There is considerable debate about the R&D efficiency and innovative capacity of the pharmaceutical industry based on analyses
of new drug output (1, 2). Although most pharmaceutical companies are still conducting their own R&D programmes, the contribution
made by outside parties to their drug pipelines should not be overlooked. In particular, the biotech industry has been an
increasingly popular source of products for companies looking at licensing options.
The need for new products has grown, especially now that some of the larger companies are facing patent expiries for major
brands. Out of the 252 drugs approved by the US Food and Drug Administration (FDA) between 1998 to 2007, 55% originated from
the domestic biotech industry (3). These US data serve as a reminder to pharmaceutical companies that licensing is one way
to expand their drug pipelines; however, for the European biotech sector, such strong productivity is something to be emulated
to attract the attention of pharmaceutical companies and investors.
Decline in funding
European governments have realised that a vibrant biotech sector can contribute to the economy and generate employment. As
a result, several governments have attempted to boost the biotech sector through measures such as tax incentives. Looking
for investors can be difficult when R&D is at an early stage and during such period, government support measures are crucial
for biotech companies. In the long term, however, external funding from investors and deals with larger companies are needed
for growth within a biotech company. It is in this aspect that European companies still struggle compared with their US rivals.
Recently, there has been a noticeable decline in funding for the European biotech sector as a whole. A report by Dow Jones
VentureSource on the European biotech sector described a 16% decline in deals with pharmaceutical companies and a 66% fall
in cash during the first half of 2012 (4). Ernst & Young reported that funding in Europe has dropped down to levels equal
to before the current global economic crisis (5).
As Europe’s economic problems remain unresolved, companies are struggling to attract external funding. A further complication
is that a number of governments are reconsidering their support measures. In some countries, particularly France, the national
government approach is at odds with the official EU Strategy for 2020, which is focused on increasing productivity and specifically
mentions that small and medium enterprises (SMEs) such as those in the biotech sector play a key role in achieving regional
Many observers of the European biotech sector believe that now is a crucial time for national governments to show their support
because any cutback in incentives could have a crippling effect on the industry (6, 7). Their view is that investment in the
biotech sector could help improve the economic conditions in Europe because there is always a demand for its products in addition
to the positive financial benefit through the jobs it creates as well as the wider business activity it generates (6, 7).
Nevertheless, it has been difficult to persuade many European governments with these arguments given that drug development
times are much longer than election cycles and most politicians are inevitably focused on short-term deliverables. Moreover,
the failure of many biotech companies has caused their attitudes to become even more risk averse.
UK leads the way
According to Ernst & Young’s assessment, the biotech sector still represents one of Europe’s best chances for growth, with
certain countries, such as the UK, outperforming others (7). Ernst & Young noted that the UK led Europe in terms of the amount
of financing rounds and venture capital raised (5). On the contrary, in France, the sector’s potential growth has been put
at risk by sharp drops in funding and ambiguous government support (8). For example, France Biotech, which represents the
domestic industry, highlighted that funding has decreased by 40% between 2010 and 2011 (8).
The UK biotech sector is considered to be fairly mature and investors continue to be attracted to the sector based on past
company performances. According to the UK’s BioIndustry Association, 70% of all biologics in development in the UK are at
Phase III or registration stage, with the value of the entire national biotech pipeline exceeding £15 billion (9). Another
potential attraction (that perhaps contrasts with the situation in France) has been the government’s high profile commitment
to an entrepreneurial climate through the Technology Strategy Board, the national agency for innovation (6). Enterprise zones
have also been set up around the country, allowing companies to benefit from lower business rates and less planning restrictions.
SMEs can also benefit from R&D incentives; for example, tax relief on drug development expenditure is set to increase from
200% to 225% (6).
The potential of the UK biotech sector has not gone unnoticed by the major pharmaceutical companies. Although Pfizer withdrew
its R&D base in Sandwich, the company has been seeking collaborations with biotech companies in the UK around the Cambridge
area (10). In November 2012, Pfizer announced a £3.8 million research deal with Kent-based Ziarco to commercialise an anti-inflammatory
and anti-allergic portfolio (11).
GlaxoSmithKline has shown a long term commitment to the UK biotech sector. In 2009, the company teamed up with the UK government,
the Technology Strategy Board and the Wellcome Trust to develop a science park in Stevenage (12). As part of the deal, GlaxoSmithKline
contributed land, facilities and investment worth £10.9 million while the UK government provided £11.7 million, the Technology
Strategy Board £5 million, the Wellcome Trust £6 million and the East of England Development Agency £4 million (12). GlaxoSmithKline’s
involvement meant that it would be in prime position to acquire the most promising biotech projects.
AstraZeneca has taken a similar approach to leveraging the output of UK biotech firms. In 2012, the company received £5 million
investment from the UK Department for Business, Innovation and Skills’ regional growth fund for the development of a bioscience
cluster at its Alderley Park R&D site (13).
GlaxoSmithKline also has a high-profile direct-investment approach to the UK biotech sector and is involved in specialised
venture arms for promising partnering companies (6). Its venture arm, SR One, currently lists a number of UK biotech firms
among its portfolio (6, 12). GlaxoSmithKline has also joined together with Johnson & Johnson to launch the €150 million Index
Ventures’ first fund, which invests primarily across Europe (14, 15).