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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  The framework and methodology  Conclusions 6.3.2  Implementation of the survey 3.defining the different development stages 3.  Introduction 2.2  Capital supply in Europe 5.  The biopharmaceutical sector 4.1  Different sources of capital 5.3  Drug development .2  Grouping the biopharmaceutical enterprises 6.3  Defining the biopharmaceutical industry 2.2  The biopharmaceutical sector – key figures 4.4  Impact of the financial crisis 5.1  Financing gaps in biopharmaceutical product development 5.4  R&D cost for developing drug candidates  Selection of case studies 4.2  Methodological approach 3.2.3  Representativeness of the interviewed enterprises 3.  The capital base available for the biopharmaceutical sector 5.1  Different forms of capital 5.5  Conclusion 5.Table of Contents 1.  Executive summary 2.3.2  Challenges facing the European venture capital industry 5.2  Defining business activities  Strategies for bringing the drug candidates to the market 6.2.1  From biotechnology sector to the biopharmaceutical sector 2.3  Business dynamics within the biotechnology sector 4.3.1  Number of drug candidates in the pipeline 6.2  Objective of the study 2.2  Venture capital investment strategies 5.1  Background 2.1.3  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 .1  The overall conceptual framework 3.2.1  Establishing the inventory of biopharmaceutical enterprises for the survey 3.1  The pipeline of the biopharmaceutical sector 6.  Strategies for product development 6.3  Comparing the capital supply for life sciences in the US and Europe 5.1  Development of biopharmaceutical products 4.

5  Threats 9. Switzerland Cellzome.5  Impact of capital shortage 7.7  Conclusions 47  47  48  51  52  52  53  54  54  56  8.2  Internal barriers 7.1  Capital raised for drug development 7.1  SWOT analysis 9.  Strategic outlook– conclusion and recommendations 9.2  Recommendations focusing on increasing the access to finance for biopharmaceutical companies 9.6.3  Weaknesses 9.  Financing strategies 7. Denmark BioArctic Neuroscience AB.3  Need for capital 7.4  Impact of financial crisis 7. France Oryzon Genomics.1  Public policy and regulation related to funding 57  8.6  Exit strategies of investors 7. United Kingdom 67  67  68  69  71  71  73  74  75  77  79  87  88  89  95  101  107  113  119  125  129  2.1. Sweden Apogenix.5.2  International markets – barriers.2  Regulatory measures related to product development and commercialisation 61  8.1-8 .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  Recommendations addressing early stage drug development 9.  Policy and regulation 57  8. Spain Arpida. Italy Innate Pharma.1  External barriers 7.2  Strengths 9.2  Access to capital 7.6  Conclusion and recommendations 9.6. distortions and negotiations 64  9. Germany MolMed.4  Opportunities 9.1.1  Regulatory environment 57

In turn. 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. These characteristics make the biopharmaceutical sector less attractive to investors compared to other sectors. The biopharmaceutical sector is defined as enterprises focused on discovery and development of biopharmaceutical products for human healthcare. 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 addition. As a result. In terms of capital supply. there is a high risk of failure compared to other sectors. and enterprises involved in the production of biosimilars. a dedicated effort to support the biopharmaceutical sector in Europe can promote economic growth and employment in Europe. Moreover. Within the last 10-15 years. and improve public health by ensuring that new innovative medicines are developed. new statistical data gathered through a survey of biopharmaceutical companies in Europe (carried out in May 2009 where 87 enterprises participated in the survey ). much more capital is invested in life sciences in the US than in Europe. based on tools and approaches from modern biotechnology. Consequently. this biopharmaceutical sector has become one of the most research-intensive sectors with a great potential for delivering innovative human medicines in the future. many biopharmaceutical companies – especially in the early stages of product development – are struggling to gain access to funding for their R&D activities. The challenge for Europe The European biopharmaceutical sector faces a huge challenge concerning access to finance. and 3) a historical funding problem due to the financial crisis. 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. This also includes firms specialized in the development of research tools for this objective (“platform firms”).1. eight in-depth case studies of European 1 . 2) a supply side problem due to the challenges facing the European venture capital industry. the financial crisis has limited the funding available to investments and made investors more risk-adverse. the biopharmaceutical sector is facing 1) a structural funding problem relating to the sector’s risk profile. but excludes bio-manufacturing enterprises. 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. biotechnology enterprises providing services to biopharmaceutical and pharmaceutical enterprises.

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

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

Based on the analysis. 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. In fact. Consequently. 4 . 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. we propose the following policy actions to make it easier for European pharmaceutical companies to gain access to capital: 1) Increasing public co-investments in venture funds focusing on biopharmaceutical companies is only part of the solution. The analysis suggests that future financing regimes should ensure that the sector has better opportunities to access finance in the product development process. However. high risk of failure) by considering sector-specific policy measures targeting the special needs of the biopharmaceutical sector. The fund should operate on market conditions to ensure that funding is allocated to biopharmaceutical companies with a substantial market potential. the European Commission should recognise the unique structural characteristics of the biopharmaceutical sector (capital-intensive. However.Recommendations Currently the biotechnology industry has insufficient access to finance. 3) Policy makers should consider increasing the availability of risk capital to biopharmaceutical companies by establishing a European Biopharmaceutical Innovation Fund. 4) The establishment of such a fund will increase the public co-investments in the European biopharmaceutical sector. 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. 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 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. 2) The lack of capital is especially a challenge for biopharmaceutical companies in the early stages of product development. 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. and policy makers should therefore consider expanding the current timeframe of the YIC scheme from eight to 15 years. policy makers need to support early-stage investments to ensure that innovative companies continue their development activities. the effects of these different models have not yet been analysed. However. the scheme does not currently consider the structural characteristics of the biopharmaceutical sector. public authorities and the investor community. New accelerating tech transfer models need to be explored by the biopharmaceutical sector. Consequently. This could include speeding up the centralised procedure for marketing authorisation (EMEA) and adopting the successful Young Innovative Companies (YIC) scheme in European countries. 5) Finally. innovative capacity and competitiveness of the European biopharmaceutical sector. long time to market. 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).

Other industrial sectors also use scientific discoveries in the biopharmaceutical sector to develop novel products and improve production methods. The time to market is relatively long and the risk of failure when developing new biopharmaceuticals is very high.europarl. 2. Source: Pro Inno Europe (2008): European Innovation Scoreboard 2007 4 Europeabio press release. biopharmaceuticals require large investments. However. 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.000 million. http://www.2 European biotech enterprises are unable to raise as much capital as US biotech enterprises.europa.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”. European enterprises only have access to a fifth of the private equity finance that US enterprises have.1 The importance of the biopharmaceutical sector in relation to the pharmaceutical industry is growing. 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. Bio4EU 2008). The potential scientific and socio-economic impacts of the sector are thus substantial (European Commission 2006.2. Introduction This report is part of the framework contract on Sectoral Competitiveness Studies (ENTR/06/054). the Commission argued that the growth and economic sustainability of Europe's biotech enterprises are being held back by three main European Parliament website. These characteristics of the biopharmaceutical sector affect the willingness of external investors to invest in the development of new biopharmaceuticals. 30th May 2006 2 11 5 . Thus. and US enterprises are able to raise twice as much venture capital compared to European enterprises.4 The European Commission has addressed the funding problems facing the European biotech industry on several occasions. 20% of all marketed medicines and represent around 50% of all new medicines in the pipeline (Europabio (2009).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. JRC/ According to the Europabio 2006 study. medicines deriving from biotech innovations (biopharmaceuticals) are estimated to account for approx.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. In its 2007 Communication on the midterm review of the Strategy on Life Sciences and Biotechnology.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’. Danish Technological Institute (DTI) conducted the study in cooperation with the ECORYS SCS Consortium.

namely underdeveloped venture capital markets and the fragmentation of financial markets (European Commission 2007b). 2.3. http://europa. small and medium sized enterprises are defined as independent enterprises with fewer than 250 employees. etc. 2. According to the official EU definition of SMEs. as well as parts. venture capital From biotechnology sector to the biopharmaceutical sector Modern biotechnology . 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.5 This size criterion implies that we have excluded large enterprises from the study. However.2 Objective of the study The study aims at analysing the access to finance for European companies developing biopharmaceutical products. the financing problem was explicitly addressed and two likely causes for the inadequate access to finance in Europe were identified. 2. 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. we analyse and describe the challenges that Europe faces regarding supply of risk and debt capital. to alter living or nonliving materials 5 EU website.defined as ‘the application of science and technology to living organisms. On this basis. even though large enterprises have been excluded from the study. the study only includes small and medium sized biopharmaceutical enterprises.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. We also provide good practice examples that may provide inspiration to policy makers and stakeholders at the regional. Based on this data. they are still relevant as partnering companies or as a source of funding together with banks. the Commission suggested that policy measures could improve framework conditions to make enterprises more attractive for earlyand late-stage investors and increase the overall availability of investment capital for European biotechnology enterprises. The Communication was followed by an analysis of the overall competitive position of the European biotechnology sector in July 2007. insufficient supply of risk capital and shortcomings in the cooperation between science and business (European Commission 2007). Furthermore. national and European levels. we analyse the ways that biopharmaceutical enterprises benefit from various funding sources and what strategies they have adopted to achieve growth and revenue generation. In this analysis.htm 6 . These two dimensions define the target group of the study and will be discussed in further detail below. Furthermore. In this context. products and models thereof.constraints: Europe's fragmented patent system.

