Backing European Biotech: A Growing Role for National & Regional Initiatives (Part 1)

In tough economic times such as today’s, government ‘soft money’—loans and grants designed to support what’s often a fledgling sector in most economies—arguably takes on a more important role.  The downturn has triggered several new—or invigorated—government initiatives across Europe, both at national and regional level.   Part 1 of this mini-series looks at Norway, which hit the headlines at the beginning of the year with a €318 million ($475 million) package of grants, soft money and loans for innovative industries.  Is the scheme working?

As with any government-backed support plan, the question is whether it’s suitably designed for biotech, can provide concrete funds before it’s too late, and is sufficiently selective to ensure only those companies with true long-term potential can benefit.  Europe has a track record in government support for biotech, dating back to the sector’s inception during the 90s.  The German government’s BioRegio program, begun in the late 1990s, was among the most visible (and generous) of such schemes, though few would argue that results were mixed. (See “Germany’s Biotech Bust,” In Vivo Europe Rx, November 2002 [A#2002600083]).

The Norwegian initiative is part of the government’s fiscal stimulus initiative, and funds will be administered by the state-owned development agency, Innovation Norway.  €120 million has been ear-marked for venture investment by the government fund, Investinor, which will take equity stakes in early-stage companies.

Innovation Norway already receives around €118 million annually from the government to invest in SMEs, but the 2009 package was upped by €200 million specifically to stop fledgling companies from going under in the economic downturn. But biotech is a very new sector in Norway and discussions between the biotech industry and the government has highlighted a knowledge gap, says Jonas Einarsson, chairman of the Oslo Cancer Cluster.  “Innovation Norway has historically given loans to companies with finished products that are ready to hit the market. It is used to dealing with the oil and gas and maritime sectors. It has no history with biotech,” he explains.  “So Innovation Norway is having to rethink its practices if it is to accommodate biotech“, Einarsson continues; in particular, it will have to consider granting funds to companies that are many years away from a commercial product. 

With half of the Oslo Cancer Cluster companies sitting on 12 months or less of cash, money from Innovation Norway is an important lifeline.  Einarsson and his team have been in discussions with the agency to explain the critical development point at which most biotechs need financial support.  “In Norway, most of the projects come out of academic institutions and we have good sources of soft money to take these close to Phase I before they need external funding. Where we need money is from late preclinical and throughout development. We have had an ongoing dialogue with the agency but have yet to see the results,” he explains.

About nine Norwegian biotechs have applied to Innovation Norway for loans and grants.  Since they don’t meet the historical eligibility criteria, they will provide a test case, says Einarsson, and will show whether Innovation Norway has understood the needs of the biotech sector and will adapt its criteria for awarding money. Decisions on these applications will be made by the end of October.

Still, while Norway’s biotech sector lobbies for more appropriately-targeted government money, it’s already apparently benefiting from the promise of such investment.  Innovation Norway’s initiative has generated positive investor sentiment, with the result that the sector is one of the best performing on the Oslo Stock Exchange this year – the OSE biotech index is up 42% year-to-date. “Although there have been no pay-outs from Innovation Norway yet, it has given companies a possible way to finance business until the financial crisis is over. This has generated optimism in the sector and has made it easier to raise money”, notes Einarsson.

Indeed, three Norwegian biotechs have raised money since the beginning of 2009.  Lytix BioPharma pulled in $10.6 million of venture money in January, Affitech did a $5 million private placement in July, and Clavis Pharma raised $20 million in a private placement in June and a further $1.3 million in a rights offering in August.  Further positive signals for biotech investors have come from cancer company Algeta, which signed an $800 million deal with Bayer in September for its lead product, Alpharadin, to treat bone metastases. The biotech’s shares hit NOK 65 on the day the deal was announced—up tenfold from their 2008 low. 

It remains to be seen whether Innovation Norway’s package will eventually hit the biotech sweet-spot in time; meanwhile, the indirect benefits may prove equally, if not more, valuable.

--By Lucy Clarke, contributor