BioWorld Today Correspondent

LILLE, France - After a two-day virtual fly-over of Europe's financial landscape for biotechnology companies, EuroBio 2007 dove into the details on Thursday with a close-up view of the situation in France.

A presentation by the French Ministry of the Economy and Finance on state aid programs for start-ups, and then a flood of statistics from the industry association Biotech France in another presentation, provided a rare under-the-hood glimpse of the workings of a lumbering government scrambling to keep up with a fast-breaking opportunity.

The passionate pleas for a "more ambitious and effective response" from Paris made in Wednesday's plenary session by Philippe Pouletty, chairman of France Biotech, were followed on Thursday with the release by his organization of updated statistics showing the progress, and frustrations, for biotechnology.

Setting the context of financing woes for France's young biotechs, the French Biotechnology Panorama report noted that despite solid progress in science and product development, the "encouraging results must not cause us to lose sight of the persistent performance gap between France and its neighbors and that Europe as a whole lags behind the USA."

According to an Ernst & Young report cited in the French document, despite a nearly one-to-one ratio of the listed number of biotechnology companies on European and U.S. exchanges (1,452 U.S. companies vs. 1,621 in Europe), Europe in 2006 raised only $5.8 billion, while the U.S. markets provided $20 billion. The report noted that "the U.S. stock exchange is much more dynamic for secondary offerings," with $16 billion raised compared to $3 billion for all of Europe.

Similarly, venture capital financing for biotech firms was $3.3 billion for American-listed companies vs. $1.9 billion for companies in European markets.

Closer to the conference's home, the French report noted that, depending on the indicator, France is ranked either third or fourth against its traditional rival, the UK, which leads the continent. France hosts five times fewer listed companies than the UK and, significantly, a total stock market capitalization three times less than that of listed British companies. Companies listed on the French exchanges Euronext or Alternext include Cerep, Flamel, Nicox and Transgene. BioAlliance Pharma and ExonHit went public at the end of 2005, raising a total of €72 million (US$101.5 million), while Innate and Genfit launched initial public offerings in 2006 for a total of €240 million.

This year has seen Cellectis, Metabolic Explorer, Genoway and Vivalis going public with IPOs that raised €499 million. Though attracting lower capitalization, drug development in France accelerated over the past three years with what the report called "a high productivity with products from 46 small and medium-sized enterprises (SMEs) in clinical trials."

In 2006, 23 prospective French products were in Phase I trials, 31 in Phase II and 11 products had advanced to Phase III.

According to France Biotech, by mid-September French companies had attracted €126 million from venture capital firms. As the capital markets have failed to deliver the money needed to advance France's biotechnology sector, the industry is turning to the national government for help.

Despite the repeated appeals made by France Biotech and its chairman Pouletty, Paris is not likely to listen considering the country's tight financial straits that has it under the close scrutiny of the European Union in Brussels for its excessive debt and lackluster economic growth.

Where France and Germany together could face down Brussels in the past and avoid the crushing billion-euro penalties exacted under the EU treaty, Germany has in the past three years emerged as the league champion while France remains alone in the cellar. Yet on Wednesday, France was the star for a presentation of its Young Innovative Companies (YIC) program that already has inspired imitation from Belgium, Spain and, surprisingly, Sweden.

YIC is a state aid program that provides breaks from taxes and special relief from onerous social charges for employees engaged in research and development projects.

The EU treaty explicitly prohibits such aid as incompatible with the creation of a common market, unless it is authorized by the commission. Audacious France, which seems to follow or ignore the EU treaty as it pleases, went ahead with a program of incentives in 2004, and Europe's bad student for economics moved to the head of the class when the European Commission agreed the program was reasonable.

Inspired by France, in January 2007 the EC formally launched a program authorizing eight specific state incentives for innovation, including aid for research, technical feasibility studies, industrial property rights for SMEs, the loan of highly qualified personnel, creation of innovation clusters and up to €1.5 million in direct financing. The program was presented by Johan VanHemelrijck, secretary general of EuropaBio, who said an innovative company is defined as one reinvesting more than 15 percent of annual gross sales in research and development activities.

Marianne Faucheux, who is responsible for the biotechnology dossier at the French Ministry of the Economy and Finance, presented the results of the first three years of the program. Some 1,700 French companies - 20 percent in the biotechnology sector - have been granted YIC status. Collectively, they have realized nearly 21 percent in savings on total gross salaries, and 76 percent have hired more research staff, and as many have purchased new R&D equipment.

The impact was immediate, she said. In December 2003, the average cost for a research scientist at those companies was €52,000, and with the enactment of the new rules in January 2004, the cost dropped to €43,000. About €150 million in state grants also were made available to the life sciences companies, in addition to an unspecified amount granted through the mechanism of a "competitiveness cluster."

"The program is not perfect," she said, agreeing with a Swedish proposal to lift the eight-year limit on such aid to companies because that does not recognize the long product development cycles required. She also said the EU rules cap the tax benefits to biotechs at €200,000 per year, and that needs to be revisited. In France, a qualifying SME has less than 50 employees.

Mats Berggren, from the Swedish Biotechnology Industry Organization, said his country soon will enact a similar program under the EU framework for companies up to 250 employees and offer a flat 20 percent reduction in payroll charges. "For every five employees, you essentially get one for free." He said the Swedish biotech pipeline has 166 projects with 88 in clinical trials, of which nearly a third from AstraZeneca, which has three projects in Phase III, while the rest of the Swedish industry boasts 11 at that advanced stage.