R&D projects Appraisal by Jean-Jacques Mertens Research & Innovation Associate Director EIB Projects Directorate December 2006 The EU’s long term financing Institution

FEACO seminar, Brussels, 14 December Contents 1.Type of Projects financed and present developments 2.Appraising an RDI project 3.Critical issues summarised

FEACO seminar, Brussels, 14 December Reminder: i2i financing to date (2006) Signatures (M €) Edu & Training RDIICTTotal i2i 2000 (7m) Tot ’00-’

FEACO seminar, Brussels, 14 December RDI project examples Past Industrial RDI (pilot plants, labs, research activities) (Boehringer Ingelheim, Gambro, Robert Bosch, Roche Diagnostics, Novozymes, Haldor Topsoe) Prototypes (Primorec: Valorizing steel waste) Research organisations ( Heavy Ion Therapy, Mario Negri, Statens Serum Institute, Mazaryk University, etc…) Hospitals with research: San Mateo, IEO,.. Large Infrastructures (LHC of CERN, IMEC, FEL Trieste) Science parks, incubators (EMBL, Helsinki, Oulu, Turku) Specific global loans for innovative SME’s (ICO, SPIMI, IWT) Future: also projects generated by Technology Platforms (H2, Nanotechs, new mobile techs, Steel, Chemicals, Aerospace, etc..) and projects of FP6/FP7. Consortia or partners in consortia

FEACO seminar, Brussels, 14 December RDI promoters Industry (direct) Research organisations Universities Specialized intermediaries (Banks, Fin’l Inst, …) Nat’l/Reg’l RDI support systems Foundations Networks & trade associations Multitype consortia Partners (Commission/Eureka/…)

FEACO seminar, Brussels, 14 December Example: EIB involvement in ETPs TPs interesting for EIB: seal of relevance Some have important lending potential Types of involvement: –Individual projects or consortia –Research facilities (infra) and activities –Funded by FP or not Mono-partner parts of projects likely to be more easy to finance But smallness of loan amounts may require regrouping of parts of several projects JTIs also a possibility, in financing a PPP

FEACO seminar, Brussels, 14 December Example: EIB and Nanomedicine 4 reasons for looking at nanomedicines: Health an economic priority for EU and for the Bank Nanotechnologies, probably one of the most important enabling technologies of the future half- century Strong european research base A major opportunity for european technologyy

FEACO seminar, Brussels, 14 December Possible application in Nanomedicine (1) Depends on strategic research agenda. Possible applications are: –Complementary funding of IPs/STREPS under FP6/FP7 –Clinical trials/ demonstration projects in or outside FPs –seed, startups, spinoffs Possible funding instruments are –Direct loans, with or without SFFs –Risk sharing finance facility (RSFF) –VC, guarantees and TTA

FEACO seminar, Brussels, 14 December Possible application in Nanomedicine (2) Where applicable Basically all nanomedicine sectors, but full EIB potential rather released at later than at early stage, whether: –Diagnostics and Imaging –Drug delivery systems –Regenerative Medicine Caveats: –Special attention to environmental, safety and social issues

FEACO seminar, Brussels, 14 December Project Appraisal and follow-up by EIB The base of EIB lending operations is the ‘project’ Multidisciplinary teams –Ops: contact + financial aspects –PJ: technico-economic aspects (incl. Environment) And later: –Risk Management –Legal Department Monitoring and Post-evaluation are part of the Project Cycle In lending, appraisal is similar for all types of projects and of finance considered, but emphasis can shift according to credit rating of the borrower (large corporate, midcap, research organisation, consortium or SPV) and the riskk profile of the operation.

FEACO seminar, Brussels, 14 December Steps in EIB assessment Promoter Finance Model Assessment of Creditwortiness Project Finance Model Borrower’s creditworthiness (i.e. credit rating) SPV’s cash-flow and asset values Creditworthy NOT Bankable! -> Grants + Equity (e.g. EIF VC Funds) Eligibility Assessment NOT Eligible! Eligible EIB financing of up to 50% of investment cost! Project Technical and Economic Viability + Project Cost Definition

FEACO seminar, Brussels, 14 December Specific RDI appraisal issues RDI Project selection criteria and procedures RDI project definition and boundaries Investment cost (facilities + activities) Environmental (and social) aspects Long-term sustainability “Profitability” or how is success measured (in research normally no profitability, valuation of intangibles created is delicate) Structure issues (legal entity & borrowing capacity, consortia-specific issues) LT vision, management of operations Organise EIB project “monitoring” (follow-up and success) Repayment capacity, adequate security IPR issues, Intangibles management Also, we understand confidentiality

FEACO seminar, Brussels, 14 December RDI Project Definition Types of investments and Project components –Research Facilities –Prototypes –Research Activities Economic life Investment cost –Eligible project cost components (internal to EIB) –Contingencies, IDCs –Training and start-up

FEACO seminar, Brussels, 14 December Project cost items Research Facilities –Normal Capex: building, equipment, engineering Prototypes and Pilot Plants –Prototype production and production equipment capex Research Activities –Salaries –Consumables –IPR registration and other related user costs –(IPR acquisition) –Equipment user fees (leasing costs, amortization) –Share of overheads (not always)

FEACO seminar, Brussels, 14 December Project justification How is the project positioned in the organisation’s strategic objectives? What are the benefits to be brought by the project to the organisation, to the sector and/or to the world ? Can the benefits be measured? What are the criteria to judge whether the project is a success or not?

FEACO seminar, Brussels, 14 December Are intangibles managed? Intellectual capital is not limited to patents and copyrights Some questions: What are your critical intangibles ? How do you measure them? How do you control their evolution and manage them? Do you train to manage them? Do you report on them? Do intangibles-related indicators figure among your key performance indicators Are you familiar with Intellectual Capital thinking?

FEACO seminar, Brussels, 14 December Points for attention Is there a borrower? Is there a « project » (or programme)? What costs are eligible? Who repays and how? Timing issues when public funds IPR ownership How is success measured? How can we better help the sector?

FEACO seminar, Brussels, 14 December Final reminders We are committed to support good research and innovation with good finance We are collaborating with, and have good understanding of industry, universities, research organisations and EU/Natl authorities We are adapting our instruments to match research customers needs We are ready to help promote research and need good intermediaries. Your knowledge and skills can help us devise the right instruments!

FEACO seminar, Brussels, 14 December Thank you! & time for questions, please