By James Etheridge

BioWorld International Correspondent

PARIS ¿ A report on the French biotechnology industry by two university economists has confirmed that it is lagging increasingly behind its counterparts in the United Kingdom and Germany, not to mention the United States, and warns that this widening gap will accelerate the decline in the French pharmaceutical industry unless there is greater investment in biotechnology and more favorable tax treatment for innovative industries.

The report confirms the findings of a recent Ernst & Young International study, which showed that France had slipped into third place in the European biotechnology rankings behind the UK and Germany. It was commissioned by France Biotech, the industry association, and Objectif 2010, a small businessmen¿s club devoted to promoting the creation and development of innovative enterprises.

In light of the findings of this report, they are calling on the French government to inject EUR4 billion (US$3.4 billion) into the industry over three years through a combination of tax concessions, direct funding and loan guarantees.

In a joint communiqui, the two organizations said that France has a ¿seedbed of promising small biotechnology companies that could develop many medicines to improve public health if they had greater resources. To transform this embryonic industry into a competitive industry at an international level, the French government must decide to support it for several years, until it has attained critical mass.¿

The report pointed out that, as of the end of 2000, the average capitalization of French biotechnology companies (EUR6 million) was less than one-quarter that of German firms (EUR26 million) and a fraction of that of British ones (EUR81 million). As regards quoted companies in particular, there is a ratio of 4-to-1 between market capitalizations in the UK and Germany and those in France. Overall, the authors estimated the capital value of the biotechnology sector in France at just EUR1.55 billion, compared with EUR9 billion in Germany and EUR22.6 billion in the UK.

No new biotechnology company was listed on the French stock market in 2000, whereas four went public in the UK and eight in Germany. The report warns that, since early investors only see a return on their investments if firms launch successful IPOs, they may be discouraged from investing in start-ups in France.

Its authors argue that the low level of private sector investment in the French biotechnology industry is a consequence of the lack of state support, saying Germany was able to overtake France thanks to a sharp rise in public sector funding since 1995. State funding in Germany (by both central government and the regions) totaled EUR435 million in 2000, double the level five years earlier, whereas in France it amounted to EUR60 million.

At the same time, private sector investment in the German biotechnology industry amounted to EUR412 million last year, compared with EUR279 million in the UK and EUR207 million in France. That partly reflects the fact that, whereas venture capitalists¿ funding of European biotechnology firms rose by an average of 73 percent in 2000, in Germany there was an increase of fully 280 percent, compared to 72 percent in the UK and only 34 percent in France.

The report commended the policy adopted by the German authorities: ¿Germany, which did not have a significant biotechnology industry five years ago, has succeeded in hoisting itself into first place in Europe thanks to the leverage effect of public aid, which attracts European and American investors to Germany. In 2000, German biotechnology firms had three times more resources than French firms, even before any stock market listing.¿ The authors warned that the lack of resources prevents French biotechnology firms from growing into young pharmaceutical companies and exposes them to takeovers, a result of which the benefits of early state support are transferred to foreign enterprises.

According to the president of France Biotech, Philippe Pouletty, chairman of the Franco-American company DrugAbuse Sciences Inc., the EUR4 billion of state support being sought for the French biotechnology industry would enable it to become No. 1 in Europe within five years, because it would bring a substantial inflow of investment from Europe and North America. There are no radical reforms in the package of measures proposed by France Biotech and Objectif 2010, since it mainly consists of adjustments to the existing tax regime, but it does include a call for a substantial increase in the funding provided by the National Research Promotion Agency for the biotechnology industry.

There has been no official response to these recommendations yet, although Finance Minister Laurent Fabius told a conference in early July that his finance bill for 2002 would contain measures to support innovation, which would be ¿targeted at sectors such as biotechnology.¿

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