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A Sketch of the European Biotechnology Industry

This text goes with a presentation given on Jan. 23, 2002 at SMIPS, the Society for the Management of Intellectual Property, at the University of Tokyo (Sentanken) by Armin Rump

With much delay vis-a-vis the United States, the number of young biotechnology companies has exploded in many European countries over the last 4-7 Years. This article will take a look at the European biotechnology landscape and, with the example of Germany, will ask how this success was possible.

According to Ernst&Young's yearly report on the Europaen biotechnology industry, the number of life science companies in Europe has doubled between 1997 and 2001, surpassing the US in 2000. Nevertheless, the combined market capitalization of all European biotech companies (~75 mrd. Euro in 2000) is only slightly higher than the market capitalization of the largest American biotech firm, Amgen (~68 mrd. Euro). In fact, many of the European companies are pure research organization. These companies depend solely on venture capital to cover their expenses. They are rapidly evolving, eager to establish their first products on the market.

Looking at Europe country by country, one sees a similar pattern of rapidly growing vs. mature countries. In England, a large number of companies arose in te 1980s, partly due to Margaret Thatcher's economic reforms which made many talented people lose their former jobs. Today, the British biotechnology industry, like the US', is no more growing in the number of companies (271 in 2000). The creation of new ventures is counterbalanced by mergers and acquisitions. Nasty voices already call England the grandfather of European biotech.

Germany, on the contrary, has been called "the most densely populated sandbox" of the biotech world: 333 companies in the year 2000 had a mere 4 drugs in clinical trials! Even less mature are the 240 French biotech companies without a single IPO in 2000 (10 IPOs in England and Germany alike). While Southern and Eastern Europe lag behind due to a less well-funded research base, smaller countries such as Sweden, Denmark, Finland, Switzerland, Israel, Ireland and Iceland aspire to become the jewels of European biotechnology.

What are the reasons for the sudden explosion of biotechnology company startups across Europe? Let us examine the example of Germany.

Strong resentments in the public against new technologies - from nuclear and IT to anything "genetic" - lead to an unfavorable climate in Germany in the 1980s. A resulting structural crisis in the economy was confounded by the cost of the German reunification and lead to 15% unemployment.

The public's insight that new jobs lie in new technologies and the abundance of skilled researchers and university graduates on the labor market fell together with the federal government's initiative to foster clusters of excellence in life science. With the intention to network local resources, namely federal research, pharmaceutical companies and startup companies, the German ministry of education and research held the so-called BioRegio competition in 1995: Industrial regions were asked to develop a plan how to create a favorable environment for biotech company startups. Coordination and strategic planning of each region's networking effort was often carried out by non-profit organizations with affiliation to the State governments. In 1996, four out of 17 applicant bioregions were declared model regions and received funds to implement their plans: Munich, Heidelberg, Duesseldorf/Koeln and Jena.

State and local governments kept supporting their bioregions even if they did not win in the BioRegio competition. Legal and managerial advice, venture capital and incubator space was provided, encouraging many researchers to become entrepreneurs. Typically, it was a post-doc who founded a company based on his lab's technology, with the professor becoming an advisor but keeping his university post.

The fresh breeze of entrepreneurship lead to a surge in business plan competitions. Scientists with an idea would team up with their friends in finance and business. During seminars in the course of a business plan competition, the creative mix of people and ideas quickly rearranged, recombined and bore new plans. For example, two participating teams might decide to combine their technologies, take on as CEO an experienced manager who was an advisor to the business plan competition, and start up a real company from what started as a game.

In the biotech clusters, tightly networked with universities, large pharma and capitalists, backed by the local government and banks, these new companies could thrive. An often practiced scheme is that government funds double the investment a startup company can gather from private venture capitalists. From 70 biotechnology firms in Germany in 1995, the number has been growing by 50 companies a year ever since. Due to the regional approach, each biotech cluster's technological focus is deeply rooted in the area's strength and tradition.

On the background of a strong research base, smart government initiatives and a growing enthusiasm in the public have brought about a remarkable biotech boom in many European countries. Japan, in spite of good research, has been slower to bring its technologies to the market. In its effort to catch up with the US, Japan should study the experience of various European countries. In reverse, European companies need to be better informed about the Japanese market and industry. A French group of companies of the Essonne biotech cluster near Paris made a first step and visited Japan last November to study the market and make contacts. Itochu and Institut Pasteur's recent announcement of the launch of a joint biotech venture capital fund is a result of this visit.

In order to build a bridge between Japanese and European life science companies, the author maintains an English language biotechnology news database at http://www.biojapan.de. Contributions regarding your company's activities in the field are highly welcome and will be posted to European biotech executives in an email magazine.

New technologies and patents cannot fulfill their full potential unless they are they are swiftly transformed into products on a global scale. I hope this article and the mentioned website can make a contribution to international technology transfer and cooperation.

Features Directory

Updated Feb. 23, 2002 by Armin Rump