The European Biopharmaceutical Enterprises (EBE) has just submitted comments, prepared by its Innovation & Funding Models Working Group, to the European Commission on its review of how small to medium-sized enterprises (SMEs) are defined.
This is a welcome opportunity for the biopharmaceutical industry, considering that the SME designation provides our businesses with access to funding and support by the European Medicines Agency on regulatory topics that allows our innovative industry to start up or scale up. Though much appreciated, the current SME definition still disincentivises many entrepreneurs from growing their businesses in Europe, especially compared to the United States where the SME definition is broader and more flexible.
Below is a summary of EBE’s three top-line recommendations; the full submission will be made available on the European Commission’s consultations website:
1. Expand the exception for autonomous enterprises to all risk capital investors
In the biopharmaceutical sector there are few investors willing to accept the high-risk research-intensive aspects of the biopharmaceutical sector. The high risk long-term investment needed by the sector is provided by a limited number of investors, including business angels or family-owned . Therefore, ownership/linked enterprise requirements exclude a significant number of businesses that operate as genuine SMEs. There is a need to distinguish between risk capital investment and trust fund investment. We therefore recommend expanding the exceptions for autonomous enterprises to any kind of risk capital investor, including specialist investors that do not meet the current definition.
2. Revise employee number limits for SME consideration
For the biopharmaceutical sector, the number of employees is the best parameter to define an SME. However, the current upper limit (250 employees) is simply too low. In the US, the maximum number of employees for small businesses to be eligible for Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) funding is 500, though under the Small Business Administration (SBA) size standards the pharmaceutical, biological and diagnostic manufacturing sectors have size limits of 1250 employees. The Commission should consider sector-specific limits that are alighted with the US SME definition to create a level playing field between Europe and the US.
3. Provide higher financial thresholds for the biopharmaceutical sector and adapt the ‘grace period’
Current thresholds for business angels and venture capital investors are too low and should be adapted to more realistic investment sizes. Furthermore, financial income in our industry is often spurious, resulting in a milestone payment or up-front payments, which can occur close to one another and affect the balance income figure for two consecutive years. Therefore the current ‘grace period’ of two years for companies exceeding (in particular financial) thresholds to retain their SME status is considered too short. We suggest a different threshold for the biopharmaceutical sector that averages income, over 5 years ideally, but at a minimum 3 years.
If Europe wants to remain innovative, competitive and create high-skilled jobs it is urgent to set the right framework that will help retaining talents in Europe – and the SME definition is a great place to start.
Executive Director, EBE