The biotech industry is currently growing and experiencing great dynamism driven not only by advancing technology but also by increased investor interest. The US is definitely experiencing a bigger boom in biotech compared to Europe well-documented in a 2012/2013 financial performance report by Ernst and Young. This is attributed to a greater risk-taking attitude in the US as compared to Europe where failure to achieve a successful business on the first-try is often looked upon with disdain. Biotechs in the US are also more mature/developed compared to Europe, attracting greater interest from venture capital firms.
The two largest biotech hubs in Europe are in Cambridge, UK and Martinsreid, Munich in Germany. An interesting article from Simcha Jong, Assistant Professor in Management Science and Innovation at University College London, studied factors influencing development of these two biotech sectors. He raised the interesting fact that despite the rather restrictive model imposed by German capitalism, businesses in Munich have found innovative ways to get round this and produce more technologically disruptive and innovative product strategies as compared to their Cambridge counterparts.
The German capitalist model is restrictive to the development of innovative new companies based on several reasons. One of which is its rigid labor laws that make hiring/firing a time-consuming and costly affair. As a result many firms are resistant to hiring, and employees also tend to stay in one firm for a long time. Labor laws are more relaxed in Cambridge hence a greater proportion of Cambridge biotech managers come from companies in the local region. Munich businesses in contrast, tend to look abroad for experienced managers and hire their junior staff from local universities or research institutes.
Other problems faced in Munich are poor bank-lending, underdeveloped equity markets and the lack of venture capital risk funding, posing problems in finding start-up funding. To counter this, most Munich start-ups turn to foreign private investors or publicly funded investment agencies such as the federal Technologie Beteiligungs Gesellschaft (tbg), BioRegio Munich and Bayern Kapital for their funding. There has been greater interest from foreign venture capitalist firms in the Munich sector but many tend to invest during later stages of development. Cambridge on the other hand are more exposed to equity markets and venture capital firms though the extent of this still pales in comparison to the US.
An important difference between Munich and Cambridge lies in its links with academia. The paper finds that due to the higher recruitment of employees from local universities and research institutes, the maintenance of these social networks forge a closer relationship between Munich biotechs and academic institutes. This translates into greater research collaboration, more publications of better quality and hence more numerous innovative research ideas available for commercialization. In Cambridge however, hiring mostly occurs via local industry networks and contact is limited with academic institutes despite their prevalence. As a result, ties between academia and industry are weaker and publications from Cambridge biotechs are fewer, less “in tune” with current research trends and hence receive fewer citations. This is also reflected in the number of patents filed (see DE vs GB):
Image taken from the European Patent office website
Cambridge however has far more drug candidates in clinical development compared to Munich. This is due to hired scientists coming from a more industrial background having greater experience in pushing drugs through to markets. Munich currently lacks this expertise and as a result some companies have opened facilities abroad to gain this knowledge.
Dr Jong terms the differences between Munich and Cambridge with Munich being more focused on drug discovery while Cambridge on drug development. Speaking from working in a Munich biotech, this rings true. My colleague was hired from a university and of the two founding partners, one is a Professor at a university, so ties with academia are indeed tight. And we create technologies that big pharma is utilizing so there is a role we are playing in drug discovery.
However, it is obvious that both models are necessary to create a truly successful biotech hub. The goal of biomedical research is to create better therapies and new technologies and ideas are essential for achieving this. It will be awhile before Europe achieves the success that US has, but hopefully cautious European attitudes will change as globalization spreads.
Jong, S. (2009). The development of Munich and Cambridge therapeutic biotech firms: A case study of institutional adaptation. In C. Crouch, H. Voelzkow (Eds.), Innovation in Local Economies: Germany in Comparative Context (pp. 121-138). Oxford University Press, USA.