In order to gain access to U.S. stock exchanges, blue-chip investors or university research, or to have proximity to potential partners and the world's largest drug market, more foreign companies are setting up shop on American soil.

The numbers aren't tracked, and the trend may be cyclical, but it is an issue that is concerning Europeans and one that drives states to compete for top scientists. Money is a big factor, but it's more than just access to U.S. capital markets that is behind the movement.

"It's proximity to major research universities, to other companies, to innovators and people developing the technology," said Morrie Ruffin, executive vice president of business development at the Biotechnology Industry Organization in Washington. "It's the desire to be in the heart of the largest biotechnology cluster."

Last year, proteomics imaging company Ludesi AB, of Lund, Sweden, set up an office in Washington in an effort to form partnerships or access funding from the National Institutes of Health. And Stem Cell Sciences Ltd., of Edinburgh, Scotland, is seeking to establish an American office in order to license out its stem cell assays for use with drug discovery. Earlier this year, the company said seven states were competing for that facility.

States Offer Incentives To Foreign Biotech

Ruffin said there has been "intense competition among the states to court the biotech community." States not necessarily known for their biotech clusters, such as Maryland, Virginia and Florida - where the Scripps Research Institute is locating near West Palm Beach - are all vying for national and overseas companies.

"We're getting more traction now. When we announced the Scripps initiative, we got a lot of interest," said Diana Robinson, president and CEO of BioFlorida.

The state has 71 biotech companies and is actively seeking more. Scripps Florida has brought 120 worldwide scientists to the state in the last six months. Also attracting biotech entrepreneurs are The Mayo Clinic in Jacksonville, the H. Lee Moffitt Cancer Center in Tampa, as well as the University of Florida and the University of Miami.

"We offer tax incentives, and presently they're based on employee headcount," Robinson added. "And of course, our state is tax-friendly anyway. There's no personal income tax or state income tax."

But foreign companies still find themselves attracted to the more well-known biotech communities, such as the San Francisco Bay area, where Norwegian firm Affitech AS formed a U.S. subsidiary in 2001. Their reasoning: convenience in partnering discussions.

For others, like Melbourne, Australia-based Mesoblast Ltd., relocating provides access to the capital markets. The adult stem cell company announced this month an American depository receipt program to reach U.S. private investors and institutions. Concurrent with the company's initial public offering on the Australian stock exchange in December, Mesoblast took a 33.3 percent equity stake in adult stem cell company Angioblast Systems Inc., giving it a U.S. presence.

Late-Stage Firms Do Best In U.S. Market

Still, European biotech clusters such as the Medicon Valley area of Copenhagen, Denmark, and southern Sweden, remain desirable areas for early stage companies. Nordic Biotech, a venture capital firm that launches biotech companies in Europe then later adds a U.S. presence, finds Medicon Valley to be ideal for start-up biotech companies, but not for those with a late-stage products.

"At some stage, you need to capitalize, you need to partner," said Florian Schonharting, co-founder of Copenhagen-based Nordic Biotech. "And that's when you go to the No. 1 place."

Case in point: Copenhagen-based Osteologix A/S, which in December set up operations in San Francisco. The 2-year-old company started by Nordic Biotech has a lead osteoporosis product, NBS 101, scheduled to enter clinical trials this year. The product addresses both the reduction in bone formation and the increase in bone resorption and might have fewer gastrointestinal side effects than those products currently sharing the $5 billion U.S. market.

By setting up U.S. headquarters, foreign companies have time to learn and prepare for the various challenges of regulatory filings, investor relations and public disclosures.

"They want to understand all of the reimbursement hurdles that they have to overcome in order to get their products paid for," Ruffin said. "And that may be easier to overcome while in the U.S."

Schonharting often is asked why Nordic Biotech doesn't just start its companies in the U.S. He cites the expense of the San Diego, San Francisco and New York areas as a major factor in that decision, but also takes into account the "robust biotech industry" in the Medicon Valley region "that has always been very product driven," he said.

For that reason, some U.S. companies actually have moved their operations to Copenhagen. All of Redwood City, Calif.-based Maxygen Inc.'s development programs are conducted through its Danish unit. And Princeton, N.J.-based Medarex Inc. spun out Copenhagen-based Genmab A/S in 1999.

"Medicon Valley represents a good place to operate, to do drug development," Schonharting said. "But the U.S. dominates the world of pharmaceuticals in every aspect otherwise. It's the No. 1 market for drugs, No. 1 for pharmaceutical partners. It's the No. 1 market in terms of capital markets, and it's probably the No. 1 market in terms of experienced management - people who have done it over and over again."

EU Concerned Over Biotech Flight

According to Wills Hughes-Wilson, of the Brussels, Belgium-based trade association Emerging Biopharmaceutical Enterprises, Europeans are increasingly concerned about losing the life sciences to the U.S. Addressing the problem is one of the Lisbon agenda's main objectives.

"Back in 2000, the heads of government of the European Union member states pledged to try and put together an agenda to make Europe the most competitive knowledge economy by the year 2010," she told BioWorld Today. "Now obviously that requires a lot of different elements to support investment and research and development to counteract the brain drain and to counteract company relocations."

While Europe has good academic research, Hughes-Wilson asks, "Where's the long-term financing?"

The problem with Europe, she said, is that the capital markets are fragmented, and the European Union has 25 different countries with 25 different budgets and 25 different governments. Like Florida and other U.S. states, European countries try incentives to attract the biotech industry, but eventually, those companies will need to access a larger market - and that often means the U.S.

"You could have the most wonderful tax breaks and incentives and so forth," she said, "but if there would be no market for your product, those incentives would mean nothing."

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