BioWorld Today Correspondent
LILLE, France - Europe is a tough neighborhood in which to raise a biotechnology company, and though everyone seems to mean well, it does not look like things are going to get better anytime soon.
That, as the British say, is a pity, because there is no lack of good science and great ideas in the research parks and biotech clusters that have sprung up like mushrooms across the continent.
As EuroBIO 2007 got under way Wednesday, a lead-off session titled "Top Stories and Trends: 2007 Early Stage Investments" left mixed impressions with conference participants.
Tomas Jonsson, biotechnology policy desk officer for the European Commission's Directorate for Enterprise and Industry, led off with an overview of the sector and a report on the EC's updated strategy for financing supports.
In a refreshingly straight-forward manner he described biotechnology as a fledgling industrial sector in Europe, noting that it is marked by companies that are predominantly smaller, have slower growth, fewer products and generate less revenue.
There are major constraints to deal with, he noted, such as Europe's fragmented patent system, what is politely termed "shortcomings in the cooperation between science and business," and an insufficient supply of risk capital.
Jonsson translated this for the audience: "There is a long-standing failure in our capital markets to raise financing, and the access to capital for companies remains a serious problem." Finally, he said, there remain serious concerns about the competitiveness of European companies.
The EC this year, he said, updated and refreshed its starting document "Life Sciences and Biotechnology: A Strategy for Europe" that was published in 2002. The action plan has been refocused with a special emphasis on creating greater access to finance by promoting the use of EU funds for biotech companies, and leveraging more private financing.
The new Competitiveness and Innovation Framework Programme has been given €3.6 billion (US$5 billion) by the EU this year, an amount that needs to last until 2013. Another €2.17 billion has been allocated for the five-year period under the Entrepreneurship and Innovation Programme.
While biotechnology is a priority sector, those funds must be shared with other industry sectors as well.
In cooperation with the European Investment Fund (EIF), Jonsson said that more than €1 billion in financial instruments would be made available to small and medium-sized entreprises (SMEs).
He told Bioworld Today that these are loan guarantees where the EIF will take a percentage of the risk in order to reduce a bank's exposure for a high-growth potential SME or one with innovative technologies. The guarantees are available for both early stage and expansion phase financing.
In total, Jonsson outlined eight different programs using structural funds, loan guarantees and lowered tax and payroll costs for private companies and public institutions, such as university research groups.
More blunt talk came from John Hodgson, director at the UK consulting firm Critical I, who told the audience Europe is a harder place to do business for biotech companies. He also described the sector as characterized by companies that are in very early development stages and generally are too small to be of interest for investors.
This year, he said, there have been 131 European venture capital financings with a total value of €1.05 billion. More than 46 percent of the total investment went into just 14 deals, most of which were more than €25 million.
"What this shows is that there is a very, very long trail of investment in Europe with 117 other financings that drop below €5 million," Hodgson said. Money moves around in Europe as well, he said. Tracking the investments of top firms 3i, Sofinnova, Essex Woodlands, Abingworth, Nomura, Advent, Atlas, LCF Rothschild, Novo A/S, GIMV and TVM, Hodgson showed that where Germany, Sweden and the UK led European financings with 31 deals in 2003, they only accounted for 16 deals in 2006. Meanwhile, Belgium, Austria, Denmark, France and Switzerland saw only 12 deals in 2003, but accounted for 28 financings in 2006.
Politics plays a significant role in the health of the biotechnology sector, but it could play a stronger role, he added. Since 2003 Europe has shown what it can do in biofuels, an area given a clear priority. "Setting a target of 10 percent biofuel use created a market that led to on-the-ground initiatives by the states that then compelled the players to respond, to make refinery investments. As a result, they have created a business," Hodgson said.
While the EU has expressed an intent to innovate in biotechnology, there has not been a will to ease market entries across borders and break down competitive barriers that "sooner or later" those companies will face.
Denis Lucquin, from the venture capital firm Sofinnova Partners, treated the audience to a presentation that left mixed feelings about their prospects. On one hand, he said, venture capitalists are eager to get behind companies early on. He noted that mega-sized round A financings valued more than $25 million have jumped from one in 2003 to 19 in 2007.
The bad news is that to attract mega-attention for mega-funding, a small company needs to show disproportionate mega-qualities, such as a large unmet clinical need, strong intellectual property, early proof of concept and - from the get-go - a wide European footprint with partners, alliances and distribution syndication.
More and more, Lucquin said, rather than funding companies, venture capitalists are funding projects of two to three years that a big pharma will buy to solve its R&D problem. He said his fellows at the European venture capital association find it difficult to see a bright future for investing in Europe, especially in biotechnology.
Lucquin also noted that initial public offerings no longer provide the returns necessary. "When you look at the money raised for an initial public offering, it works out to 1.2 times the money invested from scratch," he said. "So we are not making money from the stock exchanges. And in Europe, institutional money does not go to venture capital firms but into leveraged buy-outs, which are very low risk and provide a steady 20 percent return," he said.
Lucquin went on to promote the announcement made earlier this month by Sofinnova of an office in Asia that is seeking opportunities in China and India.
"I know this is not the topic today," he said, "but investment in Asia is the strong force driving the venture capitalists right now."