COMMERCIAL ATTRACTIVENESS OF BIOMEDICAL R&D IN MEDICON VALLEY. The Role of R&D in Attracting Regional Investments. November 2002

Transcription

1 COMMERCIAL ATTRACTIVENESS OF BIOMEDICAL R&D IN MEDICON VALLEY The Role of R&D in Attracting Regional Investments November 22

2 COMMERCIAL ATTRACTIVENESS OF BIOMEDICAL R&D IN MEDICON VALLEY The Role of R&D in Attracting Regional Investments Prepared by THE BOSTON CONSULTING GROUP Amaliegade Copenhagen K November 22 The Boston Consulting Group

3 ii TABLE OF CONTENTS Page 1. INTRODUCTION Medicon Valley Is a Leading European Biotech Cluster Objectives of The Study Project Organization and Time Plan Project Approach and Methodology Structure of the Report 5 EXECUTIVE SUMMARY 8 2. ATTRACTING INVESTMENTS TO BIOTECH CLUSTERS The Global Health Care Industry Is Under Pressure to Change Biotechnological Advances Will Be Key in Meeting Pressures for Change Attractive Opportunities for Biotech Clusters Strong R&D Capabilities Are Key OVERALL R&D DYNAMICS IN MEDICON VALLEY Three Key Dimensions Of R&D Dynamics Strong Overall Research Performance in Medicon Valley Strong Presence of Fully Integrated Pharma Key to Medicon Valley s Success Medicon Valley Is Well Suited for Clinical Trials-Although Not A Clear Competitive Advantage 21 The Boston Consulting Group

4 iii 3.5 High Level of Collaboration Among Medicon Valley Institutions MEDICON VALLEY S R&D STRONGHOLDS Four Therapeutic Areas Stand Out as Most Attractive to Medicon Valley Five Disease Areas Largest in Terms of Relative Public Research Funding Four Areas Stand Out in Terms of Corporate Funding Six Disease Areas Stand Out as the Most Commercially Attractive Four Areas with Particularly Strong Research Performance Significant Presence of Most Major Technologies/Drug Development Platforms in Medicon Valley Within Four R&D Strongholds, Medicon Valley Is Generally Well Positioned Among International Peers COMMERCIAL OPPORTUNITIES IN R&D STRONGHOLDS Diabetes: Medicon Valley Is Probably the World s Leading Region in Diabetes The Diabetes Market Is Commercially Highly Attractive Medicon Valley Academic Research in Diabetes Is of High Quality and Uniquely Broad A World-Leading Diabetes Pharma Company Is Based in Medicon Valley International Position Medicon Valley Is The Strongest Region Globally in Diabetes R&D Key Selling Points and Target Investors For Diabetes Immunology and Inflammation: Medicon Valley Strong Within Basic Research and Arthritis Research, and with Significant Corporate Presence Inflammatory Diseases Remain an Unsolved Problem High-Quality Academic Research on Immunology and Inflammation in Medicon Valley AstraZeneca Is the Major Driver of Corporate Inflammation Research in Medicon Valley International Position Strong Arthritis Research and Corporate Presence Key Selling Points And Target Investors for Inflammatory And Immunology Research 46 The Boston Consulting Group

5 iv 5.3 Neuroscience: Medicon Valley Is a World Leader in Applied Neuroscience Neuroscience Diseases Comprise A Highly Attractive Market Academic Research in Neuroscience Is of High Quality but Narrowly Focused A Major CNS-Specialized Pharmaceutical Company Is Located in Medicon Valley International Position Medicon Valley Neuroscience Leads in Applied Tissue Repair and Strong Corporate Presence Key Selling Points and Target Investors for Neuroscience Cancer: Medicon Valley Is Among The Leading European Regions In Cancer Research However, Not Quite At Par with Leading U.S. Regions The Market for Cancer Drugs Is Highly Attractive Medicon Valley s Academic Cancer Research Is Focused on Basic Research Several Examples of Strong Corporate Cancer Research International Position Medicon Valley Is Among The Strongest Regions In Europe in Cancer R&D However, Not Quite At Par With Leading U.S. Regions Key Selling Points and Target Investors for Cancer KEY IMPROVEMENT AREAS FOR MEDICON VALLEY Ensure Adequate Public Research Budgets Strengthen Ability to Commercialize Results Increase the Attractiveness of Medicon Valley for Phase I Clinical Trials Integrate the Swedish and Danish Sides Better 64 The Boston Consulting Group

