Europe’s emerging biotechs: Challenges, opportunities and funding

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John Macdonald is Vice President, Venture & Financial Alliances at ICON. He examines the European biotech sector – its expertise and opportunities and potential for growth.

By harnessing biological processes on a cellular and biomolecular level, biotech is benefitting industries as varied as agriculture and chemical production. Perhaps the most prominent of these is biopharma. In fact, from 2014 – 2020 the European Union’s (EU’s) Horizon 2020 — which provided research and innovation funding for multi-national collaboration projects, as well as for individual researchers — estimated that one fifth of current medicines and up to half of new medicines were derived from biotech.

The European biotech market varies from other markets, particularly the US, where there is a pool of venture capital resources to draw upon. For European biotechs, this source of capital is harder to come by. But because of the high competition for funds in Europe, the cost of investment is lower for the same quality of work. For European biotechs that choose to go public, many choose to launch initial public offerings (IPOs) in the US in order to draw a higher performance.

Additionally, Europe is complex because of how many smaller markets it contains. Under the umbrella of the EU and the European Medicines Agency (EMA) there are dozens of countries with differing pathways for biotech companies, as well as distinct healthcare and reimbursement systems. Contributing to the complexity are those countries — such as Russia and recently the UK — which are not EU members and, therefore, do not come under the purview of the EMA. This means biotechs in each country must approach R&D differently, and must consider the standards and healthcare policies of any country they hope to market in.

With a broad geography, Europe has clusters of biotech innovation. The UK – and its golden triangle of Oxford, Cambridge and London – is a leader, with a growing number of startups and at the top of public funding as reported in 2019.^{1, 2}Other biotech centres leading innovation and expanding their influence include Germany, France, Switzerland and the Netherlands.

Europe is a major force in the biotech field and has the potential to grow. As biotech finds itself in the spotlight, it is useful to evaluate its position in Europe – what the pandemic has changed, key areas of innovation and how biotech companies are being funded.

The impact of Covid-19

Nothing has so drastically impacted biopharma as the Covid-19 pandemic. Health and life science companies stepped into the spotlight as prevention, treatment and vaccination against the virus took priority. Meanwhile, phases of clinical trials and drug approval became topics of conversation.

Public attention on life sciences benefitted biotech financially. Previously uninterested investors began to see the value in this sector, with new funds and more capital being made available. 2020 saw biotech initial public offerings hit record highs at $9.7 billion over the course of the year.³Additionally, venture capital funding as a whole grew by 45%; and while the US still saw more investment, Europe’s mean funding size grew at twice the rate.⁴

Health efforts to counter the spread of Covid-19 helped bring biotechnology into the mainstream. Therapies that had been sidelined prior to the pandemic were proven to be effective and accepted by the medical community. The most obvious example is the mRNA technology BioNTech employed in the vaccine it developed with Pfizer. Though the technology for mRNA vaccines had existed for years, none were approved for use until the Covid-19 vaccine in 2020. As of February of 2021, the Pfizer-BioNTech vaccine was the most widely used worldwide.⁵

Not all the ramifications of Covid-19 have benefitted the biotech sector. Out of concern for safety and a desire to focus research on the pandemic, thousands of clinical trials around the world were halted in 2020 — by some estimates up to 80% of trials unrelated to Covid-19.⁶ This impacted timelines, supply chains, budgets and the quality of data that could be collected from ongoing studies in all fields, including biotech.

Developing novel therapies

While responding to Covid-19 has been a key focus over the past year, other fields are also on the rise, and the frontrunner of these is cell and gene therapy (CGT). In the first three quarters of 2020, funding for cell therapy and gene therapy increased by 114% and 242% respectively, with a total of 575 ongoing clinical trials between both.⁷

While CGT has slowly been gaining momentum over the last twenty years — the first gene therapy was approved in Europe in 2012 — it has become the biotech field with the most clinical development and funding.