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

2. 2006). These two OECD definitions are very broad and may include enterprises that do not carry out research and development of biopharmaceutical products. Focusing on research only. cf. 8 .2. Exhibit 2. however.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). As the study only focuses on biotech for human healthcare (´red biotech’).3. 2008).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. 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. Exhibit 2. The OECD distinguishes between biotechnology active enterprises defined as “a firm engaged in key biotechnology activities such as the application of at least one biotechnology technique to produce goods or services and/or the performance of biotechnology R&D” and dedicated biotechnology enterprises defined as “biotechnology active firm whose predominant activity involves the application of biotechnology techniques to produce goods or services and/or the performance of biotechnology R&D” (OECD 2005). There are many definitions of ‘biopharmaceuticals’ and this complicates the definition and identification of biopharmaceutical enterprises (Rader 2005). we can use the OECD definition of biotechnology enterprises as a starting point for defining a biopharmaceutical enterprise.

7 However. This technology platform represents scientific knowledge and tools for drug development. the target groups of this study are enterprises focused on discovery and development of biopharmaceutical products for human healthcare. verification and validation. biotechnology enterprises providing services to biopharmaceutical and pharmaceutical enterprises6 and enterprises involved in the production of biosimilars.test on large groups of people Later stages including authorization.Therefore. and companies will face different financial challenges in the respective stages of the development process. we have excluded bio-manufacturing enterprises. Thus. we define the target group for this study in line with the OECD definition of a dedicated biotech enterprise. based on tools and approaches from modern biotechnology including firms specialized in the development of research tools for this objective (“platform firms”). However. The challenge for the biopharmaceutical sector is to develop new medicine based on new scientific knowledge and research results. 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. Damian and Barnard.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. 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.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. manufacturing and marketing (Kapeleris. 2.3. clinical trials. prototype development. 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. manufacturing and marketing The access to finance for biopharmaceutical companies largely depends on an assessment of the risks and uncertainties related to these different development stages. John. applied research. Hine. development. 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. 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.testing in a larger group of people (100-300) Clinical trial phase 3 . 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).3 Drug development . Rose (2004)) 6 9 . The biopharmaceutical firms will typically develop new medicines based on a technology platform.

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

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

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

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

Studies carried out by business associations have. 800 (EuropaBio 2006. Unfortunately. This number of interviews corresponds to a response rate of 23 percent. however.2. 3. 14 . Whenever possible the interviews were carried out immediately or else an appointment for an interview was made.2 Implementation of the survey The survey data was gathered via telephone interviews with CEOs or CFOs of biopharmaceutical companies.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. 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. cf. The interviews were carried out by English speaking interviewers.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. estimated the number of biopharmaceutical enterprises in Europe to be approx.3. This reduced the number of potential interview cases to 385 enterprises (cf. the contact information for some 50 enterprises was not up to date or incorrect.3). Exhibit 3.2. Exhibit 3.

but with a bias towards small and young enterprises as this has been a key sampling criterion for the European Commission. cf. on the other hand.3 for a general characteristic of the sector. we find that the interviewed enterprises are: • Small enterprises (66% of the enterprises have less than 20 employees. This suggests that the identified sample of 385 enterprises represents more than half of the biopharmaceutical enterprises in Europe. However. In other words. we consider the sample to be representative of the European biopharmaceutical sector. the survey largely represents the segment of young biopharmaceutical enterprises with significant growth potential rather than the segment of large and more established enterprises. cf. In this study. This bias does not erode the value of the survey. but the reader should keep in mind that the survey only gives a partial picture of the biopharmaceutical sector.Section 4. 10 The same goes for the entire sector. 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. We do find that the number of respondents in the UK and to some extent also in Germany is very low. • ‘Young’ enterprises (71 % of the companies are established in year 2000 or later)10. Unfortunately. cf. it is difficult to know whether the country distribution of enterprises is representative for the whole population of European biopharmaceutical enterprises. Sweden.4). • Research oriented (61% of the employees are researchers and 84% of all business activities are dedicated to product development). we will refer to the survey as the DTI-biopharmaceutical survey or as the DTIbiopharmaceutical surveyed enterprises.3 15 . Exhibit 3. sections 4. Exhibit 3.2). section 4.2 and 4. is overrepresented in the survey. Looking deeper into the characteristics of the enterprises that participated in the survey.4: Number of employees in the interviewed enterprises (N= 87) In conclusion.

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

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

1: A chronology: Research and drug development focus within biopharmaceuticals Source: European Federation of Pharmaceutical Industries and Associations 2008: The Pharmaceutical industry in figures. Among all the US biotechnology patents.2. However.. In other words. while Germany is the only EU Member State to follow the US. In the same period the number of patents application originating in US was significantly higher. From 1994 the number of biotechnology patents applications increased significantly in the EU27 countries from 1. Exhibit 4.790 patents in 2000. 65% of US patent applications are within “healthcare” (red biotech). 18 . by 2005 the number of new patents had dropped and seems to have stabilized at a level of 2. cf.300 patents per year. biopharmaceuticals) at the beginning of the 1990s resulted in a wave of patents. The development and discoveries in biotechnology (e.200 to 2.315 in 1994 to 2. but in recent years a converging trend in the number of patents applications between EU27 and US has been observed. the total number of “healthcare” patent applications in EU27 is assumed to be below the number of patent applications in the US (Eurostat 2007).g.Exhibit 4.

cf. However. more than 600 in phase 2 and about 160 drug candidates in clinical trials phase 3 (Ernst & Young 2009).1) as well as larger companies is included. 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. The number of drug candidates in the pipeline (clinical trials phase 1-3) in the European biotechnology industry increased in the period 2006-2008. Exhibit 2. etc. Looking at the initial evaluation applications by type of application. This might indicate a change of focus in the (bio)pharmaceutical industry from developing new medicines to exploring the potential of existing medicines. The European Medicines Agency assesses applications for marketing authorisation for new medicines (biopharmaceuticals as well as traditional pharmaceuticals) for human use. 11 19 . we observe (especially in 2006 and 2007) an increase in the number of application for new medicinal products.3. whereas in 2008 almost half of the applications were for generics.Exhibit 4. green biotech and white biotech (cf. the total number of drug candidates in the pipeline was estimated to exceed 1. Ernst & Young (2009) is applying a definition of “biotechnology” corresponding to the both red biotech. EU 27 and US. In 2008. Source: Eurostat database 2009.11 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. Exhibit 4. 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. 350 were in clinical phase 1.000 of which approx.2: Number of biotechnology patent applications to the European Patent Office by priority year.

the sector employed over 96. the accumulated number of biopharmaceuticals on the market increased from approx. 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. systems or processes.500 people. Of all available products in the world market (154 products). spent about €7. US companies have developed 54% of the products. number of initial-evaluation applications1995 .500 in R&D. Studies covering dedicated biotechnology enterprises12 have identified 2. EU currently holds a comparatively weak position in the development and marketing of biopharmaceuticals.2008 Source: Annual reports of the European Medicines Agency Since 1996. In contrast. 4.3: Outcome of initial-evaluation applications for medicines for human use. while only 15% of the products have been developed by EU companies. the EU market for biopharmaceuticals as a share of all pharmaceuticals increased from approx. European Commission 2006). including 42.6bn on R&D and generated a revenue in excess of €21. Swiss companies have developed 10% of the products on the world market (JRC/IPTS.163 biotechnology enterprises in Europe (excluding large pharmaceutical enterprises and enterprises in the supplying sectors). Bio4EU 2008). or on the provision of specialist services to facilitate the understanding thereof. 12 20 . the sector is one of the fastest growing sectors and one of the world’s most wealth-creating industries.5bn in 2006 (EuropaBio 2006. In the same period. 4% to approx. 10% (JRC/IPTS. Bio4EU 2008). Nevertheless. According to these studies. 30 to 85 in 2005 in the EU.2 The biopharmaceutical sector – key figures The biopharmaceutical industry is not a large industrial sector in terms of number of enterprises or employees.Exhibit 4.

3) and automobiles & parts (17.046.0%) The pharmaceutical & biotechnology sector even exhibited double-digit R&D growth over the last three years.R&D. The top three sectors were pharmaceuticals & biotechnology (19. precision and optical instruments” with respectively 771. television and communication equipment” or “medical. it is not possible to estimate the economic importance of the sector for other industries due to lack of data (JRC/IPTS.2%). service. and human healthcare.4: European biotechnology industry by subsectors Biodiagnostics 18% Agbio and  environment  11% Human  healthcare 37% Services 34% Source: EuropaBio 2006 13 Eurostat 21 . technology hardware & equipment (18.600 and 1.800 employees. Within pharmaceuticals & biotechnology. Exhibit 4. Exhibit 4. Bio4EU 2008).4. The biopharmaceutical sector is considered a driver of innovation in a range of industries. while US companies account for 49%. agrobio and environment. not least the pharmaceutical industry. cf. The 2. and new biopharmaceuticals are likely have a positive impact on the healthcare sectors and healthcare in general. EU companies (including Switzerland) account for 28% of the investments in R&D.3% of the total R&D.intensity such as “radio.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 93.163 dedicated biotechnology enterprises identified in Europe (see above) can be divided into four sectors: biodiagnostics. However.

the competitive pressure on the researchintensive sectors in Europe. With countries such as India and Singapore moving up the global value chain. 800 enterprises. There are more biotechnology enterprises in Europe than in the US.5.5: Number of biotechnology enterprises in 2004 Source: EuropaBio 2006 Looking at the size of the enterprises in relation to number of employees. For Europe. 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. red biotech 22 . cf.The business activities of the human healthcare sector14 largely represent the definition of the target group for this study. European biotechnology enterprises produce fewer products and employ fewer people than their US counterparts. drug discovery. gene therapy or healthcare cell therapy. vaccines. Especially Denmark and the UK are characterised by relatively large enterprises. such as the biopharmaceutical sector. In the new EU Member States data on the biotechnology industry is still sparse and fragmented. This sector is the largest group comprising 37% of the total number of enterprises in the biotechnology sector corresponding to approx. the leading countries are the UK. The majority of biotechnology enterprises are located in Germany. However. the main global competitor is currently the US biopharmaceutical sector. will probably increase further. Many countries and regions strive to attract this rich source of taxable wealth and potential in job creation. Germany and France. drug delivery. Denmark. genomics. innovation and growth. France. The number of biotechnology enterprises in European countries differs significantly. Exhibit 4. but global competition is fierce. 14 Biomaterials. The availability of capital in Europe is also limited compared to the US (EuropaBio 2006). the UK. Exhibit 4. whereas countries such as Sweden and the Netherlands are characterised by small enterprises.

