France, like other countries around the world, must choose if it will use its stimulus package to prop up ailing industrial giants or make bets on young innovative companies. The government announced June 3 that it will team with France Biotech to aid life science companies, but it is still unclear how much of the state’s six billion euro Strategic Investment Fund will be invested in the sector.
“This crisis must be, has to be, the opportunity to strongly invest in innovative sectors.” says Philippe Pouletty, (pictured on Informilo’s home page), President of France Biotech , the country’s professional association for life sciences companies. “Without that France can not have economic growth.”
Biotechnology companies work on pioneering technologies that speed up drug discovery and shed light on the human genome, proteins, cell biology and aging. Investors believe the industry will not only improve health care but also boost economies and employment. Revenues of European public biotechs increased 17% to €11.2 billion in 2008, according to a recent report by Ernst & Young.
But for many privately held and small-cap European biotech firms, access to capital has become very difficult in the aftermath of the global financial crisis. By amount of capital raised 2008 was the third-worst year in the past decade, ahead of only 2002 and 1999, according to Ernst & Young. The European industry’s fundraising fell from €5.4 billion in 2007 to less than €2 billion in 2008. The bulk of this reduction was in funding for public companies, which shrank from more than €4 billion in 2007 to only €833 million in 2008. Venture financing fell from €1.2 billion in 2007 to €932 million in 2008 – one of only two years since 2000 in which the amount of venture capital raised by the European industry dipped below €1 billion.
France is no exception. Funding for French biotech companies fell by 79% in 2008, relative to 2007, according to France Biotech, and the situation is not expected to improve this year, as public exits remain closed.
Without funding many European biotech companies will fold. A number of companies went under in 2008 and more are expected to follow suit in 2009, according to the Ernst & Young report.
Many that do survive won’t stay in Europe. A big difference with the U.S. is that European companies struggle to have the size and market capitalization to become global players. That means thriving European biotech firms are more often than not acquired by U.S. companies. CoreValve, a French company is a case in point. The company developed a proprietary delivery system for heart valve replacement, based on a catheter-and-self expanding frame approach that mimics a beating heart , allowing patients to avoid open heart surgery. It raised venture capital in Europe from Paris-based Sofinovva Partners and won a special pan-European medtech prize in 2008 as part of the European Entrepreneurs of the Year awards sponsored by Audemars Piguet and the European Tech Tour Association. The company was sold to the U.S.’s Medtronic for $700 million in February of this year. It might have stayed in Europe if it would have been possible to find a buyer or more funding here, says Pouletty.
France Biotech called on the government earlier this year to come to the rescue by taking a number of actions, including designating a significant portion of the government’s Strategic Investment Fund to innovative young French companies. France’s Strategic Investment Fund, known in France as Fonds Strategique d’Investissement of FSI is a six billion euro fund set up in December last year to invest in companies that will help the French economy thrive.
Companies the FSI has invested in so far include LEDtolite, a French company specializing in products based on light emitting diode technology, Daher, a company specializing in products for the aerospace, nuclear and defense industries, Farinia Group, which makes components for the agricultural and construction industries, Valeo, which makes components for automobiles, 3S Photonics, which makes chips and optical components for the telecommunications industry and Gemalto, which makes smart cards , electronic passports and provides online security services.
The FSI already invests indirectly in biotech though a fund of funds called CDC Enterprises. However, the amount of money invested is limited and spread across a large number of companies. The 20 funds affiliated with CDC Enterprises invested a total of 295 million euros in 152 biotech companies over six years. Similar approaches have failed in other European countries, such as Germany, where too many biotech companies were given seed money by the government and a large number folded either because they should never have received funding in the first place or because they could not find follow-on funding.
At a packed June 3 breakfast meeting in Paris Gilles Michel, the head of the FSI, said the investment fund will partner with France Biotech to decide how the fund can do more to support the life sciences sector. Specifically, FSI will participate in a new €250 million biotech investment fund aimed at financing the most promising companies in the sector. The idea is to use the fund to allow FSI to co-invest in young biotech companies along side of big drug companies and other investors.
The FSI will also increase its investments in new funds dedicated to biotechnology under a program called France Investissement, It said €75 billion will be dedicated over the next two year into new biotechnology funds created by private institutional investors. And, the FSI said it will directly invest in listed or mature biotechnology companies, by taking a minority participation of over €10 million in selected cases..
The latter commitment could have the biggest impact on the sector because FSI head Michel confirmed at the France Biotech June 3 meeting that there is no pre-defined amount for investment in mature biotech companies. “I’m optimistic,” says France Biotech President Pouletty. “There are no quotas so the FSI is not going to be limited to giving biotech a given amount.”
It is up to the biotech industry, he says, to demonstrate the potential of the sector. “This is an industry on the rise, the number of drug candidates have grown tremendously over the last five years,” he says. If France’s 400 biotech companies are able to access finance some will become multinationals and serve as drivers of strong, sustainable growth for the French economy, he argues.
Still, the biotech industry in France employs only about 4,000 people. The risk is that the FSI will come under political pressure to primarily fund ailing industries that employ a far greater number of people.