With more companies advancing innovative therapies to the end of phase II, the funding requirements of European biotech are spiralling. A new initiative is required to create large and liquid funds to support the next stage of growth and ensure Europe reaps the benefits – both medical and commercial – of its excellent research, says Emil Pot.
Financing the lengthy and costly development of advanced therapies from academic research to commercialisation and delivery to patients has always been difficult.
Now however, one particular funding constraint is threatening to undermine previous investments and delay patient access: building on Europe’s excellent science base and the support of both private and public venture investors, a number of companies have advanced innovative treatments to the end of phase II and clinical proof of concept.
“The problem is that these companies face rapidly escalating costs to move products forward,” says Emil Pot, co-founder of ActoGeniX. “It costs a lot of money to start up a company and complete phase I; phase II is a challenge. But when you get to phase III, really serious money is involved – you are likely to need €100 million or more,” Mr Pot says.
Although positive phase II data significantly de-risks programmes, there are simply not enough European investors to provide the kind of finance that is required.
One option, of course, is to raise money through an initial public offering (IPO). But while Europe’s capital markets finally reopened to biotech companies in 2014, the amounts raised have been in the low tens of millions, and often IPOs have not provided an exit for venture investors.
“As a result, European phase II biotechs that are ready to progress to phase III are either going to list on Nasdaq or are acquired – mostly by US companies,” says Mr Pot.
The high level of liquidity means Nasdaq not only attracts European companies, it attracts European investors too. Overall, 80 percent of European capital that is invested in biotech goes to the US. And while European companies have attracted US investment, this represents only 10 percent of the US funds going into the sector.
Mr Pot is a member of the EBE’s Innovation and funding working group, which is currently mapping the funding ecosystem and looking for ways to remove the constraints on growth. The intention is to present the findings in a position paper, highlighting where the gaps lie and to make policy recommendations to the European Commission, the European Investment Bank (EIB) and the European Investment Fund (EIF) to address them.
“Currently, we are seeing a drain of innovative products to the US. This is something we should want to avoid. Not only is it a drain of Europe’s excellent publicly funded science, potential economic growth is exported too,” says Mr Pot.
As the track record in advanced therapies illustrates, European science stands shoulder-to-shoulder with that of the US. The first gene therapy to pass formal regulatory scrutiny was approved in Europe, as was the first stem cell-based product.
These and others not only represent a culmination of a vast amount of basic and clinical research, they also represent breakthroughs in treatment.
The European Commission, EIB and EIF have devised instruments, including funding, to support the sector, but these represent a small fraction of the capital that is required.
Nevertheless, their existence points to an awareness of the challenges of growing an independent mid-size biotech and Mr Pot believes there is an opportunity to push for stronger action.
“The Commission, EIB and EIF should help in creating two very large funds that will act as cross-over investors,” he says. In addition, action is needed to increase liquidity on Europe’s capital markets, which operating on a national level, lack scale.