Is – or can Denmark become – a leading life science nation?

If the pattern of the majority of life science funding in Denmark going to early stages continues, alternative financing options need to be established for more mature companies that require long-term investments to scale up and realize their potential in Denmark.

Date: January 12, 2024

Author: Jonas Hink

Published: Dagens Medicin

As ususal, the annual J.P. Morgan Healthcare Conference is being held in San Francisco – a global gathering where innovative health solutions are presented, and agreements and transactions are made between established industrial players, professional investors, and emerging start-ups.

But are Danish companies represented in proportion to our ambition to be among the leading life science nations? And what does it mean to be a leader?

According to the OECD, the USA tops the list as the nation with the most established biotech companies, while France holds the leading position in the EU. Looking at how much capital biotech companies in different countries used for R&D in 2021, two other countries stand out: Belgium and Switzerland.

High risk and high costs

In 2021, the latter countries each had approximately 400 R&D-active biotech companies, while Denmark had about half as many. In comparison, OECD figures showed that Belgian and Swiss biotech companies on average used about four times as much capital on R&D as Danish biotech companies.

Even though the numbers are not specific to life science, it is still interesting to see how much capital biotech companies in each country spend on R&D, especially considering the capital-intensive nature of developing new drugs.

It takes many years from idea and laboratory to a marketed drug – often 10 years or more. The path is associated with high risk and significant research and development costs.

Numerous international analyses have been conducted on the investments required to bring a drug to market. Depending on the therapeutic indication area, the type of drug, and the regulatory and clinical operational complexity, average estimates range from 1 to 35 billion Danish kroner, including costs associated with failed attempts in the calculation.

Is there enough capital?

Recently, the Life Science Council released its recommendations for the government’s upcoming life science strategy. The council envisions that Denmark should foster and develop the most viable life science start-ups for the benefit of human and planetary health, and that Denmark should be among the top 3 in Europe for production and investment in life science.

The council specifically recommends that Danish life science companies should have access to cohesive financing throughout the value chain. Since the majority of drug development costs lie in the later clinical trial phases, this is the part of the value chain where questions arise about whether new and upcoming Danish life science companies can access sufficient capital.

According to an analysis by Damvad Analytics, financing agreements for $558 million were made in Danish life science startups in 2021 in the form of pre-seed, seed, series A, and series B funding – investments typically coming from venture capital funds. This should be seen in the context that the amount the previous year was only $107 million, and 2021 was globally record-high, both in terms of the quantity and total value of life science transactions.

Furthermore, the majority of financing agreements in Denmark went to early-stage funding. Over a period, the investment share for later-stage development (series B funding) was only 9 percent of the total amount.

Public investment or start-ups as a strategy?

If this pattern continues, alternative financing options need to be established for more mature companies seeking long-term investments to scale up and realize their potential in Denmark.

It may be appropriate to consider supplementing with public investments for life science companies in later stages. Other European governments have allocated billion-dollar budgets dedicated to supporting the growth and industrialization of life science companies. For example, the UK government, through a Life Sciences Investment Programme, has committed to supporting later-stage life science venture funds with a UK focus, and the government is working to attract additional investments with similar purposes from both private and institutional investors. If something similar is to happen in Denmark, it would be relevant to look at how framework conditions and taxation can be improved from an investor’s perspective.

An alternative strategy is for Denmark to focus on becoming a leading life science nation by forming the most new start-ups and supporting them in the early stages, after which the successful ones can be acquired by established foreign companies.

While this strategy may overall benefit human and planetary health, it does not create new Danish export and growth adventures.