Lost in translation
While Europe is home to world-class research institutes and their scientific output is competitive with any region on the globe, the continent seems to struggle to valorize and hold on to its scientific assets.
One of the main reasons for this is the fact that seeking useful applications for scientific discoveries is less actively pursued by European scientists. Compared to the US, there is (with some exceptions) less entrepreneurial culture among Europe’s scientific community, whether at the level of its institutes or individual scientists. Lack of scientists with training in business makes good management scarce, but experienced management is crucial for the success of any biotech company. Better integration of research centers with business schools and smarter mechanisms for incentivizing scientists to file patents and create start-up companies should increase Europe’s capabilities of translating science into societal and economic benefits.
Larger tickets needed
A second and even larger hurdle in the European scene is the difficulty of biotech companies in finding the funds for their cash-burning activities along their path to market. There are many public (and public/private) initiatives and VC funds in place to provide companies with initial funding, and the amount of money being invested in seed and series A rounds in Europe has been steadily increasing over the past few years. However, when considering the investment needed to ultimately bring a biopharmaceutical product to the market, biotech funding in Europe is far too low and too thinly spread.
Europe struggles to valorize on its excellent scientific research
Larger funds are needed to support biotech companies in making the leap to commercialization
Mature, commercial stage biotechs are needed to attract a broad spectrum of investors to the European biotech ecosystem
The result is an ecosystem where early-stage companies can find initial, small amounts of funding for early development of their products. Mid- to late-stage companies requiring large sums to finalize development (phase III clinical studies) or commercialize a product, however, are unable to find knowledgeable investors with the kind of financial firepower required for their ultimate maturation. This is a severe impediment, since mature, commercial-stage biotech companies are essential for the biotech ecosystem to thrive. It’s in this phase of a biotech’s life cycle that they generate the most value and drive the interest of a broader audience of both specialized and general investors.
Because of the lack of later-stage funding, European biotech companies in general partner their programs much earlier than their US counterparts and create less value in the long run. In many cases, parties that acquire or license European biotech programs are large commercial-stage US pharma or biotech companies. Promising biotech companies thus mature and create massive value outside of Europe, where a lot of the initial investments were made. Sadly, this leads to a significant innovation drain for the region.
Breaking the cycle
In short, Europe is stuck in a vicious cycle—biotech companies need larger investments from established funds to mature, while mature biotech companies are needed to attract larger investment funds. However, big generalist funds investing in biotech might not be the ideal tool to break the cycle, as the sector requires extensive knowledge to make well-founded investment decisions. To guarantee a more focused approach, larger funds with strong biotech expertise are needed to bridge the gap between venture capitalists and the public market. These crossover investors in turn can give more general investors the comfort to invest in this sector.
Europe is stuck in a vicious cycle—biotech companies need larger investments from established funds to mature, while mature biotech companies are needed to attract larger investment funds.
Of course, generating a track record in biotech crossover investments takes time. Until such funds have been established, alternatives need to be considered to create a sustainable biotech ecosystem. Expanding the investor base, for instance, will increase the chance of companies finding funds and reduce the inherent refinancing risk of biotech startups. This positive trend of more available investors is already being observed. Next to the number of funds, size is also of importance, since spreading money too thinly will result in a weak and unfocused effort to empower many—yet not necessarily the right—companies.
Collaboration between the many smaller, specialized funds must play a major role in keeping European companies from emigrating or partnering their lead program prematurely until larger funds have been established. Europe has understood that venture capital in all sectors and funding of innovation plays an essential part in ensuring economic growth. Hopefully, Europe will give a more concerted effort in the future to build an ecosystem that attracts investors, enabling innovations to bloom on home ground.
