R&D: Why the EU bank invests in (patented) ideas (Guest blog)

Life sciences start-up are rich in ideas. However, with no assets and no sales, attracting the funding needed to bring these ideas to market is a major challenge. ‘All they have is an idea and a patent,’ explains Ari-Pekka Laitsaari, an expert in innovation financing at the European Investment Bank (EIB). ‘Intellectual property is at the centre of it all – if they don’t have that, they don’t have anything.’

The EIB is a major player in the European innovation ecosystem. It is the biggest provider of funding for innovative EU-based SMEs in the growth stage of development. For companies, the ‘venture debt’ provided by the EIB can alleviate immediate debt repayment pressures and offer breathing space from the relentless rounds of fundraising that dominate start-up life.

Crucially, it gives them space to focus on the science and develop their products without diluting the value of the company. Nor does the EIB require company shares or a seat on the board. As a triple-A rated investor with a long-term strategic view, EIB support is also a quality stamp that can reassure other investors and partners.

‘We provide about €700 million per annum in venture debt, filling a major gap in the market,’ says Laitsaari. ‘This gives high-growth companies more runway to do what they need to do, without putting our spoon in the owners’ soup or messing with the company’s structure.’

Patent protection

Life sciences is one of several key sectors for the EIB – along with other high-growth fields such as robotics, artificial intelligence and clean technologies. Laitsaari says the role of intellectual property in biopharma companies is markedly different to tech firms.

‘In tech, the patent means very little; in life sciences, it’s everything,’ he says. ‘Some technology companies don’t even bother to file patents because it becomes visible to everyone – rivals can try to do something similar without breaking the patent. In life sciences, it’s a different ball game: strong IP protection is at the centre of it all.’

At its weekly meetings, the EIB team reviews applications from start-ups based on an initial internal analysis. They subject the company’s business plan to a rigorous assessment to determine whether its technology is disruptive and, in the life sciences, to ensure the patent portfolio is robust. ‘We’ve seen cases where IP protection is weak, allowing competitors to patent a derivative molecule – undermining the value of the innovative company,’ says Laitsaari.

Investors need to be clear that the company’s products have market exclusivity of between 10 and 15 years, depending on the product and the time it takes to reach the market. This can come from a variety of IP protections including patents and pharma-specific incentives such as Supplementary Protection Certificates and orphan drug designation.

Orphan drug designation, for example, helps to compensate for the relatively small patient populations available for new therapies for rare diseases. It has helped increase the number of rare disease medicines available and in the research pipeline.

This package of incentives and rewards for innovation in the pharma sector are the foundations on which life sciences innovation is built. Despite the uncertainties associated with clinical trials and securing marketing authorisation, it offers a degree of reassurance that successful products will recoup investment.

‘In pharma, the lead times are so long – it can take 10 years to get from molecule to market – and regulations are so high that it pushes investors away,’ he says. ‘They can look to invest in technologies such as the latest virtual reality gadget where they can tell whether the technology works. With life sciences, it takes a lot of time and money to reveal the likely value of a drug.’

A favourable IP environment is essential to compensate for the disadvantages that life sciences companies face when seeking investor support. Without this balance of incentives, the case for investing in pharma innovation would be very different.

Ari-Pekka Laitsaari

Ari-Pekka Laitsaari is an expert in growth capital and innovation financing at the European Investment Bank (EIB)....
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