19September2016
Europe’sflawedandunderfundedBiotech-ecosystem
-EBEpositionpaper-
Biotechnologyaisimportantfor
Europe:thesectorhelpstheeconomy
growandprovidesnewjobs,while
supportingpublichealth.In2015,
morethan10.000newjobswere
createdinthebiotechindustryin
Europeand93medicinesforhuman
usewererecommendedformarket
authorisationbytheEuropean
MedicalAgencywith39newactive
substances,mostofwhichare
Note: Europe is defined here as the EU-28 plus Norway; Gross value added for each industry is defined as the gross income
biopharmaceuticalproducts.Europe from operating activities per employee. Source: Health Advances analysis; Eurostat Database (accessed February 2016).
hasworld-classresearchinstitutions,andahostofnovelinnovativedrugsthataremakingtheirway
throughtheclinicaldevelopmentphase.Beingatthecompetitiveedgeofinnovationinthe
biopharmaceuticalfieldiscrucialfor
continuingtodeliveronnovel
medications,newjobsandeconomic
growth1,2.IfEuropewantstoremain
atthiscompetitiveedge,anumberof
strongandnovelactionsmustbe
implementedacrosstheEuropean
UnionanditsMemberStates.
Summary
Europe,despiteyear-on-yeargrowth,isincreasinglylaggingbehindtheUSincreatingamature
biotechfundingecosystem.Thisresultsinsignificantcapitalleakageandinnovationdraintoregions
outsideofthecontinent.Inthisrespect,Universitiesandresearchinstitutionsneedtoplayamuch
moreimportantrolebyincreasingtheentrepreneurshipofscientistsandTechnicalTransferOffices
(TTOs),withtheaimtoimproveEurope’stranslationcapabilityofbasicscienceintocommercial
ventures.Ontopofthat,weneedtoimplementmeasurementstocreateastrongspecialistinvestor
communityandanoptimallyfunctioningsinglecapitalmarketinEuropeforbiotechcompanies,in
ordertopreventthatotherregionsthanEuropewilleconomicallybenefitfromtheexcellentbasic
sciencethatEuropegenerates.
EuropeanScience&TechnologyTransfer
Europe’sbasicscienceiscompetitivewithanyregionintheworldandthereisnostructural
differenceinqualityofsciencecomparedtospecificregionsinNorthAmericaorAsia3,4,5.However,
a
Biotechnologyistheuseoflivingsystemsandorganismstodevelopormakeproducts,or"anytechnologicalapplicationthatuses
biologicalsystems,livingorganismsorderivativesthereof,tomakeormodifyproductsorprocessesforspecificuse"(UNConventionon
BiologicalDiversity,Art.2).Inthistext,theterm‘biotechnology’and‘biopharmaceuticals’companiesareusedinterchangeablyandreferto
companiesorproductsmeetingthedefinitioninthefirstsentence,whereaspharmaceuticalcompaniesmakemostlysmallmolecule
medicineswithachemicalbasis.Whilstmostclassicalpharmaceuticalcompaniesnowadaysareaddingbiotechproductstotheirportfolio,
companieslikeAmgenorGileadgrewonthestrengthoftheirbiotechproductsandareconsideredtypicalbiotechcompanies.
Page1of6
afundamentalissueinEuropeisitstranslationcapabilityofbasicscienceintoacommercialventure,
inparticularontheaspectsofdefininganattractivebusinesscaseandfindingsufficientinvestment
capitaltoexecuteaviablebusinessplan.
Strikingly,someofthemostinterestingdiscoveriesthat
arecurrentlyappliedtoproductsindevelopmentoriginate
fromEuropeaninstitutionsbutarepredominantly
employedbyUScompanies:RNAib,CRISPR-Cas9candnextgenerationTcellreceptors.Thismeansthatotherregions
thanEuropearereapingtheeconomicbenefitsfrom
Europe’sexcellentbasicscience.
