By Charles Craig
AMSTERDAM — With the number of European biotechnology companies growing, the world's major pharmaceutical firms no longer have their research and development sights trained solely on the U.S. for drug discovery help.
The U.S. biotechnology industry is still much larger than its European counterpart, but pharmaceutical company executives such as Goran Ando, R&D chief of London-based Pharmacia & Upjohn, said Europeans "have come a long way. We see more and more opportunities [for partnering] and more and more skilled biotechnology companies."
The rise of biotechnology entrepreneurship across the Atlantic from the U.S. was the subject of the sixth annual European Life Sciences Conference (ELSC), in Amsterdam. The two-day meeting was sponsored by Atlas Ventures, an investment firm founded in Amsterdam, and Ernst & Young, the New York-based accounting and business consulting firm.
During the conference Monday and Tuesday, 28 early-stage biotechnology companies pitched their innovative science to investors and potential pharmaceutical partners.
Germany Keeping University Discoveries At Home
In Germany, major drug makers such as Hoechst Marion Roussel AG, of Frankfurt, and Bayer AG, of Leverkusen, formed a consortium in cooperation with the government to help keep university discoveries at home.
"Still," said Werner Scheibler, director of new technologies licensing for Hoechst, "there are technologies for which you always go to the U.S. companies." The U.S. industry has demanded greater attention not because European science is lacking, but because European entrepreneurship has lagged behind the U.S., he added.
That disadvantage is beginning to disappear, said Gilles Nobecourt, vice president of worldwide operations for RPR Gencell, the Paris-based Rhone-Poulenc Group's division for gene and cell therapy. Over the last year, Nobecourt said, starting a company in Europe has become easier.
Gencell is piecing together a worldwide network of technologies to develop gene therapy products. Nobecourt said the network's 18 members — one-third are companies and two-thirds are university scientists — are spread over Europe, the U.S. and Japan.
The more experienced U.S. biotechnology entrepreneurs could learn something from their European counterparts, Scheibler said. "At German biotechnology companies people are more cautious in their presentations [of their technology]. They are more down to earth," he observed. Discussions include potential problems as well as promises.
"In the U.S.," Scheibler said, "they present a wonderful picture and we find out later what the problems are."
The fledgling companies presenting at the ELSC are part of an industry that is gaining on the U.S. sector, according to Ernst & Young's annual survey of European biotechnology.
The 1998 report, released at the conference, identified 1,036 European biotechnology companies, a 45 percent increase over the 716 found in last year's survey. Most of the companies are in the U.K., Germany, France and Sweden. Of those 1,036 firms, 61 are publicly traded.
"The U.S. industry [with about 1,300 companies] is much larger than Europe's," the report stated. "U.S. companies invested ECU [European Currency Units] 8.3 billion in R&D in 1997, employed 140,000 people, posted total revenues of ECU16 billion, and a net loss of ECU3.8 billion. The U.S. industry is in striking distance of break even."
In contrast, the European industry employs "39,000 people, has revenues of ECU2.7 billion, invests ECU1.9 billion in R&D, and lost ECU2 billion," the Ernst & Young analysis showed. Each ECU equals $1.09.
Most of the early-stage companies presenting at the ELSC practice genomics and gene and cell therapy, technologies aggressively sought out by pharmaceutical companies.
Whether in Europe or the U.S., the biotechnology companies remain key to keeping the balance sheets of drug makers healthy. As Cynthia Robbins-Roth, editor-in-chief of BioVenture View, noted, pharmaceutical companies are looking to biotechnology to support the annual 15 to 20 percent earnings growth promised to their shareholders.
Ando said Pharmacia & Upjohn's annual R&D budget totals $400 million and 20 percent represents external spending. That percentage will increase, he observed. The drug maker's usual partnership allocation is about $2 million a year per biotech company.
"If a biotech company wants $5 million or $6 million, its idea must be very good," Ando said.
