Biotech Industry Finds Fertile Ground in the Netherlands

Though still relatively modest by international standards, the Netherlands' biotechnology industry has made impressive gains in recent years and now provides investors with a compelling alternative to more established European "heavyweights" such as Scandinavia, Switzerland, and the United Kingdom.

Starting with only a handful of biotech companies in the 1980s, the Netherlands' biotech community has mushroomed to 138 entrepreneurial firms specializing in areas such as agri-foods, biologicals, blood transfusion technology, cardiovascular disease, cell growth and cancer, cognitive neurosciences, genomics and proteomics, and therapeutic vaccines. The Netherlands has witnessed the establishment of 75 new biotech companies since 2000.

The Dutch biotech industry had a banner year in 2003, generating sales of more than $207 million — a 10% increase over 2002, according to BioPartner's 2004 Netherlands Life Sciences Sector Report. The annual publication also reported impressive performances in 2000 and 2001, with biotech sales topping $89 million each year. Last year's sales surge resulted in a seven percent jump in employment and increased the size of the total life sciences workforce in the Netherlands to 2,100 full-time employees, according to the report.

Most of the revenues generated by the Dutch biotech industry are ploughed back into research and new product development.

EXCELLENT RESEARCH INFRASTRUCTURE

The steady growth of the Netherlands' biotechnology industry is rooted in the country's excellent research infrastructure and long history in the life sciences. These attributes became readily apparent to a number of North American biotech companies that opted to establish European operations in the Netherlands in the 1980s. Today, the parent companies of more than one quarter of the biotech operations in the Netherlands are based in the United States.

Kendle International conducts phase 1 trials, like the one shown here, from its dedicated Clinical Pharmacology Unit (CPU) strategically located on the university campus in Utrecht. Approximately 60% of the trials conducted at Kendle s CPU are for customers based in North America, Japan, and the Pacific Rim.

The Dutch life sciences industry is clustered primarily around eleven cities: Amsterdam, Delft, Eindhoven, Rotterdam, Groningen, Leiden, Maastricht, Nijmegen, Twente, Utrecht, and Wageningen. This "bio-belt" region accounts for 60% of the dedicated life sciences companies and more than 70% of the life sciences workforce in the Netherlands. Home to 10 university hospitals, the bio-belt provides a proven infrastructure dedicated to developing highly educated and skilled professionals. Almost one-quarter of Dutch research schools are devoted to biotech, and the Netherlands is the only country in Europe to offer laboratory training in dedicated, vocational laboratory schools.

The Netherlands' highly educated, multilingual talent pool weighed heavily in Centocor's decision to build a new production facility at Leiden's BioScience Park in 2003. The Pennsylvania-based biopharmaceutical company is the world's leading producer of monoclonal antibodies.

By locating its new facility in BioScience Park, the company was able to readily tap into the resources of Leiden University, one of the Netherlands' premier laboratory colleges, as well as a network of research institutes and other Dutch universities, according to Pedro Tetteroo, vice president and general manager of Centocor. Leiden, home to some 60 biotech companies, is the oldest biotechnology cluster in the Netherlands and one of the most extensive biotechnology centers in Europe.

A technician reviews data at a pharmaceutical research facility in the Netherlands.

"Leiden provides Centocor with a significant base of knowledge about antibodies and the production of biotech goods," says Tetteroo. "It's the ideal scientific environment for a company like ours." Over the years, the city's healthcare community has proven a valuable ally. Since coming to BioScience Park in 1984, Centocor has established contacts with clinical experts who oversee clinical trials. Leiden University also gives the company access to library and research resources, lecture halls, and, with each new graduating class, a ready supply of skilled labor.

Like many European countries, the Netherlands is well endowed with scientific expertise. However, it hasn't always had the management talent required to transform R&D into successful business ventures. It is now becoming easier to find scientist-entrepreneurs, thanks in part to government efforts to include business management skills in scientific education.

AMPLE VENTURE CAPITAL

Adequate funding is an important requirement for any new business, and the Dutch private sector has capital available for start-up biotech ventures. In fact, scientists are finding it easier to raise venture capital investment to support product development than to compete for government R&D funds earmarked for university research.