CRISPR/Cas9, a promising gene editing
technology, has been co-discovered in Europe,
but sees its further development predominantly
pursued in the US. Recently, the three major
companies in this field, all headquartered in
Cambridge (MA), raised some large amounts of
capital: Editas Medicine ($120 million), Intellia
Cambridge Therapeutics ($70 million) and
CRISPR Therapeutics ($64 million). The newly
raised capital shall be used for hiring new
employees and doing investments in the region.
Interestingly, CRISPR Therapeutics started its
operations in Basel, Switzerland, but partially
moved its headquarters to the US as part of its
latest financing round.
Europemaybemoreriskadverseandthereisno“license
tofail”forentrepreneurs,butforemostthereisnostrong
cultureofinstitutionsorindividualsseekinguseful
applicationoftheirwork,takingoutpatentsandcreating
start-upcompanies6.AtEuropeanuniversities,sciencestudentsarenotofferedcoursesin
entrepreneurship;abetterintegrationwithbusinessschoolswouldbebeneficialforcreatinga
cultureofentrepreneurshipamongstscientists.Forexample,USuniversitiestrainandincentivize
scientists,anditisnotuncommontohaveserialbiotechentrepreneursbasedattheuniversities7.
Trainingofscientistsinbusinessandmanagementaspectswouldinthelongrunalsoaddressthe
needinEuropeofwell-trainedandexperiencedmanagementwithinbiotechcompanies.Currently,
scientistswithbusinessandmanagementexperiencearemostlyfoundclosetopharmaceutical
companiesinDenmark,SwitzerlandandBelgium,whereinconsequencemanybiotechcompanies
arefoundaswell.Ingeneral,however,Europeanbiotechcompaniesdonotseemtohavetheability
toattractexperiencedseniormanagersthathaveworkedinmultiplesmallbiotechcompaniesand
haveasuccessfultrackrecord8.
AnotherproblematEuropeanuniversitiesisthelackofrealismandexperienceatTTOs,negotiating
unrealisticequitysharesinspin-offcompaniesanddistributingrevenuespredominantlytothe
universitiesthemselves.Inmostcases,thisleadstolengthynegotiationprocesses,frustrated
scientist-inventorsandlossofmomentumintermsofbusinessopportunities.Oneapparentreason
forsuchunderperformanceisthatmostTTOsatEuropeanuniversitiesarepoorlyfinancedanddo
nothavetheabilitytoattractandtrainexperiencedstaff.AsurveyinaNaturepublication9has
shownequitysharesofuniversitiesrangingfrom1%to50%withUSuniversitieshavingthelowest,
mostrealisticrates.
Recommendations:
-
BusinessandManagementtrainingshouldbeprovidedtoscientistsacrossEuropean
universitiesandresearchinstitutions
AdequatefundingofTTOsandmoreentrepreneurialawarenessatEuropeanuniversities
shouldbecreated:onlywheninnovativeideasareactuallyputintopracticewilltheyresultin
economicgrowth,newjobsandwelfareforsociety.
b
RNAi:RNAinterference(RNAi)isabiologicalprocessinwhichRNAmoleculesinhibitgeneexpression,typicallybycausingthedestruction
ofspecificmRNAmolecules.Thepathwayisinvestigatedtodeveloptherapiesforviralinfections,neurodegenerativediseasesandcancer.
c
CRISPR-Cas9:Clusteredregularlyinterspacedshortpalindromicrepeats(CRISPR)aresegmentsofprokaryoticDNAcontainingshort
repetitionsofbasesequences.Eachrepetitionisfollowedbyshortsegmentsof"spacerDNA"frompreviousexposurestoabacteriophage
virusorplasmid.TheCRISPR/Cassystemisaprokaryoticimmunesystemthatconfersresistancetoforeigngeneticelementssuchasthose
presentwithinplasmidsandphages,andprovidesaformofacquiredimmunity.TheCasprotein(s)usetheCRISPRspacerstorecognizeand
cuttheseexogenousgeneticelementsinamanneranalogoustoRNAinterferenceineukaryoticorganisms.BydeliveringtheCas9nuclease
andappropriateguideRNAsintoacell,thecell'sgenomecanbecutatadesiredlocation,allowingexistinggenestoberemovedand/or
newonesadded.Cas9wasthefirstnucleasediscovered.Othersuchsystemsarethoughttoexist.
