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Why politicians in Austria should act now and create favorable conditions for life-sciences startups

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Entrepreneurship in Europe is on the rise. Since 2007 countries all over Europe struggled with political, financial and economic turmoil triggered by the financial crisis. However, despite these unpleasant environmental conditions the startup-scene on the continent started flourishing around that time. Lately it even received previously unexpected attention and support from politicians, the media and the public in general.

Disruptive changes even beyond IT. Technological advancements that spurred further innovations like smartphones and social media were often seen as drives for this growth.  However, innovative potential also erupted industries beyond information technology. A prominent example is the heterogeneous life-sciences industry, which experienced disruptive structural changes caused primarily by technological advancements in biotechnology and partially also medical technology. Due to the specific industry characteristics like business to business or governments sales this development came nearly unnoticed by the general public.

What exactly is the life-sciences industry? Let us clarify the term first. The commonly used definitions comprises everything related to three sub-industries: pharmaceutics, biotechnology and medical technology. So it covers research, development, production and sale of drugs, medicines as well as medical equipment. For decades the industry has been dominated by large corporations, which capitalized on economies of scale and the distribution of product development risks in their broad portfolio. According to recent studies, the whole sector currently undergoes an “era of transformation” due to economic and demographic changes as well as the previously mentioned technological advancements.

So what changed that spurs entrepreneurship in the field? Medical technology has always been a field for entrepreneurs. Practitioners unhappy with products available on the market frequently developed their own solutions, patented them and licensed or sold them. In the pharmaceutical industry, previously costly drug development has mainly been undertaken by large firms that invested in numerous projects at the same time to share the risk. They were dependent on some of the research to result in highly-successful “block-busters”, which they sold for a high premium due to patent protection as well as low production costs. So what has changed? Technological advancements in biotechnology revealed numerous application opportunities, which highly-specialized small research firms within the field could profit of. Furthermore, these companies often received risk capital from external sources like business angels and venture capital funds for their research and product development. Investors practically did the same as large pharmaceutical corporation. They distributed their funds on several research startups and aim at earning a substantial premium, if one of them succeeds with their development. Obviously, this substantially threatens the business model of large corporations in the field and a long-time stable industry structure.

A quick introduction to our research model(s). In our research we assessed the regional attractiveness for life-sciences entrepreneurship on a country level. The assessment was based on two models: 1. A qualitative research model, which comprised development stages in Austria as well as the current state of environmental factors. 2. A quantitative research model, which included input factors as well as output factors to quantify the country attractiveness for life sciences entrepreneurship. The model we applied is structured in determinants of entrepreneurial activity (input), entrepreneurial performance (direct output) and impact (indirect output) and bases on models previously applied by other researchers of the field. For entrepreneurial activity, we measured policy, finance, culture, support, human capital, markets, infrastructure as well as research and development. For entrepreneurial performance we measured the number of firms in the life-sciences sector, employment and wealth-generation. For impact we measured economic growth, job creation, poverty reduction and competitiveness. We than compared Austria with other renown life-science locations in Europe like France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom.

So what were our top-3 outcomes for Austria?

#1: Overall Austria performs very similar to the comparison group in all categories. This underlines the country’s potential to become one of Europe’s life-science hotspots in the future. Our analysis shows especially that Austria performs very strong in support network for life-sciences entrepreneurship (industry networks, incubators/accelerators, etc.) and offers an excellent infrastructure. The biggest improvement potential was unveiled in access to finance (Debt, VC, Business Angels and Stock Markets), entrepreneurial culture and human capital (esp. tertiary education).

#2: Interestingly, although Austria performs (only) average in the comparison group, it outperforms in the direct output dimension with a relatively high number of firms and employees in the life-sciences sector. This might be an indicator that the sector already prospers in Austria even though many environmental conditions for life-science companies could still be improved.

#3: Switzerland serves as an excellent best-practice example, but it might also be Austria’s strongest competitor. Of all the countries in our analysis, Switzerland seemed to provide the best conditions for the emergence of life-science startups. Although in specific categories other countries preform better than Switzerland, the country overall performs exceptionally well in all categories, already hosts strong life-science clusters now and additionally is highly comparable to Austria.

Why is it relevant to act now and to create favorable conditions for life-sciences startups?
The life-sciences industry is undergoing massive shifts.  They have the potential to redistribute life-science know-how to new regional clusters. This will be a challenge for regions with established life-sciences clusters, but a massive opportunity for regions not yet in the spotlight. Hence, specific economic policy actions to create favorable conditions to attract start-ups as well as as established companies of the sector is relevant to profit from the development and to not fall behind other countries.

The most important two next steps. First of all, Austria needs to regularly collect and publish data tracking the life-science sector performance in Austria and make it comparable to other countries. All government efforts to support the sector then need clearly stated goals and achievement should be tracked. Although the country is currently very active in supporting the life-science sector it remains unclear, which efforts are paying off and which are ineffective. Secondly, Austria needs to improves access to finance for life-science companies. This is essential as their product development and growth requires far more capital than innovative companies in the IT industry. Similar to an approach followed by Israel, the government should initiate a private-public effort to create numerous private and independent risk capital providers. Furthermore, it should liberalize stock-market regulation specifically for life-science companies to create exit opportunities for investors and give access to necessary large-scale growth funding.

For more results and details about entrepreneurship in the life-sciences industry in Austria please refer to: Fandl, Ulrich (2016): „The role of the life-sciences industry in the Austrian entrepreneurial ecosystem“, Vienna University of Economics and Business

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