Brussels, 01 Jun 2006
The EU's biotechnology industry is the victim of underfunding, causing it to lag significantly behind the US, according to a report commissioned by EuropaBio, the European association of bio-industries.
The report compares the EU Member States, Switzerland and Norway to the US, and explores the situation in individual Member States. The results show a gulf between the biotechnology industries of the EU and US. There are roughly the same number of companies in the EU as in the US - 2,163 to 1,991 respectively - but the EU companies are smaller, newer, receive a fraction of the funding, and grow more slowly than their US counterparts.
A closer look at the data reveals a bigger gulf - the US companies hire double the number of employees, spend three times as much on research and development (R&D), and generate double the venture capital compared to their US cousins. US companies generate 10 times the debt finance compared to EU biotechnology companies.
'Venture capital is a luxury,' said John Hodgson of Critical I, the lead author of the paper. 'Less than 10 per cent of European companies win venture funds each year. But it is an indispensable luxury. Only properly capitalised companies can hope to compete globally in knowledge-intensive industries like biotechnology,' he said.
However, the news is not all bad. Europe has the potential to nurture and grow the large number of new biotechnology companies established each year. In 2004, more than 100 new biotechnology companies started researching and trading. They all currently suffer from underfunding, and the industry suffers as a result, but increased funding could transform the situation on the ground.
'Europe can be a breeding ground for European companies, or it can be a greenhouse for high-technology firms that are acquired by better funded US firms. The development of technology will follow the money that allows it to develop. Europe needs to make sure that the money is here,' said Mr Hodgson.
However, a closer look at the data shows that some European countries seem to nurture biotechnology better than others. Portugal, Finland, Hungary, Switzerland, Ireland and the UK all have a larger proportion of older companies, indicating there is a better climate for success in those places. Older companies generate the bulk of the European biotechnology revenue and invest the most money in R&D, but they, too, are under pressure.
Underfunding also limits how European companies can grow. Two-thirds of European biotechnology companies employ fewer than 20 people, double the number employed in the US. New European companies are also more likely to fold than their US counterparts - again due to their lower revenues and investment in people and R&D.
Most worrying, successful European companies have discovered a convenient solution to the lack of EU funding - moving to the US. This gives them ready access to their much larger finance markets available in the US.
To address these problems, Mr Hodgson suggests six points to improve the situation in Europe:
- take EU-wide action;
- do not focus simply on start-ups;
- learn from mistakes already made;
- package companies and their intellectual property as early as possible;
- double venture capital at all stages;
- European stock exchanges must go beyond floatation.
Dr Hans Kast, Chairman of EuropaBio and CEO of BASF Plant Science, welcomed the report. 'Identifying the problem is the first step to a solution. A second step is providing significant financial and tax incentives to investors and venture capitalists to invest in biotechnology,' he said. He referred to schemes such as the French Young Innovative Company, which gives incentives to new companies with innovative products, and called for it to be extended EU-wide.
The report adds to mounting pressure from within European business to ease the intellectual property and patent laws, and open markets and stock exchanges to more EU-wide traffic.