European biopharmaceutical companies’ existing problems in gaining access to funding have been worsened by the global financial crisis and, in the long term, this could force them to give up their drug development activities, warns a new report.

This would have serious implications for innovation, economic growth and employment in Europe, says the study, which is produced jointly by the European Commission’s Directorate General for Enterprise and Industry and the Danish Technological Institute.

However the authors, who focus particularly on the problems experienced by small and medium-sized enterprises (SMEs), also notes that financing biopharmaceutical drug development is a complex matter that goes beyond having access to sufficient funding. Some observers even claim that having too much capital in the market for funding drug development could very easily become a “waste of money,” because too many drug candidates with insufficient market potential would be funded, and this would drain the financial market for capital for other and more promising drug candidate, it says.

“We conclude that an increased capital supply could meet some of the immediate funding problems in the biopharmaceutical sector,” say the authors. However, they add, there is also an element of “creative destruction” that needs to be considered when deciding to support an industry on the “other side of the biotech hype.” Noting that many biopharmaceutical companies have performed poorly, they warn policymakers to “be careful” about investing in companies that the financial market has abandoned.

Traditional sources of funds are now looking for lower risk/reward ratio, making it increasingly difficult for SMEs to access venture capital or business loans, says the study. Of a large number of biopharma SMEs surveyed recently, some 40% will need access to capital within the year, it notes.

The authors make a number of key recommendations to restore stability to the sector, including identifying and disseminating best practice in technology transfer and commercialization, and making investments in early-stage biopharmaceuticals more attractive through incentives to smaller investors by means of tax concessions and European and member-state public sector co-investment mechanisms. They also suggest that the establishment of a European Biopharmaceutical Innovation Fund could increase availability and access to venture capital and create world-class expertise in investing in the sector.

The report was launched at a workshop yesterday, presentedjointly by the industry group European Biopharmaceutical Enterprises (EBE) and DG Enterprise and Industry. According to EBE executive director Emmanuel Chantelot, it is “to the Commission’s credit that they have recognized the nature of the problem and are acting with the industry to solve it effectively,” while Giulia Del Brenna, head of the Commission’s Competitiveness unit for Pharmaceuticals and Biotechnology, added: “We have a responsibility to ensure that Europe’s knowledge economy - especially the biopharmaceutical sector - weathers the current economic climate, and we will act to ensure adequate support.”