A new survey published today by EFPIA details the financial environment that Small and Medium-Sized Enterprises (SMEs) need to thrive in Europe and compete against regions like the US and China.

Biopharmaceutical SMEs are key driver of innovation in Europe supported by a strong know-how and scientific environment. As an example, from all medicines from SMEs that were recommended for marketing authorisation between 2005-2015, 1 in 2 contained a new active substance and 42% of the medicines were for rare diseases [1]. However, SMEs development is hampered by a number of challenges, such as the difficulty in converting ideas into development opportunities, or the uncertain and fragmented regulatory environment - this is particularly acute for advanced therapies (ATMPs) - as well as significantly fragmented market access scenarios. Additionally, the current market conditions, with a rising global inflation, high interest rates, and the lack of private funding are making it increasingly difficult for biopharma SMEs to prosper in Europe.

Between November 2021 and July 2022, the EFPIA SME Financing Working Group conducted a survey to map the financial environment SMEs are currently evolving in, with the aim of raising awareness about the numerous obstacles that small biopharma companies are facing in Europe.

The results show:

• Private investment funds, Venture Capital (VC) and family offices [2] are the top three preferred organisations to get funding from in Europe.
• 80% of SMEs are funded by private placements even if they provide relatively reduced amounts of funding, compared with alternative financing [3] that yields the highest funding volumes (€ 35mo on average).
• Barriers in accessing public funding are also important. SMEs recommend the European Commission to adopt clearer existing funding options and eligibility criteria, as well as shorter time to reach an approval, with a simplified process.
• More incentives are also needed to convince SMEs to join European collaborative projects.

To ensure a thriving European biopharmaceutical industry and strengthened healthcare systems, innovation and competitiveness must be protected in Europe – which has seen a 25% loss of investment in the past two decades relative to other regions [4]. However, the European Commission’s proposal for a revised EU  Pharmaceutical Legislation will create further uncertainty in these domains, harm innovation and widen the gap between Europe and more competitive and ambitious regions like the US and China. VCs in Europe raise 3 to 4 times less capital than VCs in the US and capital raised in China now exceeds Europe with an average financing per round 2 to 3 times greater [5].

Over the coming months, EFPIA SMEs will be looking into what is needed for European biopharmaceutical SMEs to thrive in Europe. This project, which will be finalised towards the end of 2023, will provide detailed policy recommendations to EU decision makers to ensure that Europe supports Small and Medium-Sized Enterprises in their development of biopharma innovation for the benefit of patients.

[1] EMA, report on the 10th anniversary of the SME initiative, 2016

[2] Family offices are investment funds that manage the financial assets of a family. They operate in a similar manner to standard investment funds but with more flexibility towards the needs of their sole principal or owner.

[3] Alternative finance refers to financial channels, processes and instruments that have emerged outside of the traditional finance system.

[4] https://www.efpia.eu/news-events/the-efpia-view/efpia-news/europe-s-share-of-global-medicines-rd-shrinks-by-a-quarter-in-20-years-as-sector-s-declining-trends-continue/

[5] Life Sciences Acceleration Alliance paper on “The importance of venture capital in Europe’s life science ecosystem”.