BioCentury-Biotech in Europe_Scaling innovation 2019

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibitedBarcelona, May 20-21 2019McKinsey report | Bio€quityEurope conferenceBiotech in Europe: Scaling Innovation McKinsey & Company2Biotech in Europe: Scaling innovationExecutive summaryIntroductionBiotech is entering its next S-curve of growth, as the industry moves into the next decade. Gene therapies, stem cell treatments, antisense, siRNA and CAR-T are just some of today’s driving forces. Even more innovative science and technology is on the horizon.Across a fragmented landscape, the maturing biotech space in Europe needs to achieve greater scale in the innovation it is creating, and deliver on the promise of the golden age of biotech.In this context, this report investigates the path forward for the region, and we attempt to answer three fundamental questions:1. What makes the European biotech space uniquely attractive?2. What financing is required to fuel growth?3. Looking forward, how can biotech leaders and investors succeed?1.What makes the European biotech space uniquely attractive?Hotspots, across a fragmented landscape. The biotech landscape in Europe is complex. Hundreds of companies, multiple countries, different paths toinnovation and financing and, of course, different geographies. To“see” through the complexity, ~1000 European biotech companies were identifiedand naturally clustered with a purpose-built methodology. This clusteringallowed for the mapping of biotech hotspots, in terms of geography,modalities and therapeutic areas clusters. This mapping reveals trending hotspot shifts, across the region, over time. ItDOVRprovidesinsight into thedirection the industry is taking in the future. For example, the UK has been disproportionately accelerating across technologies and disease areas, becoming home to 35% of all new biotechs since 2012. In fact, the trend of Europe moving at “two speeds” is accelerating. While “Service provision” still represents the largest modality focus in most countries, Cell and Gene Therapy (CGT) and,mmunotherapies are the fastest growing–now close toone third of companies±absorbing 40% ofinvestment. In turn,RIQHZFRPSDQLHVIRXQGHGVLQFHKDYHIRFXVHGRQWZR7KHUDSHXWLF$UHDV 7$V ±Oncology and CNS±absorbing about half of the investment overthLVperiod.World-class science and innovation in Europe.Europe is home to 32% of the top 50 life sciences universities, and holds a similar level of publication in top 10 journals vs. the US. Its leadership in science development means it leads both the US and China in terms of publications. Publication topicsof focus are largely similar across regions. However, that innovation McKinsey & Company3Biotech in Europe: Scaling innovationExecutive summary (continued)strength does not yet translate fully to patents or new medicines. For example, in terms of patent origination, the US and, more recently China are 3x to 9x more productive respectively. Further down the innovation chain, European biotechs have contributed 13% of biotech-originated FDA new drug approvals in 2017-18, which is 6WLPHVlower than those from USbiotechs. Looking forward, however, there is potential: European biotechs overall benefit from 5WLPHVless investment versus US counterparts andshow more promise in emerging topics, driving 32% of all projectsin Ph3orregistration for products based on technology such as antisense, viral vectors, or siRNA. On an indexed base, we estimate Early Innovation (based on publications and patents) to be 0.73 versus the US, while Late Innovation (based on drug approvals and innovative candidates) is down to 0.41.Top innovation & talent. Biotech experts, from Europe and beyond, consider the overall level of innovation and the quality of R&D talent inEurope very high, close to US levels and well above China. However,on such scaled assessment, there is a perceived limitation in the availability of specific profiles and the ability to attract and retain it. Thereis a perceived lack of both biotech-specific experience and entrepreneurial spirit around the biotech ecosystem in Europe. That adds to the challenge of financing. 2.Is financing where it need to be?“Good value” for European biotechs. The average deal size has grown to~USD 165m average in 2018. While still around 40% lower than the higher-priced US deals, this represents a growth of 20% per annum since 2012. Inaddition, the return profile in Europe has a somewhat advantageous shape. Pre-money valuations are ~30% lower than in the US and the operational costlevels are often lower (estimated 60% of US cost in terms of structure ortalent).Financing for European biotechs is maturing. Available venture capital isestimated to have tripled to USD 2.3 bn in 2018. In the last seven years, stronger European VC funds have emerged and have doubled in average size. Most experts agree that sufficient financing is now available for early-stage pri