€1.A. Scandinavia and the UK. costs associated with clinical trials. which are at least four times higher than in the US. This means that even though there is a strong entrepreneurial spirit and a rapid development of new enterprises in Europe. The new enterprises were mostly small in relation to number of employees. In the years after 2001 the industry was characterised by consolidation through mergers and acquisitions. This resulted in a slight decrease in the number of biotechnology enterprises in Europe. 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. €27bn reflecting an increase in R&D activities15 (European Federation of Pharmaceutical Industries and Associations 2008). In contrast. the majority of the biotechnology enterprises are small and generate very limited revenues (EuropaBio 2006). and Gabowski H. 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. The implications of a fragmented patent system in Europe include high uncertainty.4 R&D cost for developing drug candidates It is costly to discover and develop a new drugs/medicines due to expensive research processes. The total cost of R&D increased significantly from the mid-1990s to 2007 from approx.(index 2005= 100) estimates the prices to have increased from index 79 in 1997 to 105 in 2005 indicating a significant increase in R&D cost in real terms equivalent to a 78% increase in real terms. the risk of failure in biopharmaceutical research and development is extremely high compared to other research-intensive sectors.G 2007). 4.000 m. In Europe.3 Business dynamics within the biotechnology sector During the mid 1990s the number of biotechnology enterprises doubled in Europe. they employ almost 50% of the total number of employees and earn about four fifth of the total revenue. A recent study estimates the average capitalized cost per approved biopharmaceutical in 2006 to be approx. Furthermore. quality drop and prohibitive costs. 10% of the enterprises in Europe were formed before 1989. and between 2003 and 2004 the number of European biotechnology enterprises decreased by 2% (EuropaBio 2006).4. resource-intensive approval procedures and costs associated with manufacturing (if the trials are successful). €8bn to approx. 25% of the biotechnology enterprises are less than 2 years old and they employ just over 5% of the employees in the sector.(source: Eurostat) 15 23 . which have mostly occurred in Germany. An additional point is that European R&D costs are higher than in other world regions due to the fragmented European patent system. Restructuring activities instituted to gain critical mass have been the main reason for the mergers and acquisitions. The increase in R&D costs is resulting in an increased need for funding (European Federation of Pharmaceutical Industries and Associations 2008). 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. China and South Korea thus constituting a financial burden on especially small biopharmaceutical enterprises in Europe (van Pottelsberghe 2009).

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 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.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. Of those five product candidates. Of every 500 product candidates entered into the approval process. Exhibit 4. Exhibit 4. only one will be approved (DiMasi et al 2003). 24 . On the other hand. The cost of every successful drug includes the cost of all the failures. The relationship between the biopharmaceutical sector and the pharmaceutical sector is a symbiotic relationship. On the one hand. Finally. only an average of five will progress into the human testing phase. cf. the window for generating market revenue can be very short (5-7 years).6.perform as required to have any market value. 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.

10%. 25 . the biopharmaceutical sector is still a minor industrial sector but with a significant growth potential.200 – 2.5 Conclusion In conclusion.4. but on average only 1% will process into human test and fewer will be approved. €1. 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. More research is carried out. So has the average cost of gaining approval for the drug candidate. The number of the new drug candidates in the pipeline has increased to more than 1. it should be noted that: • • Biopharmaceuticals is a dynamic research area where new scientific discoveries generate a technology platform for developing new drug candidates.000 m.000 drug candidates in clinical trial phases 1-3. but it has also become costly to take new drug candidates through clinical trials. but the last few years the number of patents seems to have stabilised at a level of 2. The number of biopharmaceuticals has almost tripled in 10 years and has reached a market share of all pharmaceuticals of approx. A recent study estimates the average capitalized cost per approved biopharmaceutical in 2006 to be approx. The development in the number of patents does not seem to have had any impact on the number drug candidates in pipeline yet.300 patent application per year from European companies. The number of biopharmaceuticals patents has increased significantly. R&D investment has almost doubled since the mid-1990s and reached a level of more than €27bn in 2007. • • • All in all.

26 .

attracting venture capital. e. 27 . and bank loans. more than two thirds of the European biotech companies participating in the survey also planned o raise capital through grants. etc.2 shows some of the key sources for funding in the early stages of product development (and business development). Exhibit 5. This is illustrated below in Exhibit 5. In the very early stages of product development .).often before the product ideas turn into a business idea . out-licensing drug candidates. making grants the second most important source of funding for European biotech companies after venture capital. In the later stages we find IPOs (Initial Public Offerings) and public equity are also important sources of funding. The capital base available for the biopharmaceutical sector 5. venture capital is the most important capital source for European biotech companies. Initial Public Offerings (IPO) and follow-on offerings.1 Different sources of capital The composition of capital sources for biopharmaceutical product development tends to vary with the development stage of a product.5.1.1 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. PIPEs (Private Investments in Public Equity). 5. forming alliances with (bio)pharmaceutical companies.g.1: Key financial actors   Low level of  involvement  High level of  involvement  Discovery  Family and friends  Government (e. loans)  Business angels  VC and CVC  VC and CVC  Note: CVC is an abbreviation for Corporate Venture Capital. Exhibit 5. In a report by Ernst and Young (2007). companies investing in biopharmaceutical companies. FP/CIP).g.g.. e.1.  grants)    Early development  stage  Government loans  Late development  stage  Banks (e. There are different ways of raising capital for drug development such as applying for public grants (national as well as European.g.public funding is often used (grants... According to the report.

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

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

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

Exhibit 5. the Netherlands.6. 31 . In other words. however. 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). US companies are better at generating value than European companies. Exhibit 5. early-stage investments have gained more attention among European investors. the UK. venture capital investments in the US generate more value than investments in Europe. Exhibit 5. Sweden. cf.In terms of private equity investments as percent of GDP. and France were all above the average for Europe (0. the share of late-stage investments has increased in both the US and Europe.58% of GDP).5: Private equity investments in European countries as% of GDP in 2007 Source: EVCA 2009 Overall. cf.5. In terms of the distribution of investments by development stage. After 2000/2001.

This suggests that early-stage companies in the UK receive less VC than early-stage companies in the US and Israel.Exhibit 5. while Israel is somewhere in between. • 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. are becoming more important in early-stage investments. These differences suggest that the UK – one of the largest venture capital markets in Europe – is not able to keep up with the US and Israel – not least with regard to the size of early-stage investments. private investors. The public sector involvement is also increasing relative to private investors. Israel and the UK the following differences were identified (British Private Equity and Venture Capital Association 2009): • In Israel.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).18 Instead. Pension funds are important players in the UK and US VC industries. private funds are moving away from early-stage companies towards late-stage companies. 18 The same trend has been identified in other countries 32 . • The average amount of capital invested per early-stage company is significantly higher in the US than in the UK. According to NESTA. In a recent benchmarking of the venture capital industries in the US. but only play a marginal role in Israel. while 70% of the funds raised in the UK came from foreign sources. more than 90% of the funds raised came from foreign funds. 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%. such as business angels and ‘angel syndicates’.

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.019%. followed by Denmark and Switzerland.7. health services. cf. The OECD country average was 0. start-up. and medical devices and equipment). Exhibit 5. OECD data covering 25 OECD countries shows that the US accounted for 68.089%).3% of total venture capital investments in life sciences (biotechnology.. Exhibit 5. cf.5. 2007 Source: OECD (2009) Note: ‘Venture capital’ covers investments in seed. pharmaceuticals. while the EU members of the OECD accounted for 20. million PPP$. Exhibit 5. and expansion stages. early development.8 33 .7: Total venture capital investments in the life sciences.8% (OECD 2009). 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.

4 below).7%) followed by the US (29. Later stage venture capital investment in replacements and buy-outs are not included. 2007 Source: OECD (2009) Note: ‘Venture capital’ covers investments in seed. when the tech bubble burst caused a substantial drop in total investment activity. This may be a result of the limited availability of capital as these activities are very capital-intensive. and expansion stages. start-up. but rather seek to enter partnerships with other companies or sell off their products candidates. 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.8: Life sciences venture capital investments as a percentage of GDP.9%). The OECD country average was 14. interviewees and several case studies (for instance Bioartic Neuroscience and Apogenix) also indicate that there is a difference in the culture and mindsets 34 . investment activity has increased in the US as well as in Europe. However.7%.Exhibit 5. Canada was second (30. In the US. section 5. Sweden also had the highest life sciences share of total venture capital investments (36. Since 2004. The level of biotech investments in the US and Europe increased until 2001. However.9%). the current financial crisis has put an end to this development for the time being (cf. early development.

