Financing EU Health Innovation: the role of Venture Capital

Reinhilde Veugelers and Sofia Amaral-Garcia ()
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Sofia Amaral-Garcia: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en

No 2025-01, JRC Working Papers on Corporate R&D and Innovation from Joint Research Centre

Abstract: The EU is challenged by a persistent leadership gap in the global health innovation landscape, with the US leading in corporate health innovation and venture capital (VC) funding. The EU health innovation landscape is more concentrated in older "incumbent leading firms," while the US has a more dynamic landscape with higher R&D growth rates. Financing constraints are highly relevant in the health sector, particularly for startups and scale-ups with risky breakthrough ideas and technologies. The EU-US gap in dynamic innovative performance in health may be partly due to differences in access to risk finance, particularly venture capital. This paper analyzes trends in VC financing for health-related innovations in Europe compared to the US, using data from Dealroom. The results show that the weakness of the European health VC market continues to hold in the early and late stages, where less progress seems to have been made. Some of the main findings include the following: the EU is lagging behind the US in the number of health VC deals, with a larger gap in late-stage deals; European deal sizes are below the US, with a larger gap in late-stage deals, the EU has a lower occurrence of co-investment deals, which does not help reduce the gap in health VC deals. Overall, the European health VC market is particularly missing larger-sized investors (investment funds) with late-stage deals. To address this gap, policy attention is needed to identify and reduce barriers for European health VC investors to grow to a critical scale and engage in a higher number and larger-sized deals. All in all, Europe should further develop and strengthen its strongest asset, i.e., its Open Single Market, reducing the fragmentation in flows of venture capital, reaching a truly single European Venture Capital market. For an EU open strategic autonomy industrial policy for health, an open single market for health remains the critical instrument to further develop and monitor.

Date: 2025-01
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-ent, nep-ino and nep-sbm
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