The European Biotech Funding Gap

Europe produces exceptional science. Its universities and research institutions rank among the world's finest, generating breakthrough discoveries in immunology, oncology, gene therapy, and beyond. Yet a persistent paradox haunts European biotech: too often, the best science fails to find the capital it needs to become transformative medicine. This creates both a challenge and an opportunity for investors willing to engage differently.

The Scale of the Problem

The numbers paint a stark picture. The EU's global share of venture capital investment in health biotech stands at just 7%. Perhaps more concerning, Europe's share of commercial clinical trials has fallen from 22% to just 12% over the past decade. These aren't statistics about mediocre science struggling to compete; they reflect a structural failure to capitalise on genuine innovation.

A combination of structural barriers, difficulties accessing capital, and complex regulation is prompting innovative European startups and scientists to increasingly move abroad. The typical European fund remains significantly smaller than its US counterpart, a key factor behind the persistent scale gap in overall investment between the regions.

The "Winner Takes All" Dynamic

The nature of biotech funding has shifted dramatically. In 2024, while total venture capital in biotech surpassed pre-pandemic levels, the distribution became increasingly concentrated. Fewer companies received larger amounts of capital, reflecting a trend where investors opt for bigger bets on fewer platforms with strong scientific foundations and experienced management teams.

This creates a bifurcated market. Large, well-capitalised companies with clear paths to clinical validation attract substantial investment. Meanwhile, earlier-stage companies with promising science but less validation struggle to secure any funding at all. It is, as industry observers note, a "winner takes it all" market with smaller companies left by the wayside.

The Early-Stage Crunch

Data from HSBC Innovation Banking reveals the pressure on early-stage companies. "First financings" for biotech startups fell from $2.6 billion in Q1 2025 to just $900 million in Q2, the lowest total in five quarters. This contraction in seed and Series A funding threatens the pipeline of future innovation, as promising academic discoveries fail to make the transition to company formation.

Why Europe Struggles

Several structural factors compound Europe's funding challenges:

Fund Size Disparity: European life science funds are typically smaller than US counterparts, limiting their ability to write large cheques or follow on in later rounds. This creates a gap in growth capital that forces European companies to seek US investors or relocate entirely.

Fragmented Markets: Unlike the unified US market, Europe comprises dozens of national regulatory frameworks, healthcare systems, and investor communities. This fragmentation increases complexity and reduces efficiency.

Risk Appetite: European institutional investors, including pension funds and insurers, have historically allocated less to venture capital than their US peers. This limits the pool of capital available for high-risk, high-reward biotech investments.

Public Market Challenges: Discovery and preclinical-stage companies saw a four-fold drop in total IPO value from $490.6 million in 2023 to $112.5 million in 2024, indicating public investor preference for more advanced-stage companies. This creates exit challenges that flow back to impact early-stage investment decisions.

Signs of Change

There are reasons for cautious optimism. The EU has announced a major initiative making €10 billion of investment available in 2026-2027 for the biotech and life sciences sector through collaboration between the European Commission and the European Investment Bank. This represents a significant commitment to address the investment gap and mobilise public-private investment.

Additionally, the emergence of secondary funds and royalty financing is helping bridge the gap between early and late-stage venture capital. Royalty transactions, estimated to generate around $14 billion annually, provide a non-dilutive funding option less susceptible to broader capital market fluctuations.

Our Approach: Bridging the Gap

At PC&H, we see European biotech's funding challenges as an opportunity. World-class science trading at a discount to US comparables creates attractive entry points for investors willing to provide patient capital and operational support.

Our strategy focuses on:

Early Engagement: Building relationships with academic institutions and early-stage companies before they need growth capital, allowing us to identify opportunities and add value through the company-building process.

Transatlantic Bridges: Helping European companies access US capital markets and partners while maintaining their European operational base and research relationships.

Flexible Structures: Deploying capital through structures suited to European companies' needs, including milestone-based investments, royalty arrangements, and co-investment partnerships.

The funding gap in European biotech is real, but so is the scientific excellence. For investors willing to work differently, this creates an opportunity to capture exceptional value while supporting the translation of important science into medicines that help patients.