||An audio version of this Round Table is also available, click here to listen|
senior vice-president for R&D at biotech company Shire Human Genetic Therapies
chief executive officer of business accelerator Bioserentia
partner and head of the life sciences practice at British law firm Osborne Clarke
chief strategy officer for Invest In Spain
partner at Spanish law firm Cuatrecasas
The science behind biotechnology knows no boundaries. But when it comes to expanding abroad, biotech companies find that not every location offers equal advantages. In this vein, participants in the inaugural event of fDi’s Thought Leadership round table series – held at the Financial Times’ London headquarters and sponsored by Invest in Spain – discussed factors behind global site selection, the biotech climate in the EU and what countries such as Spain are doing to attract biotech.
The panel agreed that what is needed for growth is appropriate government regulation, good tax policies, intellectual property protection, funding capabilities and competitive costs.
Whaijen Soo, senior vice-president for R&D at biotech company Shire Human Genetic Therapies, said: “If you look at China, India, Taiwan and Singapore, you see they have put a lot of money into biotech.”
Taxes can also be an important factor, particularly for choosing headquarters. Shire moved from the UK to Ireland for tax reasons. Companies even move abroad from the US to avoid certain taxes.
Although relocating headquarters is quite different from relocating manufacturing or R&D, cost is an over-riding factor. Spanish companies that may once have found it cheaper to do business abroad can now take advantage of tax credits that give biotech R&D projects in particular a significant benefit.
Spain’s Bioserentia, a business accelerator, also offers tax schemes that can be structured in creative ways, said CEO Jorge Arenas. In addition, Bioserentia helps with licensing agreements whereby the licensor is taking equity in the licensee.
Financing is a major concern for most biotech operations since their focus is on early-stage, pre-revenue drug discovery and development. They make money only when they reach a point such as Phase II clinical trials. “Until then, they are burning cash,” said Dr Janita Good, a partner and head of the life sciences practice at law firm Osborne Clarke.
She predicts that government, venture capital and private sector funding is going to decide where small biotech companies expand.
Currently, demand for funding is high, especially in Europe where venture capital groups generally fund initial research with about $2m then drip in more. In the US, initial funding from venture capitalists hovers around $12m.
“The capital markets depict an even sadder model, particularly for small biotechs, where in many cases their stock is currently trading below their cash,” said Dr Good.
And start-ups that show promise are often rapidly swallowed up by pharmaceutical companies, thereby limiting any future R&D.
“There are exceptions, but until start-ups and small companies are properly funded, I do not see EU biotech making a name for itself,” she said. “We do not have a funding system to get European biotech going.”
A Spanish solution
Spain’s central government is trying to counter the problem with a capital fund that co-invests with foreign venture funds to spread the risk. These subsidies provide funding rather than venture capital or private money so companies can get beyond the first proof of concept. As a result, Spain has established up to 350 start-up biotech companies.
Spain’s Basque region, which has its own government and tax system, is promoting itself as a biotech region to rival Madrid and Barcelona. It is making it easier to create government-funded public venture capital. “They have the money because of this autonomy,” said Ignacio Allende, a partner at law firm Cuatrecasas. “There are already 70 small start-ups in the region.”
Meanwhile, the Spanish government has changed regulations to support research centres and IP rights. With FDI slipping in Europe, Antonio Hernández, chief strategy officer for Invest In Spain, said this was vital if Europe was to change its image.
“But intellectual property and where you are based do not always marry up,” said Dr Good.
Some companies want to file patents in major countries to become global entities before being acquired. But patent filing for all phases is getting harder in Europe and the US, despite the fact that technology transfer is easiest in Cambridge, Boston and the San Francisco Bay area, which excel in academic research.
And jurisdictions that offer lax regulation, making it easy for a company to market its drugs, may not be the best for other business functions. The only solution, many find, is to decentralise their corporate structure to a host of locations.
Governments that facilitate the ease of technology transfer from academia to start-up, as well as providing a good regulatory environment, are well placed to go far in building technology centres.
Creating an infrastructure that provides good corporate management can also attract small and mid-sized biotech concerns.
Europe, in particular, has unique challenges in promoting R&D and has failed to live up to the Lisbon Agenda. For biotech to succeed in Europe, EU promotion of R&D should be as important as financing and local government tax support.
The reason is simple, round table participants pointed out. Most small companies are headed by scientists who must not only concentrate on their core competency – research – but also deal with funding as well as clinical and regulatory planning.
“This is stuff in which they are most often not experts,” said Mr Soo. Consequently, they often depend on outside experts and consultants.
Mr Soo suggested that a one-stop shop that provides these services could be helpful. But such centres are usually provided by property companies since they are the only entities that can make them work. As Dr Good said, most biotech CEOs are not keen on using outside services for competitive and privacy reasons. But by being in a cluster, biotech companies of all sizes can build on the synergies that others offer.
“I don’t think there is any sector that works as well in clusters as biotechnology because it is so dependent on partnering,” Dr Good concluded. “It is natural because you have technology transfer and capital in the workforce.”
But partnering can extend beyond local clusters. Mr Arenas pointed out how companies operating in Spain and the UK can enter strong partnerships whereby small biotech concerns in Spain can do work on early stage R&D and those in the UK can work on the later stages in the value chain.
“Some companies have complained that some locations are too expensive in which to operate,” he said. “But in Spain, this secondary market is only two to three years old and is going to be very competitive for a niche of very small companies.”