The European Investment Bank (EIB), the financing institution of the European Union, has penned an agreement with the Belgian biopharmaceutical company UCB to put up to €75 million into six drug development projects, in a new ‘at risk co-development funding’ scheme set up under Horizon 2020 to finance R&D projects across Europe.
Both organisations will share the risks and rewards, with UCB putting its own money in to match the EIB’s support. EIB will get milestone payments when and if projects advance in development, but UCB will not owe any money to the bank if projects fail.
UCB has previously had more traditional loans from the EIB, but it became the first to sign a risk-sharing deal under the Large Projects instrument of the new InnovFin EU finance for Innovators programme announced last week.
In total InnovFin has €24 billion to invest in research and innovation projects over the next seven years. With matching funding from the funded partners – which can be companies, universities, public research institutes or public-private partnerships, there should be €48 billion flowing in to the commercialization of research.
Finnish computer games maker Rovio, which makes the massively popular Angry Birds, the most downloaded game of all time, was the first benefactor of InnovFin, receiving €25 million under the funding instrument for mid-cap companies on 6 June.
Accelerating development
“We’re happy that our cutting-edge research and innovation is yet again recognised by the EIB, and that they have chosen UCB as a first partner for their new at-risk co-development funding approach” said Roch Doliveux, chief executive of UCB. “This will help to accelerate the development of several promising projects in UCB’s pipeline.”
The six projects have been selected from across UCB’s pipeline to represent drugs in different stages of development, and balance the overall risk.
EIB’s vice-president, Pim van Ballekom said the deal with UCB showcases the direct intervention and risk-taking capacity of the EIB, and its role in supporting key R&D activities. “We are aiming to pave the way and demonstrate that innovative financial instruments such as risk sharing co-development funding can make a difference in boosting research and innovation in Europe,” van Ballekom said.
Keeping companies in Europe
The support for mid-cap companies is designed to address the lack of growth capital for medium-sized tech companies on the verge of breaking through. Nick Jennett, Director, New Products and Special Transactions Department, EIB, said last year that research shows this is the most pressing stage for financing.
Jonathan Taylor, vice president responsible for the Bank’s operations in Finland, underlined the importance of medium-sized firms. “Mid-cap companies have a key role to play in competitiveness, job creation and growth in Europe. However, they often face difficulties accessing appropriate financial resources,” he said.
They often look to the US or, more and more, Asia. The new push by the EIB is meant to keep these companies in Europe.
Risky business (and innovation)
InnovFin will help to make more money available for high-risk projects that cannot raise cash from traditional sources.
The funds will benefit mostly medium and large technology companies, and large-scale research projects such as European or national research infrastructure. However, it will be open to private and public entities of any size and ownership, including SMEs, research organisations and public-private partnerships.
There are four vehicles in total.
- The EIB financing for UCB is coming out of the Large Projects pot, which has been developed to improve access to risk finance for R&D projects developed by big entities. The range of loans is from €25 to €300 million.
- MidCap Growth Finance offers senior and subordinated loans or guarantees for innovative larger midcaps, with up to 3,000 employees, and also to SMEs and small midcaps. Loans will range from €7.5 million to €25 million.
- MidCap Guarantee offers guarantees or contingent loans of between €7.5 million and €25 million, to improve access to finance for innovative larger midcaps in particular. The EIB will backstop loans, in partnership with Europe’s banks.
- SME Guarantee is designed to open the door to loans of between €25,000 and €7.5 million for innovative SMEs. The European Investment Fund (EIF) is steering this in partnership with banks across Europe. Under this vehicle, banks will be guaranteed by the EIF against a proportion of any losses incurred on loans.
The predecessor of InnovFin, the Risk Sharing Finance Facility (RSFF), operated from 2007 to 2013 as part of the EU's 7th Framework Programme. Over this period it was involved with 114 projects, providing funding of €11 billion and loan guarantees worth over €1.4 billion.
The EIF chief executive, Pier Luigi Gilibert, said Horizon 2020 provides the EIF with an opportunity to support more innovative companies in the next seven years. “Managing the Risk Sharing Instrument, InnovFin’s SME Guarantees predecessor, enabled us to support 29 banks to lend over €3 billion to innovative businesses.”
One criticism of the RSFF was that it didn’t cater well enough to SMEs, which tend to have trouble with complex loan arrangements. There has been a marked emphasis this time on designing a vehicle that brings SMEs into the fold.
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