European Biotech Struggles to Thrive

Nathan JessopThere is considerable debate about the R&D efficiency and innovative capacity of the pharmaceutical industry based on analyses of new drug output (1, 2). Although most pharmaceutical companies are still conducting their own R&D programmes, the contribution made by outside parties to their drug pipelines should not be overlooked. In particular, the biotech industry has been an increasingly popular source of products for companies looking at licensing options.

The need for new products has grown, especially now that some of the larger companies are facing patent expiries for major brands. Out of the 252 drugs approved by the US Food and Drug Administration (FDA) between 1998 to 2007, 55% originated from the domestic biotech industry (3). These US data serve as a reminder to pharmaceutical companies that licensing is one way to expand their drug pipelines; however, for the European biotech sector, such strong productivity is something to be emulated to attract the attention of pharmaceutical companies and investors.

Decline in funding

European governments have realised that a vibrant biotech sector can contribute to the economy and generate employment. As a result, several governments have attempted to boost the biotech sector through measures such as tax incentives. Looking for investors can be difficult when R&D is at an early stage and during such period, government support measures are crucial for biotech companies. In the long term, however, external funding from investors and deals with larger companies are needed for growth within a biotech company. It is in this aspect that European companies still struggle compared with their US rivals.

Recently, there has been a noticeable decline in funding for the European biotech sector as a whole. A report by Dow Jones VentureSource on the European biotech sector described a 16% decline in deals with pharmaceutical companies and a 66% fall in cash during the first half of 2012 (4). Ernst & Young reported that funding in Europe has dropped down to levels equal to before the current global economic crisis (5).

As Europe’s economic problems remain unresolved, companies are struggling to attract external funding. A further complication is that a number of governments are reconsidering their support measures. In some countries, particularly France, the national government approach is at odds with the official EU Strategy for 2020, which is focused on increasing productivity and specifically mentions that small and medium enterprises (SMEs) such as those in the biotech sector play a key role in achieving regional growth (6).

Many observers of the European biotech sector believe that now is a crucial time for national governments to show their support because any cutback in incentives could have a crippling effect on the industry (6, 7). Their view is that investment in the biotech sector could help improve the economic conditions in Europe because there is always a demand for its products in addition to the positive financial benefit through the jobs it creates as well as the wider business activity it generates (6, 7).Nevertheless, it has been difficult to persuade many European governments with these arguments given that drug development times are much longer than election cycles and most politicians are inevitably focused on short-term deliverables. Moreover, the failure of many biotech companies has caused their attitudes to become even more risk averse.

UK leads the way

According to Ernst & Young’s assessment, the biotech sector still represents one of Europe’s best chances for growth, with certain countries, such as the UK, outperforming others (7). Ernst & Young noted that the UK led Europe in terms of the amount of financing rounds and venture capital raised (5). On the contrary, in France, the sector’s potential growth has been put at risk by sharp drops in funding and ambiguous government support (8). For example, France Biotech, which represents the domestic industry, highlighted that funding has decreased by 40% between 2010 and 2011 (8).

The UK biotech sector is considered to be fairly mature and investors continue to be attracted to the sector based on past company performances. According to the UK’s BioIndustry Association, 70% of all biologics in development in the UK are at Phase III or registration stage, with the value of the entire national biotech pipeline exceeding £15 billion (9). Another potential attraction (that perhaps contrasts with the situation in France) has been the government’s high profile commitment to an entrepreneurial climate through the Technology Strategy Board, the national agency for innovation (6). Enterprise zones have also been set up around the country, allowing companies to benefit from lower business rates and less planning restrictions. SMEs can also benefit from R&D incentives; for example, tax relief on drug development expenditure is set to increase from 200% to 225% (6).

The potential of the UK biotech sector has not gone unnoticed by the major pharmaceutical companies. Although Pfizer withdrew its R&D base in Sandwich, the company has been seeking collaborations with biotech companies in the UK around the Cambridge area (10). In November 2012, Pfizer announced a £3.8 million research deal with Kent-based Ziarco to commercialise an anti-inflammatory and anti-allergic portfolio (11).