20 By the end of 2008. Tourism and Commerce. This suggests that biotech companies – in particular SMEs .9 below. European enterprises have access to only a fifth of the private equity finance that US enterprises have. only few biotech companies have benefited from the RSFF (examples include Zeltia in Spain and BIA Separations in Austria/Slovenia).particularly technology-oriented SMEs in the early-stages of development – one example is the NEOTEC fund in Spain. The European Investment Fund invests in venture capital funds that support SMEs . where the researchers focus more on conducting research than developing their research into business opportunities. So far. Source: Pro Inno Europe (2008): European Innovation Scoreboard 2007 20 European Commission website.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”. One reason for this could be the low or moderate credit rating of many biotech companies because of their lack of income.  The NEOTEC mandate comprises a fund‐of‐funds and a co‐investment vehicle. Emphasis is placed on  technology‐oriented funds. a total of €2. the European Commission has launched several initiatives to ensure access to capital for biopharmaceutical companies. but generalist funds that invest in companies developing commercial  applications of new technology or deploying technology supports are also included. 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.europa.5bn has already been allocated to projects located in 14 European countries and within a range of industry sectors. In 2007.pdf 35 .3.9: The NEOTEC fund in Spain The NEOTEC Fund was established in 2006 by the European Investment Fund and CDTI.4bn had been authorised by the European Investment Bank under the RSFF. Specifically. the main sectors receiving funding via the facility are renewable energy technologies. €1. cf.21 To date. Through the  creation of an active network fostered by EIF and CDTI. life sciences and ICT. the programme will also seek to provide  Spanish and foreign investors with a showcase of the best opportunities in Spanish technology.htm 21 European Commission. the aim of the initiative is  to complement existing programmes to create 110 new companies in 2008 and 130 in 2010. engineering and automotive. Exhibit 5. Together with the European Investment Bank and the European Investment Fund.are not well-positioned to obtain funding from the RSFF. Exhibit 5.1 Financing gaps in biopharmaceutical product development European biotech enterprises currently do not have access to as much capital as US biotech enterprises. and US enterprises are able to raise twice as much venture capital compared to their European counterparts.of researchers in Europe. The fund aims at increasing venture capital  investment in Spain to boost the Spanish SME technology sector.    19 The 2007 European Innovation Scoreboard indicates that the EU is experiencing a declining gap with the US in earlystage venture capital. http://ec.europa. According to the Europabio 2006 study. an entity under  the Spanish Ministry of Industry.

collaborations. corporate venture capital. Biotech Investment Barometer Reveals Continued confidence in Sector (press release).htm The funding of the EIF originating from the European Commission’s budget is allocated under the High Growth and Innovative SME Facility (GIF).   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.-known-as-neotec. Overall. a survey of 200 European and US biotech executives and members of the investment community suggested that the early-stage funding environment in Europe had improved considerably.22 In addition. hybrid capital (mezzanine). 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.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. The total budget is estimated at around €200m. government-backed investment funds. Typical funding sources include seed capital from grants.  The co‐investment vehicle  The co‐investment fund is for direct co‐investments into technological SMEs.• • Fund of funds  NEOTEC will act as fund of funds. http://www.europa. By the end of 2008. buy-outs. licensing and The typical funding sources include venture capital funds. • Second funding gap: the funding of clinical trial phase I+II. GIF1 covers early-stage investments (seed. corporate venture capital. start-up) and GIF2 covers expansion stage investments. government-backed investment funds. In 2007. founders. managed by  skilled teams based in Spain. investing in venture capital investment vehicles. GIF is split into two parts. and public equity (IPO). Source: EIF website. the companies that develop biopharmaceutical product face three funding gaps (Cooke et al 2006. 30th May 2006 Global Lifescience Ventures. Typical funding sources include venture capital funds. 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. and business angels. Nevertheless. licensing.23 22 23 Europeabio press release. European Commission 2007): • First funding gap: the funding of technology transfer and concept development. in parallel with  previously selected private equity and venture capital funds.pdf 36 .life-scienceventures. • Third funding gap: the funding of clinical trials in phase III. the limited availability of capital could make European biopharmaceutical decide to look for funding opportunities in the US or even relocate to the US. authorisation and marketing.eif. http://www. 62% of the European respondents considered the European funding environment to be difficult (down from 74% in 2006). including pre-clinical testing (often referred to as early-stage development).de/downloads/071002_Biotech_Investment_Barometer_Reveals_Continued_Confidence.

the relatively small size of European VC funds and the need for the funds to diversify their risks by investing in different sectors (e. such as the biopharmaceutical sector. 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. biotechnology.g. They are simply not able to support companies with sufficient funding for the entire development process (British Private Equity and Venture Capital Association 2009). Thus. According to Grabenwarter (2006) Europe has 64% more VC funds than the US.3. 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). the market is working to its perfection.4 Impact of the financial crisis Overall. 24 Grabenwarter (2006).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. Moreover. Nesta (2008) 37 . clean tech. This constitutes a threat to high-risk sectors. 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. 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.) suggests that they are unable to build up sufficient expertise in the different sectors. European companies simply receive less capital than their US counterparts. European venture capital funds are currently exploring new paths to achieving higher diversification and maximising their returns – for instance through fund-of-funds strategies where venture capital funds invest in other funds (and thereby de facto outsource the management of a share of their assets to another larger and/or specialised funds). the VC funds in Europe may be too small to ensure sufficient capital for follow-on investments. etc. 5. This could increase the performance of the venture capital industry. In this perspective.24 5. the global financial crisis has made investors reconsider their investment strategies. Moreover. as investors may consider investing in less risky business 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..The identified funding gaps have been interpreted as a ‘market failure’. thus increasing the risk of failure for the venture capital fund. medical technology. 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. yet European funds in aggregate manage 50% less capital.

Exhibit 5.oslo.10: Anticipated level of investment change in select sectors.teknopol. the government‐owned investment company.   • Additional €8m for R&D contracts.   • 38 . cf.11. and the only investor in Norway that is  solely dedicated to investing in private equity funds. Several European countries have launched new funding initiatives to ensure that the national biotechnology sectors are in a better position to deal with the financial crisis and the risk that their funding may dry out. the country's main industrial development  agency.68m in tax breaks ‐ this is an increase  from €0. The aim is to stimulate increased cooperation within the  industry on research and development.11: Norwegian crisis package for the biotechnology sector Key measures in the Norwegian crisis package:   • Innovation loans operated by Innovation Norway. The Norwegian government has launched a package of measures to help the Norwegian biotechnology industry through the financial crisis.49m. 48% of the respondents stated that they would not change their involvement in the biopharmaceutical sector over the next three years.argentum. Exhibit 5.10. Argentum can now increase its investments in private VC funds focusing on life  sciences in Norway and abroad (www. according to the survey. These loans may be used as working capital  for the biotech companies.   • Tax breaks for individual SMEs: Companies may deduct €0. 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  Source: http://www. (fund‐in‐fund) gets increased equity capital  of €233m. cf.However. This testifies to the importance of government involvement in specific sectors for attracting private investments. Contracts are to be focused on industry development in  the health sector and internationalisation. Funding increased from €37m to €111m. Exhibit 5. Exhibit 5.

In the UK. the government intends to support R&D in high-tech companies by setting up a £750m investment fund focusing on emerging technologies and biotechnology.Several other initiatives may be launched at national level to help the biotechnology industry through the crisis. 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. However. 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%. 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. 39 . 5. However. the French biotech industry organisation recommended that the "young innovative company" fiscal status be extended from 8 to 15 years. 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. The study indicates that US companies are better at generating value than European companies. This performance gap mainly reflects regional industry differences rather than differences in the competencies of venture funds as US-based venture funds do not perform better in Europe than European venture funds. In recent years. In France. 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. but also address structural problems in order to improve access to funding for biopharmaceutical drug developing SME.5 Conclusions Venture capital is the most important capital source for European biotech companies. private equity investments have increased in Europe. Another success factor is the R&D efforts and the business competencies of the companies. 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.

40 .

The surveyed enterprises are representative of the European drug discovering biopharmaceutical industry.2). the choice of product development strategy will have an impact on the enterprise’s demand for capital and its overall business strategy. However. 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. According to the DTI-biopharmaceutical survey.1). 25 41 .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. Exhibit 2. green biotech and white biotech (cf. and the fact that the DTI-biopharmaceutical surveyed enterprises represent approximately 10% of the European biopharmaceutical enterprises. 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. 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. (cf. 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. In any case. a survey of biotechnology companies in Europe found that more than 1. section 4. 6. However. 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. Biopharmaceutical enterprises typically start out with a technology platform from which several drug candidates can be explored and developed.4). Only a limited number of drug candidates are expected successfully to enter the subsequent clinical trial stage.25 Taking into account the limited differences in the profile of the companies included in the two surveys.1) as well as larger companies is included. based on tools and approaches from modern biotechnology including firms specialized in the development of research tools for this objective (“platform firms”). 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. In 2008.6. the pipeline identified in the DTI-biopharmaceutical survey seems to correspond to the pipeline identified in the Ernst & Young study. 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. (cf. One enterprise may decide to bring drug candidates to the market on its own. but with a bias towards the small and young enterprises. the number of drug candidates is relatively low. Exhibit 6.000 products were in the pipeline (clinical trial phase 1-3) of the European biotechnology industry (Ernst & Young 2009). In the subsequent phases.

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.2. cf. the enterprises often have drug candidates in both early stages of product development and in the late stages. N = 458 Source: DTI-biopharmaceutical survey in Europe. May June 2009 The survey data indicates a sharp decline in the number of drug candidates from pre-clinical to clinical trial 1.1: Number of drug candidates in pipeline by phase of drug development.the drug candidates in the biotechnology pipeline identified by Ernst & Young (2008). very few enterprises in the biopharmaceutical sector only have one drug candidate in the pipeline. while the number of drug candidates increases in clinical trial 2. A possible explanation for these findings is that completing clinical trial 1 is relative quick.2. In fact. while completing clinical trial 2 is more difficult and takes more time (Ernst & Young 2008).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 . This can be explained by differences in the research orientation of the company samples (se section3. 6. the majority of the biopharmaceutical enterprises have between of one to six drug candidates in the pipeline. 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. Furthermore. Exhibit 6. A research-intensive sector such as the biopharmaceutical sector is expected to have a high number of drug candidates in the pre-clinical phase. According to the data. Exhibit 6. This may have implication for the enterprises' ability to attract external financing and especially venture capital.