Page2of6
EuropeanFundingEcosystem
ThereissignificantpublicresearchfundingavailableinEuropesuchasthepublic-privatepartnership
InnovativeMedicinesInitiative(IMI),theEuropeanCommission’sHorizon2020andInnovFin,the
jointinitiativelaunchedbytheEuropeanInvestmentBankGroup(EuropeanInvestmentBank(EIB),
andEuropeanInvestmentFund(EIF))incooperationwiththeEuropeanCommissionunderHorizon
2020.Theseareperceivedasgoodfundingvehiclesforbiotechcompanies.Inordertobeevenmore
attractiveandefficient,theseresearchfundsneedtobecarefulnottodividethefundingtoothinly
overallcandidates,andacrossdifferentcountries.Instead,thefocusshouldlieonthequalityofthe
researchwiththeaimtofullyexploititsscientificandcommercialpotential.
ThenumberofEuropeanseeddandseriesAroundsehaveincreasedoverthepastfiveyearsand
Europeaninvestorscurrentlycollectmoremoneyintheirfundsthaneverbefore.However,taking
intoaccounttheinvestmentsneededtodevelopbiopharmaceuticalproductsformarketlaunch,the
totalamountofEuropeanVentureCapital(VC)moneyisbyfartoolowtofinanceEuropeanbiotech
companiesthroughoutthewholeproductdevelopmentprocess.Maturebiotechcompanies,
meaningcompaniesthatareabletodevelop,launchandsellamedicinalproductindependently,are
lackinginEurope.Suchmaturebiotechcompaniesareessentialforaconfidentbiotechinvestment
ecosystem,astheygeneraterevenuesandaredrivingtheinterestofinvestors.In2015,thetopfive
commercialbiotechcompaniesintheUSaccountedforrevenuesof80billionUSD,representinghalf
oftheworldwiderevenuesinbiotech.Itisevidentthatsuchrevenuesfrommaturebiotech
companiescreateahealthyinvestmentecosystemthatattractsnovelinvestments.Withrespectto
thematurationofbiotechcompaniesinEurope,only13%ofitsPhaseIIcompaniesmanagetomove
intoPhaseIIIorbeyond,leadingtoasignificantlossofinnovation.Mostothercompaniesdonotfind
theirfundinginEurope,butinsteadmovetotheUSseekingalistingontheNASDAQforacquisition
byalarger,oftenUSbasedcompany,representingahugeinnovationdrainfromEuropetotheUS.
g 10
Table2:Costofbiopharmaceuticaldevelopment , d
Seedmoney,sometimesknownasseedfundingorseedcapital,isaformofsecuritiesofferinginwhichaninvestorinvestscapitalin
exchangeforanequitystakeinthecompany.Thetermseedsuggeststhatthisisaveryearlyinvestment,meanttosupportthebusiness
untilitcangeneratecashofitsown(seecashflow),oruntilitisreadyforfurtherinvestments.
e
SeriesAroundsaretraditionallyacriticalstageinthefundingofnewcompanies.SeriesAPreferredStockisthefirstroundofstock
offeredduringtheseedorearlystageroundbyaportfoliocompanytotheventurecapitalinvestor.SeriesApreferredstockisoften
convertibleintocommonstockincertaincasessuchasanIPOorthesaleofthecompany.ThecapitalraisedduringaSeriesAisusually
intendedtofinancethecompanyfor6monthsto2yearsasitdevelopsitsproducts,performsinitialmarketingandbranding,hiresits
initialemployees,andotherwiseundertakesearlystagebusinessoperations.
f
NASDAQ:NationalAssociationofSecuritiesDealersAutomatedQuotations,thekeyUSstockexchangeforbiotechcompanies.
g
AcronymsusedinTable2:WIP=workinprocess,i.e.numberofassets;NME=newmolecularentity
Page3of6
In2015Europeancompanieshaveraisedmorecapitalthanever,butitstillrepresentsonlyafraction
ofthecapitalraisedbyUScompanies.Europeislosingevenmoreofacompetitiveedge,when
comparingthemodestincreaseof6%incapitalraisedover2014tothe35%increaseincapitalraised
byUScompaniesoverthesameperiod.ThehugeincreaseintheUSisfuelledbythepresenceof
maturebiotechcompanieslaunchingmedicinalproductsindependently,andgeneratingsignificant
revenuesforbiotechcompaniesthatotherwisewouldhavegonetotheirpharmapartners.These
largerevenuesaredrawingtheinterestofmoreinvestorstothebiotechspace.
