All aboard for 2007

After years of official neglect and failed business ventures, several positive developments appeared across Europe last year. Tech stock listings multiplied; seed financing expanded; several universities got more market-oriented; and some multinationals began prospecting more actively in Europe for ideas and talent. Taken together, these were small but encouraging steps towards what European Commission President José Manuel Barroso called, in a December speech, the process of changing “innovation from a buzzword in Europe, to a byword for Europe.”

But whether that process continues in 2007 is going to depend, not so much on Europe’s financiers and tech researchers, as on its politicians.

The European Commission, despite much noise, ended up accomplishing no fundamental changes in the way tech and bio markets operate in Europe. Efforts to reform patent law got blocked in linguistic squabbles among France and its neighbors. A dubious plan to create a European Institute of Technology only just managed to avoid sudden death in Brussels. The commission, exhausted by past political quarrels, didn’t even try to deregulate European markets for professional services – and in fact increased regulation of the chemical industry. Of course, everybody in Brussels could agree on one thing: throw more money at the problem. Parliament approved a new, €54 billion, seven-year Framework program for R&D subsidies with one new wrinkle: a European Research Council to award grants on scientific merit, rather than political convenience.

All this sets the stage for a very uncertain 2007. The German government, which leads the EU in the first half of the year, has slated an ambitious programme of change – but innovation policy is only a small part of it. And in any case, presidential elections in France this May make it unlikely any radical reforms will get through. More promising is the second half of the year, when the Portuguese government is planning to devote its presidency to what it promises will be “a new cycle” of market reform. It was in the last Portuguese presidency, in 2000, that the so-called Lisbon Agenda was launched to make Europe “the most dynamic, knowledge-based economy in the world” by 2010.

Herewith, Science|Business’ pick of the top European developments in early-stage R&D investment and policy for 2006 – our first full year of publication.

INVESTMENT

The biotech market perks up

The long-suffering biotechnology sector in Europe was on the rebound in 2005/2006. Ernst & Young’s 20th annual survey of biotechnology, published in April, chronicled the start of the recovery. The industry’s performance has improved on several fronts, from an upgraded initial public offering (IPO) market, to a significantly stronger financial performance. Driving the change: a growing appetite by Big Pharma for little biotech companies, to fill their empty product-development pipelines.

Governments prime the pump

To bridge the gap in early-stage financing, several government agencies around Europe stepped up subsidies for seed funds.

The European Investment Fund published a study of technology transfer activity in Europe and its recommendations to accelerate the success of European technology transfer projects. In July, the first fund based on these recommendations emerged from a partnership between the EIF and UK technology commercialisation company, IP Group Ltd, to form a £30 million venture fund to invest in university spin-outs. Following the IP Group model of negotiating long-term technology transfer deals with universities, KULeuven and the EIF agreed an €8 million partnership in early October to set up a Centre for Drug Design and Discovery (CD3), in a bid to bridge the gap between academic biomedical research and the needs of industry.

Also in 2006, French President Jacques Chirac announced a €3 billion new technology-investment fund aimed at early-stage tech companies. The Russian government developed plans for a $500 million tech-investing fund. And the British, Swedish, Dutch and Belgian governments continued sprinkling varying amounts of public money among the regions’ venture capitalists and entrepreneurs.

New energy for alternatives

Financing for companies attempting to develop new sources of renewable energy, new processes and materials for manufacturing, and new technology for managing energy use, rose to a six-year high of $513 million in the first quarter of 2006, according to data from Cleantech Venture Network LLC. The hydrogen fuel sector gained financial backing from a €105 million EU scheme, announced in May, to prime the commercialisation of clean transport in Europe, following the success of a pilot programme to promote the use of hydrogen-powered vehicles.

Neurotechnology on investors’ minds

A particularly hot new sub-sector is start-ups in neurology and psychiatric illness. The indications represent the largest and fastest growing unmet medical market, according to NeuroInsights. More than 1.5 billion people worldwide are affected by them. With global revenues of $110 billion last year, the nascent "neurotechnology" market appears poised for huge growth. Analysts claim that the European technology centre is still underappreciated and undervalued, which has led at least one neuroscience company, Amarin Corp. of London, to target European companies for in-licensing a potential treatment.