Companies may thus benefit economically and strategically from out-licensing or selling compounds to other companies. Moreover. However.2 Grouping the biopharmaceutical enterprises In order to analyse the capital needs and strategies at a more detailed level. 6. Moreover. in case of a capital shortage. May June 2009 Nevertheless. This will provide us with a better understanding of the specific 43 . the drug candidates may be used as leverage in negotiations with potential investors and partners or be sold/out-licensed to raise capital. we have grouped the biopharmaceutical enterprises according to the stage of development of the companies’ most advanced drug candidates. companies have to match the need to build up a strong pipeline and the financial means available to the company. the pipeline should not be too diverse (see case study of Apogenix in Appendix 2). Symphogen and Bioartic Neuroscience in Appendix 2). Exhibit 6.1. Moreover.2: Number of drug candidates in pipeline. Consequently. N = 87 Number of  enterprises  Number of drug candidates  Source: DTI-biopharmaceutical survey in Europe. the company can out-license or sell product candidates to raise money for the further development of its lead 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 product candidates must be sufficiently developed to be of interest to other companies (see the case study of Arpida. there is a limit to the number of drug candidates that companies can afford to have in the pipeline.

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

and 2) out-licensing the drug candidate to another company (83% of the respondents). manufacturing and marketing competencies of the partner. biopharmaceutical enterprises may (as illustrated in several of the case studies in Annex 2) benefit from gaining access to the research. 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. cf. Exhibit 6.4: Product development strategies.even before the drug candidate has been launched on the market. They require a set of business competencies that are often not available in small research-intensive enterprises – good researchers are not necessarily good managers. By choosing to enter into an alliance. but manufacturing. Either because they are unable to raise sufficient capital or because they simply wish to remain a research-oriented 45 . N = 87    We intend to bring one or several drug candidates to the market  ourselves  We intend to enter into an alliance (partnering. Alliances or out-licensing will typically entail a milestone payment to the biopharmaceutical enterprise . For a while. Enterprises may also decide not to take any of their drug candidates to the market.4: Exhibit 6. sales and marketing are also very resource-intensive.both in terms of drug development as well as for successfully entering the market with other candidates in the pipeline. which can be an advantage for the enterprise in the future .2 Strategies for bringing the drug candidates to the market Drug development and clinical trials require considerable investments. this will enable the enterprise to continue operations without raising capital from other investors or via grants. 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). The enterprises mostly apply a mix of strategies such as taking some drug candidates to the market on their own. 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. while developing other drug candidates with external partners.6. 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). The majority of DTI-biopharmaceutical surveyed enterprises do not intend to bring drug candidates to the market on their own.

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

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.0  289.1. €36m to finance their current pipelines26. 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)   7.9  6.0  25.On average enterprises with drug candidates in the later stages have raised more capital than enterprises in the earlier stages. In this chapter.2: 26 Data does not include income generated from business activities 47 . 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. the DTI-biopharmaceutical surveyed enterprises have been able to raise an average of approx.1) Exhibit 7. apply for grants and gain access to capital from the financial market.7  151.5  Number of  enterprises   6  33  8  20  8  12  87  Source: DTI-biopharmaceutical survey in Europe. cf. Exhibit 7. May June 2009 Note: The grouping is defined in section 6. 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.7. 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.9  11. cf. etc.2 The respondents indicate that private equity (including venture capital.1: Average amount of capital raised for current pipeline (million Euros) by a group of biopharmaceutical enterprises. 7.0  87. we examine how biopharmaceutical enterprises have financed their product development and how their financing strategies change from one stage of product development to another. Therefore biopharmaceutical enterprises need to attract investors. business angels. Exhibit 7.1 Capital raised for drug development To date.) constitutes the main source of capital for biopharmaceutical enterprises followed by grants and income from business activities. The need for capital increases significantly after clinical phase 1.1.

27 Ernst & Young (2009): Global Biotechnology report 2009 48 .g. cf. 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. selling products or (research) services) constitutes an important source of capital for platform enterprises and enterprises with products on market Exhibit 7. average share of total capital raised. Exhibit 7. According to observers.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. Exhibit 7. the IPO window is currently shut down.4. May June 2009 7.Exhibit 7..3: • Grants constitute an important source of capital for platform enterprises and enterprises with product candidates in pre-clinical research • IPOs and follow-on offerings constitute an important source of capital for later-stage enterprises and enterprises with products on the market • Loans constitute an important source of capital for platform enterprises • Income from business activities (e.2 Access to capital Overall.27 The respondents also indicated that it has become increasingly difficult to gain access to loans (except for government loans) and venture capital. the respondents indicate that within the last year it has become increasingly difficult to gain access to funding via an IPO or through follow-on offerings.3: Main sources of capital – average share for all respondents by group of biopharmaceutical enterprises. cf. May June 2009 A closer study of the data for each of the different groups of biopharmaceutical enterprises reveals some interesting differences.

39  3. Exhibit 7. a university or. With regard to current financing.58  4.Exhibit 7. 33% of the enterprises have been able to raise less than €1m.65  4. a research centre  Government‐backed venture capital (regional/national innovation funds)  Venture capital  Alliance/partnership with other company (project deals)  IPO (Initial Public Offering and subsequent public offerings) Other   Bank loans  Industrial bond  Loans guaranteed by the state/Government loans Other types of loans  Source: DTI-biopharmaceutical survey in Europe. 31% of the enterprises have been able to raise between €1 – 5m within the last 12 months.4: Difficulties in obtaining funding compared to the situation 12 months ago (scale from 1 “easier” to 5 “harder”).75  4. N = 87   Friends and family  Business angels  Venture capital facilitated by an incubator.09  3. 49 .5.21  4.54  4.60  4.43  4. cf. 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. May June 2009 Mean  3. a relatively high share of these late-stage companies finds that gaining access to funding via alliances and partnerships has become more difficult. Nevertheless.76  4. and approx. Most of the DTI-biopharmaceutical surveyed enterprises have been able to raise capital in the last 12 months.33  3.45  Although it has become more difficult to gain access to venture capital for the different groups of biopharmaceutical enterprises.

9  5 and 10  1 million  million  capital  million  million  EUR  EUR  EUR  EUR  Number of enterprises  0  4  1  1  0  1  1  2  0  2  6  16  1  5  2  1  29  13  3  6  1  3  27  1  2  3  1  3  11  1  0  3  4  3  11  Do not  know/no  answer  0  1  1  1  0  0  3  Total  6  33  8  20  8  12  87  Source: DTI-biopharmaceutical survey in Europe.5. Number of  enterprises  Source: DTI-biopharmaceutical survey in Europe.6:. Capital raised within the last 12 months the DTI-biopharmaceutical surveyed enterprises. Exhibit 7.6 suggests that the relatively small amounts of capital (up to €5m) were primarily raised by early-stage enterprises. May June 2009 50 . 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. May June 2009 Exhibit 7. while the relatively large amounts of capital (€5m+) were raised by later-stage enterprises and enterprises with products on the market. N= 87. N = 87.Exhibit 7.

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%. platform companies (16%) and companies with drug candidates in pre-clinical research (approx. The companies. Exhibit 7. 7% of the enterprises are in immediate need of capital if they are to maintain their current activity level. cannot be certain that they will get the needed funding from investors or partners. cf.   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.7. According to the DTI-biopharmaceutical survey. the survey results should be treated with caution.e. later-stage companies and companies with products on market still have some time before the lack of capital could become critical. Moreover. N = 85. However. 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.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. 30%) need capital immediately or within the next 6 months. Exhibit 7.7: Assessment of the need for capital by the DTI-biopharmaceutical surveyed enterprises. May June 2009 In particular.. Consequently. According to the DTI-biopharmaceutical survey.7. and 18% of the enterprises are facing an immediate need for capital or will run out of capital within the next 6 months. approx. 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). The findings are similar to the findings from other recent surveys. within the next 6 months). 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. however. 51 .

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.9. 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. such as achievement of milestones.7. Exhibit 7. the biopharmaceutical sector is also facing difficulties with delivering the results that their investors have expected (cf. Exhibit 7. Gaining access to capital is not only determined by the financial crisis. investors are becoming more reluctant to invest in biopharmaceutical companies. May June 2009 7. case study of Arpida in Appendix 2). As a result. cf.8. cf. while 24% of the respondents indicated that the financial crisis has had no effect on their access to funding.4 Impact of financial crisis Approx. In fact.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. 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. to ensure that they can get the capital they need (cf. Biopharmaceutical enterprises are focusing their activities on demonstrating good results. case study of Molmed and Symphogen). The existing pipeline will also be affected as enterprises may decide to reduce the number of drug candidates. 52 . The platform companies all indicate that the financial crisis has made it more difficult to gain access to capital.8: Impact of financial crisis on access to funding by type of enterprise   Platform  Pre‐clinical  Clinical phase 1  Clinical phase 2  Later‐stage  Product(s) on market    Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Made it more difficult No effect  Frequency (N)  6  ‐  26  7  5  3  13  7  7  1  9  3  Percent  100%  ‐  79%  21%  63%  37%  65%  35%  88%  12%  75%  25%  Source: DTI-biopharmaceutical survey in Europe.

