European biotech has been increasingly successful at attracting financing capital from public and private resources. Late-stage funds have seen tremendous growth since 2010, with an 8.5 percent CAGR in the median fund size. Venture funding has increased at a similar rate to that in the United States, though from a smaller base. Moreover, the returns on late-stage investments are higher in Europe, with a net internal rate of return of 15 percent, compared with 13 percent in the United States.
When it comes to transforming research into a pipeline of new medicines, growth has been stagnant over the past six years. Early-stage funding for European biotechs has grown by 13 percent CAGR but is well below the United States, at 17 percent, and China, at 18 percent—an indication that the gap in early funding is widening. With European biotechs, founders, and investors continuing to focus on their home markets, biotechs seeking access to large early rounds of funding may need to involve more investors from outside the region.
Total deal value for European biotechs has increased (54 percent in 2015–17 and 2018–20), but the US increase was higher, at 74 percent. While average deal values remain lower in Europe than in the United States, the share of large deals exceeding $500 million in value is roughly 10 percent in both regions.
The investment market, however, remains fragmented. European biotechs are listed on 15 different European stock exchanges, with 90 percent listed in their home countries. Institutional investors hold a smaller share of the top ten regional biotechs in Europe (60 percent) than they do in the United States (85 percent). Although mutual funds are maturing, Europe still lags behind the United States: the three largest US biotech funds are twice the size of their European counterparts, with a collective value of about $12 billion.
Over the past three years, Europe’s biotech sector has made meaningful progress in attracting capital. However, raising more capital will be essential to the continued growth of this sector, and there are actions that can be taken on several fronts. Invigorating public markets will be important, such as extending regional collaboration to combat market fragmentation and maximizing knowledge sharing to make private- and public-funding systems globally competitive. Biotechs and investors should “think unicorn”: focus on securing cornerstone investors, and don’t shy away from large investment rounds. And while Europe’s main challenge remains translating academic innovations into patents, companies, and pipeline products, ensuring sufficient early-stage capital could play a key role in increasing translation and the future success of Europe’s biotech sector.
For more, and to download our full industry report, see “Can European biotechs achieve greater scale in a fragmented landscape?”