Capitalraised,numberofcompanies&employeesinUSvsEU(2014vs2015)*
Capitalraisedbycompanies
Numberofcompanies
Numberofemployees
US(2014)
$45,1B
2.763
109.450
US(2015)
$61,1B(+35%)
2.772(+0%)
131.690(+20%)
EU(2014)
$9.3B
2.268
61.320
EU(2015)
$9.9B(+6%)
2.259(0%)
72.160(+18%)
*Source:BiotechnologyReport2016EY
ApartfromafewcompaniessuchasShirePlc(Ireland),UCB(Belgium)andActelion(Switzerland),
Europelacksmaturebiopharmaceuticalcompaniesthatgeneratesignificantrevenuesfromthesales
oftheirinnovativeproducts.
ConsideringtheamountofcapitalraisedbyEuropeanbiotechcompanies,thenumberofcompanies
andtheamountofmoneynecessarytoputamedicinalproductonthemarket,itisevidentthatthe
Europeanbiotechecosystemisheavilyunderfunded.Littlematurationofbiotechcompaniescanbe
expectedinEuropeinthenearfuture.EvenlargeEuropeanfundsfindUScompaniesmore
compellingcasesforinvestmentthanEurope-basedcompanies,basicallybecauseUScompanies
createamuchhighervalueandgreaterreturnoninvestment.Someofthesefundseveninvest80%
oftheirmoneyintheUS,withonly20%inEurope11:abigleakageofcapitalforinnovationfrom
EuropetotheUS.
Inaddition,venturecapitalfirmsinEuropeareperceivedastoosmallinfundsizeandsometimesare
geographicallylimitedintheirinvestments.TheEIBandEIFareimportantbodieswithinthe
EuropeanUniontoprovidelong-termfinancing,includingthefundingofventurecapitalfirms,butas
withtheIMI,fundingisspreadtoothinlyoverthedifferentventurecapitalfirms.BothEIBandEIF,
whenfinancinginvestmentfunds,shouldprovidefundingwiththeaimofcreatinglargerfundsthat
caninvestacrossEurope.Furthermore,itiscrucialforahealthybiotechinvestmentecosystemto
createcrossoverinvestorsthatcaninvestinabiotechcompanybothwhenitisprivateaswellasin
itspublicphase,inadditiontotheclassicalVCfundsthatinvestinprivatecompanies.Whenever
crossoverinvestorsareinvolvedinabiotechcompany,theirwaytothestockmarketismadeeasier
andtheperformanceafteranInitialPublicOffering(IPO)aswellastheliquidityofthestockismuch
better.Theperspectiveofagoodafter-IPOperformanceisimportantforattractingtheinterestof
investorsinprivatebiotechcompanies,asthisisperceivedasapossibleexitfortheinvestors.There
aremanycrossoverinvestorsintheUS,mostlywithdeeppockets.IntheEUthereareonlyafew
smallcrossoverinvestors,whilethereisclearneedforatleasttwooftheselargeinvestorfundsthat
couldhelpdevelopingthecapitalmarketsandprovidingexitopportunitiesforinvestorsinprivate
biotechcompanies.
Recommendations:
-
EIB/EIFtomakelargefinancialticketsavailableforcreatingatleasttwolargeindependent
EuropeanBiotechcrossoverinvestorswithbudgetsofmorethanonebillionEuros;
EIB/EIF,whenfinancinginvestmentfunds,toprovidefundingtolargerEuropeanBiotech
venturecapitalfundsthatcaninvestacrossEurope;
Page4of6
-
Europeanresearchfundingforbiotechtofocusonqualityandsufficientfundingtoaddress
thescientificpotential.