The primary goal of early-phase testing is to identify safety issues and determine dosage amounts for new drugs in development in about 20 to 80 healthy volunteers.

Between 2001 and 2002, venture capital firms raised some 22% of the industry's financing, according to government sources. A study by the European Private Equity and Venture Capital Association found that the tax environment and legal framework in the Netherlands is particularly well-suited to the private financing of new companies. Venture capitalists of note in the Netherlands include Atlas Ventures, Euro-ventures, Gilde Investment Fund, and Life Sciences Partners.

Last year, firms headed by skilled scientist-managers generated several successful initial public offerings (IPOs), providing a sound model for others to follow. The most important IPO was Crucell, formed by a merger between IntroGene and U-BiSys, and led by Dinko Valerio, a professor of gene therapy at Leiden University. Crucell is now trading on the Amsterdam stock exchange and NASDAQ. As the university holds shares in Crucell, it benefits from its R&D investment, attracting new funding for additional research and new ventures.

Crucell is at the forefront of research to regenerate damaged human tissue and to develop methods for treating disease at the cellular level. The company is also developing safe viruses, called "taxis," to travel the bloodstream delivering medicines directly to a disease's source.

The Netherlands has long viewed its international presence as key to its economic development — 78% of Dutch biotech operations have a global connection. Dutch scientists routinely work in international partnerships, profoundly impacting the development of the country's biotechnology industry, especially the pharmaceutical sector.

EXTENSIVE GOVERNMENT SUPPORT

The Dutch government also has been a willing partner in advancing the fortunes of the country's biotech industry. Government programs such as BioPartner, initiated in 2000, support rapid commercialization of scientific breakthroughs. BioPartner funds comprehensive services for start-up companies, including access to office and research facilities, grants and subsidies, and even start-up capital. Organizations can conduct advanced R&D activities at a relatively low cost with government-subsidized incentives, such as interest-free loans and tax deductions.

Moreover, the government takes an active role in helping biotech professionals patent intellectual property. The Netherlands is the eighth most productive country in the world for patents and copyrights and the source of more patent application filings per capita than the United Kingdom, France, Ireland, Denmark, Sweden, and other Western European countries.

"Everywhere you look, you see evidence of the close-knit relationship between the Dutch government and the business and scientific communities," said Leontien Ruttenberg, area director of the Netherlands Foreign Investment Agency (NFIA), a branch of the Dutch government that works to bring foreign investment to the Netherlands. "Working in concert, they have attracted world-class researchers and institutions and encouraged an international business environment."

In an effort to attract overseas investments in biotechnology and other fields, the NFIA recently instituted a Technology Matchmaking Service (www.nfia.com). Among other things, the free, online program finds Dutch biotech partners for non-Dutch companies seeking R&D and manufacturing programs, technical cooperation, joint ventures, or licensing agreements. Ruttenberg said the service will help participants develop better products and services, while reducing time-to-market.

LIBERAL REGULATORY ENVIRONMENT

While the new matchmaking service promises to be an invaluable tool, it's the Netherlands' relatively liberal regulatory environment and streamlined protocol approval process that have captured the imagination of biotech investors. In the Netherlands, start-up time for phase 1 clinical trials is four to six weeks, compared to seven months in the US and six months in the UK. Moreover, phase 2 can follow phase 1 without interruption. As a result, some 737 clinical trials were conducted in the Netherlands in 2003, the largest number since 2000 when 781 trials were initiated.

Another benefit of conducting clinical trials in the Netherlands is that it is relatively inexpensive to manage them. In fact, the Netherlands ranks first in Europe and second in the world in managing trial costs, according to a recent KPMG study.

The relatively low cost of managing trials coupled with a favorable regulatory environment has led to an explosion of international biotech companies testing new compounds in the Netherlands. Kendle International, a full-service phase 1 to 4 clinical research organization (CRO), is capitalizing on this environment to expedite early-stage testing for small biotech firms and large, international pharmaceutical companies that specialize in pharmacological and therapeutic disciplines and products. Phase 1 and 2a trials are conducted at the company's dedicated clinical pharmacology unit (CPU) in Utrecht in conjunction with the Utrecht Medical Center.

