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Governments backing manufacturing to save startups

European governments see manufacturing as a vital next step toward developing a robust local biotech industry—and an essential fortification to protect their investments in the field.

European governments have invested millions of euros in recent years to stimulate biotech start-up activities. The fledglings that have survived will soon be in need of more than just capital: they will increasingly need biomanufacturing support. In the coming months, on the grounds of the Dutch pharmaceutical company Organon, located in Oss, The Netherlands, a new, government-backed biomanufacturing company called BioConnection will open for business. In Liverpool, UK, the National Biomanufacturing Centre (NBC), financed largely with public money, will open in early 2006. And in the Swiss town of Monthey, a biomanufacturing facility called the Switzerland Biotech Center (SBC), also paid for mainly with public money, will be launched at around the same time.

European governments have determined that young biotech companies, home-grown with seed funds and incubators, have reached the stage of development where they need small, expensive and difficult-to-acquire batches of medicines for their clinical trials. Because the batches required for early-stage trials are often small, and most biotechs can’t produce these amounts in house—or readily find others willing to do it for them at a reasonable price—the initiation of manufacturing and related compliance represent an expensive, complicated juncture for startups. In the absence of a readily available, cost-effective contract manufacturing organization (CMO), management often has little choice but to go even deeper into debt or into the arms of a foreign partner with no commitment to keeping the firm planted in the region where it was created.

“Startups require a wide range of services, including process development, scale-up and advice on regulatory compliance,” says Sarah Fox, president of HighTech Business Decisions in Moraga, California, a leading CMO market research firm. “The irony is that those needing the broadest set of biomanufacturing services can often pay the least,” Fox adds.

Without local manufacturing, governments fret that their investments in biotech could wither or take flight across the border, robbing them of any chance at recouping their investments through the tax revenues that would follow from any product produced by these biotechs down the line.

The most heavily supported manufacturing plant in Europe is being built in Britain. At £31 ($45) million, the UK government’s investment in the NBC, 56 percent of which is coming from public funds and 38 percent from the European Union, is risky. Still, government studies in Europe have identified a critical lack of domestic capacity for the production of small-scale, high-quality biopharmaceuticals for early-phase clinical trials.

The Dutch government is investing in a manufacturing business that will be co-owned by Oss-based Organon, a subsidiary of Akzo Nobel. Surveys among Dutch biotech startups found strong demand for accessible, flexible and affordable biomanufacturing facilities, says Kees Recourt, investment manager at Mibiton, a government-sponsored foundation leasing research equipment to biotech startups.

Public entities will own 60 percent of BioConnection, an independent EUR15 ($20) million company leasing time slots in two Oss-based facilities owned by Organon, one of them to be finished in 2008. “We aim to become a one-stop shop for small biotech companies [that need their products to be developed,” says Marjo Peters, who is still at Organon but set to become BioConnection’s program manager. In Switzerland, where negotiations are still ongoing, public entities are heading for a majority stake in the SBC, “somewhere around 70 to 75 percent,” according to Eric Plan, business development manager for the new center.

Although these facilities are largely being built to support local biotech startups, the hope is that eventually these CMOs can turn a profit by also serving the needs of the growing number of firms requiring manufacturing capacity either for large phase 3 trials or for marketed products. “BioConnection aims to attract clients across Europe, both large and small,” Peters says—a prospect that has, not surprisingly, piqued the interest of the commercial CMO community.

“We do not yet know what margins these new companies will apply, but surely they could become a threat,” says Didier Argentin, sales manager at Henogen, a medium-sized contract manufacturing company in Charleroi, Belgium. “Clearly, by using local networks and speaking in researchers’ own languages, they will be able to capture large parts of their markets,” Argentin says.

According to Fox, governments would be better advised to limit themselves to offering expertise and small-scale capacity to startups that otherwise could not afford them. “Once larger quantities of products are needed, [private contract manufacturers are certainly available,” she says. “I do not think it’s a good time for governments to enter this market if their intention is to compete with traditional CMOs.”

Perhaps, but if governments are to have any hope of protecting their investments in their local biotech industry, they will need to start providing the kind of support systems that young biotechs require or else risk losing these fragile startups to attrition or greener pastures abroad. At Mibiton, says Kees Recourt, public investments in research equipment are now successfully being regenerated through lease contracts at commercial rates. “BioConnection,” he says, “is just the next step on that road.”

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