Editor's Note: This is part one of a two-part series on biotechnology growth in Sweden. Part two will run in Thursday's issue.

LUND, Sweden - It doesn't take a Karolinska Institute scientist to figure out that biotechnology is one key to economic growth for a country like Sweden.

With 9 million people, it is roughly the size of Michigan, but in terms of research and development it's near the front of the world with its expertise.

Swedish officials and company CEOs told BioWorld Today that it's not a rich venture capital environment or an overwhelming amount of government funding that attracts companies to the area. But the country does have a 28 percent tax rate for businesses - the second lowest in Europe after Ireland. It offers strong science from universities in Lund, Gothenburg, Stockholm and Uppsala, as well as a law allowing university scientists to keep ownership of their own inventions. And it has an established practice of spinning out university research into commercial companies.

"For Sweden, and for Scandinavia, and even for Europe, we are pretty far along in this process," said Harriet Wallberg-Henriksson, the president of the Karolinska Institute in Stockholm, which has spun out about 50 life sciences companies. "Compared to the U.S., we are far behind. American universities have been doing this 10 years longer than we have."

But the country is catching up. So much so that it has surged ahead on other measures. The U.S. Council of Competitiveness shows that Sweden consistently has the highest number worldwide of scientific and technical articles in peer-reviewed publications per 100,000 population. Data show it was ahead of the U.S. in terms of annual growth rate of research and development expenditures from 1985 to 1998.

As part of an effort to build the biotech industry in Sweden, Ola Jakobsson, an investment manager at Position Sk ne, markets the Medicon Valley, which includes Copenhagen and Sweden's Southern province. There are about 120 biotech companies in the Copenhagen, Malmö and Lund areas. A 2002 study by Boston Consulting Group concluded that Medicon Valley is probably the world's best region for diabetes research. (See BioWorld Today, Nov. 18, 2002.)

While American companies often set up international operations in the UK or Ireland, Jakobsson tries to convince them to take a look at Sweden. "Ninety-five percent of Swedes speak English," he said, "and for Americans, I think, that's very important."

But most Swedish CEOs head companies that were spun out from pharmaceutical firms or university research, as opposed to those that located to Sweden for strategic benefits. At Ideon Science Park, the Biomedical Center of Lund University, CEO Svein Mathison heads BioInvent International AB, which was founded in late 1996 as part of a management buyout. The company inhabits one of the largest spaces at the park.

"What is nice about this campus is it's very tight with the university," Mathison said.

BioInvent started as a manufacturing facility, but now focuses on developing four preclinical antibodies for HIV, cancer, atherosclerosis and osteoarthritis. The company, which went public in Stockholm three years ago, expects to move its lead HIV product into a Phase I trial next year. BioInvent collected SEK66 million (US$8.75 million) in revenues in 2003 from its manufacturing services, which it considers secondary to its business. "The ambition is to license out the drugs to the pharmaceutical industry, probably after reaching proof of concept," Mathison said.

Another drug development company in the business park has a similar approach. Active Biotech AB, a company of 87 employees, was spun out in 1998 from Pharmacia, which now is a unit of New York-based Pfizer Inc. Active Biotech focuses on therapies that modulate the immune system. Its pipeline includes the Phase I products TTS and TASQ for cancer, and the preclinical stage 5757 for systemic lupus erythematosus. The company's lead product, SAIK-MS (laquinimod) for multiple sclerosis, was the subject of a $92 million commercialization agreement in June with Jerusalem-based Teva Pharmaceutical Industries Ltd.

Earlier this year, Active Biotech reduced its head count from 160, closing down its research operations to focus on drug development, said CEO Sven Andréasson.

"You will find the biotech companies here are not that well financed," he said. "In Sweden, [having to raise] money is considered a weakness. In America, it's considered an opportunity."

Carl Johan Sundberg, manager of the Karolinska Investment Fund, agreed that venture capital dollars in Sweden are not particularly plentiful. But his firm has invested $18 million in Swedish companies and is one of the country's major players along with Investor Growth Capital and HealthCap.

"Companies always want more money," he said. "Sometimes there has to be a reality check on cash-burn restraint."

Ola Forsström-Olsson knows all too well that simply having a good idea is not enough for investors. He formed Ludesi AB in Lund after designing software to address analysis problems of 2-D gel electrophoresis, which separates proteins from a cell culture or tissue.

The software has been shown to be 10 times faster and able to extract 70 percent more information from samples than anything else available. Beginning this month, Ludesi will offer the software for free to all academic users and temporarily to industrial users.

Ludesi's story is different from that of many technology companies in Sweden in that it was not spun out from a university. CEO Forsström-Olsson won entrepreneurship awards a few years ago before attaining the patents and starting his business. "Those were tough times for early investments in Sweden and all over the world," he said.

"We had two alternatives - to quit and die, or to change," he said. "So we changed." The company presented its technology to the Karolinska Institute, securing a contract with them first, and then was able to get its seed financing in 2003.

It was that change in strategy that allowed Ludesi to establish additional offices in Stockholm and Washington, D.C., where Forsström-Olsson hopes to form a relationship with the National Institutes of Health. He wants to expand the proteomics imaging technologies and to create a virtual cell on the computer.

Sundberg said working with limited funding forces Swedish companies to be innovative in order to stay competitive.

"Too much money doesn't make you smart," Sundberg said. "It makes you dumb. You have to be cautious, cost-conscious, and that is how you grow up."

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