Marcus Ballas, director of Kendle's CPU, credits the favorable Dutch regulatory climate for the increased number of new compounds Kendle is testing for biotech companies. Approximately 60% of which are for customers based in North America, Japan, and the Pacific Rim.

NEW EUROPEAN UNION DIRECTIVES

To the delight of biopharmaceutical research operations in the Netherlands, the country's streamlined review and approval process will likely be maintained despite the recent implementation of the European Clinical Trials Directive (Directive 2001/20/EC) on good clinical practices. The directive, which — in principle — took effect last May, provides a unified system for conducting and regulating clinical trials across all 25 EU member states. Some states, including the Netherlands, have not yet adopted the directive. The challenge for the Netherlands and other EU states is reconciling European standards with protocols established and policed by local ethics committees.

Ballas is confident the new rules will improve access to new and innovative pharmaceutical products, building on the success of the European Medicines Evaluation Agency (EMEA), established in 1995. The EMEA is charged with overall coordination of the Clinical Trials Directive and development of inspection and audit guidelines to ensure consistency among the European nations. The organization works closely with each of the national authorities responsible for inspecting and auditing trials in their respective countries at least once every two years.

Changes under the new Clinical Trials Directive include a new, fast-track authorization procedure for many products, possible conditional authorization for other products, and the establishment of a grace period during which test and other data is protected to reward innovation.

The Clinical Trials Directive also will provide the generic pharmaceutical industry with clearer rules and procedures and offer the possibility of product testing in advance of patent expirations. "In essence, the new rules should streamline procedures, reduce red tape, and strengthen the supervision of pharmaceutical research and development," said Ballas.

Alan Davies, Kendle's European medical director, applauds the Dutch regulatory environment, which he describes as "highly favorable" for early-stage clinical trials. "We're fortunate that the expertise and speed of the Central Ethics Committee in the Netherlands remains essentially unchanged under the new Clinical Trials Directive and that no additional national or state regulatory policies are being planned," he said. "Under the new directives, the Netherlands can look forward to retaining its competitive edge among European nations for early-stage research."

Despite assurances to the contrary, some North American biotech companies fear the new Clinical Trials Directive could hamper product development in Europe. "In the short term, you're going to find some unhappiness anytime there's a change in practice," Davies explained. "But Kendle is working hard to educate its customers about the Clinical Trials Directive and to create further understanding that there will be no fundamental changes in trial conduct and approval. Essentially, trials and research will still follow the standards espoused by the International Conference of Harmonization."

COMPETITION FROM NEW EU STATES

With the emergence of the Netherlands as a major biotech player in Western Europe, some investors are questioning whether the country can protect its recent gains in the face of the latest EU expansion. Centocor's Tetteroo suggests the contributions of new EU countries can't be ignored. "They've made giant strides in developing their biotech industry in recent years," he said. "The quality of their clinical trials is quite high and they have access to large numbers of patients."

Despite competition from the new EU states, large biopharm companies continue to invest heavily in biotech R&D and manufacturing in the Nether-lands. Centocor, for example, will spend some $250 million between now and 2006, expanding its production capacity by at least 50%. At the same time, Kendle is evaluating opportunities for further expansion to capitalize on the favorable environment for early-stage research.

The big question, however, is how start-up biotech ventures will fare in the coming years. Despite the recent economic slowdown, young entrepreneurs continue to demonstrate success in launching viable biotech businesses in the Netherlands. And the pace of start-ups is likely to accelerate as the Dutch and international economies continue to improve.

Yet, many of the newborn companies are small, vulnerable, and in need of continued advice, money, and assistance to guarantee their survival in a highly competitive environment, suggested Ruttenberg. "That's where a joint government-private sector initiative such as our BioPartner program can make all the difference in the world," she said. "In a small country like the Netherlands, we understand the importance of lending a helping hand where it's needed."

For more information, contact Paul J. Kleijne, director of marketing, Netherlands Foreign Investment Agency, 312.616.8400, Paul@nfia.com.