May June 2009Note: Data is aggregated due to multiple answers Overall. The increasing shortage of capital is also mentioned as one of the key barriers to gaining sufficient funding (39% of the respondents).1 External barriers With regard to external barriers to gaining funding. the DTI-biopharmaceutical surveyed enterprises especially identify the lack of willingness among investors to provide financing to high-risk and long-term projects.5.10: External barriers to getting funding by the DTI-biopharmaceutical surveyed enterprises. 7.9: Expected impacts of a capital shortage on the DTI-biopharmaceutical surveyed enterprises.10. these different strategic responses may eventually lead to a restructuring of the companies with a subsequent negative impact on employment. 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. Furthermore. Exhibit 7. May June 2009Note: Data is aggregated due to multiple answers 53 . 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. cf.Exhibit 7. N = 87   Increasing shortage of capital   Difficult to get an overview of financing market The investors are reluctant to finance long term drug development Investors have limited interest in high‐risk projects/businesses Investors lack knowledge about the biopharmaceutical sector in general Fragmented internal capital market in EU Barriers to national R&D‐schemes operating across national borders Other  No external barriers  Do not know/no answer  Total  Total  (responses)  Percent (N = 87)  34  39%  8  9%  48  55%  45  52%  16  18%  8  9%  6  7%  5  6%  10  11%  1  1%  181  ‐  Source: DTI-biopharmaceutical survey in Europe.

The main barrier identified in the survey relates to the R&D activities carried out in the enterprises.11: Internal barriers to getting funding by the DTI-biopharmaceutical surveyed enterprises. Exhibit 7.7.5. 41% of the respondents indicated that they do not expect their investors to exit the company within the next 2 years.2 Internal barriers The DTI-biopharmaceutical surveyed enterprises do not consider internal barriers important. ‘reluctant shareholders’. The respondents also mentioned the limited resources of small companies to engage in the identification of and negotiations with potential investors. Exhibit 7. Exhibit 7. e.6 Exit strategies of investors Private equity investors typically have a long time horizon compared to other types of investors such as. On the other hand. 7. This suggests some stability for the management of the company for the years to come. EVCA indicates that investors will. One of the respondents stated that it is very difficult to raise capital without ‘proof of concept’. The category ‘Other’ includes ‘lack of basic development knowledge’. May June 2009 Note: Data is aggregated due to multiple answers. Approx. 30% of the respondents even expect their investors to stay with the company the next 5 years. 54 . and ‘problem with intellectual property’. hedge funds. 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. lack of interest from investor for early-stage drug development because of high risk investment. investors may consider focusing their funding on the best performing segment of their portfolio and exit the remaining portfolio companies. In fact. cf.13. 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).. 52% of the respondents do not think that there are any internal barriers to gaining access to capital. on the one hand. 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.g.11.

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).

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

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

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

scientific experimentation involving animals during product development is covered by EU legislation on animal welfare. private initiatives have been sparked in the region. 2. established in 1999. Three main areas of European legislation apply to quality and safety standards for product development. a Nordic Investment Fund has been proposed in order to drive the development of an integrated Nordic venture capital market forward. eligibility criteria for donors of whole blood and blood components. transport.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). Because the Nordic countries are not large enough to support a substantial venture capital industry individually. organs. measures regulating the product development of pharmaceutical products. measures regulating the commercialisation of the products. and 3. All three areas can affect biopharmaceutical companies' access to capital by raising the costs and risks associated with developing or improving pharmaceutical products: 1. the time horizon for finalisation of the product is long and the risk of failure (or non-commercialisation) is high. storage. The responsibility for verifying and endorsing compliance with good laboratory practice lies with the Member States. The third area concerns human tissue and cells. 3.29 8. and quality and safety requirements for blood and blood components. 2. measures relating to the protection of Intellectual Property Rights (IPR) of companies developing and marketing the products (European Commission 2006a). In addition to the above. Requirements in this area include information required to be given to donors and obtained from them. Partly sponsored by national venture capital funds. the network focuses on strategic relationship building between the members and international financial and industrial players.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. In addition. which is a private network consisting of leading technology venture capital firms in the Nordic region.1. which applies to laboratories involved in the non-clinical testing of all chemicals including pharmaceutical products. The first area is good laboratory practice. Limitations are also imposed on 29 One example is the Nordic Venture Network. 61 . The second area concerns human blood and blood components. and distribution conditions for blood and blood components. Product development Access to capital is a key requisite of product development. It includes products that have been derived from human tissue and cells (when intended for use for humans). but does not apply to tissue and cells for antilogous graft. 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. or blood and blood components. At this stage.

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

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

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

long time (United Nations 2002). In addition. important aspects of the international funding and regulatory context can affect biopharmaceutical companies' access to finance. different regulatory measures pose a challenge as companies often have to apply several times for approval of the same product. Above all. 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. 65 . Thus.

66 .

Based on the SWOT analysis. The first part of the chapter features a SWOT analysis (Strengths. 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. Opportunities. These proposed responses are aimed at improving the sector’s future competitiveness and should thus be taken into account in future policy-making. 9.1 SWOT analysis We present an overview of the four dimensions of the SWOT analysis in Exhibit 9.9. Member State level and EU level. Weaknesses. 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. The SWOT analysis lists sector challenges and provides guidance for targets and priorities for policies.1 and discuss each topic in the following sections. 67 . 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. They do not propose measures for specific countries or regions/clusters. The SWOT will therefore also address structural issues that may influence the supply of capital for the biopharmaceutical sector.

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

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

Biopharmaceutical companies lack business skills Good researchers are not necessarily good managers. Consequently. Consequently. 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. 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. etc. the financial crisis has reduced the financial basis of many venture capital funds. Furthermore. 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. sales. As a result. manufacturing. 70 . 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. Instead.materialise. 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). companies do not pay sufficient attention to business development and establishing networks or business relations with (potential) investors or other (bio)pharmaceutical companies. the DTI survey of European biopharmaceutical companies shows that the financial crisis has made it increasingly difficult to gain access to funding. 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. clean tech. 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. they are moving towards the less risky late stages or investing in other less risky sectors (medical devices. In addition. In the long term. companies may be forced to restructure and reduce the number of employees. 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. In line with expectations. distribution and marketing. On the other hand.). This has made it more difficult for biopharmaceutical companies to raise capital. Poor performance of European venture capital industry The European venture capital industry has not been able to provide the expected returns and investors are becoming more reluctant to invest in the European venture capital industry. the European biopharmaceutical enterprises will mainly contribute to the development of the pharmaceutical industry by filling up the pipelines of leading US or European pharmaceutical companies with biopharmaceutical product candidates. Moreover. It is vital for biopharmaceutical innovation as well as economic growth and public health in Europe to address this lack of access to capital. Companies must also have a managerial reputation and credibility to be able to attract investors. 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.

through funds-of-funds strategies where venture capital funds invest in other funds. From the perspective of potential buyers. according to interviewees. including the relatively small size of the funds and limited specialised knowledge of high-tech sectors such as the biopharmaceutical sector. 9.g. As a result. the European venture capital funds are not as specialised and competent in relation to biopharmaceuticals as their US counterparts are. 9.. the European venture capital funds may not be able to assess the biopharmaceutical companies or support their development to the same extent as specialised US venture capital funds. In fact.g. pension funds be forced . clean tech). which could result in a reduced number of biopharmaceutical enterprises in reduce the number of biopharmaceutical companies in their portfolios or even exit the sector completely. However. Pipelines of big pharmaceutical companies are drying out The pipelines of many leading pharmaceutical companies are drying out. this is good news as there will be a downward pressure on the price of compounds and companies. 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. e. As a result. However. As the price of biopharmaceutical compounds tends to increase with their stage of development and with competition among potential buyers intensifying in later stages.5 Threats Financial crisis turning into innovation crisis The financial crisis has made investors more risk-adverse and many investors are therefore focusing on biopharmaceutical companies in late-stages of product development or even abandoning the biopharmaceutical sector to the benefit of sectors perceived to be less risky (e. VC industry in Europe is exploring new paths to increase performance European venture capital funds are exploring new paths to achieving higher diversification and maximising their returns – for instance. This could increase the performance of the venture capital industry. 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. As a result. medical technology. 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. 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.The performance problem of the European venture capital industry can be attributed to several factors. The lack of access to capital could force biopharmaceutical companies to postpone or even abandon risky R&D projects in favour of less 71 .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. we expect to see more M&A activities and strategic partnerships in the near future.

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

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

There are many different approaches to developing biopharmaceutical products. 9. high risk of failure) by considering sector-specific policy measures that target the special needs of the biopharmaceutical sector. In fact. 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. case studies in Annex 2). 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. 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. Some of the case companies (cf. In Europe. have established partnerships with other (bio)pharmaceutical companies. However.1 Recommendations addressing early stage drug development Exploring the effectiveness of accelerating tech transfer models and commercialization strategies – good practice Reducing the time to market and the cost of development are essential for companies in the biopharmaceutical sector if they wish to increase their attractiveness in investor communities. Solutions may include tech transfer and engaging in new ways to commercialise products. long time to market.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 appears to be a need for speeding up and encouraging 74 .6.Exhibit 9. These partnerships give the biopharmaceutical companies access to R&D resources and business-relevant skills and provide revenue. the European Commission should recognise the unique structural characteristics of the biopharmaceutical sector (capital-intensive.

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

Furthermore. Some European countries have already launched strategic initiatives focused on boosting investments in national life sciences sectors (including biopharmaceuticals). The later development stages are more capital-intensive and require large amounts of capital that micro-funds and business angels often cannot raise on their own. This has made the biopharmaceutical sector less attractive to the investor community. All in all. 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. geared their initial capital and supported the establishment of specialised private life-science funds. the financial crisis has put many biopharmaceutical companies in Europe under financial pressure and reduced exit opportunities via public markets for investors . 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. Increasing the volume of venture capital investments in the European biopharmaceutical sector The analysis suggests that biopharmaceutical enterprises face several funding gaps when developing new products. The fund should be guided by the following principles: o Economic size will allow the fund to provide sufficient means to support biopharmaceutical product development in portfolio companies from the earliest research to the late stages of drug development. e. 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. o Finally. 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. In addition. but investors and companies still face the challenge of finding the capital needed for the companies to grow. the DTI survey of biopharmaceutical enterprises indicates that the companies find it more difficult to gain access to funding in the early development stages than companies in other stages of product development.. case study of Symphogen) have. the study stresses that it is important to maintain the momentum of the product development process in the European biopharmaceutical sector. 76 .g.Means • Reform tax systems (e. economic size and expertise will attract additional private investors so that the total funds under management will increase. 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.   Recommendation Increase the availability of venture capital to biopharmaceutical companies Means • Establish a European biopharmaceutical innovation fund to invest in biopharmaceutical product development. The Norwegian government-owned investment company “Argentum” and the Danish state-backed VC fund “Vækstfonden” (cf..g.

