On the European biotech sector

Why does the European biotech sector underperform? Mark Greener, 2004

In its December / January 2004 issue, Eurobusiness (now discontinued) carried a story on the worries of the European biotech sector.

While biotech in Europe shows impressive growth and success, it is definitely underperforming compared to the US industry. The main reason for this, according to Greener is a lack of venture capital.

The European biotech sector is younger and less mature than in the US. Companies are smaller - with market capitalizations that often fall short of investment funds' thresholds; their products are less developed and require more patience from investors; and there are few high-profile success stories yet to encourage vc's.

These drawbacks are exacerbated by risk-averse investors (much funding of European biotech ventures actually comes from US, not European, sources) and a lack of successful, co-ordinated stock exchanges. Most financing comes from partnerships with or acquisitions by large pharma firms.

Also, an aversion to GM food, a difficult regulatory environment, and a lower rate of entrepreneurship don't help.

The problem is, of course, that a lack of funds and success stories can stifle growth and reduce spending on new R&D, thereby endangering the future of the entire biotech - and by extension also pharma - industry.

An aside: There is a vc fund that has adapted it's venturing model to the European market. Instead of investing in 10 firms, hoping that one will be an overwhelming success, it's revenue model is based on, say, 5 out of those 10 companies delivering reasonably solid returns. Now if only I could remember the name of the vc fund and where I read about it...