Nobecourt described biotechnology's value to pharmaceutical companies as its depth of knowledge in new approaches to drug discovery. "Gencell," he said, "decided to be integrators to make gene therapy products."
Biotech Investment Growing At HMR
Scheibler said Hoechst Marion Roussel, the pharmaceutical division of Hoechst AG, in Frankfurt, invests 15 percent of its annual R&D budget in biotechnology and "we will increase that amount. We have two major points of external interest: licensing in late-stage clinical products and new technologies."
In Europe, the biotechnology industry's attention is focused on Germany, which now outpaces the U.K. in formation of companies and where the government has fostered one of the most biotechnology-friendly environments in the world.
Scheibler said he knows of no other country where the major pharmaceutical competitors have joined together to promote patenting activities and to encourage scientists to form their own companies.
The consortium of pharmaceutical companies, he observed, is part of the government-sponsored German Human Genome Project organized two years ago. The pharmaceutical firms finance a government patent and licensing agency, formulate patenting strategies, participate in defining the needs of German researchers, initiate collaborations with fledgling biotechnology firms, and organize contacts between scientists and start-up companies.
In return for their support, the pharmaceutical consortium members have the right of first negotiation to technology under certain circumstances and have the opportunity to match offers from competing drug makers. Scheibler said some aspects of the consortium's relationship to university researchers and start-up companies are still being defined.
A major impact of the changes in Germany, Scheibler observed, is that the country's scientific discoveries are being commercialized at home. The big difference between the U.S. and Europe in development of the biotechnology industry, he added, has been the lack of an effective technology transfer process from university to start-up company.
"The European scientific base is as good as the U.S. [scientific base]," Scheibler said.
Ruttgers Led German Shift To Boosterism
In Germany, the government and public about-face from the anti-biotechnology sentiment of five years ago to unabashed boosterism is, in part, credited to the efforts of Jurgen Ruttgers, the German federal minister of education, science and R&D.
Although a politician, Ruttgers was named 1998's Best European Life Sciences Entrepreneur by the ELSC sponsors, reflecting the dramatic improvement in the biotechnology business atmosphere in Germany.
In a speech to the conference, Ruttgers said, "without being arrogant, I think we can say that we have achieved a breakthrough for biotechnology in Germany."
Industrial society, he said, has had its day and will give way to a society based on knowledge.
"Creation of value in economics will depend primarily on knowledge-driven factors," he said. "The life sciences are destined to play a leading role in the scenario, together with information and communications technology and materials science."
Asked if he was worried the German pharmaceutical consortium members may limit the reach and development of innovative technologies they consider too competitive, Ruttgers told BioWorld Today: "I have no worries. The German pharmaceutical industry is doing the same thing in Germany that they already are doing abroad," he added, referring to university research and biotechnology start-ups outside Germany.
"The larger companies, like Hoechst, have the funds for new companies," he added. Ruttgers said he conducted a "road show" in the U.S. 18 months ago, pitching German university research to venture capitalists. Ninety-five percent of German universities are state-owned.
Ruttgers opened two technology transfer offices in the U.S. "Whoever wants to (license technology) will find us willing to help," he said. "Any company active in Germany can get government funds."
Among the deterrents for German scientists interested in starting companies is the loss of their government pensions if they leave academia. Efforts are under way to change that policy, but Ruttgers said he also reminds researchers wary of the risks of entrepreneurship that the Massachusetts Institute of Technology, in Cambridge, Mass., has spawned 4,000 companies with a combined value of $232 billion, which is more than many nations' economic worth.
At the ELSC, Ruttgers disclosed a new governmental initiative, which he calls "BioFuture," providing DM150 million to fund young scientists practicing pure research.
"We'll give them the chance to head their own, independent research team at a German research institute or university," he said.
Of the 28 companies making presentations at the ELSC, seven were from Germany; six from France; five from the U.K., four from the Netherlands; two from Switzerland, and one each from Iceland, Belgium, Sweden and the U.S. *