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

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

BioRN Italy France Spain. BioCat Switzerland. BioValley UK 88 . 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.

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

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

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

and may receive milestone payments based on progress • Meiji Holding Co. Genentech would make an undisclosed upfront payment to Symphogen. 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. Ltd. funding and shared risk. 2006. If successfully commercialized. Pipeline of Symphogen   Symphogen currently has partnerships with Biovitrum.S. Symphogen received an upfront technology access fee. Ltd. Symphogen received an initial technology access fee from Biovitrum. 92 . Japan).. and would fund associated research and development costs. in 2006 Symphogen was awarded a $4. Symphogen entered into a development and license agreement with Meji Holding Co. The main challenge is to establish a clear agreement that defines collaboration. According to the agreement. but presumably they not only have an economic value but also marketing value. Symphogen will receive royalties on net sales of the product. and Symphogen is entitled to receive milestone payments upon successful product development achievements. • Genentech .in 2008 Symphogen entered into a global strategic collaboration agreement with Genentech. Meiji Holding Co. 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. In addition. (Tokyo.income to the company even before the drug candidates have reached the market. 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. as well as an equity investment in Symphogen. Exhibit 1. and Genentech: • Biovitrum . .a worldwide co-development and commercialization agreement signed in 2006. Meiji will fund all discovery and development activities.6 million grant by the U. Symphogen was eligible to receive milestone payments upon the success of certain research and development milestones. as well as royalties on any products developed and commercialized by Genentech as a result of the collaboration.

The general impression of the venture capital market is that there is still available capital. 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. None of the investors seems to have any exit plans for the time being. However. which eventually will give a good return on their investments. Except for business start-ups. Nevertheless. The impression is that they have made a positive evaluation of the company's market potential. Challenges with exit strategies of investors The current group of investors have kept their investment in Symphogen for a long time. 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. the company thinks that the main rule for the managers of state.g. 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. 93 . 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.Impact of the funding situation on strategy  Symphogen has sufficient capital to continue its drug development programme until 2011.or EU-backed venture capital should be to invest in projects/companies with the best qualifications. but the market has become more hesitant to invest. The managers must have very profound knowledge about biopharmaceuticals and political agendas and complicated administrative legislation should be avoided.. loans and grants are not considered relevant instruments to meet the financial requirements of drug development candidates. the changing market situation has not had any impact on Symphogen yet. and they continue to refuse offers from potential investors.

94 .

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

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

The funding resulted in Ph.D.vinnova.their drug candidates. in its first years in business. 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. 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. In this pre-start-up period the university research activities were funded by R&D-programmes. access to capital was a serious problem for BioArctic and as the company did not generate much income. 52 VINN NU is a competition for new companies that base their operations on R&D results. Thus. However. CEO Pär Gellerfors also had to work as a lecturer at Uppsala University. the board of directors (and a scientific board). Karolinska Innovation AB and Uppsala Utveckling AB hold a small number of shares. 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. the founders are not enthusiastic about sharing the ownership of the company with others. The first capital that the company was able to raise came from: • 2003 VINN NU award (SEK 300. find subsequent funding and. become successful Swedish companies. and in 2004 Karolinska Innovation AB and in 2005 Uppsala Utveckling AB became organized by VINNOVA52 • A loan from Teknikbrostiftelsen53 in Uppsala • A scholarship from Handelsbanken Some minor investments – but with a high branding value – were made by two regional venture funds. Financing situation of the company BioArctic was based on considerable research efforts before the establishment of the company.adconmac. As mentioned above. As a consequence of this attitude towards venture capitalist. 53 Teknikbrostiftelsen: Encouraging technology transfer from university to business. the founders hold the majority of the shares while a number of students. theses which helped develop the technological platform of the company. http://www. who the founders believe can contribute to the development of BioArctic by their experiences and knowledge. This initiative has not proven its effect yet. Karolinska Development AB and Uppsala Universitet Utveckling AB are aware of this weakness and encourage new companies to enlarge the management group with a manager with professional experience from the biotech industry. http://www. in the long term.htm 97 . 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.

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

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

100 .

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

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.


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

106 .

Claudio Bordignon was Scientific Director of the San Raffaele Scientific Institute until the end of 2006. It was based on the knowledge of a group of scientists in the field of gene and cell therapy. the equity shares of MolMed were sold to the venture capital fund EDCP (now named Airain).com/p/articles/mi_hb4250/is_199706/ai_n13242795/) 60 Science Park Raf is the management company of the San Raffaele Biomedical Science Park in Milan. 59 In 1996 Boehringer Mannheim was the second largest diagnostics company in the world. MolMed has been formally authorised for the production and release of medicinal products for human use. MolMed was established in 1996 as a spin-off of the San Raffaele Scientific Institute. Currently. The company was incorporated as a venture between Boehringer Mannheim59 and Science Park Raf60 to provide cell therapy services. and is also in charge of the technology transfer activities. when the Swiss pharmaceutical company Roche took over Boeheringer MolMed thus became one of only three worldwide IPOs of biotech companies in 2008. to provide GMP services. clinical-grade cell manipulation services. MolMed went from being a biopharmaceutical service company to a biopharmaceutical research and development company. The gross financial resources raised amounted to € 56. bringing up $3 billion in 1996 sales.116. Thereby.MolMed. 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. Director Business Development. Today MolMed has 91 employees. and the first biopharmaceutical spin-off company from an academic research institute to be listed on the Italian stock exchange. It mainly focuses on research.2 million.61 2008 was a landmark in MolMed’s history. he was appointed one of the 22 members of the Scientific Council of the European Research Council (ERC). In 2005. 61 Since July 2003. On 5 March 2008 MolMed was listed on the Milan Stock Exchange. As a consequence of the increased activity following the IPO. The company is located in the San Raffaele Biomedical Science Park in Milan in the Lombardy region. the body that will recommend strategic research investment guidelines to Europe in the next few years.15 per share. Science Park Raf and the Arain venture capital fund are the main investors in MolMed. representing 25% of post-IPO corporate capitalisation. Currently. 58 107 . MolMed’s GMP activities include: production of own cell-based therapeutics. and the information from MolMed’s homepage. In 2000. development & manufacturing services for investigational gene therapies for rare diseases. www. Italy Company characteristics57 MolMed is a biopharmaceutical company operating in the field of medical biotechnology. In 1997 it was bought by Swiss drug maker Roche Holding Ltd. They have an in-house GMP facility that meets both EMEA and FDA requirements for the production of clinical-grade bulk drug substances. however. Professor Claudio Bordignon58 led the spin-off and still heads the company as its chairman and chief executive officer. (http://findarticles. In 1999.molmed. the MolMed management decided to take the company a step further and develop a product development pipeline.952 shares with no nominal value. It continued. The increase in staff was necessary to 57 The case is mainly based on an interview with Holger Neecke. The listing was achieved through a global offer of 26. MolMed took on 14 new employees in 2008. development and clinical validation of innovative therapies for the treatment of cancer. at a price of €2.

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

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

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

l.àr.MolMed will be able to finance further research and development activities through partnerships. it has gone through several financing rounds.A. public support for biopharmaceutical companies has been very limited. but plans had to be postponed due to the burst of the ICT-bubble in the second half of 2001.p.àr. MolMed now has €30. all the investors invested in the company before it was listed on the Milan Stock Exchange. resulting in sales of shares for €56 million. Apart from Arner Bank. and the reason for deciding for an IPO was mostly lack of alternatives.33% of the shares. This generated a €20 million capital increase. Special Reprint. Financing of the company Since the company went from being a service company to a product development company.l. 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. Moreover. The MolMed's success can be attributed to the promising data from its products and technology.. BioWorld Today. SICAR with 8. the fact that other companies were withdrawing their share offers from the market is likely to have given MolMed an advantage (Boggs 2008).66% of the shares.63 Due to the IPO. Jennifer (2008): MolMed’s Cell Therapy in Pivotal European Trial. Thus. the reputation of its investors. Italian biotech companies have been very active in various EU programmes .75 per share range.5 million in cash (quarterly result May 2009).14% and 21. 111 . which means that MolMed is financed until the end of 2010. 111. Italy has the third highest number of project proposals in Europe in the EU’s 6th framework Programme (Biopolo 2009).for instance. with 8. and public investment is approx. € 1500 million per year. the MolMed management considered going for an IPO. Volume 19. Public grants and reliefs Biotech has not been a main priority for the Italian government.àr. In 2000. MolMed managed to raise an IPO of 25% of shares. and Delfin S. No. which owns 17. US Study Next. many companies are avoiding the IPO market due to the current unfavourable market conditions. or € 80 million if the investments from not-for-profit organisations for health care in general are included. They are closely followed by Fininvest S.l. The offer was priced at the low end of its anticipated €2. and Arner Bank with 2.01%.15 to €2. As opposed to today. Other investors are Delfin S.12% of the shares in the company respectively.. 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. Moreover. The financing possibilities were limited.l. H-Equity S.àr.19% of the shares. Private biotech investment is estimated to approx. In addition to Science Park Raf and the investment fund Airain. namely H-Equity S. and the experience of its management and staff. in 2001 it was not unusual for biopharmaceutical companies to aim for an IPO. 63 Boggs. MolMed succeeded in becoming listed on the Milan Stock Exchange. and that they will not have to go back to the capital market. Fininvest. € 40 million per year. Therefore. MolMed gained support from three large Italian investors in 2004. The main shareholders of MolMed are currently (2009) Science Park Raf and the private investment fund Airain Lda which hold 21. In 2008.

