Abstract
Executive Summary
“What Europe has to offer biotechnology companies: Unraveling the tax, financial and regulatory framework” is a joint report by Ernst & Young and EuropaBio. In it, we examine what European countries have to offer investors, entrepreneurs and researchers alike. We look at everything from what to take into account when determining the best location for research and development (R&D) to how best to exploit intellectual property (IP) within Europe's various jurisdictions.
At a time when big biotechnology companies are looking for inspiration, governments need to encourage small and medium-sized enterprises (SMEs) to take steps which may help them one day to become large firms in their own right. There is more to creating a successful industry than putting in place the right standard of regulation, says the report. What is needed is a climate of innovation, coupled with the bricks and mortar with which to build industries around it.
Editor'S Note:
This Industry Report presents excerpts from a report released jointly by EuropaBio and Ernst & Young. The report covers all three application areas of biotechnology: agriculture, industrial, and healthcare. The complete report is available at
Initiatives such as Horizon 2020, a program for research and innovation funding soon to be implemented by the European Commission, and the recently launched Bioeconomy Strategy and Action Plan for Europe will both contribute toward bridging the gap between people with good ideas and the investment and opportunity to make them a reality.
There is still a challenge in terms of product approval legislation in Europe for the agricultural biotech industry, which is also a deterrent and compromises our competitiveness in this sector.
In an analysis of individual countries across Europe, we set out which agencies to contact for information when considering where to establish centers of research or manufacturing. We examine the tax concessions on offer in each country, some financing opportunities for SMEs, and the benefits that are likely to flow from a decision to establish a research facility or start-up in a particular location.
With the economies of Western Europe seeking to remain competitive, governments are keen to encourage more investment. One tool being used is the rate of corporation tax, and another the use of tax credits for R&D. Some governments have stretched the period before tax is due; others have made sharp reductions in the overall rate for qualifying companies. In some companies, rates as low as 10–12% can be achieved in certain circumstances.
Similar measures have been adopted by governments for investors in start-up companies by offering access to reduced rates or indeed exemptions for capital gains tax once certain conditions are met, which can be key to attracting finance. Elsewhere, governments have refined the regimes governing the treatment of patent or license boxes. The effective rate of tax on income derived from rights to intellectual property as well as investments in innovation, where these regimes apply, can be reduced—in some cases to as little as 5%, provided relevant conditions are met. Such steps make it easier to attract investment from private investors as well as from larger multinationals.
Even within countries whose headline rates of tax for biotechnology companies are to remain unchanged, or which are already competitive across Europe, regional authorities may offer fresh incentives to set up new operations or expand existing ones.
SMEs are also being helped through tax relief to maintain their spending on R&D. To encourage R&D, some governments now offer premiums (or the equivalent in cash) to cover the expenses incurred in developing an innovative product or process.
Because jurisdictions influence how, when, and why investors in biotechnology decide to enter or exit a business, we weigh up the advantages and disadvantages of individual countries. In addition, we examine the priorities facing SMEs—those businesses which create most of the new jobs in Europe.
Too often, say those in biotechnology and allied industries, rules governing the process toward new products or processes are developed without fully appreciating and focusing on the end result. Europe may have a well-deserved reputation for innovation and the skills required to research and develop new ideas. Yet the journey from innovation to manufactured products is often labored and long.
A complicated regulatory environment makes it more difficult for businesses to assess a likely rate of return from a new product. New firms can also find it difficult to maintain the momentum needed to bring a product to market and so to begin to generate returns. Investors will only risk their capital in the first place if they see a possible return.
In today's markets, entrepreneurs may be better advised to devote their time and energies to creating a suite of products, not just a single one. In this way, says the report, firms may increase their chances of securing backing from an investor while improving the prospects of creating a product that reaches the market. History would suggest, too, that the earlier such a decision is made, the better it may be for the company as well as the investor.
Outline of Regulatory Framework for Agricultural Biotech Products in the European Union
Agricultural Biotechnology Explained
Worldwide, the agricultural biotech industry grew by 8% in 2011. Last year, crops were planted on a total of 160 m hectares. Some 16.7 m farmers around the world planted these crops, which was also a rise of 8% over 2010. Indeed, 2011 was the 16th year in which biotech crops have been commercialized. It is the fastest-growing crop technology in modern times.
