Getting It Right from Day One: How Life Sciences Companies Can Successfully Expand to Europe
HIGHLIGHTS
- As US Life Sciences companies scale globally, Europe is often a natural next step in their growth strategy.
- The region offers a unified market structure, centralized regulatory pathways, and strong demand for innovative therapies across diverse patient populations.
- Whether to support clinical trial expansion, commercialization efforts, or strategic partnerships, establishing a European footprint presents both opportunity and complexity, particularly when it comes to managing treasury operations effectively.
In the Life Sciences sector, many companies are pre-revenue or in the early phases of growth. These firms, often headquartered in the US, may be preparing to expand into Europe. Once a drug demonstrates positive clinical results or gains regulatory approval, rapid growth can follow. It is therefore critical to have the right expansion strategy in place from day one. A well-organized, scalable, and resilient treasury structure is central to that strategy. Each company is unique, and its treasury design should reflect its operational needs. Nonetheless, there are foundational principles that apply broadly across successful treasury implementations.
For example, companies must look beyond short-term requirements and consider their treasury needs three to five years ahead. Without this foresight, organizations risk building inefficient, fragmented banking structures – such as maintaining accounts with multiple banks in different countries – that reduce visibility and control, and require significant effort to unwind later.
Proactive planning enables the creation of efficient structures that serve both immediate and future needs. Establishing an In-House Bank (IHB), which centralizes core treasury functions by aggregating transactions and attempting to mitigate risks arising from subsidiaries’ commercial activities, might not be feasible initially. But it could be a realistic target within five years as a firm’s European operation scales. Laying the groundwork early makes such goals achievable.
| Model | Description | Pros | Cons | Verdict |
|---|---|---|---|---|
| Hub and Multiple Entities | All European bank accounts are held in a hub country (e.g. the UK or the Netherlands), with each operating subsidiary maintaining its own account. | • Easy access to GBP and EUR local clearing (depending on hub location). • Physical cash pooling possible from the start. • Can evolve into a notional pool. | • Multiple Know Your Customer (KYC) files to manage. | A strong option if you need distinct subsidiaries for human resources or tax purposes but still want centralized cash management. |
| Hub and Single Entity | One European legal entity holds all bank accounts in the hub. Other country entities exist for operational reasons but are excluded from treasury. | • Single KYC to maintain. • Faster account opening using existing documentation. • Simplified borrowing and guarantees. • Economies of scale and lower costs. | • Possible tax or regulatory friction if revenues are booked outside the customer’s country. | The fastest, most cost-efficient option – unless local regulations require otherwise (e.g. Italy or Spain). |
| Fully Local | Each country (e.g. France, Germany, Spain) has its own legal entity and bank account. | • Easiest customer payment experience and cheapest (paying a domestic account). • Straightforward accounting. • Aligned with localized market entry. | • Highest cost and complexity for KYC and anti-money laundering (AML). • Challenging to pool cash; requires additional accounts and target balancing setups. | The most common approach – use only if required by regulations (e.g. taxes in Italy) or when customer convenience outweighs extra costs. |
While opening local accounts as required might appear the easiest option at the time, centralized models using a hub country are generally more efficient in both the short- and long-term.
The UK and the Netherlands are often preferred as hubs due to their streamlined KYC and AML processes. In addition, at Citi, UK-based accounts do not require passport submission to release payments – a meaningful operational benefit compared to other countries.
Both the UK and the Netherlands are established currency hubs, offering deep Foreign Exchange (FX) liquidity and comprehensive payment infrastructure. The UK, for instance, supports GBP payments via Faster Payments, and also offers Single Euro Payments Area (SEPA) payments in EUR and CHF. Additionally, these countries benefit from strong onboarding and service support, owing to their long-established banking presence.
While hubs offer significant advantages, there can be tradeoffs. For example, companies may incur additional costs or face limitations when sending wires in currencies not natively supported (e.g. non-GBP/EUR/CHF payments from a UK hub), making them unsuitable for certain transactions, such as payroll. Additionally, some countries, such as Switzerland, may offer tax advantages that are not available through hub models – although these benefits can potentially be accessed by incorporating a holding company in the desired location.
Why an In-House Bank Should Be a Long-Term Goal
For many early-stage life sciences firms expanding into Europe, establishing an IHB is the long-term objective. Companies do not typically launch with an IHB but rather progress toward it in phases – beginning with physical cash pooling.
Both hub-based models (single and multiple entity) make physical pooling straightforward, as all accounts reside in one jurisdiction (with exceptions for mandated local accounts such as those used for tax payments).
Once physical pooling is in place, companies can implement a notional pool, which allows account balances to be aggregated for interest calculations without physically moving funds. This lowers transaction costs and administrative effort, reduces FX exposure, and simplifies reconciliation.
Ultimately, the destination is an IHB, which brings further benefits across three main areas:
- Operational Efficiency: IHBs reduce the volume of external FX and cash transactions, facilitate the consolidation of bank accounts and relationships, and improve cash flow forecasting. They also simplify reconciliation and centralize non-base currency liquidity requirements.
- Financial Optimization: They lower debt levels, cut banking costs by allowing a central entity to manage payments and collections for multiple subsidiaries, and enable higher returns by investing surplus cash more effectively.
- Risk Management: Importantly for life sciences firms, IHBs standardize and automate financial processes, enhance visibility for better decision-making in liquidity and risk management, and allow for more effective, consolidated exposure control.
Choosing the Right Partner
Life Sciences companies entering Europe are often expanding overseas for the first time. Moreover, they are necessarily at an early stage in their development and typically have lean treasury structures.
To make informed, future-ready decisions, companies should work closely with the right banking partners – not just for execution but for advice. Citi Commercial Bank brings deep knowledge of Life Sciences operating models, regulatory nuances, and practical country-level insights that can shape better outcomes, as well as a wealth of experience in working with companies as they expand into new markets and scale-up.
Citi has operated in Europe for more than 120 years and offers both global reach and local expertise. With dedicated onboarding teams in London and Amsterdam, Citi can open hub accounts quickly and smoothly. Most importantly, Citi Commercial Bank's experience in the Life Sciences and Healthcare sectors enables it to help companies build treasury structures that are not only efficient today but scalable for the future.