CapitalMarketsandotherincentives
Europeneedstobuildabiggerandbettercapitalmarketforbiotechcompaniestoovercomethe
fundinggapthatpreventstheneededgrowthofthebiotechsector.CapitalmarketsinEuropeare
fragmentednationalmarketswithseparaterules,regulationsandbusinesspracticesandprovide
littleliquidityforinvestorsinbiotechcompanies.Furthermore,capitalmarketsinEuropearenot
deepenoughtotakeupanydownfalls,necessarytocreatetrustandcontinuityinahighlyrisky
sectorsuchasthebiotechindustry.Withoutsuchadeepercapitalmarket,Europewillnotbeableto
createamaturebiotechnologysectorabletogeneratesalesfromtheproductsdevelopedin-house.
WeappreciatetheactivitiesundertakenbytheEuropeanCommissiontobuildatruesinglemarket
forcapital–aCapitalMarketsUnionforallMemberStates–,butwebelievethatspecificmeasures
forthebiotechsectorshouldbetaken.
BecauseofthesuboptimalfunctioningofcapitalmarketsforthebiotechsectorinEurope,anIPOfor
abiotechcompanyisnotgenerallyseenasanexitoptionforventurecapitalinvestors.Theyrather
seetheirEuropeanportfoliocompaniesbeingacquiredbyanothercompany,inmostcasesalarger
USbasedcompany,thantakingthemtotheEuropeanstockmarket.LowliquidityandnegativepostIPOperformancearebeingperceivedasdriversforsuchpreferredbehaviour.IntheUS,thereis
competitionbetweenacquisitionandIPOasexitstrategies,resultinginamuchhighervalueinboth
situationsandthusgreaterreturnoninvestmentfortheinvestors.
ThereisastrongtrendofEuropeanbiotechcompanies
beinglistedontheNASDAQ.Ingeneral,these
companiesraisealmostdoubletheamountthanthat
raisedbycompanieslistedonEuronextandAIM,
however,Euronextcompaniesshowmuchstronger
after-IPOperformancecomparedtoanoverallnegative
post-IPOperformanceofEuropeanfirmslistedon
NASDAQ.Thiscreatesamomentumforaunited
EuropeancapitalmarketforbiotechIPOs,accelerating
theEuropeanventurecapitalindustrytobecomethe
samesizerelativetotheeconomyasintheUSand
providefundingforfuturepotentialEuropean
‘Amgens’and‘Gileads’thatarenownotgettingthefundinginEurope.
ArGEN-X (Ghent, BE), Affimed (Heidelberg,
DE) and Five Prime (San Francisco, US) are
antibody companies in the field of oncology, all
with a similar clinical stage of development.
ArGEN-X is listed on the Euronext with a market
cap of €176M, while Affimed and Five Prime are
both listed on the NASDAQ; the German based
Affimed with a market cap of $96M and the US
based Five Prime with a market cap of nearly
$1,4B. These companies were listed within a
year time frame between Sept 2013 – Sept 2014.
Compared to their introduction price, their stock
price performed markedly different: ArGEN-X
+31%, Five Prime +288% and Affimed -58% (dd
3/8/2016).
Additionalconcessionstostimulategreaterinvestment,currentlyrandomly(haphazardly)available
atnational,orsub-nationallevel,suchastaxcreditsforresearchorspecificcommercialisation
agreementsforIntellectualProperty(IP)developedatEuropeanuniversitiesthroughinvestorsin
biotechstart-upcompaniescanpresentstrongincentivestobiotechcompaniesandassistin
obtaininglongertermfunding.Rollingoutthemostsuccessfulofsuchincentivesinamannerthat
createssynergiesacrossEurope,forexampleinformofEUCommissionsupportedandMember
StatesimplementedBestPracticestoincentiviseinnovation,wouldprovideadditionalsupportto
establishingsuccessfulbusinessesinEuropebasedoninnovativeideasdevelopedinEurope.
