Backing European Biotech (Part 2): Regional Support Structures Lure Companies from Overseas

Several of Europe’s most important soft-money initiatives are happening at the regional level.  In Part 2 of our series ‘Backing European Biotech’, we focus on Belgium, whose North-Eastern region of Limburg is beginning to stand out as a particularly attractive venue for biotech.  Substantial tax breaks are one key driver; another is LRM, originally a regional government regeneration fund but now more like a VC, offering funding, support and, increasingly, infrastructure.

The LRM fund was born out of a regional government regeneration initiative following the closure of the mining industry in Limburg 20 years ago.  LRM was given €500 million to reinvigorate the local economy and reduce unemployment. Once these goals were met, LRM changed; “we started acting as a private equity and VC player,” explains Nico Vandervelpen, Head of Life Sciences at LRM. Although the Flemish government is still the only shareholder, he continues, “making money is now more important than in the past.”

 

LRM’s focus extends beyond the life sciences, but it has invested in seven biopharma companies to date and typically takes a stake of up to €5 million over the life of the investment (usually five to 10 years). Companies have to have links to the region, however, and LRM ensures those links are relevant by focusing on companies that complement the region’s existing areas of knowledge, including cell therapy, immunology and diagnostics.

The Flemish region in Belgium is especially attractive to innovative growth companies as it offers substantial tax breaks on IP-generated income. This can help drive down corporation tax to single-digit levels.  Only 20% of income that is derived from IP generated in Flemish Belgium is taxed. Corporation tax is 34%, but the concession makes the effective tax rate

6.8%.  This tax break comes in addition to numerous government grants and subordinate loans (Vandervelpen claims that companies can get up to half of their local research costs subsidized), and LRM has recently set up an incubator, providing companies with access to land, infrastructure and even production facilities.

 

One company that’s benefited from LRM and the rest of Limburg’s support structure is Apitope, a UK biotech (spun out of Bristol University, UK, in 2002), which completed its first clinical trial of MS treatment ATX-MS-1467 in early 2008. Thus Apitope-- funded during its first five years with £2.5 million in angel investment, university challenge fund investments and a Wellcome Trust award--had to look for more substantial slug of capital just as the global credit crisis was coming to a head. 

The company marketed its series A financing in various countries, but in the end the €10 million round was co-led in October 2008 by LRM and Vesalius BioCapital (Luxembourg).  Lured by the support structures on offer in Belgium, Apitope moved its headquarters to Hasselt, and benefited from an LRM-instigated collaboration between with the University of Hasselt, which has a biomarker group working in autoimmune diseases such as MS and rheumatoid arthritis. Apitope now has its diagnostics operations in Hasselt, whilst its therapeutic programmes continue in Bristol.

Keith Martin, CEO of Apitope, believes that the company found a serendipitous fit. “We knew about the autoimmune diagnostics work at Hasselt University and, through our links, we were introduced to LRM. When we were looking to raise money, many investors were nervous, but the fit of our business with Hasselt and LRM’s support made sense. We liked the prospect of having a diagnostics business, which could bring in early revenues, and being in continental Europe has undoubtedly given us a broader international base.”

Apitope has been on a roll ever since, benefiting in addition from another increasingly important source of biotech funding: not-for-profit disease associations. (See “Venture Philanthropy: The New Venture Capital?” START-UP, March 2007 [A#2007900050].)  In December 2008, the American MS society’s venture arm, Fast Forward, invested $1 million in Apitope.  Then in January this year, Apitope signed a major deal with Merck Serono on ATX-MS-1467, which could be worth €154 million ($230 million) to Apitope.

Apitope’s story is one of several that proves how important government initiatives can be in supporting fledgling sectors when most other sources of finance have dried up.  But although they can—if designed and administered on time-- provide a lifeline during a downturn, they don’t change the fundamentals of what makes a successful biotech company – innovative products, strong management, cash and partnerships.

--By Lucy Clarke, contributor.