A Major Force in Biotechnology Sweden

In September 2003, Sweden's biotechnology sector recorded a striking achievement. Amgen, the world's largest biotechnology company, announced plans to acquire exclusive rights to Biovitrum's small-molecule enzyme inhibitors for the treatment of metabolic diseases. Amgen made an upfront payment of $86.5 million and agreed to make considerable payments in the future to help move the products to market.

For Biovitrum - formed in 2001 following a spin-off from Pharmacia - the deal was a coup. For Sweden, it was yet another example of how this country has become a source of innovative drug discovery.

Björn Ohlsson, who runs Ernst & Young's life science practice in Sweden, says his firm is seeing increased interest from international biotechnology players. "I wouldn't be surprised to see follow-up transactions - there is certainly no lack of projects and business opportunities in Swedish biotechnology," he notes.

The latest demonstration of Sweden's position in the international biotech market came about a month after the Amgen-Biovitrum announcement. However, to the foreign eye it was probably not easy to see the Swedish connection in General Electric's announced $9.5 billion acquisition of the UK diagnostics group Amersham.

GE wants Amersham's fast-growing diagnostics business, part of which is located in Sweden at plants in Uppsala and Umeå. The business, based on Nobel Prize-winning research by Sweden's Arne Tiselius (electrophoresis and chromatography), was run by Pharmacia Biotech until 1997 when it was merged with Amersham's biotech division. Now, with 1,500 employees, Amersham Biosciences is Sweden's largest biotech firm.

If GE is placing a bet on large post-genomic diagnostics revenues, it is also placing a bet on Sweden to deliver.

Sweden's Biotech Landscape

Sweden is well suited to thrive in biotechnology - primarily because so many basic requirements have already been met:

• a solid medical research foundation and tradition

• the capacity for biotech research and innovation

• cost-efficiency in R&D

• an excellent business environment

• close cooperation between industry and academia.

Sweden's biotechnology industry ranks fourth in Europe and seventh globally. Overall, Sweden's life sciences industry employs more than 35,000 people, making it one of the country's major industries. Some 6,000 people are employed in more than 200 biotech companies, whose strengths lie in drug discovery and development, biotech tools and supply, and bioprocessing. The largest firms are Amersham Biosciences, Biovitrum, and Pharmacia Diagnostics, each with more than 500 employees in the country.

The presence of world-class pharmaceutical companies in Sweden, such as AstraZeneca and Pfizer, is a major attraction for the biotech industry. AstraZeneca, which employs 12,000 people in Sweden, leads global R&D in three of six therapeutic areas at its three local sites (Södertälje, Mölndal, and Lund). AstraZeneca's only research lab dedicated solely to biotech drug development is in Södertälje, south of Stockholm. Not surprisingly, Sweden is Europe's largest investor in R&D, which accounts for 3.8% of the nation's gross domestic product.

Sweden's position is all the more impressive considering it has a population of only 9 million. In many respects, Sweden's size plays to its advantage, facilitating networking and knowledge transfer. Though a small country, Sweden has one of the world's most globalized economies and maintains an international outlook.

COOPERATIVE ENVIRONMENT

Sweden is one of the world's largest producers of biotechnology knowledge, per capita. Swedish researchers have become an authoritative voice in a wide range of life sciences fields. Achievements in life sciences have often been the result of cross-breeding among the corporate, academic, and public healthcare sectors. Collaborations are a natural part of the discovery and drug development process. Genotropin, Xylocain, Losec/Prilosec and Seloken are examples of successful drugs developed through such collaboration.

One reason collaboration is so easy in Sweden is because negotiations over intellectual property (IP) rights are made directly with the researchers. The "teachers' exemption" grants commercial rights to the researcher, unless he or she has made another arrangement with the university.

To facilitate collaboration, biotech firms are often built near academic research groups at universities and university hospitals. There are now two principal research clusters. One stretches along eastern Sweden from Linköping via Södertälje and Stockholm to Uppsala; and the other incorporates the southwest coastline, with the cities of Malmö/Lund and Göteborg as the urban centers. In addition, Umeå is the center for biotech activity in northern Sweden.

The Stockholm/Uppsala region houses more than half of Sweden's biotech firms, and it ranks among the leading European biotech clusters, comparable to those in Cambridge and Munich.

Seven of Sweden's largest biotech firms - Amersham Biosciences, Active Biotech, Biovitrum, Karo Bio, Medivir, Melacure, and Pharmacia Diagnostics - are co-founders of SwedenBIO, the Swedish biotechnology industry association. In addition to providing a networking platform for its members, SwedenBIO represents the industry in public debate and acts as its spokesperson in discussions with government. Member companies represent approximately 80 percent of the biotech workforce in Sweden.

