SMEs and Competitiveness
Most European companies specialised in biotechnology are small or medium-sized enterprises (SMEs). As in many other sectors, SMEs have considerable innovative force and dynamism, but lack the resources that may be at the disposal of larger, incumbent companies.
The typical European biotechnology SME at the age of 6-10 years has around 28 employees (source: Critical I, 2006) and specialises on R&D and product development in a narrow field. Their growth is limited and at 11-15 years of age the company has on average only 41 employees. Despite many successful European biotech start-ups, the companies tend to grow slowly and depend on external finance for their research and development (see definition of SMEs).
According to the Commission's analysis, the growth of biotech SMEs is held back by three main constraints:
- Europe's fragmented patent system, which makes it burdensome and costly to file and defend patents
- The insufficient supply of risk capital in Europe
- Shortcomings in the cooperation between science and business.
SMEs are directly affected by the relatively high costs and administrative burdens of obtaining and defending patents within the European patent system. The Directive 98/44/EC on the legal protection of biotechnological inventions had been implemented by all Member States by 2006, but this is insufficient to solve the competitiveness problem posed by the heavy patent procedures in Europe. A reliable, effective and affordable Community Patent is essential in order to strengthen our competitiveness.
Sufficient amounts of risk capital are often difficult to raise during the start-up phase (pre-seed and seed capital), in the growth phase (venture capital, and later the initial public offering on the stock market). Although the amount of financing increased markedly in 2005-2006, there are reasons to fear that this could rapidly decrease in the event of a downturn in the business cycle.
The biotech industry would benefit from a better cooperation between science and business, in order to capitalise on Europe's scientific excellence. The trouble with turning scientific discoveries into marketable products in Europe could be helped by strengthening existing company clusters, promoting the development of regional networks and facilitating trans-national cooperation.
The Commission has presented its re-focused biotechnology Action Plan in 2007 [52 KB] . The need to provide better framework conditions is a central theme and SMEs will benefit from these actions to be implemented between 2007 and 2010.