According to market research and consultancy provider Cropnosis (
Of the 29 countries planting biotech crops in 2011, 19 were developing economies and 10 were industrialized nations. In terms of biotech crop cultivation, the five leading developing countries are China, India, Brazil, Argentina, and South Africa. Collectively, they grew nearly half of global biotech crops in 2011, and are home to 40% of the world's population.
In Europe, only two biotech crops are authorized for cultivation: an insect-resistant maize and a potato for industrial use. Such crops were grown in eight countries across Europe during 2011: Spain, Portugal, the Czech Republic, Germany, Slovakia, Romania, Poland and Sweden. The number of hectares of the only genetically modified (GM) maize permitted to be cultivated in Europe increased from 91,643 to 114,607 in 2011—an increase of more than 20% over the previous year.
Europe is a net importer of biotech crops in the form of feed and food because of its relatively small output. Some 22 biotech crops are currently awaiting authorization for cultivation in the EU, including maize, soybean, potato and sugar beet. The approval process remains the biggest challenge for the industry. Compared with other countries around the world, it is slow and cumbersome. Because of the uncertainty facing the industry, the number of agricultural biotech companies in Europe is understandably small.
In October 2011, the world population reached seven billion. Experts predict that the world will need to almost double its food production by 2050. Agricultural biotechnology offers a way to reach this goal while preserving natural resources, thanks to lower CO2 emissions, the improved quality of the soil and higher productivity. There is an urgent need in Europe for appropriate decisions, based on science, that support the production of more food while respecting the environment and encouraging small- and medium-sized companies to enter the market.
Outline of Regulatory Framework for Industrial Biotechnology in the European Union
The Bioeconomy Explained
The bioeconomy in Europe is currently worth more than €2 trillion (USD2.7 trillion) a year and employs over 22 million people (Table 1), predominantly in rural areas and often in SMEs. The term “bioeconomy” refers to the sustainable production and conversion of biomass into a range of food, health, fiber and industrial products, as well as energy. Renewable biomass encompasses any biological material as a product in itself or as a product to be used as a raw material. Estimates by the Organization for Economic Cooperation and Development (OECD) suggest that industrial and plant biotechnology will overtake health biotechnology by 2030 and account for 75% of the total gross value added by the biotechnology sector (The Bioeconomy to 2030: designing a policy agenda, published by the OECD,
The Bioeconomy in the European Union
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Industrial biotechnology continues to grow in the EU, thanks to a relatively supportive regulatory and financial system. Sales of biobased products in Europe in 2007 amounted to €48 billion (USD64 billion), equal to 3.5% of total chemical sales. In 2012, the total is expected to increase to €135 billion (USD179 billion), or 7.7% of chemical sales; and, by 2017, sales are estimated to be €340 billion (USD451 billion), totaling 15.4% of all chemical sales (OECD workshop, Vienna, January 2010,
Although Europe is one of the largest economies in the world, most activities aimed at supporting the development of the bioeconomy have, until recently, been conducted at a national level. Europe is currently a world leader in the bioeconomy. Yet, for that to remain so, and for the industry to continue to expand, it requires supportive and holistic regulation. In 2012, the European Commission Bioeconomy Strategy will begin to roll out, contributing to a policy framework that is not only more coherent but aims to pave the way for more innovation, a more efficient use of resources and competition across Europe. The strategy will build on the EU Framework Programmes for Research and Innovation funding known as FP7 and Horizon 2020.
Outlook for the Biotechnology Industry in Europe
From this report we can conclude that Europe indeed has the potential to be a world leader in the field of biotechnology. Already there are many tax, financial and regulatory incentives for established companies, as well as start-ups operating in Europe. The excellent research base and skilled labor force on offer throughout many EU member states is also of great benefit to the biotechnology sector. However more needs to be done by industry and regulatory authorities alike.
We hope that this report can be used as an exchange of best practice between Member States and their associated regulatory authorities, so that a holistic approach to policy is developed and Europe's vast potential for innovation is exploited.
In reality, it is not enough to have a good tax or finance system in place. The right policies and incentives for R&D development are also essential to growth in this industry. There is currently a three-speed Europe for the biotechnology industry, with each of the three applications—health care, agricultural and industrial—all operating under different regulatory and approval processes.
