One in five of Europe’s small biotech companies risk bankruptcy this year as the credit crunch starves the sector of vital funding, according to a study published on Monday.
The result could be the loss of 20,000 highly skilled science jobs. The financial crisis has hit European biotechnology particularly hard because the vast majority of firms are still at an early, loss-making stage of development -- in contrast to the more mature biotech sector in the United States.
That makes them extremely vulnerable to decisions by both banks and equity investors to pull in their horns.
The new analysis by French research group Alcimed, at the request of the European Biopharmaceutical Enterprises (EBE) industry group, found the majority of companies needed to raise funds within 18 months and would face serious difficulties doing so.
The flight from risk in the wake of the credit crisis has effectively left biotech high and dry, with the initial public offering (IPO) market firmly shut and venture capitalists lending far less than in the past.
“The number of bankruptcies may be significantly higher in 2010 if the crisis effect on access to liquidities for biotech SMEs (small and medium-size enterprises) continues through 2010,” Alcimed added.
In total, more than 50% of small biotech companies felt under threat, it said. Early-stage firms developing new medicines rely heavily on outside funding, since it can take up to 12 years of research before they have a viable, marketable product.
Alcimed calculated the European sector needed at least €2 billion a year of funding to maintain its current level of operation and innovation.
One option for cash-strapped biotech firms is to sell out or license products to larger pharmaceutical companies. But big drugmakers are driving increasingly hard bargains.
The lack of available private-sector capital means the industry has joined the long line of those seeking government aid -- so far with mixed results. Norway is planning a €300 million biotech rescue fund, while requests for assistance are pending in Britain, Germany and Belgium.
EBE President Carlo Incerti said one potential solution could be for urgent assistance from the European Investment Bank. The Europe-wide industry group has also begun talks with the European Commission about help for the sector. “By demonstrating faith in healthcare biotechnology, the European institutions can maintain confidence and attract potential investors to come forward,” Incerti said in a statement. (Reuters)