The life sciences industry in Europe is continually under the spotlight after the significant successes of the last couple of years.
Though life sciences funding in Europe isn’t quite on the level of the funding received by US startups – the European life sciences market is considerably less mature than the US life sciences market – deals have increased over the last few years, with trends causing discussions to focus on whether this uptick is sustainable or merely a passing trend.
Additionally, innovation in the industry and the increasingly tech-centric approach in the industry is also impacting the investment outlook of the industry, as greater overlap between tech and life sciences continues to bring in new investors.
What is the investment picture for life sciences in Europe, and which trends and locations are influencing this outlook?
European IPOs raised $105bn in 2021, which is up 780% from 2020.
Whilst early-stage funding in Europe is still lagging behind compared to the US, growth capital is showing signs of maturing, at a time when European biotechs are competing with the US and China in the average value of large, late-stage funding.
The announcement of the European Scale-up Initiative by the European Council, aiming to provide €10bn for late-state tech companies, is an important example of the importance now placed on technology in investment decisions.
Around a third of this money is intended to be invested into life sciences start-ups that are in the growth phase of development, with an objective to create up to 10 to 20 pan-European funds of over €1bn each.
Germany and France have already agreed to contribute €1bn each to the multi-investor fund that leverages additional money from private investors to create a European ecosystem for late-stage biotechs, medtech, and digital champions.
The ‘Fourth Wave’
When it comes to investor attitudes, biotechnology areas such as oncology have traditionally been favoured for their pathway to commercial outcomes and their value creation.
However, recently, more complex clinical research domains might be receiving greater investor interest.
This changed interest is referred to as the ‘fourth wave’ (as described by Forbes), as it goes beyond small molecule approaches and biologics (e.g., cell and gene therapies) and has curative potential for what were previously assumed to be incurable and rare diseases.
During the pandemic, the notoriously slow processes in the regulatory environment were shortened considerably, which has proven that the potential for drastic changes is there if the industry is ready to take this step.
Many of the founders pitching investments in the industry are accelerating their therapeutics through deep learning techniques – artificial intelligence (AI), big data, and machine learning (ML) – which can be expected to play a key role in the future investment outlook.
Earlier this year, a new investment package for Austria as a pharmaceutical location was announced with a budget of €50 million.
This programme was designed to close funding gaps and expand the portfolio in the field of clinical studies and industrial research.
The focus of this initiative is on the following areas:
Given that the life sciences industry generates 7% of Austria’s GDP, with over 60,000 people employed in the sector, the significance of this programme can’t be understated.
2020 was a positive year for Austrian biotech companies, which managed to secure €313.2 million, with a further €10.3 million invested in Austrian medical device companies – it’s clear that Austria is a location that will only increase in importance for the industry over the next few years.
Germany has always been a life sciences powerhouse, making major contributions to the investment outlook of the industry, specifically when it comes to its biotech businesses.
In Germany, the federal government has set up a €10bn future fund to support VC investments, with the measures anticipated to attract a further €20bn from the private sector.
Biotech companies in Germany also raised around €2.3bn in fresh capital – the second-highest amount of financing for the sector in three decades, after an already record-breaking year in 2020 for investment of more than €3bn in biotech.
With more than 700 biotech companies, Germany has a strong commitment to investment in biotech R&D as part of efforts to strengthen the country’s international profile.
Germany also has the distinction of long-standing support of research and development, with significant spending in the area that has more than doubled in the last 20 years, expected to reach 3.5% of GDP by 2025.
In terms of VC financing, the volume between 2016-2020 was €1bn, with most transactions occurring in Berlin.
Additionally, R&D expenditure is high, with the top 5 German pharmaceutical companies averaging 17.9% of turnover.
Germany contributes significantly to the outlook of European life sciences, playing an important role in the investment picture consistently.
Much like Germany, Switzerland has always had a strong reputation in life sciences, particularly because of its innovative pharmaceutical and biotech companies.
Capital investments in Swiss biotech companies reached $3.53bn in 2021, with R&D investments increasing to a record high of $2.71bn.
As mentioned earlier, there has been an emerging trend of the majority of R&D investment being directed to immune-oncology, neurology and other emerging fields such as the microbiome and cell-based regeneration.
This is noteworthy for those looking to determine the full picture of investment in European life sciences, as it shows the way investor interest is changing and adapting.
Though there were concerns around the sustainability of the initial record-breaking numbers at the height of the pandemic in 2020, record levels of financing continued into 2021.
The Swiss biotech industry saw a record-high revenue figure of CHF 6.7bn in 2021, compared to CHF 4.9bn in 2020, driven by an increase in product sales, favourable one-time events from collaboration, and high levels of regulatory approvals.
Some of the most high-performing locations for life sciences are indicating a continuing positive trend for life sciences investment.
Though the record highs of 2020 may not sustainable or comparable in 2022, the outlook is positive, particularly for the pharmaceutical and biotech sectors that have had considerable focus since the outbreak of the pandemic due to their contributions.
Locations such as Austria, Germany, and Switzerland set somewhat of a benchmark for European life sciences due to their innovation and consistently high performance, whilst trends such as the Fourth Wave indicate where investor interest is heading for the future.
For such a tumultuous period across industries, the life sciences industry is continuing on a strong note – what do you think 2023 will hold for life sciences?
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