GlaxoSmithKline has shown a long term commitment to the UK biotech sector. In 2009, the company teamed up with the UK government, the Technology Strategy Board and the Wellcome Trust to develop a science park in Stevenage (12). As part of the deal, GlaxoSmithKline contributed land, facilities and investment worth £10.9 million while the UK government provided £11.7 million, the Technology Strategy Board £5 million, the Wellcome Trust £6 million and the East of England Development Agency £4 million (12). GlaxoSmithKline’s involvement meant that it would be in prime position to acquire the most promising biotech projects.AstraZeneca has taken a similar approach to leveraging the output of UK biotech firms. In 2012, the company received £5 million investment from the UK Department for Business, Innovation and Skills’ regional growth fund for the development of a bioscience cluster at its Alderley Park R&D site (13).

GlaxoSmithKline also has a high-profile direct-investment approach to the UK biotech sector and is involved in specialised venture arms for promising partnering companies (6). Its venture arm, SR One, currently lists a number of UK biotech firms among its portfolio (6, 12). GlaxoSmithKline has also joined together with Johnson & Johnson to launch the €150 million Index Ventures’ first fund, which invests primarily across Europe (14, 15).

Outlook in Europe

The European Commission has recognised that the biotech sector is vital to the regional economy and environment for innovation. It has committed to creating conditions that will allow biotech companies to prosper and be competitive (16). Part of the Commission’s role is to coordinate with member states to fulfil these objectives. However, in the current economic environment, some national governments, such as France, appear to be wavering in their support for the sector. European biotech companies also need external support from investors, which has been proven difficult to achieve.

While regional analyses paint a depressing picture of the biotech sector, many argue that this view does not represent the whole story for Europe. For example, despite many companies struggling because of the tough economic environment, the UK is believed to have a positive outlook. The UK government has publicly stated its support for the biotech sector and companies are attracting direct interest and funding from major pharmaceutical companies. If a new generation of UK biotech firms can mature in the current operating environment, it will give hope to other ambitious companies in the European sector.

References

1. J.W. Scannell et al., Nat. Rev. Drug Discov. 11 (3) 191-200 (2012).

2. PJ Online website, “Innovation decline is a myth, new research suggests,” www.pjonline.com, accessed 27 Feb. 2013.

3. R. Zwahlen R, Nat. Rev. Drug Discov. 9 (11) 867-882 (2010).

4. FierceBiotech website, “Biotech venture rounds dwindle in Europe, tracking U.S. trend,” www.fiercebiotech.com, accessed 27 Feb. 2013.

5. Ernst & Young website, “Beyond Borders. Global biotechnology report 2012,” www.ey.com, accessed 27 Feb. 2013.

6. Ernst & Young website, “What Europe has to offer biotechnology companies,” www.ey.com, accessed 27 Feb. 2013.

7. European Biotechnology News, “Why biotech needs Europe – and Europe needs biotech,” Press Release, 11 Dec. 2012.

8. FierceBiotech website, “France Biotech presents the results of its tenth annual “Life Science Panorama 2011” survey, conducted in partnership with Ernst & Young,” www.fiercebiotech.com, accessed 27 Feb. 2013.

9. BIA website, “Our Sector,” www.bioindustry.org, accessed 27 Feb. 2013.Business Weekly, “Pfizer ramps up Cambridge collaborations,” Press Release, 26 Mar. 2012.

10. PharmaTimes website, “Pfizer UK and Ziarco announce tie-up,” www.pharmatimes.com, accessed 27 Feb. 2013.

11. The Telegraph, “GlaxoSmithKline backs £170m science park project that would create up to 3,000 jobs,” Press Release, 13 Oct. 2009.

12. AlderleyEdge website, “AstraZeneca secures £5m grant for potential BioScience park,” www.alderleyedge.com, accessed 27 Feb. 2013.

13. GSK website, “Innovation and investment,” www.gsk.com, accessed27 Feb. 2013.

14. Pharmaceutical Field website, “GSK and J&J invest in biotech fund,” www.pharmafield.co.uk, accessed 27 Feb. 2013.

15. European Commission website, “Enterprise and Industry: EU Biotechnology Policies,” www.ec.europa.eu, accessed 27 Feb. 2013.