Access to finance
The problem of raising enough funding for R&D and product innovation is often cited by biotechnology companies and industry associations. It seems adequate access to finance is especially difficult for SMEs with no proven track record.
In 2005 and 2006 a tangible improvement in the amounts of risk capital available was noted. According to an Ernst & Young survey, total revenues increased by 13% in 2006, market capitalisation increased by 43%, net losses for public companies fell by 37%, total R&D expenses increased by 8%, venture capital investment reached a record high of €1.5 bn, there were 32 initial public offerings raising a total of €0.7bn (+29% on 2005), and total financing increased 45% to €4.7bn. There were also 64 mergers and acquisitions.
However good news this is, the cyclical fluctuations of the financial markets should be kept in mind. During an economic downturn, biotechnology ventures may seem more risky and less profitable because of the long development times, and investors may yet again limit biotech investments like they did between 2001 and 2003.
The Commission has identified that there is a long-standing market failure in providing early-stage finance (for instance pre-seed and seed capital). For general information on access to finance, please consult our dedicated Webpage "Better access to Finance".
Biotechnology companies often face a long time between start-up and marketable products, and inadequate access to finance in the mid-stage, mainly venture capital, seems to be a concern. Finally, initial public offerings (on the stock market) and follow-on offerings are more difficult to organise than in the US and the amounts raised are usually lower. An underdeveloped European venture capital market and the fragmentation of stock markets at the national level are two likely causes.
In accordance with the findings of the Commission's 2007 mid-term review of the biotechnology strategy [52 KB] , a combination of measures to improve access to finance seems necessary. Firstly, measures aimed at making companies more attractive to investors need to be carried out by policy makers at European and national level, and by private actors. Secondly, measures aimed at increasing the investment capital available for European biotech companies are necessary from European and national policy makers.
Examples of such measures are included in Annex III of the Staff Working Paper [539 KB] [538 KB] , that was published in connection with the 2007 biotechnology mid-term review. A summary follows below:
- Making companies more attractive to investors
- Fiscal incentives may increase R&D expenditure and encourage employment by reducing the tax wedge
- Promote the Young Innovative Company scheme across Europe
- Explain and promote the possibilities offered by the new EC framework for state aid to R&D&I
- Study the possibility of introducing advantages for SMEs at the European Patent Office
- Argue for an EU agreement on an effective Community Patent
- Increase critical mass of early-stage companies (e.g. business plan, funding, product pipeline, management skills) by:
- improving support services and advice from seed capital schemes,
- encourage the creation of technological incubators for launching high-tech enterprises,
- identify best practices in national business assistance, e.g. a one-stop-shop for start-ups which provides business advice, co-financing, and an interface with other investors.
- Increasing the investment capital available for European biotech companies
- Increase public funding and leverage private funding through public funding
- Increase spending of institutional investors in the biotech companies
- Encourage the creation of a pan-European seed fund
- Encourage the creation of a European Incubator Capital Fund
- Propose fiscal incentives for risk capital investments
European Union financial support
Financial support from the Commission is given mainly through 7th Research Framework Programme (FP7) or the Competitiveness and Innovation Framework Programme (CIP).
Technology transfer from academia to industry is also a field where Community support is important. A "Technology Transfer Accelerator" was launched in 2006 by the European Investment Fund to link centres of excellence and universities in the EU and provide capital for early-stage projects.
National financial support
A comparison of national funding schemes to biotechnology R&D and other national policy measures has been carried out in the BioPolis study [1005 KB]