Industrial Biotechnology
One of the key challenges faced by industrial biotechnology companies, who are often still in the early and start-up phase, is access to finance. Industrial biotechnology is one of the fastest growing industries in Europe, and has been identified as a Key Enabling Technology by the EU Commission in making the shift towards a greener, more sustainable, bioeconomy in the EU. The bioeconomy itself has an estimated value of €2 trillion (USD2.7 trillion) and employs around 22 million Europeans. It offers Europe the potential to accelerate its transition toward a new economic model, while at the same time developing a high-value, globally competitive, sector capable of generating good quality jobs in rural as well as urban settings. However, to take advantage of the unique opportunities presented by industrial biotechnology, it is essential that the EU develops holistic and workable policy measures that support research and innovation in the bioeconomy, and that problems surrounding access to finance are solved.
A number of critical industrial biotechnology policy developments are currently under discussion. These include the recently published legal proposal on the European Union's Common Agricultural Policy (CAP) for 2013-20; the launch of the new Common Strategic Framework Program for research and Innovation funding in Europe for 2014-20, entitled ‘Horizon 2020’; and the recently launched bioeconomy strategy.
At this crucial time for the industry, the right policies are needed to ensure that a supportive and predictable political, regulatory and financial framework is in place. Such a framework would lead to access to renewable feedstock; increased funding for research and innovation; and lead market initiatives for biobased products to boost the sustainable growth of the bioeconomy.
With the European Commission's adoption of its new Strategic Framework for Research and Innovation, Europe has taken a decisive step toward integrating biotechnology into its policy making process. Biotechnology is now central to the main aims of Horizon 2020, which are to tackle societal challenges; promote industrial leadership; and boost European excellence in research, development, and innovation (RDI). Horizon 2020 listed the bioeconomy as one of the grand challenges that future EU Research and Innovation policy should tackle. In addition, biotechnology is highlighted as one of the six enabling technologies that will be supported further by increased funding. Since the last Framework Program, the proposed budget for the bioeconomy has more than doubled, from €2 billion (USD2.7 billion) to €4.7 billion (USD6.2 billion). Horizon 2020 also aims to create synergies between the different EU funding instruments, policies and governance structures, in an effort to meet societal challenges. In the case of industrial biotechnology, funding for pilot and demonstration plants is also crucial to bridge the gap from research to commercialization.
The good news is that the Bioeconomy Strategy, launched in February 2012, has the potential to make this happen. The new strategy should be a strong, coherent and fundamentally holistic approach that funds and supports the development of biobased products and processes, facilitates access to feedstocks and reduces funding fragmentation.
Agricultural Biotechnology
The biggest regulatory challenges facing the biotechnology industry in Europe are in the area of agricultural biotechnology. In Europe, only two genetically modified (GM) crops are currently permitted for cultivation: MON810, a type of maize that helps fight off pests, and Amflora, a potato for industrial use. In comparison, there are more than 90 GM crops currently available for cultivation in the US. It is clear that Europe's competitiveness in this industry is under serious threat. In fact, the European approval process for the cultivation of new crops is so slow that the two GM crops currently being cultivated by European farmers are no longer even available for planting in the US, where newer varieties have since been developed. Science and innovation are moving forward at a fast pace. It is important that Europe is not left behind.
Europe currently imports a substantial portion of its animal feed, and a large part of this supply is GM. Around 30m tons of grain are imported each year from Third World countries, including 13m tons of maize and 2m tons of oilseed rape. In particular, European animal farmers rely on soybean imports for animal feed. Europe imports most of the soybeans it uses, and most of those imports are from North and South America. It is clear that this situation is unsustainable if the industry in Europe is to remain competitive and grow in the long term. There are already indications that industry will pull out of Europe and move to countries where there is a more supportive regulatory environment, resulting in the substantial loss not only of excellence in science and RDI, but also of jobs.
However, there are signs of movement at an EU level in favor of the agricultural biotechnology industry. The Nationalization Proposal, which was introduced first in 2010, and saw little movement for some time, has suddenly begun to cause a stir amongst policy makers. The current political block on the rate of approvals for the cultivation of new GM crops may also be softening, with two recent reports from the European Commission indicating that the current approval process is in need of speeding up.