The relationship between availability of funding and the emergence of young life-science and biotech companies

In this article our colleague Soheila Jalali explains the relationship between funding and the emergence of startups.

Note: “Biotechnology/biotech” in this article refers to “Red biotech” which is medical and healthcare related biotechnology. It is used synonomously with life-sciences and biopharma.

Transformation of the life-science industry

In the past few years, the life-science industry has reached an inflection point wherein a new wave of transformative innovations are taking hold i.e., a new S-curve is developing led by scientific innovation in knowledge institutes, rather than big industrial incumbents(1). As a result, the entire industrial landscape has shifted to become dominated by early-stage, emerging start-ups and has even forced changes in the business models of big pharma, wherein a large focus has become acquisition and in-licensing of new innovations rather than heavy, internal R&D expenditure.

In 2018, the majority of drugs that obtained FDA approvals and were subsequently launched to market originated in emerging biopharma companies (sales <$500M, R&D spends <$200M)(2). Indeed, these young companies far outstrip large, mid-sized and small pharma companies in numbers and pipeline products (Table 1). However, there is a long, uncertain, and very expensive road from initial research findings through to product development and market launch.


Table 1: Number of entities and pipeline products for life-science companies by size (Source: (2))


The availability of funding, especially in the form of private equity investments is a major factor in success of startups and impacts the incorporation of new companies. Yet, the availability of funding is itself linked to other factors that attract investors.

Primarily, there are four main factors that together can affect the emergence of young life science companies (Figure 1): i) Scientific research output, ii) Intellectual Property (IP) output, iii) human capital and a well-educated workforce, and iv) life-science focused venture capital (VC) funding with scientific output being the main determinant of startup success in Europe(3). This can be explained by the fact that the value chain of a new innovation often starts with scientific output that fuels the development of novel, patentable technologies.

This in turn, attracts investors who look for proprietary technologies that cannot easily be replicated. Meanwhile, the availability of specialized, trained human capital is also essential to initiate the entrepreneurial journey, in many cases leaving behind the security of academia. Overarching governmental policies also play a role stimulating the emergence of startups. This may be through patent laws such beneficial taxation policies around patents or via the availability of public grant funding for early-stage R&D(3).


Overarching governmental policies
Figure 1: Factors contributing to the emergence of early-stage biotech companies (Based on: (3))


Taken together, the various factors lead to the emergence of biotech “bubble” ecosystems or “bio-hubs” that tend to develop around Universities and research institutes where research output and patent outputs are highest and well-educated human capital is abundant. By taking on the initial R&D risks in research labs, institutes with strong patent portfolios have become an integral part of the emergence of biotech clusters.

In fact, University of California leads the list of biologics patents with at least nine other universities featuring among the top 30 patent holders(4). These hubs attract investors and often larger pharma companies whose positioning close to innovative science allows for informed strategic acquisitions and intimate knowledge of new developments and pipelines. Thus, there are geographical discrepancies in the number of startups and concentration of VC companies.

Geographical differences

The interconnectedness of the various determinants of a successful biotech startup ecosystem often means that once established, the presences of a few entities stimulates the emergence of new ones in the same geographical region. This is very clearly witnessed in some of hubs in the United States (US) wherein an innovative, patent-generating institute or cluster of institutes led to the development of biomedical startup ecosystems that attract significant financing.

This can be nicely illustrated with the largest VC financing rounds that occurred in 2018. To reiterate, University of California holds the highest number of patents for biologics target development, while several universities in Massachusetts (Harvard, MIT, University of Massachusetts) are also among the top 30 patent holders(4). Interestingly, all three of the series A rounds exceeding $300 million were secured by companies located in these two states.

Indeed, out of the seven startups obtaining the largest series A deals in 2018, five were based in the US, one in Germany (BioNtech) and one in China (Brii Biosciences). The rest of the top 10 financing deals (series C – G) also involved a majority of California based companies(5). 2019 and 2020 showed similar trends, albeit with more geographical diversity within the US. Switzerland and France were the only European countries to feature on these lists while in 2020, two of the top three series A rounds were closed by Chinese companies.


Figure 2: Total VC investments in the three major global regions between 2018 and October 2020. Source: (6)


The top VC financing deals of the last few years are a very accurate reflection of the global themes in this respect. Between Europe, US and China, China and the US are in close competition but Europe lags behind quite significantly specifically on the metrics of patent output and average deal values per round. Although European countries lead in numbers of scientific publications, there is limited translation of  these outputs to patent registration and arguably a lower appetite for high-risk entrepreneurial initiatives.

Meanwhile, the US and China generate 3x and 9x more patents than Europe respectively, and their average deal values per round are double (approx. $47.2M) that of European companies ($23M)(5,7). In total VC funding, China is gaining ground relative to Europe and the two regions generated similar financing in biotech in 2019. However, the US remains a goliath in terms of the amount of capital raised by biotech startups (Figure 2) generating about 72% more VC investments than Europe(6). When measured by new drug approvals and launches by biotechs, the young US companies appear to be more successful making up 78% of new drugs as compared to a mere 13% attributed to EU biotechs(7).