Financing opportunities

Technology transfer units operate at all major Swedish universities, offering professional and strategic advice on patenting and commercialization issues.

Tech transfer units such as Karolinska Innovations AB (KIAB), in Stockholm, A-Plus Science Invest in Göteborg, and Teknopol in Lund, are constructed so that profits obtained through commercialization are shared between the researchers and the technology transfer company. Although there are other routes to finance and advisory services during the first steps of commercialization, researchers may be enticed by the successful track records of tech transfer units.

Global Genomics, specializing in gene expression profiling and founded in 2000 by Karolinska scientists Patrik Ernfors and Sten Linnarsson, received start-up financing and commercialization assistance from KIAB. KIAB also helped arrange $2 million in financing in a deal led by Swedish VC Healthcap, the largest provider of venture capital (VC) within life sciences in the Nordic countries. In 2002, Global Genomics raised another $20 million, this time with Swiss-based VC firm HBM BioVentures as the lead investor.

HBM BioVentures is one of a number of foreign VC firms active in Sweden. These firms often join specialized local VC firms in syndicated deals. ABN Amro (Netherlands), Apax (UK), and MPM Capital (Germany/US), along with UK-based Schroder Ventures and 3i, are examples of global private equity firms that have invested in Swedish biotechnology companies.

Investments in life sciences funds are increasing. The $400 million HealthCap fund was launched in 2003, with more than 90 percent funding from international investors. According to the Swedish Venture Capital Association, 47 biotech transactions were completed in the first half of 2003, compared to 31 for full-year 2002. Also, average funding per transaction almost tripled. More than 50% of the funding was from the United States.

By US standards, funding levels are modest. For instance, four companies (Aerocrine, Arexis, Lightup, and Neuronova) recently raised a total of $32 million in second- and third-round financing. However, a research dollar goes further in Sweden than in the US. Industry executives typically put Sweden's cost advantage relative to the US in the range of 40 to 50%, principally because of lower salaries.

Investments are primarily directed to companies involved with drug discovery and development, as well as biotech tools and supply. Elliot B. Davies of Next Wave Funds, a US-based VC and co-investor in a number of Swedish biotechnology firms, notes, "With several leading research universities, a long pharmaceutical history and top-tier venture capital firms, Sweden has emerged as a key area for research and investment."

Stem cell research

While ethical debates have limited embryonic stem cell research in many countries, Sweden has decided that the potential benefits of both embryonic stem cell research and therapeutic cloning are paramount. Sweden is in an excellent position to capture a potentially multibillion-dollar market worldwide for drugs based on stem cell therapies.

A team under Jonas Frisen at Karolinska Institutet was the first to identify adult stem cells in the brain and show that new neural cells are formed in older people. Peter Eriksson at Sahlgrenska Academy in Göteborg was first in the world to show that the human brain has stem cells. These scientists demonstrated that human nerve cells are capable of regeneration throughout a person's life. Both Frisen and Eriksson teamed up with fellow scientists to form Neuronova and Cell Therapeutics Scandinavia, respectively.

Neuronova, founded in 1998, completed its latest round of financing in 2003, receiving $15 million from its owners - Healthcap, Investor Growth Capital, and Scandinavian Life Sciences Ventures. The company, which focuses on using stem cells to treat central nervous system (CNS) disorders, also signed its first commercial agreement with the Danish pharmaceutical firm Lundbeck.

Cell Therapeutics Scandinavia has also made excellent progress. The company recently received an infrastructure award from the US National Institutes of Health (NIH) to make two additional human embryonic stem cell lines (hESCs) available to US researchers. The agreement addresses the current global shortage of human embryonic stem cell lines available for federal research grants and is proof of Sweden's leadership in this field.

The two new lines raise the number of hESCs currently in development at Cell Therapeutics to 24 - an impressive number by any measure. Indeed, it is almost twice the number of lines available for NIH-sponsored research.

"We still know so little about stem cells. Having a large number of lines allows us to test various differentiation methods, enabling us to identify those that yield the best results in transplants or other uses," says Boo Edgar, chief executive officer of Cell Therapeutics.

Cell Therapeutics also agreed to work with the Japanese pharmaceuticals company Tanabe Seiyaku to develop a therapy for Parkinson's disease based on embryonic stem cells. Edgar says the collaboration - a world-first between a pharmaceutical company and a stem cell company - will make treatment in humans feasible much sooner.

