Evaluating European Biotech Commercialization
A recent Financial Times article highlighted an interesting disparity between the U.S and Europe: despite having roughly similar numbers of top academic life science institutions, European firms struggle to commercialize their biotech expertise. Despite European academia publishing 8% more science and engineering articles, U.S biotechs are responsible for more approved drugs and have easier access to capital.
The FT article asserts that the reasons Europe has struggled to commercialize its biotech expertise include “a persistent financing gap, a more conservative entrepreneurial culture, a smaller talent pool, and fragmented markets.” Having been in life sciences for over 20 years, we felt it prudent to discuss the these claims and their impacts.
A Financing Gap
A McKinsey report finds that biotech IPOs (Initial Public Offerings) are typically three times larger on Nasdaq than they are on European exchanges. For reference, the Nasdaq is an American stock exchange where investors buy and sell securities of public companies. A way in which firms raise new capital from public markets, IPOs are vital for startup biotechs attempting to grow. With the funds raised from an IPO, biotechs can invest in new staff, fund additional research and development, and strengthen existing products.
Since the Nasdaq presents a more lucrative exchange to raise capital on, European firms are likely to turn to the American exchange to raise capital. BioNTech, for example, commenced its initial public offering in 2019 by listing its American Depositary Shares on the Nasdaq.
With investors in the U.S controlling large shares of European biotech companies, these companies could face pressure to move their headquarters to the U.S. Activists investors may demand a move to provide the companies with U.S-based talent.
A More Conservative Entrepreneurial Culture
Despite being a U.S based firm, Snowfish has worked on 100s of projects with 40 different companies, many of them based in Europe. In our own dealings, we have found that in Europe, academic Key Opinion Leaders (KOLs) are reluctant to take positions at biotech startups.
In contrast, in the U.S, we have routinely experienced a partnership between academia and life science. In our white paper on Identifying Strategic Partners for Product Development, American institutions are continually looking to partner with industry. Yet, as we advise, those institutions must be reached out to in a targeted manner.
As a result of a more conservative entrepreneurial culture, Europe could find itself behind competitors in China. An NSF report found that “China’s rate of research output has grown almost twice as fast as the world’s annual average for the last 10 years, while the output of the United States and European Union (EU) has grown at less than half the world’s annual growth rate.”
According to Reuters, China’s biotech sector has flourished in recent years and presents a true competitive threat to the rest of the world.
A Smaller Talent Pool for Biotech
The FT article posits that scaling a European biotech is difficult because they lack the pool of talent. I find this point intriguing considering the article also mentions the fact that Europe has 46 of the top 100 life science institutions.
By population, the EU has 447 million inhabitants compared to the U.S’s 330 million. It is likely that due to capital barriers, European talent has moved to the U.S to start their biotech’s.
European governments seem to be addressing this situation by funding biotech hubs according to the article.
Snowfish has worked with leading European Life Science companies to identify US research institutions to build long-term partnerships in diabetes. That research also delivered surprising results. The leading research institutions were not the usual suspects. Which illustrates how diverse research is in the US.
We have also noted the receptiveness of a multitude of players in the US to get the research out of the labs for commercial partnerships. That even extends to stakeholder groups such as patient and professional organizations that partner with industry in the US and there is a general reluctance in Europe with complementary patient and medical organizations.
Capital, entrepreneurial spirit, partnership between industry and research centers, and the free market enable higher returns, which has made the US the fertile grounds for new products and innovation. We will see what the next decades holds with the rise of China. Will China research turn into products that help humankind?