Small biotech companies deserve special treatment

Philippe Archinard

A few high-potential, innovative SMEs may be destined also to become worldwide biopharmaceutical or medical technology champions, following in the footsteps of their North American counterparts.

The constraints imposed by fragmented European markets and the diversity of national healthcare systems are the same for both large companies and SMEs. But as the champions of growth, innovation and job creation, SMEs deserve specific attention in the wide-ranging debate on how to make the French healthcare sector more attractive and more competitive.

France has made some noteworthy progress, in terms of public sector research reform, the introduction of the Young Innovative Company fiscal status and significant improvements in the Research Tax Credit scheme.

But the overall business environment still has its shortcomings. Issues that remain to be addressed include the difficulty of raising stock market funding and the question of professionalisation of all those involved in the sector.

As the sector’s leading industry body France Biotech has set out a series of recommendations to improve the business environment for biotech.

1. Five proposals for creating a sustainable, professional and end-to-end value chain

For technology transfer departments in public sector research institutes and organisations

A National Research Exploitation Fund should be set up to organise a nationwide system for officially certifying thirty or so technology transfer departments over the next three years, in universities and research establishments.

The goal is to create a favourable environment for technology transfer and company formation in research institutions in general, and universities in particular. Introducing a certification system for technology transfer offices and their staff will highlight good practice and increase the professionalisation of staff, spreading skills and expertise throughout France's network of universities and national research institutes.

For final year students

The creation of a "gap year" for vocational training within a company, in a technology-related post dealing with innovative projects, university-industry collaboration, R&D funding issues or industrial relations.

For young entrepreneurs

The creation of a €100 million support fund to provide interest-free loans. This will help entrepreneurially-minded graduates to join start-ups as co-directors or members of the management team. Providing young graduates with an interest-free loan (equivalent to the amount of company stock purchased and to be repaid following a 4-year repayment break if the company takes off) will help them to become truly active shareholders and will reinforce their commitment to, and motivation within the start-up. For the company, provision of this equity capital will help offset salary costs of highly-qualified graduates during the delicate start-up phase.

For Young Innovative Companies in biotech and the life sciences

As soon as these businesses have left their company incubator, they should be able to benefit from a new fund managed by the French National Innovation Agency Oseo-ANVAR, designed to professionalise the management of collaborations with big pharma to finance 50 percent of the cost of these deals. The goal is to involve start-ups as soon as possible in true drug discovery collaborations, as opposed to moving into service provision. Potential involvement of the parent academic lab will also help accelerate knowledge transfer to the start-up.

For experienced managers, the creation of a "biotech sector" course leading to a European MBA, an executive MBA or a PMD

Biotech business skills are highly specific, subject to rapid change and differ from those found in the traditional pharmaceutical industry. Hence, biotech requires a dedicated, future-proof, specifically-designed management course. This MBA, which would involve major input from biotech players throughout Europe would become a true driver for professionalisation and retraining.

2. A proposal to help innovative SMEs to finance their international growth on the stock market

Even though Europe generates as many biotech companies as the US, these firms suffer from chronic financial malnutrition, due to the great difficulty they have raising funds on the stock market. This is preventing Europe's biotechnology firms from achieving the critical mass they need to emerge as global leaders.

In France, 80 percent of the sector's finance comes from venture capital, whereas for the US the figure is 50 percent. In the US the rest comes from pharma alliances, which again, are struck very early on in the life of a start-up and, above all, from public markets.

France Biotech proposes the creation of an "IPO Seeding" venture fund intended to prime the stock market flotation of innovative French SMEs and to promote secondary offerings.

Two components are needed to accomplish an IPO: the participation of specialised international and institutional investors and support from, usually non-specialised, local investors. If the latter back out, the international investors may be prompted to withdraw also.

A government-backed "IPO Seeding" fund would provide validation and leverage, enabling companies to draw in private investment, and boosting the emergence of national biotech and hi-tech champions.