Global Economics

Sweden: A Midnight Sun for Biotech


The nation's "Medicon Valley" is thriving thanks to venture capital, deals with pharma giants—and laws that let scientists own their research

Only a decade old, the Swedish biotech industry is starting to set the pace in Europe. Fledgling companies are attracting foreign and Scandinavian investors, striking lucrative deals with pharmaceutical giants, and outperforming many of their peers on European stock markets. "There is a substantial amount of money going into Swedish biotechnology, one of the key clusters for innovation in Europe," says Dr. Eugen Steiner, a partner at venture capital firm HealthCap in Stockholm.

That's no exaggeration. Venture capitalists already have poured more than $46 million into Swedish biotechs so far this year, compared with $24.7 million in all of 2006, according to BioCentury, an independent market research firm in San Carlos, Calif. Sweden also boasts some of the biggest recent European biotech initial public offerings: Stockholm-based Biovitrum (BVT.ST), for instance, raised $104 million last September in the second-largest European biotech IPO of 2006. (Britain's Renovo (RNVO.L) raised $113 million.)

Medicon Valley Leads Growth

Since it went public, shares in Biovitrum, a spin-off of Pfizer (PFE) that specializes in treatments for obesity, diabetes, inflammation, and blood diseases, have risen 150%. There are plenty of other Swedish success stories, too, including Solna-based Meda (MEDAA.ST), which focuses on areas such as cardiology, gastroenterology, and pain and inflammation. It reported an 83% increase in revenues last year, to $756 million—the fastest growth of any European biotech—and its shares are up 50% in the past 12 months.

What's fueling the boom? Credit Sweden's top-tier academic institutions, an abundance of seasoned pharmaceutical talent, and a unique approach to intellectual property rights. Plus, Sweden now hosts one of the fastest-growing venture capital sectors in the world. That combination has helped the nation of 9.1 million citizens create a biotech industry that ranks as the world's largest on a per capita basis.

Much of the activity is based in the so-called Medicon Valley, now home to more than 300 biotech companies. The area, which spans from the Skane region in southern Sweden to the outskirts of Copenhagen, Denmark, was Europe's fastest-growing biotech cluster in 2006, as measured by products under development. According to a Boston Consulting Group study, Medicon Valley is surpassed only by Cambridge, England in life sciences research and development.

Intellectual Property Advantage

"Investors from all over the world are looking at Sweden because the technology and competence in biology is world-class," says Bill Gedales, managing general partner of New York-based venture capital firm NGN Capital. At the same time, they're also taking all European biotech more seriously than ever before (see BusinessWeek.com, 05/22/07, "The Maturing of Europe's Biotechs").

Sweden's standing in world-class science is rooted in its academic excellence. Thanks to institutions such as the Karolinska Institute, Uppsala University, and the Royal Institute of Technology, Sweden's medical research community is considered one of Europe's strongest. But it wasn't until a decade ago that Swedish universities were able to commercialize discoveries made by their own researchers. Today these universities have created holding companies through which they can own shares in other companies.

Moreover, in contrast to the rest of Europe and the U.S., Sweden has a unique policy on intellectual property. The so-called teacher's exemption allows scientists—not the universities where they work— to own full rights to their discoveries. This has encouraged many academics to strike out on their own in search of outside investment capital. Since they own the intellectual property, they can transfer it to an independent company. "This is a key competitive advantage and one that has spurred a flurry of entrepreneurial activity," says HealthCap's Steiner.

From Academia to Industry

Take Mohammed Homman, who founded a company based on the results of his doctoral research at Karolinska. Having developed a novel technology that can more accurately detect and diagnose viruses, Homman set up Stockholm-based Vironova two years ago. The technology's potential to shorten discovery time for anti-viral drugs and shed light on new therapeutic targets has attracted the attention of venture funders, who have put an undisclosed amount into the startup. Homman also has inked partnership deals for his technology with IBM (IBM) and Olympus (7733.T) and is planning to set up a U.S. office in the near future to attract new customers and investors.

Homman's story typifies a new generation of Swedish scientists who are moving out of academic labs and into industry. Historically, most of the country's biotech R&D was done by academic institutions and a handful of big pharmaceutical companies such as AstraZeneca (AZN) and Pharmacia, now part of Pfizer. But cuts to university funding and the breakdown of pharma research centers due to mergers and acquisitions have brought about a shift: These days, startups have become the major source of biotech R&D—and the bulk of their funding comes from venture capitalists.

The pairing up has led to a string of Swedish successes. Take NeuroNova, a Stockholm-based biotech started in 1998 by two leading neuroscientists from Karolinska. The company focuses on discovery and development of drugs designed to stimulate neurogenesis, or the formation of new neurons, which offers promise for treating degenerative diseases such as Parkinson's as well depression.

NeuroNova's strong science helped it to raise $33 million from venture capitalists including HealthCap, which has a 32% stake in the company, and Investor Growth Capital, the venture arm of Investor (INVEA.ST), the holding company owned by Sweden's powerful Wallenberg family. Now NeuroNova has three potential drugs in preclinical development.

Next Stop: U.S. Markets

Already established in Sweden, companies such as NeuroNova are eager to take their business to the next level. For most that means boosting access to the U.S. market, either through alliances with U.S. biotech and pharmaceutical companies or by setting up operations of their own.

The chance to forge such links drew the crème of the industry to the recent third annual Swedish American Life Sciences Summit in Stockholm. The aim of the gathering, says founder Barbro Ehnbom, a former Wall Street analyst and pharmaceutical executive, "is to increase the number of cross-border businesses between the U.S., the largest health-care market in the world, and Sweden, one of the most important life science centers in Europe." With a growing number of products from Swedish firms entering clinical trials, the deal-making looks likely to get red hot.


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