The nano-bandwagon rolls on

Investor appeal for nanotechnology continued strong – as did government hand-outs to keep the R&D expanding. For instance, a national network of nanotechnology centres was completed in the UK. It was formally launched in early November with ₤50 million in government funding. Despite the establishment of such research institutes, funding availability, and a growing expertise in nanotechnology across the continent, Europe is far behind in the development of its nanomedicine field, say a group of experts set up by the European Science Foundation.

A new look at antibiotics

The growing prevalence of so-called “superbugs” has reinvigorated pharmaceutical companies’ interests in antibiotics, and generated some impressive deals. The increasing problem of antibiotic resistance was acknowledged in an EU research programme launched in March with €11.5 million funding over five years to focus on genomics-based approaches to antibiotic-resistant infections. The response from the pharmaceutical giants, such as Novartis’s move to take over the UK biotech NeuTec Pharma at a 100 per cent-plus premium in June highlights this year’s surge of interest in the biotech and drug development market.

POLICY

The dragon roars

China finally emerged as a serious player on the global stage for science and technology. Buoyed by the nation’s momentous economic and industrial growth, a blueprint for science and technology development for the next 15 years was approved at China’s national science and technology congress in February that will see spending boosted to 2.5 per cent of GDP. This is equivalent to US spending on research and development at present, and is some way ahead of the 1.9 per cent spent in Europe. The bigger budgets in China reflect a rising tide of multinational investment in the country, as the allure of economic boom outweighs corporate concerns over IP protection. Of course, multinational investment in Indian technology also roared on.

A new pot of money in Brussels

After heated debate, the European Parliament voted to continue authorize a new, seven-year R&D program for the EU. The €54 billion Framework Programme 7, beginning in January, has several new wrinkles – not least among them a 40 per cent spending rise.

One key decision in Framework was to continue supporting stem cell research, which had been opposed by politicians from Poland, Italy and some other nations. In the end, Framework will assign roughly one per cent of the overall research budget to embryonic stem cell research in countries that permit it.

Another milestone is the creation of the European Research Council. The agency, which gets about 10 per cent of the overall Framework budget, is to award research grants based on peer review of the scientific merit, rather than on bureaucratic or political criteria (the norm with other Framework projects.) Research Commissioner Janez Potočnik called it the most important new initiative for EU research in years – a European answer to the long-admired success of the US National Science Foundation and National Institutes of Health. The ERC also aims to tackle the widely accepted deficiency in European research of opportunities for young investigators to develop independent careers, and make the transition from working under a supervisor to being research leaders. The ERC’s governing body set out the outline for how it proposed to stop the “brain drain” of young European researchers in May, and will take effect from this month onwards.

Nuclear fusion gets real, perhaps

A formal agreement was signed on 24 May among the parties involved in ITER – the International Thermonuclear Reactor – launching the cross-continent R&D project after two decades of planning. The seven parties to ITER – the European Union, Russia, Japan, China, India, South Korea and the US, represent half of the world’s population. The demonstration reactor is now under construction in Cadarache, in southern France. The use of fusion could offer a long-term solution for the world's supply of energy as it is environmentally clean and a practically inexhaustible source of power.

Who wants the EIT?

In the European Commission’s 2005 Spring Report, a proposal to establish a European Institute of Technology (EIT) was put forward as an integral part of the revised Lisbon Agenda. Since then, the project’s progress has been slow, despite emphatic support from Commission President José Manuel Barroso, who in March declared the establishment of the Institute as a ‘top priority’. Many researchers feel that the cost of the project will eat into funds for furthering actual research, and have already refused to take part. Undeterred, the European Commission's Director-General for Education, Odile Quintin, gave the most detailed timeline yet for the emergence of the EIT at a conference on 20 November, with the confident announcement that the institute will open for business at the start of the university year 2009/2010.

