Converting cutting-edge research into viable products remains a challenge for the European biotech sector. Jonathan Hay of Delin Ventures investigates how ambition can translate to reality.
Europe’s tech sector is going from strength to strength. The Covid-19 pandemic – and the world’s resulting reliance on technology to survive lockdowns – meant it enjoyed a record year of investment and growth. It raised in the region of US$40 billion and valuations of tech companies grew 46 per cent in 2020. This was the strongest 12 months in a five-year gallop, during which the sector grew fourfold.
The good times have continued in 2021 and in the first six months of this year Europe’s tech start-ups managed to raise US$52.2 billion. This dwarfs the total figure for last year and is a clear signal of the challenge the European tech sector is starting to mount on the other industry behemoths in America and China. Thirty-five per cent of global seed stage capital has been raised by European start-ups and it is expected that 3.2 million people will be employed in European tech by 2025, according to new data produced by Dealroom.
The European biotech sector is not nearly as advanced when it comes to closing the gap with its counterparts in China and America. In 2018, China and the US accounted for 43.3 per cent of all biotechnology patents filed. Figures from the World Intellectual Property Organization show that Chinese and American depositary authorities, which collect deposits of microorganisms for biotech patent procedures, were collecting thousands more deposits than European authorities.
The main challenge for the European biotech industry is translating research into medicines. According to a study by management consultancy McKinsey & Co., Europe is on par with its American counterparts during the discovery phase, but it falls significantly short when converting research into products.
European discoveries too frequently end up providing the foundation for great American companies. Illumina, for example, is headquartered in California, but it was built on the back of research into a new approach to DNA sequencing by Solexa a company spinout from the Chemistry Department of the University of Cambridge. The invention of the monoclonal antibody by Cesar Milstein in Cambridge was never even patented. There are unfortunately many such examples of failures to commercialise European inventions.
This problem also used to hamper the European tech sector and is not a new issue. In a 1995 report on innovation, the European Commission acknowledged that companies and governments should ‘redeploy their efforts and improve capability to translate research into commercial success’. Emphasis was subsequently placed on strengthening the management of knowledge and intellectual property by European universities.
Strengthening the links between academia and industry would go some way to narrowing the gap with rival countries. Developing an environment that encourages entrepreneurial pursuits is equally important. Policies supporting this, like improving access to finance and tax credits, would foster domestic growth and production.
If we look to France as a test case of a country that implemented such supportive policies, we can see the entire health ecosystem benefitted. The sector as a whole doubled in size over the last five years, with 41 per cent of companies launched between 2014 and 2018 – one of which is DNA Script. Its plan to equip labs with their own DNA printers attracted €80 million in Series B funding from European investors.
In the UK, the Industrial Biotechnology Strategy is being rolled out in the hope of positioning the UK as an international industrial biotech innovation and commercialization hub by 2030. Steve Bagshaw, Chair of the Industrial Biotechnology Leadership Forum, says the UK is a world leader in bioscience research but adds that the country needs supportive government policies and simplified, yet rigorous, regulatory frameworks to make it a world leader in practice.
Supportive policies alone will not be enough to improve the fortunes of the European biotech sector; it also needs access to capital. Initial public offerings (IPOs) are four to five times larger in America than in Europe, which is a fragmented market. European biotechs are listed on 15 different European stock exchanges, with 90 per cent listed in their home countries.
This will take a long time to change. The real solution is to nurture the entrepreneurial ecosystem and build on the European talent pool that is emerging. The European tech sector is leading the way on this. The UK’s Alex Chesterman, of LoveFilm, Zoopla and now Cazoo fame, Sweden’s Daniel Ek and Martin Lorentzon, who founded Spotify, and Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson, who founded Klarna, are all part of a rich ecosystem of entrepreneurs who want to stay in Europe and are nurturing the next generation.
Their success fuels the growth and sustainability of other tech companies and the industry across the continent. They can recycle existing talent, leverage established networks and attract the attention of funds more easily.
We are beginning to see the same trend appear in the European biotech sector. In 2019 Denmark’s Genmab raised $580 million on NASDAQ and is now worth close to $30 billion. More recently the founders of BioNTech, Ugur Sahin, OzlemTureci, and the Strungman brothers set examples for what can be achieved. We need to build on such successes and support Europe’s entrepreneurial ecosystem.
Entering the golden age of biotechnology, Europe trails the heavy hitters in translating discoveries into products. But with supportive government policies, sufficient capital and a strong talent pool, the outlook is bright, even if the road between innovation and commercialisation remains somewhat rocky.