A new report shows that attempts by the Dutch government to grow its biotech sector have produced fresh start-ups. But will they survive?
According to BioPartner, a government program started in 2000 to rejuvenate the Netherlands’ life sciences sector, dozens of biotech firms have since sprung up in the country even as in the rest of Europe start-up activity has almost died down. But whether these start-ups will find enough follow-up capital in the current financial environment is yet to be seen.
Like all EU member states, the Netherlands has had trouble starting up biotechnology firms over the past decade, despite well-educated citizens, relatively strong popular support for biotechnology, and competitive academic research. Even by European standards the country was trailing; according to the latest EU’s Biotechnology Innovation Scoreboard, in 2000 the Netherlands ranked 11 out of 14 countries in the number of dedicated biotech companies per capital.
That same year, the Dutch Ministry of Economic Affairs established a €45 ($52) million fund to catch up. The funds, distributed through BioPartner (Ede, Netherlands), paid for a comprehensive stimulus program to scout and train prospective entrepreneurs, evaluate business plans and support the most promising ones with equipment and suitable housing. The money also helped fill a small public/private venture capital fund supplying seed money. The BioPartner program’s goal was to boost the yearly average of biotech startups from six to at least 15, thus aiming for 75 new companies by the end of 2004.
According to ‘The Netherlands life sciences sector report 2003: Growth against the tide’, BioPartner’s second annual report released on May 26, the program is well on track to reach its target. By the end of 2002, 61 new start-ups had already popped up, with another 15 set to surface this year. Most of the new companies were spin-offs, predominantly from universities in Amsterdam, Leiden and Groningen. And Ward Mosmuller, program manager for BioPartner, says the companies created thus far are doing well. After surveying most of the country’s 126 dedicated life sciences companies, BioPartner estimates that in 2002, employment grew 14% (to 2,000 people) and revenues were up by a whopping 30%, reaching €155 ($178) million. That’s a surprisingly strong showing, considering that on May 7 Ernst & Young (Cambridge, UK) in a report titled ‘Endurance’ described last year’s European biotech sector as ‘stalled,’ and found employment down 6% and revenues down 2% across the continent.
Many in the Netherlands, however, hesitate to declare victory yet. Menno Horning, who oversees BioPartner as head of the life sciences department at the Netherlands Ministry of Economic Affairs, volunteers that the recent flurry of start-up activity may for a large part stem from the fact that the country’s subsidy program got a late start. Similar programs elsewhere are already winding down (like the U.K.’s Biotechnology Mentoring and Incubator Challenge (X-REF), launched in 1996) or underway longer (like Germany’s BioRegio Initiative (X-REF), started in 1998, from which the Dutch program drew inspiration.)
Some entrepreneurs, Horning suggests, may have been waiting in the wings.
The real test–as shown in Germany where many start-ups have already failed after subsidies ended–will come when the newborns are taken off life support.
BioPartner hopes its babies will prove tougher than their German counterparts, since the program required private seed money to match government funds and favored market-oriented business plans over research-oriented ones. Still, having Dutch start-ups survive in today’s harsh investment climate will take additional public money, Horning predicts, quoting estimates of a venture capital shortage of €1 ($1.15) billion across Europe for 2003 alone.
Apart from bigger tax breaks for all innovative research, however, the incoming Dutch government has no specific plans to support faltering biotech start-ups. Instead, Horning points to ideas floating around in Brussels to beef up the European Investment Fund (EIF), which by salvaging some promising companies would have to inspire other investors to jump back in.
Some experts are already preparing for an unfavorable follow-up. Rob Janssen, director of the Netherlands’ Biotech Industry Association (NIABA; Leidschendam, Netherlands), for instance, is gloomy about the chances for start-ups to take root. Even firmly established companies, he notes, are considering leaving the country. Indeed, drug maker Organon (Roseland, NJ), part of Akzo Nobel (Arnhem, Netherlands), last year moved its headquarters to the U.S..
According to Janssen, the Dutch biotech sector will not gain critical mass unless the country solves some key problems: strict patenting rules, a business-unfriendly culture at universities, and often overly complex government regulation–all of which scares off old and new biotech companies alike. (Dutch law, Janssen explains by way of example, requires many researchers to file papers with two ethics committees: one for experimenting on animals and one for creating–or acquiring–genetically modified animals.)
Even in the best of worlds, there will be some kind of shakeout, most agree; mergers and even bankruptcies are part of a healthy growth curve as long as knowledge and patents can be preserved. “If in the end five big and internationally competitive companies remain,” Janssen contends, “then for a small country like ours that would be quite an achievement.”