European Startup and financing landscape

Within Europe too, there are large geographical discrepancies when it comes to biotech startup activity. Some countries have far more startup financing deals than others. For instance, Switzerland leads in per capita (per 10 million inhabitants) startup deals i.e., first time securing of seed or startup VC funding. This can be attributed to the fact that Switzerland also leads the continent in per capita research output, patent output, number of VC firms and entrepreneurship(3). Denmark too, performs well on most of the same metrics, although its patent output is not as strong. In absolute numbers, however,  the UK houses the most startups and has also attracted very large investments in recent years. In fact, in 2019, $870 M in VC financing was secured by UK-based biotech startups. The UK is only second to Switzerland in the per capita numbers of VC companies. It is unclear what Brexit will mean for future financing in the UK but it is likely that with the migration of the European Medicines Agency (EMA) to Amsterdam, startups may also migrate to  the Netherlands and other mainland European countries.

Importantly, early-stage financing i.e., series A and seed rounds are a key factor in driving the stability of young companies and can be a good gauge of the investment landscape and likelihood of young companies making it to larger rounds and exits. In 2020, European companies raised about €279M in early-stage financing (Table 2) (8). As a reflection of the impact of afore-mentioned trends, Swiss companies have consistently raised some of the largest early-stage rounds. They also were the only European country to be part of the global Top 10 mega-A rounds (>€100M) in 2019 with FerGene leading the list by raising a whopping €570M. Although a few years ago, Europe faced a gap in early-stage investments, this is no longer the case, and the risk appetite of international investors seems to have evolved(6).


Table 2: Top 10 Series A and seed financing rounds in Europe, 2020 (Source: (8))


The European biotech landscape is poised for significant growth and attracting fresh investments. In particular, the Benelux region has been identified by McKinsey and Co. as the next hub for biotech within the EU(9). Indeed, between them, Belgium, Netherlands and Luxemburg boast a winning combination of elements including 4000 publications per year, 120 patent filings per year and housing 5% of the top 100 life science universities in the world. Beyond this, the amount of private and public funds raised per year for the region stood at approximately €115M and €300M respectively. This perhaps alludes to the idea that, in the European context, grant funding may be also be giving a significant boost to high-risk, early-stage funding.

For instance, the Eurostars funding programme is focused on early-stage funding of innovative projects led by small and medium-sized enterprises (SMEs). With an average of €1.48M awarded per project, the Eurostars programme can often fill critical funding gaps for young companies. Other larger, EU-wide programmes also exist including the newly announced Horizon Europe with an allocated total budget of €95.5billion of which the estimated allocation for health is €948M in 2021 and €914.3M in 2022(10).


In conclusion, between 2018 and 2020 biotech and life sciences funding has been on an upward trend across the globe. Although the focus here has been on private equity,  trends in mergers and acquisition as well as biotech IPOs have also seen positive developments(5,6).

Several key factors come together in the emergence of young life-science companies and the availability of funding is influenced by these and in turn, bolsters the entire bio-hub ecosystem. Europe is gaining traction as a bio-hub and early-stage companies also benefit from several options for public grant funding. The future is bright for biotech!

Catalyze group helps young companies across Europe and the US obtain grant funding. Get in touch to learn more.


References and Further Reading

  1. 2020 Global life sciences sector outlook [Internet]. Deloitte. [cited 2021 Feb 17]. Read more
  2. Emerging Biopharma’s Contribution to Innovation – IQVIA [Internet]. [cited 2021 Feb 17]. Read more
  3. van Wilgenburg B, van Wilgenburg K, Paisner K, van Deventer S, Rooswinkel RW. Mapping the European startup landscape. Nat Biotechnol. 2019 Apr;37(4):345–9.
  4. McKenna C, Arlington S. The Life Sciences Innovation Report [Internet]. Clarivate Analytics and Pistoia Alliance; 2018 Oct p. 45. Read more
  5. Hodgson J. Biotech’s baby boom. Nat Biotechnol. 2019 May;37(5):502–12.
  6. Senior M. Europe’s biotech renaissance. Nat Biotechnol. 2020 Apr;38(4):408–15.
  7. Franck Le Deu, Jorge Santos da SIlva. Biotech in Europe: A strong foundation for growth and innovation | McKinsey [Internet]. [cited 2020 Nov 20]. Read more
  8. 2020 Biotech Funding: The US, Europe and Asia [Internet]. CipherBio. 2020 [cited 2020 Dec 1]. Read more
  9. Scaling-innovation-How-Benelux-could-become-Europes-leading-biotech-hub-March 2020.pdf [Internet]. [cited 2020 Nov 20]. Read more
  10. Horizon Europe Budget – Allocation, deadlines & more [Internet]. Catalyze. [cited 2021 Feb 18]. Read more

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