This is particularly true of its oncology applications, now one of the leading areas of research. It makes sense that researchers want to explore the potential of CGT on treating cancer. CGT is linked to immunotherapies, such as CAR-T therapy that uses modified T-cells to treat certain cancers. With the possibility of using the body to target cancer cells, while avoiding damage to surrounding tissue, the application of CGT could have huge impact on oncology.

Funding innovation

Biotechs need funding. With high competition for fewer resources, most European biotech companies seek funding from both public and private sources – these sources have benefits and drawbacks.

Depending on the location, public funding may take time and also require outside financing. However, it may be attractive because of its region-specific nature. For example, the Invest in Holland initiative of the Netherlands, includes a focus on health and life sciences. The Dutch government offers startups and innovative companies partial compensation for certain R&D costs, such as wages and expenditures. This has led to an annual €2 billion investment in life sciences R&D. The Netherlands also encourages public-private partnerships, facilitated by Health-Holland.⁸

Offering broader support, the EU has made biotech a focus of its financial programmes. From 2014 to 2020, the Horizon 2020 initiative was aimed at making Europe competitive on a global market and driving economic growth and innovation. It saw biotech as a driver for many industries and important to securing Europe’s competitive advantage, offering funding opportunities accordingly. This programme has been succeeded by the Horizon Europe programme, with an emphasis on funding innovation.

On the other hand, European biotech companies seeking venture capital funding face significantly more competition, with fewer funds available. However, these funds typically specialise in the field in which they are investing. As a result, in addition to their monetary investment, venture capital investments often come with expertise that can benefit a biotech by guiding it along the right path.

One problem that small biotech startups face in funding is their size. Many have a small, focused team with simple, specialise work structures. However, these team members often have less business experience and have fewer connections to sources of venture capital. Without an established network to draw upon, it becomes challenging for biotech startups to access funding. Awareness of this has spurred some European venture capitalists to focus on small startups.

For example, Eclipse is a clinical development accelerator programme created to invest in early stage biotech companies and accelerate early clinical development in the UK and the EU. Created through a collaboration between ALSA Ventures, a Europe-focused therapeutic venture capital fund, and ICON, a clinical research organisation (CRO) based in Ireland, this programme offers opportunities for early stage biotechs by providing funding from the VC and development support from ICON. In addition to monetary concerns, the investment by a large CRO is particularly valuable as the biotech can benefit from external support and expertise with the assurance that it will not be neglected because of its size.

Another innovative funding vehicle that has come to prominence in the past year is Special Purpose Acquisition Companies (SPACs). These “blank cheque companies” provide a quicker and cheaper way for biotech companies to gain a public listing than that offered by the traditional IPO route. Whilst this latest development has been dominated by US firms, the first European-based, biotech focused SPAC was launched in February. European Biotech Acquisition is based in Amsterdam, and will look to take a European biotech company public within two years.

Looking forward

With so many variables at play, it is hard to predict what direction biotech will take. The pandemic is still ongoing, and it is unclear what lasting impact it will have on biopharma.

Brexit is also likely to cause ripples in European biotech. No longer a member of the EU, the UK doesn’t fall under the regulation of the EMA, which has relocated from London to Amsterdam. This means that collaboration between biotech groups in the EU and the UK will face more regulatory challenges.

Even facing this uncertainty, the European biotech sector has the potential to be a serious global competitor. With growing numbers of biotech companies, innovation and progress, and prominent partnerships (such as the one between BioNTech and Pfizer), European biotech is poised to thrive.

Volume 22, Issue 3 – Summer 2021

About the author

John Macdonald is Vice President, Venture & Financial Alliances at ICON, and has a remit to develop ICON’s strategic alliances within the venture and private equity-backed sectors, which include novel venture-backed virtual DevCos, VC funds and their portfolio companies, as well as corporate venture groups. Macdonald began his career in clinical research with Merck & Co., and later Syntex Pharmaceuticals.

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