Recommendations:
-
EuropeanCommissiontofacilitateasinglecapitalmarketforbiotechnologycompanies;
EuropeanCommissionandMemberStatestofacilitateEuropeantaxincentivesandother
incentivesforinvestinginprivateandpublicBiotechcompaniesthroughidentificationof
BestPractices
Page5of6
Conclusion
Europehasgreatscienceinthebiotechsectorbutlagsbehindintranslatingthescienceinto
successfulbusinesses.Addressingthekeyfactorscontributingtoamigrationofbusinessventures
outsideofEuropeidentifiedbytheEuropeanBiopharmaceuticalEnterprises(EBE)wouldimprovethe
currentgapintranslatinginnovationintobusinesses.Therecommendedkeyactionsfocuson
improvingtechnologytransferandbusinessacumenofinnovators,specificactionswithinthe
EuropeanfundingecosystemtoimproveinvestmentwithinEurope,speedingupdevelopmentofa
singlecapitalmarketforbiotechcompanies,supplementedbyidentificationandEurope-wide
ImplementationofbestsupportiveincentivesacrossEuropesuchastaxcreditsforresearchandIP
commercializationagreementswithinvestorsinbiotechcompanieswouldprovidefurtherincentives
toestablishingbiotechcompaniesinEurope.
References:
1
EFPIAThePharmaceuticalIndustryinFigures,2016Edition,pp12-13;EmploymentinthePharmaceutical
Industry: http://www.efpia.eu/uploads/Modules/Documents/the-pharmaceutical-industry-in-figures-2016.pdf
2
McKinsey&Company,December2014.Rapidgrowthinbiopharma:Challengesandopportunities,ByRalf
Otto,AlbertoSantagostino,andUlfSchrader,http://www.mckinsey.com/industries/pharmaceuticals-and
medical-products/our-insights/rapid-growth-in-biopharma
3
GlobalUniversityrankings:https://www.timeshighereducation.com/world-university-rankings/2016/worldranking#!/page/0/length/25/sort_by/rank_label/sort_order/asc/cols/rank_only
4
TheWorld'sMostInnovativeResearchInstitutions:http://www.reuters.com/article/us-innovation-rankingsidUSKCN0WA2A5
5
TheWorld’sMostInnovativeUniversities:http://www.reuters.com/article/idUSL1N11K16Q20150915
6
AlexandervonGabain(2016);Whatinnovationis:onpatents,techtransferandentrepreneurialuniversities;
http://stateofinnovation.thomsonreuters.com/what-innovation-is-on-patents-tech-transfer-andentrepreneurial-universities
7
Guestpost(2Aug.2016)byLukeTimmerman(founder&editoroftheTimmermanReport,regularcontributor
toForbesandSTATNews);12SerialEntrepreneursWho’veCreatedValueinBiotechOver,andOver,Again;
http://insight.ebdgroup.com/h/i/277019964-12-serial-entrepreneurs-who-ve-created-value-in-biotech-over-andover-again/274119?utm_source=event&utm_medium=email&utm_term=08032016_Article&utm_campaign=BPA16
8
seeErnest&Young‘BeyondbordersBiotechnologyreport2016’(page51);
http://www.ey.com/Publication/vwLUAssets/EY-beyond-borders-2016/$FILE/EY-beyond-borders-2016.pdf
9
WongSKC,SasportasLS,RichardsonKetal.,KeystotheKingdom,NatureBiotechnology,Publishedonline:26
February2015,doi:10.1038/bioe.2015.2
10
PaulSM,MytelkaDS,DunwiddieCTetal.,HowtoimproveR&Dproductivity:thepharmaceuticalindustry’s
grandchallenge,NatureReviewsDrugDiscovery9,203-2014(2010)
11
PersonalcommunicationtoEBE
European Biopharmaceutical Enterprises (EBE), a specialised group of EFPIA
LeopoldPlazaBuilding
RueduTrône108
1050Brussels
Belgium
T+3226262561
[email protected]
www.ebe-biopharma.eu
VATBE0418762559
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