Another outstanding researcher is Outi Hovatta at Huddinge University Hospital in Stockholm. She provided six of the stem cell lines in the NIH registry. In addition to Stockholm and Gýorg, great stem cell expertise abounds in southern Sweden, at the University of Lund. Here, researchers such as Anders Bjýund - one of the world's foremost stem cell researchers - and Stein Eirik Jacobsen, perform groundbreaking research in stem cell transplantation and hematopoietic stem cell biology.

Swedish Brain Power

Thanks to the strength of research and clinical trials and the quality and quantity of databases and biobanks, Sweden is uniquely positioned for biotech drug discovery and development.

In a 2003 peer review of 32 projects funded by the Swedish Research Council, a group of seven internationally distinguished researchers evaluated Sweden's excellence in biotechnology resesarch. According to the report, the national program is among the very best in Europe. Over 70% of the projects were deemed excellent or outstanding. When those judged "very good" are included, the positive rating rises to 97%.

In a new initiative, "Swedish Brain Power," a number of influential Swedish groups have consolidated their efforts in order to create a new, multidisciplinary concept for the treatment of neurogenerative diseases.

The goal is to establish a center of excellence for early diagnostics and treatment of neurogenerative diseases. The initiative brings together a number of complementary competencies from various research groups, clinics, and companies. Work and knowledge exchange will take place over virtual networks. A physical center of excellence also will be established, and efforts will be coordinated by a joint management team.

"If Sweden succeeds with its proposed endeavors, this country could very well take a world-leading position in neuroscientific experimental medicine," comments Christer Köhler, head of AstraZeneca's global Discovery Research in CNS. "The project's proposed model for interdisciplinary research and development cooperation is unique."

The Brain Power initiative is backed by some of Sweden's major research sponsors, including the KK-Foundation and the Foundation for Strategic Research. The market potential is mind-boggling. The total market for the care and treatment of brain-related diseases in the EU, US, and Japan is estimated at $400 billion annually, and the market for CNS drugs is about $48 billion.

Human Proteome Resource program

Mathias Uhlen of the Royal Institute of Technology (KTH), an internationally recognized expert in the field of genomics, is rapidly developing a reputation in postgenome methods. He works at the center of one of Sweden's most interesting large-scale research projects, the Human Proteome Resource initiative.

A crucial challenge in the postgenome era is to use genetic information to better understand protein distribution and function in both normal and pathological biological processes. To date, proteomic strategies have relied heavily on two-dimensional gel electrophoresis and tandem mass spectrometry to characterize individual proteins in health and disease. However, an attractive alternative would be the systematic generation of recombinant proteins representing all known expressed genes.

Uhlen and fellow researchers at KTH's Department of Biotechnology in Stockholm have therefore set out on a major journey - to map the human proteome of 14,000 genes in four years. The long-term objective of the program is to produce affinity reagents for all proteins encoded in the human genome and then to use these reagents to explore the structural and functional space of the human proteome. The availability of an annotated human genome sequence creates a range of new possibilities for biomedical research and permits a more systematic approach to proteomics. This project began in January 2003, backed by the Wallenberg Foundation, one of Sweden's major private sponsors of research.

The Human Proteome Resource initiative has a strong multidisciplinary and international dimension: researchers in Stockholm and Uppsala will work alongside bioinformatics groups at the European Bioinformatics Institute (Ensembl) and the Sanger Institute in Hinxton, England. The two major initial sites will be hosted within the Albanova University Center at KTH in Stockholm (for high-throughput cloning and protein expression, affinity purification, and quality assurance of antibodies) and the Rudbeck Laboratories at Uppsala University (for protein profiling).

"Our aim is to coordinate efforts with other international initiatives to translate genomics into biology and to map protein function with regards to protein size, structure, modification, interactions, expression patterns, and cellular localization," says Uhlen. He also notes that collaborations to extend the scientific value of the reagents are welcome and desired, and the initiative is also open for commercial collaborations.

Ultimately, a complete human proteome atlas will be produced, describing the distribution and expression of all human proteins in normal human tissues, as well as in common cancers and other diseased tissues. Deliverables will include approximately 700 high-resolution images for every protein. Other outputs include clones, protein fragments, primers, and affinity reagents. In line with Swedish research traditions, all data will be made publicly available.

For investment opportunities

USA:

Erik Enrot, Director, U.S. operations, Invest in Sweden Agency, One Dag Hammarskjold Plaza, 885 Second Ave., 45th floor, New York, NY 10017-2201, erik.enroth@usa.isa.se, Tel: 212.702.8780, Fax: 212.702.8783,

www.isa.se

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Sweden: Ylva Williams, Director of Life Sciences, Invest in Sweden Agency, P.O. Box 90, SE-101 21, Stockholm, Sweden, ylva.williams@isa.se, Tel. +46.8.402.7880, Fax. +46.8.402.7878.