare & Life Sciences sector has declined in recent years (2005-2007). the Cambridge Cluster attracted 18% of all venture capital investment in the UK. During the first half of 2007. Reaching Outwards. on the other hand. However.

Exhibit 3. In 2001. Today EBAN represents more than 250 business angel networks in Europe. the Cambridge Angels also offer startups the benefit of a wide range of expertise. The typical funding requirements that the Cambridge Angels meet are in the range of £50. but also elsewhere in the south of England. EBAN is a non-profit association representing the interests of business angels. contacts and directly relevant experience in establishing and growing entrepreneurial businesses successfully. and the Cambridge Angels are among the prominent business angel networks in the UK (see Exhibit 3 below). says Alan Barrell. the company bought GSK's CellMap Unit leading to the establishment of Cellzome UK. business angels networks (BANs). mostly in the Cambridge area. 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. Germany.eban.000 to £500. http://www. 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. a strong bargaining position vis-a-vis business angels. EBAN was established by a group of pioneer business angel networks and the European Association of Development Furthermore. The involvement of venture capital.angelgroups. Funding situation of the company Cellzome was established in 2000 as a spin out of the European Molecular Biology Laboratory (EMBL) in Heidelberg. 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. In addition to providing funding for early-stage companies. The members invest in and mentor high quality start-up and early-stage companies in these sectors. seed funds and other entities involved in bridging the equity gap in Europe.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). however. Source: Cambridge Angel’s website. http://cambridgeangels. In 1999.88 One of the key challenges for business angels are the fiscal policies of the member states. but several of the portfolio companies have in fact received more than £1m in funding from the member over several funding rounds.000. Cambridge Angels The Cambridge Angels are a group of high-net worth investors who have been successful entrepreneurs in technology and biotechnology. because these policies provide the tax incentives that encourage or discourage business angel investing within a country as well as across Business angel groups are also becoming stronger and more organised at the European level. may dilute the influence of business angels because venture capital wants influence on board decisions.html 131 . 88 EBAN website. venture capital has. which means that business angels runs the risk of getting sidelined in the process and not getting a fair return on their investments. Business angels are increasingly getting organised in networks.

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

but so far haven’t had much success. academia in Germany is not allowed to get commercial funding. in the UK academia can get commercial funding for research and laboratories.Policy recommendations The regulatory approach to handling risks is very important for biopharmaceutical companies. The existing regulatory framework in Europe is focusing on protecting citizens. Edwards European regulators are too risk adverse. but to some people ‘risky’ medicines are the only alternative to dying. 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. 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. The UK government has tried to implement this idea in the national healthcare system. and this promotes collaboration between academia and industry. In contrast. Also. These examples may be of interest to other countries when considering different approaches to supporting the biotech industry. Mr. In terms of national framework conditions. According to Mr. 133 . Edwards considers the tax credit for companies in the UK to be very beneficial for young biotech companies.

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 .

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