Tech Review

There is no early-stage VC crisis!

01.10.2011

Spain has been hit hard by the financial crisis, but the country’s biotech industry has shown an astonishing resilience in the midst of an unfavourable macro­economic environment. EuroBiotechNews spoke with the new and former presidents of the country’s bioindustry association ASEBIO.

Euro|BioTech|News
Compared to the past, the biotech/pharma deal volume appears to have dropped in Europe. Can you tell us why?

Fernández:
Many large pharma companies have reduced research investment in Europe. R&D&I spending has moved to other countries where conditions or market growth seems to be more favourable. For many small and medium biotech­nology companies that depend on external financing, this could become a dangerous situation...

Revilla:
...and for Big Pharma as well, since biotech companies are still the developers of the products that are essential for the future of the industry.

Euro|BioTech|News
Have you seen any trends in licensing that over time could help compensate for this problem?
Revilla:
Biotech’s R&D budget used to stem from the pockets of large pharmaceutical companies that agreed to contracts with large upfront payments. Today development, co-marketing and licensing are the product of more complex and backloaded agreements with biotechnology companies.

Fernández:
For me, that development is especially interesting. Pharma and biotech companies are moving together, as they see in each other a formula for sharing risks and costs. Traditionally, family-run pharmaceutical companies have been reluctant when it comes to mergers, which is why specific partnerships are becoming increasingly attractive. They are giving rise to R&D agreements under which companies don’t have to compromise their identity and ownership. R&D agreements usually occur in advanced stages of development, when large companies identify a positive cost/benefit ratio.

Revilla:
This seems to have reduced the appetite of biotech companies for partnerships with large pharma. According to a survey conducted by ASEBIO about biotech priorities for 2011, the importance of partnership agreements with major companies has fallen for biotechnology companies. In 2010, a total of 143 partnerships were recorded in the Spanish bio­technology sector. 45% involved the public sector, 33% involved other bio­tech companies and only 22% involved larger companies from the areas of pharma and food.

Euro|BioTech|News
Has the Spanish government adressed this problem?

Fernández:
Yes, through the CDTI – the Centre for the Development of Industrial Technology. Spain’s Ministry of Science and Innovation recently launched the program INN­VIERTE Economía Sostenible (INVEST Sustainable Economy), which is aimed at promoting the development and growth of technology-based companies with high growth potential through co-investments from public funds and private companies from their sector. This will hopefully encourage large pharmaceutical companies to increase their investments in small bio­tech companies.

Euro|BioTech|News
What effects have healthcare reforms had on biotech/pharma relations, and what was the impact on budgets for reimbursements?

Revilla:
In Spain alone, large laboratories are planning to reduce R&D budgets by a300m in response to the recently announced cuts. This represents a decrease not only in their own research, but also in agreements with other companies – despite the current lack of new therapies! That will certainly not be beneficial. However, because patent periods are ending, agreements are bound to arise. Through ASEBIO and our Plataforma de Mercados Biotecnológicos (Spanish Biotech Platform), we are creating specific opportunities to help potential partners get to know one another and share their needs in order to work through these hard times.

Euro|BioTech|News
VC funds have more or less vanished, especially in the early-stage arena. Is this a threat to biotech innovative potential?

Fernández:
I think that’s seeing things backwards. I believe that the financing problems biotech companies are facing do not affect the early stages of development as much as the later stages. In Spain, there is no early-stage venture crisis! A number of funds are very much inclined to invest seed capital. However, there is a gap in capital requirements after Phase II, as well as from investments requiring more than a1.5m-a2m.

Revilla:
From the perspective of big pharma, this really puts the innovative potential of bio­tech companies at risk, since many companies are failing to launch their products due to a lack of investment in projects that are in a more advanced stage of development. In Spain, we therefore need both venture capital funds in amounts between a2m-a5m, as well as financial institutions that understand our industry. We also lack advisors with a profound industry knowledge who are able to evaluate research projects and long-term benefits to the companies.

Euro|BioTech|News
But raising the number of advisors won’t solve the problem. What do you think bio­tech and pharma have to do to survive?

Fernández:
Most of the solutions aimed at saving these sectors are driven by the public sector, through regulations and agreements – with some coming from the private sector in the form of investments. The crucial step, with which we fully agree, is to encourage the government to create a stable regulatory environment. Our market needs stability and predictability for future developments in the country, both in production and investment, as well as in R&D. Innovation is central to a production model that seeks to accomplish economic recovery in Spain. It’s also necessary to guarantee the availability of a large number of innovative drugs and diagnostic systems, which are necessary for the prevention and treatment of many diseases that do not yet have therapeutic solutions. With the recently announced cuts, this framework of stability and security vanishes.

Revilla:
That’s true. However, our sector would be able to overcome this crisis with tax incentives in favour of R&D&I, mainly in the form of tax credit advances like those granted in France. Ireland and Britain have already adopted similar measures. This would favour research, patenting, and exports, and help change the economic growth model in Spain through tech­nology and innovation. At ASEBIO, we project that as of 2012, this would represent a65m per year in government earnings.

Fernández:
Similarly, laws governing payment periods must be enforced in Spain, as government delays in paying pharmaceutical companies are not only excessive – they are also compromising the sustainability and future of many companies, especially SMEs. From a political point of view, the role of biotechnology in the transformation of the economy and society has traditionally been overlooked, as has the development of clear strategies in terms of financial support to the sector, where funding is subject to circumstantial instead of structural criteria. The bio­tech market needs more attention in both the public agenda and the economic agenda! In terms of private investments, we need to change the risk-averse mindset that has spread throughout the country in order to create a market that attracts investment.

Euro|BioTech|News
Biotechnology in Spain had caught up before the crash. How is the industry surviving in the nation-wide financial crisis?

Revilla:
Companies survive by enhancing internationalisation in order to diversify risks. They survive by not focusing solely on Spain – a growing trend – and by committing themselves to R&D&I as a means of generating growth and knowledge. Similarly, many companies now have to think long and hard about how to sell themselves, because they will never be able to recover as a standalone organisation.

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