The French Biotech Sector
France is home to the third largest biotech sector in Europe. Critical I published a comparative biotechnology report in April. "Historically in the 197080s, some French biotech companies were grown with the notion of feeding them as merger and acquisition targets to big pharma," according to author, John Hodgson, Ph.D., director and co-founder of Critical I. "Now French biotech start-ups are launched with the intention of reaching maturity."
The French biotech sector grew even in the wake of the 2001 dot-com debacle. Irrespective of the ripple that hit Europe, 56% of French biotech companies increased their employee headcounts in 20022003, the highest in Europe and in the U.S. Also, French biotechs experienced fewer restructuring activities than the U.K. or Germany.
Roughly one-third of French biotechs are young start-ups founded within the past five years. A typical start-up has a research budget of only E13 million, three-fold less than their American counterparts. Venture capitalists investing in French biotechs invested fewer euros per company to more companies. In 2004, venture capital accounted for E242 million, or 90%, of the E268 million-total equity invested in over 100 French biotech companies. Through mid-November 2005, venture capital accounted for E128 million, or 100% of the total equity invested.
A select group of French start-ups have attracted American-sized rounds of early financing. In November, Fovea Pharmaceuticals (www.sofinnova.com) completed E20.5 million-Series A financing to develop new drugs for retinal diseases. This internationally funded round was led by Sofinnova Partners. "It is important for French biotech companies that are interested in attracting significant international funds to do so early, since it establishes a relationship between investors and management. This is more likely to induce subsequent rounds of international financing," explained Denis Lucquin, general partner.
The second third of French biotechs are mid-aged firms, 68 years old, with research budgets of E23 million. The funding gap, or the difference between French and American biotechs, broadens primarily due to the relative abundance of American IPOs. Few French biotech companies received funding from institutional investors, debt financing, or the financial markets. In fact, under 10 French biotech companies are publicly-traded compared to nearly 50 in the U.K. and over 300 in the U.S.
France has only two sizable clusters for fostering biotechnology, Paris and Grenoble-Lyon. The JEIC measure was drafted to ameliorate the dearth of French IPOs.
For the remaining third of older biotech companies, nine or more years, the funding gap is more pronounced. In contrast to U.S. firms, some late rounds of financing come from venture capitalists. This financing comes when most American VCs have made their exit. This trend may likely be attributed to an anemic national market in what has been described as a lack of appetite from individual/institutional investors.
A weak demand in the national financial market has a depressing effect on the valuations of French biotech companies, which in turn lowers the value of M&A and other deal making with industry partners. A financial structure, even at a late stage, has a recursive effect upon the entire chain of equity. A 2004 feasibility study on a Pan-European Market for Technology Growth Companies by Robert Abbas at M.I.T. described this phenomenon. French biotechs lacking sufficient access to late-stages of capital will be burdened from the onset, debasing their true potential.
As of November, over 100 French biotech companies collectively had 41 candidates in Phase I trials, 38 in Phase II, and 7 in Phase III. As French companies advance its drug pipelines, this investment will beckon additional funding, including IPOs.