Lack of funding prevents the emergence of more companies in the Novo Nordisk and Leo Pharma league

The development of new drugs takes time, involves high risks, and requires substantial capital, especially when it involves innovative treatment modalities and/or new biological targets.

Date: September 14, 2022

Author: Jonas Hink

Published: Børsen

Denmark is among the global leaders in life sciences, which is highly beneficial for Danish society and the Danish economy. According to the analysis by the Ministry of Industry, in 2018, there were a total of 32,733 employees in the pharmaceutical and biotech industry, generating personal and corporate tax payments of 16.4 billion DKK. In addition, there was a similar contribution from the medical industry, which is also part of the life sciences sector.

When focusing on exports, the pharmaceutical and biotech industry alone accounted for 101 billion DKK in 2018, increasing to 137 billion DKK in 2020. This corresponds to approximately 20 percent of Denmark’s total merchandise exports and 90 percent of the total exports from the life sciences industry.

However, we need to be attentive to the reasons for our position in the global elite and be clear about our future ambitions in life sciences, as well as what is required to achieve them.

Developing new drugs takes time, involves high risks, and requires substantial capital, especially when it involves innovative treatment modalities and/or new biological targets, which are essential for curing diseases with insufficient treatment options. Financing for this is particularly challenging during periods when investors seek to avoid high-risk ventures, and when going public is not a viable option.

The new Novo Nordisk

Novo Nordisk, Lundbeck, and Leo Pharma together had a turnover of over 150 billion DKK in 2020. It is therefore reasonable to assume that these three pharmaceutical companies account for a significant portion of the total exports in the pharmaceutical and biotech industry.

If our ambition is to create significant growth in employment, tax payments, and especially exports from the pharmaceutical and biotech industry, we need to focus on creating new companies on the same scale as Novo Nordisk, Lundbeck, and Leo Pharma. To achieve this vision, it is necessary to have a thriving ecosystem of biotech companies willing to explore and pursue new avenues for developing improved forms of therapy. However, this requires investments.

In September 2020, a set of recommendations was released by the Restart Team for Life Science and Biotech under the Forum for Restarting Danish Exports. The team identified five overarching areas that could promote exports in the short and long term and help make Denmark a beacon in life sciences. One of the recommendations included expanded R&D tax deductions and tax credit schemes, as well as a focus on funding for early-stage projects under the auspices of the Innovation Fund. Subsequently, a political agreement was reached on a life science strategy, where the parties agreed to allocate funds for various initiatives to strengthen efforts and conditions for Danish life science.

Despite these many positive initiatives and intentions, it remains challenging to see how better financing conditions for new and early-stage biotech companies are being created.

The paradox remains: there is a need for, but not enough financing opportunities to establish a sufficient number of new Danish biotech companies, so that a few of them eventually succeed in becoming mature Danish companies, of which even fewer become successful and significant exporters of Danish pharmaceuticals. How can we make it more attractive for all types of investors to inject capital into new and early-stage biotech companies, so that we can create a better foundation for the formation of companies that can deliver new solutions and treatments for the benefit of patients and society?

Making it attractive to invest

One relevant step could be to make it more tax-advantageous to invest in smaller biotech companies. Abolishing phantom taxes and introducing new investment incentives would be welcome measures. Additionally, opening up public innovation environments or funds – for instance, aimed at companies willing to pursue new and groundbreaking treatment solutions with a focus on healthcare resources – could be considered.

Moreover, the Minister for Business and Industry recently appointed the board of directors for the Denmark Export and Investment Fund. While the fund does not specifically target the life science industry, its target audience includes companies with the potential for export or internationalization. It is possible that new and smaller biotech companies in need of capital infusion may also benefit from this fund’s support.