Clinical data is a goldmine — but Europe’s startups are struggling to grow

• Big Pharma and biotech companies often outsource clinical trials to external companies.
• Startups offer services ranging from clinical trials recruitment to patient monitoring.
• Europe’s early-stage clinical trials startups are flush with funds but they’re struggling to grow.

When Benevolent AI announced that its trial for a new drug to treat eczema had yielded “inconclusive results,” it spelled bad news for the drug-discovery firm.

Months later, it laid off 180 employees and halted a drug trial for BEN-2293, its eczema treatment, redirecting its resources to other, more promising trials.

A successful clinical trial can determine a biotech company’s fate — and market cap. However, these are time-consuming and costly. Even the largest pharmaceutical companies do not conduct in-house trials because they lack the resources and outreach to attract a diverse range of patients.

Keeping enough patients and staff on the trial, as well as accommodating for delays due to patients dropping out, means that the cost of these trials can quickly add up. The more a trial progresses, the more patients are required, resulting in increased administrative, staff, and hardware costs. Many larger pharmaceutical and biotech firms outsource work to contract research organizations (CROs), a $32 billion industry that conducts clinical trials on a project-by-project basis.

The COVID-19 pandemic has also highlighted another promising option for carrying out these trials: startups.

Clinical-trials startups typically provide services that span the entire lifecycle of a trial, from patient recruitment and data collection to the hardware and software required to monitor volunteers during trials. For example, Janssen Pharmaceuticals has collaborated with Tempus, a clinical database startup.

With $1.9 billion poured into startups globally, venture capital investment in the clinical-trials sector peaked in 2021, at the height of COVID-19 vaccine trials. Despite a broader economic downturn in 2022, startups received $1.7 billion in venture capital funding that year.

However, by 2023, investor appetite had dwindled dramatically, with only $67 million invested in industry startups.

Given that pharmaceutical companies rely on successful clinical trials to bring a drug to market, the slump is perplexing. According to Christoph Ruedig, partner at Albion VC, they are also falling behind in data acquisition and patient record digitization.

According to Dealroom, the United States has around a dozen clinical trials unicorns worth $1 billion or more, while Europe’s startups lag behind.

The US has a rosier outlook

Maya Zlatanova, founder and CEO of clinical-trials startups TrialHub and FindMeCure, told Insider that she considered moving her company to the United States because of the country’s large clinical research market and the fact that biotech companies there charge much higher fees than in Europe. But she changed her mind.

It’s a situation that Europe’s homegrown players are dealing with. In contrast to growth-stage US startups such as New York-based Medidata Solutions, which is valued at more than $5 billion, and cloud software platform Reify Health, which is valued at $4.8 billion in the US, Europe has yet to see a big winner emerge in the clinical-trials space.

According to Ruedig, startups are frequently stymied by the fact that Europe is a much more fragmented market than the US. The American healthcare market also has higher pricing margins, as opposed to Europe, where getting approval for a drug is also a stage-by-stage process, making scaling a startup much more difficult.

The founders are aware of the cultural differences that exist in clinical recruitment in Europe and the United States. According to Matt Wilson, CEO of clinical-trials startup uMed, the NHS in the United Kingdom has “a strong desire to participate in clinical trials on the basis of its ethical responsibilities.” “People want to be a part of research that has no clear revenue streams.” It is very clear in the United States that it must be a profitable endeavor for the people involved.”

Once trials reach the second phase, which is a randomized process that determines how effective a drug is, they must draw from a larger patient pool, which may span multiple geographies. In any case, as a clinical trial progresses, it becomes more global in terms of patient recruitment.

It’s something that European startups should think about because having a purely UK/European-based solution makes it “challenging for an acquirer to see you contributing value across multiple markets,” according to Wilson.

But there are still exit routes for European startups

Nonetheless, European venture capitalists see huge growth potential in the sector — and, according to Christoph Massner, investor at Earlybird Ventures, always consider a startup’s potential exit route even at the early stages of investing.

When it comes to exit options, biotech startups are spoiled for choice; M&A activity is strong in the pharma sector, and it’s also possible to go public or become part of a larger healthcare organization, according to Zlatanova. However, the road to profitability and public listing is a long one, as cutting corners is strictly prohibited in the highly regulated industry.

“There are many opportunities for growth in the sector; the industry has a long way to go to completely digitize — but Europe is good at finding early product-market fit,” Ruedig said.