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

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

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

70 Financing situation of the company Innate Pharma has mainly received capital from venture funds and though collaboration and licensing agreements. They can also be relieved from local taxes related to the value of properties and 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. while venture capital investments fell 27 percent to €132 million in 2008.asp#I0002f575 115 .com/news/e/96425/ 68 Washington Post website. France has experienced capital flight and brain drain due to relatively heavy taxation of high incomes. All in all. France Biotech has put forward several recommendations on how to support the national biotech industry. Moreover.68 The French Government has therefore launched a reform of the French wealth tax to make it more attractive for people with high incomes to stay in France. innovative 70 Website. The capital gains are also exempted from capital gains tax and are only subjected to social security contributions.hsbcprivatebankfrance.following two years. According to France Biotech.washingtonpost. 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 young. http://www. provided that the FCPI units are held for at least 5 years from the subscription date. 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).com/wpdyn/content/article/2006/07/15/AR2006071501010.yicstatus.66 The financial crisis has hit France's biotech companies hard. Based on these figures. • • • up to a maximum of http://www. innovative companies. Investment in listed companies fell 98 percent to just €12 million. http://www. http://www.pdf EuropaBio website. http://www. a total of 85 M Euros have been raised since 1999 with grants 65 66 Website. This would suggest that biotech companies should be able to benefit from the programme for more than 8 years.aurgalys.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).html 69 Website.pdf 67 Website. life science funding fell by 79 percent in 2008 relative to 2007 (€143 million in 2008 versus €694 million in 2007).europabio.65 One concern related to the programme is that the programme does not take into account the longer business cycles in the biotech industry. http://www. Reform the research tax credit to distribute the credit more evenly between small and medium sized biotechnology companies and larger companies.bionity. 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.000 EUR in support.

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

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

118 .

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

All professionals must be hired on a temporary basis. cf. the Spanish Government launched INGENIO 2010 in response to the re-launch of the Lisbon Strategy. Talent for Competitiveness programme The ‘Talent for Competitiveness’ programme makes it possible for biotech SMEs to receive up to € 20. http://www. A recent initiative in the region is the launch of the ‘Talent for Competitiveness’ programme. Source: Biocat website. science and technology parks and technological centres. Companies will be able to hire experts in the following areas: intellectual property. 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).es/contenido. which has earmarked € In 2005.75 The CENIT programme also includes a venture capital fund of funds (NEOTEC) to create and consolidate technological businesses.000 euros in aid to hire international experts for specific projects. the use of soft loans as opposed to grants has steadily increased (UNU-MERIT 2006). however. including soft loans to innovative start-ups./02_instrumentos/02_Caracteristicas/02_ CENIT 120 .asp?menu1=3&menu2=0&menu3=&dir=. non-executive directors or strategic international advisors on the Board of Advisors. an organisation established by the Government of Catalonia and the Barcelona City Council to promote and coordinate biotechnology and biomedicine in Catalonia. http://www. Exhibit 1 below: Exhibit 1. management and research. Spain has a generous R&D tax credit.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.biocat. The programme is intended to boost the long term competitiveness and internationalization of Catalan biotech companies. In 74 Ingenio website. has been weak. the Spanish government is providing different financial support measures. public research organisations and centres.The activities in the cluster are planned and coordinated by Furthermore. http://www. the Government has created a new scheme that offsets 40% of the labour and social charges of R&D workers (OECD 2008b).000 to fund this program. either as independent members of the Advisory Board. business development.biocat. CENIT projects are 50% co-funded by the public and private sectors.asp 75 Governmental website. The NEOTEC Fund was established in 2006 by the 73 BioCat website. universities.php The initiative was launched in June 2009 by BIOCAT and the Ministry of Economy and Finance of the Government of Catalonia.ingenio2010. According to data from 2004. http://www. Uptake.ingenio2010.73 National financing conditions At the national level.

oryzon. Tourism and Commerce.eif. Under this business model. The Fund aims at increasing venture capital investment in Spain in order to boost the Spanish SME technology sector. Business model Oryzon Genomics started out as a services company as this is less capital demanding than biopharmaceutical R&D.measures&page=detail&ID=6925 121 . In 2003 the company started licensing out candidates and engaging in co-development projects in partnership with third parties. Moreover. This enabled the company to establish a good track record and demonstrate its financial viability to attract further funding.europa. three collaboration agreements were signed in 2004 and 2005 with other companies (one agreement with Oncnosis Pharma received funding from the CENIT programme). http://www.cfm? Pipeline of Oryzon Genomics Source: Oryzon Genomics http://www. they are still almost half the European average. Exhibit 2.76 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.European Investment Fund and CDTI. The technological platform and a strong financial position of the company have resulted in a 76 EIF website. an entity of the Spanish Ministry of Industry.htm 77 ProInno Europe website. almost 60 % of venture capital in Spain is invested in nontechnology enterprises.php?option=com_content&task=view&id=32&Itemid=49 Since 2006. 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.77 The NEOTEC initiative specifically addresses this challenge of increasing the venture capital available to Spanish technology-based companies.-known-asneotec. http://www.

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

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

124 .

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

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

8 million as well as CHF 21.6 million in relation to the acquisition of the Danish biotechnology company Combio. Also.6 million shares. Welten. the management considers a reverse merger to be the best viable strategy. Financing situation of the company The management of Arpida has been very successful in raising capital. 3i Group plc (UK) and HBM BioVentures. • First financing round: In July 1998 the company raised CHF 15.   127 .scrambling for money in the marketplace.2 million before expenses. there is a lot of knowhow and resources available to the companies. There are many factors explaining the success of the Swiss biopharmaceutical sector.7 million (after expenses and taxes). banks.3 million. The financing history of the company is as follows: • Seed funding was provided by New Medical Technologies (now: HBM BioVentures) in 1997.3 million from international investors. The same year. the biotech industry in Switzerland is now facing big problems and thus needs to improve its performance to better attract investors. Around 45% of the capital was raised before the IPO and around 55% following the IPO. 206 M Euro . however. the Swiss biotech industry has not been able to demonstrate good results.9 million (before expenses) by issuing 1. Partners Group (Switzerland) and UBS. Instead. In recent years. the sector is able to benefit from a strong financial ecosystem consisting of analysts. new investors were FTQ (Canada). the Company has restructured it operations and shut down all research activities. and investors are getting more reluctant to invest in the sector. • On May 4th 2005. • In March 2007. Arpida successfully raised an additional CHF 51. and investors specialised in biotechnology. Arpida managed to raise a further CHF 12. the company raised CHF51. • Third financing round: In May 2004. As a result. 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. the sector has benefited from the closeness of large pharmaceutical companies such as Roche and Novartis. but it has also meant that only the companies with promising candidates in the pipeline are able to stay in business. CDC IXIS Innovation (France). A total of 309 M Swiss Francs (CHF) – ca. raising CHF 19. In terms of access to funding. 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.has been raised to date.7 million shares out of the authorised share capital • In March 2008 Arpida strengthened its financial position by issuing 1. as well as universities with strong traditions in science and chemistry producing a steady stream of new biotech companies (Carrin et al 2004). Along with all earlier investors. HealthCap (Sweden). The compounds in the pipeline are too far away from the market to enable the company to raise more money for continuing research. • Second financing round: The company raised CHF 40 million in September 2000. According to Mr. Following the FDA opinion. The four venture capital companies that invested were Alta Berkeley (UK).

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

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

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

Source: Cambridge Angel’s website. but also elsewhere in the south of England. a strong bargaining position vis-a-vis business angels. 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. 88 EBAN website. In 1999. The involvement of venture capital. and the Cambridge Angels are among the prominent business angel networks in the UK (see Exhibit 3 below). Cambridge Angels The Cambridge Angels are a group of high-net worth investors who have been successful entrepreneurs in technology and biotechnology. Business angels are increasingly getting organised in networks. The members invest in and mentor high quality start-up and early-stage companies in these sectors. http://www. In 2001. In addition to providing funding for early-stage companies.000 to £500.88 One of the key challenges for business angels are the fiscal policies of the member states.angelgroups. EBAN was established by a group of pioneer business angel networks and the European Association of Development Agencies. the Cambridge Angels also offer startups the benefit of a wide range of expertise. http://cambridgeangels. 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. Exhibit 3. mostly in the Cambridge area. but several of the portfolio companies have in fact received more than £1m in funding from the member over several funding rounds. Funding situation of the company Cellzome was established in 2000 as a spin out of the European Molecular Biology Laboratory (EMBL) in Heidelberg. contacts and directly relevant experience in establishing and growing entrepreneurial businesses successfully. venture capital has.html 131 . seed funds and other entities involved in bridging the equity gap in says Alan Barrell. Today EBAN represents more than 250 business angel networks in 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.000.angels for new and nascent businesses has grown over the last decade as venture capital investors are “not able to accommodate a large number of small deals with their attendant due diligence and oversight needs” (NESTA 2009b). Furthermore. 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. which means that business angels runs the risk of getting sidelined in the process and not getting a fair return on their investments. however. EBAN is a non-profit association representing the interests of business angels. business angels networks (BANs). The typical funding requirements that the Cambridge Angels meet are in the range of £50. the company bought GSK's CellMap Unit leading to the establishment of Cellzome UK. because these policies provide the tax incentives that encourage or discourage business angel investing within a country as well as across borders. Germany.

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

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

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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