Patently impossible

Despite common consent that the European patent system is in dire need of reform, the European Commission is struggling to arrive at a single proposal for a European Court of intellectual property rights and a common, EU-wide application system. Though a number of member states have begun to actively participate in the project, many still hold the view that a unified patent court will decrease the quality of patents in Europe, and are reluctant to allow its progress. Commissioner Charlie McCreevy has voiced his concerns about whether the Commission and the national governments can arrive at a single proposal, and, despite assuring that every effort will be made, makes no pretence that he will not put the Commission’s time and resources into other matters if this one makes no concrete progress over the next few months.

Don’t forget the little guy

In an effort to encourage EU members to focus state aid on improving competitiveness and innovation, in August the European Commission adopted new rules for investing public money in small private companies that it says will make it easier for start-ups to raise risk capital. The main aim of the new guidelines is to bridge the equity gap that exists between seed funding and first round investments by venture capitalists. By enabling member states to boost SME’s access to risk capital, Competition Commissioner Neelie Kroes said the guidelines “will pave the way towards improved competitiveness and job creation.”

TECH TRANSFER

A German Ivy League

Not all research labs are created equal. That’s the message in a radical break in 2006 from past German educational policy. Since World War II German universities shared more or less equally in the federal R&D funding pot, in a policy of regional development. In October 2006, just three universities were designated as the elite of the country, forming an“Ivy League” and responding to competition from the US and Asia for the best students, faculty and researchers. The three winners, the Technical University in Munich, Ludwig-Maximilians University in Munich and the University of Karlsruhe will receive an average of €21 million in additional funding as well as prestige that can be used to attract donations, private funding and fee-paying students. In addition to promoting science in Germany, the Excellence Initiative is also meant to keep the country from losing its economic standing.

Imperial rattles the academic teacups

In a sign of growing competition among European universities, Imperial College London formally agreed terms to break away from the University of London system in October. Imperial’s withdrawal from the University of London structure, which will take effect in July 2007, is a momentous event for the institutes in the federation, but Imperial claims that there is no impact for the business community or research collaborators, stating that corporate sponsors and venture capitalists “won’t even notice” the change.

More noticeable to the investing world was the flotation in July of its technology-transfer office, on London’s Alternative Investment Market. The listing of Imperial Innovations Group PLC raised £26 million, and set off a lively debate among British universities about the proper relations between public-sector researchers and the private sector.

Who owns a discovery?

In April, the University of Cambridge named Chicago-based venture capitalist and technology transfer specialist, Teri F. Willey, to head its technology commercialisation business and to implement a controversial new patent policy. Cambridge Enterprise is one of the United Kingdom’s leading knowledge transfer offices, providing consultancy from research academics, facilitating the commercial development of intellectual property (IP) developed at the University of Cambridge, and licensing patents and other IP to existing companies. A special challenge for Willey will be implementing the university’s new intellectual property policy: to tighten the university’s grip on IP generated by staff and students.

At the same time, politicians and academics in Sweden and Switzerland debated new proposals to control university IP. While no dramatic changes happened, the issue is driven by growing evidence that the 1980 Bayh–Dole Act, giving universities the right to commercialize discoveries funded by the government, helped spur a boom in university tech-transfer activities in the US.

The multinationals go hunting

A long-term trend in corporate R&D gathered steam: “distributed” research strategies, integrating university researchers with the multinational’s own labs. The beneficiaries include university researchers and small tech companies in Europe.

Examples abounded in 2006. For instance, lab-equipment supplier Sigma-Aldrich Corp. signed on several European research teams to collaborate in its RNA-interference work. IBM stepped up collaboration with venture capitalists who fund tech start-ups – an indirect but effective way to pull a large number of small tech companies into its orbit.

Microsoft has been pushing support for small and start-up businesses this year. As part of an unusual corporate programme to get more out of its labs, the company’s intellectual property specialists in May 2005 launched a programme they call IP Ventures, licensing its technologies to entrepreneurs in the US and Europe. The success of Microsoft France’s business support programme for software developers and start-ups has given the green light for the programme to enter its second year, with subsidiaries in the UK and Germany joining in.