The European biotech and pharmaceutical industry is facing one of its biggest challenges since the emergence of biotechnology. Although Europe is still a significant player in drug discovery, with 40% of new drug products originating from European research, it is falling behind in terms of significant corporate presence in mature biotechnology companies. The problem is not one of European entrepreneurial and technological talent, but one of creating the right European culture and infrastructure for entrepreneurialism.
There have been some minor gestures provided by governments to venture capital but Europe, through its tax and corporate laws, has not provided the environment for significant development of a European capital market, and this has prevented the significant funding of inherently high-risk ventures in biotech.
So, at a political level we have a contradiction: most major European political parties and governments espouse the virtues of biotechnology and its commercialisation through a variety of short-term or minor incentive programmes; however, they develop or continue to back an environment where tough price or reimbursement controls are imposed on novel biotechnology medicines.
Owing to a lack of appropriate tax incentives and company law provisions, the development of risk-taking venture capital has never taken off in Europe to the same degree as it has in the US. Higher tax regimes make investors more adverse to risk, reducing any incentive for investment in high-risk ventures such as biotech; higher taxes effectively cap the risk taken by investors.
The net effect of this is that Europe, in comparison with the US, is a less effective place to innovate, develop and launch new life-enhancing drugs emerging from biotech and pharma companies.
"Europe...has not provided the environment for significant development of a European capital market...this has prevented the significant funding of inherently high-risk ventures in biotech."
I have spoken to several CEOs of both small and large biotech companies over the past few months, and they have all spoken of seeking to move operations out of Europe to the US, where there is a more attractive environment for equity funding, obtaining higher equity valuations and launching drugs.
There is still a net brain drain of biotechnology talent to the US, not only because it is the best place for career development, but also because it is the best place to launch and develop your own biotech company.
European politicians have to be more honest in their intentions and create a true entrepreneurial climate if they wish Europe to join the biotech phenomenon and create wealth and jobs.
Fintan Walton
Chief Executive Officer
PharmaVentures Ltd