Tough Times for European Biotech

Corbis The European biotechnology industry, once praised for its promise, now faces overwhelming pressure, prompted by the global decline in investment funding and internal bureaucratic obstacles. The sector's bounding growth rate jolted in 2002, with 10% to 20% annual revenue increases flattening to nothing by the end of that year.1 As venture funding and other investment recedes, once burgeoning companies are closing shop and trimming positions, a trend that has continued in 2003. Even boldly successful groups now must make tough decisions. Scotland's PPL Therapeutics, creators of Dolly the sheep, recently abandoned plans for a new $67 million manufacturing plant, for example. Cambridge, Mass.-based Millennium Pharmaceuticals announced in June that it would close its Cambridge, UK, research and development operations, prompting the loss of 150 jobs. OFFICIAL FRETTING The European Commission's first report on its strategy for boosting biotechnology business concluded in March 2003 that the sector had severe gaps: the need for more research and financial resources, the need to complete the system of intellectual property protection, and the delay in developing a concrete policy on genetically modified organisms.1 These gaps shrink the job market and have hit young Europeans particularly hard. Biotech employee numbers have fallen by 6% to 82,124, and total revenues have fallen by 2% to ¤12.9 billion in 2002, representing the first decline in the history of the industry.1 "Management trainee programs are more or less reduced to zero, and it's hard to acquire exhibitors for our contact fair as people are hardly hiring," says Munich-based Peter Bristot, chairman of the Young European Biotech Network. He also notes that many PhDs are starting their careers in sales, rather than in the research work they would prefer. Some analysts say the situation may improve. "While mired in the gloom, it is easy to ignore the success of European biotechnology," says Glenn Crocker in Ernst & Young's European biotechnology report for 2003.2 Crocker points out that the product pipeline continues to expand, with more than 50 products in Phase III clinical trials. He expects that "the floodgates will open" over the coming years. If and when the floodgates do open, however, European biotech will look considerably different after the round of consolidation and failures, which seems inevitable. In the process, significant assets may be lost to American and Asian competitors, says venture capitalist Chris Evans of London-based Merlin Biosciences. "I fear that in the next five years the American bioscience companies are going to grow stronger and come shopping across Europe," Evans adds. The shopping spree has already begun. In April, US biotech Chiron announced its takeover of Europe's PowderJect Pharmaceuticals. Other raids from across the Atlantic seem likely. "We will lose real talent and intellectual property, all shipped back to America," Evans says. He adds that the only option facing the majority of European biotech firms is to "consolidate or die." US companies have already made inroads, as evidenced by Celltech's takeover of Oxford Glycosciences, and a merger between British Biotech and RiboTargets, a small company specializing in cancer treatment. UNIQUELY EUROPE The situation in Europe stems from a lack of private investment. Yet, that is largely a consequence of the global downturn, which also affects America and Asia. Probe deeper, and a range of uniquely European issues are unearthed that may combine to prevent many European firms from catching the "biotech boat." One crucial factor: The European industry is generally less advanced in the product cycle, with many small companies being years from any prospect of profit. Another issue is the lack of a single European stock market for biotech shares; there is no European equivalent of NASDAQ. "This is making life more difficult," says Hugo Schepens, secretary general of EuropaBio (European Association for Bioindustries), which promotes the biotechnology industry. He points out a priority for members of EuropaBio, that the European Union and its member states harmonize regulations to make a single stock market possible. Regulatory confusion also is a problem on many fronts. Each member state of the European Union has its own national legislation, but a level of pan-EU legislation also must be taken into account. The EU-wide legislation is generally adopted at different times by member states, and varying interpretations also can cause difficulties. Schepens says that the transparency, stability, and predictability needed by investors are not present at the moment. A major initiative to address these problems is the European Commission's directive on the legal protection of biotechnology inventions. It dates from 1998, and its "transposition" into national law is compulsory, but so far only six of the 15 member states have complied.2 "Unless this directive is implemented, and a uniform patent regime adopted across the European Union, Europe's biotech sector will continue to fall behind that of the US," says Frits Bolkestein, internal market commissioner. Regulatory problems can begin at the earliest stages of a biotech startup. Celltech's Richard Bungay reports that just carrying out a clinical trial that satisfies the regulatory regimes of all EU countries is a challenging task. With finance almost impossible to raise and venture capitalists concentrating on late-stage opportunities, early speculative research by academics and startup companies must rely increasingly on "angels" and on grant funding. The largest EU-wide funding source is the European Commission's Framework 6 Programme (FP6), with about $3.7 billion available to the life sciences over the next three years. A possible threat to this funding, however, is the accession of 10 new member states planned for May 2004. The new members are largely former Communist states that often devote less money to research than do existing EU members. Supporting research in the new member states may take grant funding from worthy projects of existing members. Most insiders also cite a more fundamental European problem that may be difficult to change. "It's the business culture," says Bungay. "In the US, you find more entrepreneurial management and the investor base to support it. ... Governments can't change that, and over time the best companies may just get taken up by US companies." Klaus Lindpaintner, vice president of research at Roche Genetics, Basel, Switzerland, is not convinced by the pessimists. He points out that several European biotech firms have recently taken over US firms. "We should be thinking about what makes sense on a global scale," he suggests, rather than getting too hung up about national competition. Schepens accepts the need for consolidation, but still sees a rosy future. "I am an optimist," he declares, "and one of the reasons is that so many measures can be taken at a national level." He considers the national diversity of Europe a strength rather than a weakness, pointing out that each country offers a different model for supporting biotech, and the most successful models can be copied by other states. The idea that Europe's complicated structure may give it some advantages over monoliths like the United States is an intriguing thought to carry into the future. Andrew Scott (andrewscotteurope@yahoo.co.uk) is a science writer in Scotland. References 1. "Life sciences and biotechnology, a strategy for Europe: Progress report and future orientations," The European Commission, March 2003, available online at europa.eu.int/comm/biotechnology/pdf/com2003-96_en.pdf 2. G. Crocker et al., "Endurance: The European biotechnology report 2003," Ernst & Young, Cambridge, UK, May 7, 2003. function sendData() { document.frm.pathName.value = location.pathname; result = false if (document.frm.score[0].checked) result = true; if (document.frm.score[1].checked) result = true; if (document.frm.score[2].checked) result = true; if (document.frm.score[3].checked) result = true; if (document.frm.score[4].checked) result = true; if (!result) alert("Please select") return result; } .myradio{background-color : #94bee5} Please indicate on a 1 - 5 scale how strongly you would recommend this article to your colleagues? Not recommended 1 2 3 4 5 Highly recommended Please register your vote

Tough Times for European Biotech

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