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One in five European biotech companies facing bankruptcy

Published on 17/03/09 at 11:29am

Around one in five European biotech companies could go bust by the end of 2009 if new funding doesn't emerge soon, the sector has warned.

EU industry body European Biopharmaceutical Enterprises (EBE) commissioned the study, and says the results paint a grim picture for the sector in which many companies were struggling to attract investment, even before the credit crunch.

But venture capital investment has dried up since the credit crunch, and the downturn has also ruled out IPOs and new share offers as ways of raising money.

The EBE represents biotech companies in healthcare and agriculture, but says healthcare is particularly hard hit because of the long development time needed.

It says that if 20% of the companies go into liquidation up to 20,000 high-skill, high-value jobs will be lost.

It added that the number of bankruptcies may rise further in 2010 if no action is taken, and also confirmed that more than 50% of the small biotech companies interviewed felt 'under threat'.

The alarm was first raised in December by the UK sector, where chief executives of biotech companies and venture capitalists united to call for a co-ordinated government fund to help revive the flagging British sector.

Other national organisations have followed suit, and the EBE is now looking to the European Commission to co-ordinate Europe-wide action before it is too late.

It warns that the collapse of the sector would permanently damage Europe's research base, and is looking for support to shore up finances in the sector.

Dr Carlo Incerti, president of the European Biopharmaceutical Enterprises, said: "Many industries face challenges in this climate; however the biopharmaceutical market is unique.

"This is not just about saving jobs in the short term, it's about protecting Europe's capacity to drive medical innovation. Small biopharmaceutical companies represent a substantial part of the future of Europe's health and competitiveness and if we do not support the sector, much of the innovation already created may be lost."

Dr Incerti said urgent assistance from the European Investment Bank would help to demonstrate confidence in the potential of healthcare biotechnology, which should attract potential investors to come forward.

The industry group suggests that a two-fold strategy of emergency financial support followed by a longer-term plan for sustainability.

The researchers interviewed 13 biotech chief executives, five venture capitalists and a funding agency and five national/regional industry associations.

Among the suggested solutions is the creation of a central fund to support innovation, government-guaranteed bank loans, tax credits and 'matching funds' where government match the funding put up by venture capitalists.

The EBE says the European Commission could act to co-ordinate action across member states, and benchmark or even centralise efforts for all countries.

The provision of 'bail outs' or aid by national governments to their industries is governed by European competition laws, and are intended to stop protectionism or 'economic nationalism'.

But the Commission has responded to the financial crisis by loosening some of the regulations on funding small-to-medium enterprises (SMEs), which it describes as the 'backbone of Europe's economy'.

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