BioWorld International Correspondent

Biotechnology industry associations across four Nordic countries - Norway, Sweden, Finland and Estonia - kicked off a two-year effort aimed at securing from their respective governments a package of fiscal incentives that would boost early and mid-stage biotechnology firms.

The initiative, which has received support from the European Commission and the pan-European lobby group EuropaBio, will have a lobbying campaign and a benchmarking study that will analyze the fiscal regimes across the four states.

The participants want to label in their home countries young, research-intensive companies as "Young Innovative Company" (YIC), which would confer on them an exemption of social charges, tax breaks on whatever profits they would eventually generate. There also would be investor relief on capital gains tax arising from share disposals.

The "Jeunes Enterprises Innovantes" (JEI) scheme introduced by France last year is the model. EuropaBio, based in Brussels, Belgium, is pushing for the adoption of a similar designation across Europe.

"Our ultimate goal is to develop a new YIC definition to complement the existing SME (small and medium-sized enterprise) definition," Laurens Theunis, director of the Emerging Enterprises Council within EuropaBio, told BioWorld International. The latter designation, which is based purely on company size, fails to take into consideration the specific needs of companies that have large research spending, he said.

In the short-term, exemption from social charges or labor taxes would offer early stage, loss-making firms the most immediate benefit. In France, those amount to an estimated 10,000 per employee annually, Theunis said. "If you have 10 employees, you can hire a new one," Theunis said.

The French JEI designation covers all of that country's 150 biotechnology firms and has become a competitive tool for attracting overseas investment. A number of large pharmas have, he said, located spinout firms in France because of the measure. Belgium plans to introduce a similar scheme in 2006. The plan already has secured political agreement, but the precise measures that will be included are still being finalized, Theunis said.

"The debate has started. The politicians are looking at other countries. They know what happened in France. They know what's happening in Belgium," said Per Vretblad, head of biotechnology at the Swedish Institute for Food and Biotechnology in Gothenburg, who is leading the project.

The Swedish government already is taking preliminary steps toward the introduction of tax breaks. It has allocated SEK200 million (US$24.6 million) in its 2006 budget for supporting tax incentives for companies in all sectors engaged in research and development, and it has indicated an ongoing commitment to the measure.

"It's a very small amount of money, but with this study we will challenge the government to allocate more to it," said Per-Erik Sandlund, who recently was appointed CEO of SwedenBio in Stockholm.

In Sweden, social charges can add 35 percent to 40 percent to a company's costs, regardless of its age or profitability. Thus, Sweden's long-established and highly profitable industrial giants pay the same as an early stage biotechnology company, he said.

Although the countries engaged in the study have strong trading and cultural links, their respective biotechnology industries and tax regimes diverge.

"The solutions in Norway will probably be different in Estonia, but the goal is to promote the development of an internationally competitive biotechnology industry in each country," said Thor Amlie, director of the Oslo-based Norwegian BioIndustry Association. "Every country must find their own solution."

Norway is not a member of the European Union (EU) but as a member of the European Economic Area, is entitled to participate in projects backed by the European Commission.

Estonia, which joined the EU in 2004, has a fledgling biotechnology sector, with about 30 firms.

"The main problem is that they are small and are not very well established," said Piret Kukk, of the Tallinn-based Estonian Biotechnology Association. A couple of firms have attracted international investment, she said. Adoption of a YIC regimes could help others.

EuropaBio, said Theunis, sees the EC's involvement as evidence that it is beginning to address the gap between the biotechnology industries in Europe and the U.S., but further measures are needed in other areas, including, for example, the continuing weakness of Europe's public markets. The ongoing lack of funding contributes to a downward spiral of low numbers of researchers, falling R&D budgets and weak development pipelines.

"That's something we have to break out of now," Theunis said.