6 1 1. INTRODUCTION Over the past decade, a surge of breakthroughs in biomedical research has fueled considerable investment in new areas of biomedical research and development (R&D). New dynamic and innovative biotechnology-based companies are developing an increasing share of new drugs and diagnostic tools. It is widely believed that the biotech industry will continue to increase its role in the global health care industry and thus continue to attract considerable investments. Despite current uncertainties in the capital markets, biotech continues to be one of the largest venture capital segments. Investments in the area are expected to remain at high levels in the long term. Biotechnology investments tend to concentrate within geographic regions, which are often referred to as life science clusters or simply biotech clusters. Biotech therefore represents an opportunity for cities and other confined geographic regions to attract investments and in this way create economic growth and employment. Consequently, many cities and regions the world over now market themselves as biotech clusters, and several have succeeded in attracting sizeable portions of the soaring investments in the industry. Studies of leading biotech clusters have identified a limited number of key success factors. The single most important factor is proximity to leading and well-funded academic research institutions. In both of the world s oldest and largest biotech clusters the San Francisco Bay Area and Boston the leading biotech companies have emerged from prominent research laboratories. Furthermore, the dominant customer for the biotech companies is the pharmaceutical industry. Given this close association, pharmaceutical companies are also a key source of experienced management and staff for the biotech industry. 1.1 Medicon Valley Is a Leading European Biotech Cluster Medicon Valley the region consisting of Greater Copenhagen in Denmark and Skåne in southern Sweden is one of the more successful European biotech clusters. To date, more than 1 biomedical companies have established themselves in the region. Since 1998 alone, some 55 new companies have emerged. Although officially named Medicon Valley only since 1997, the region builds on several strengths that date back much further. Lund and Copenhagen Universities, along with institutions such as the Danish Pharmaceutical Academy and the Royal Veterinary Academy, share a strong heritage in biological and medical research and have produced several Nobel Prize winners. The region s hospitals have a long-standing tradition in clinical research, supported by some of the world s oldest and best-maintained patient registers, such as the Danish Cancer Register. On the corporate side, the nearly century - long presence of several research-intensive pharmaceutical companies mainly Novo Nordisk, AstraZeneca, LEO Pharma, and H. Lundbeck, all leaders in their respective fields- has fueled the region s abilities in applied research and fertilized a dynamic environment between academic and private biomedical research.

7 2 The companies that have settled in Medicon Valley represent a broad range of activities across all stages of drug discovery, production, medical technology, and devices, as well as a wide range of supporting technologies and services. Genmab, a joint venture between the USbased biopharmaceutical company Medarex and a group of Danish investors, is one example of a company that has successfully located in Medicon Valley. Genmab established its headquarters in Medicon Valley in May Another example is Biogen, one of the world s largest biotech companies, which in 21 chose Medicon Valley as location for its first European manufacturing site. This study examines the R&D capabilities both academic and corporate in Medicon Valley, finding that the area is uniquely positioned to attract industrial and financial investments in the biomedical area. The area offers both a broad portfolio of biotech companies as well as a very solid presence of major pharmaceutical companies, and leading academic research labs working in a number of commercially attractive areas. 1.2 Objectives of The Study In the spring of 22, Copenhagen Capacity and Region Skåne Inward Investment decided to undertake a study of R&D capabilities in Medicon Valley with the aim to identify commercially attractive R&D strongholds that could be developed into future positions of industrial strength and therefore attract foreign investment, capital, and talented people. The specific objectives of the study have been to: 1. Identify Medicon Valley s most attractive R&D strongholds Identify the most significant R&D strongholds in terms of relative size, commercial potential, and research performance. 2. Assess the identified R&D strongholds in depth Describe the breadth and depth of these areas, including major links to other research areas. Benchmark Medicon Valley against other leading regions within each research area. Assess the dynamics between the different institutions and companies of Medicon Valley and how this influences cluster attractiveness. 3. Outline commercial opportunities for Medicon Valley in each R&D stronghold For each of the R&D strongholds, outline commercial opportunities for Medicon Valley to explore further and the most relevant groups of investors to target. 4. Outline other key actions to strengthen Medicon Valley s position Summarize observations on areas where Medicon Valley needs significant improvement to strengthen its attractiveness to potential investors. This study provides a knowledge platform for Medicon Valley to utilize in its efforts to attract investors to the region. The clear majority of the team resources has been spent on defining and analyzing R&D positions and strongholds. The derived commercial opportunities are outlines that will require additional detailing to be applied in Medicon Valley s marketing.

8 3 1.3 Project Organization and Time Plan To perform the study, Copenhagen Capacity and Region Skåne Inward Investment engaged The Boston Consulting Group (BCG), a global strategy - consulting firm with significant activities in the health care industry. A team of BCG consultants performed the analyses and developed recommendations reported to a steering group consisting of Copenhagen Capacity and Region Skåne Inward Investment. Findings and recommendations were also discussed with a reference group consisting of leading academic and corporate researchers, executives, and investors in Medicon Valley, as shown in Figure 1. Figure 1: Project organization and structure Project organization Reference group members Steering group Name Bent Christensen Organization Medicon Valley Academy BCG advisory board Reference group Povl Krogsgaard-Larsen Anker Lundemose Royal Danish School of Pharmacy Bjørn Quistorff Copenhagen University Project management Jesper Zeuthen Tomas Leanderson BankInvest Active Biotech International benchmarking Academic R&D Corporate R&D Totte Malmström Ingvar Wiberg Bioglan Region Skåne Peter Nilsson-Ehle Lund University Copenhagen Capacity and Region Skåne Inward Investment funded the project jointly. However, the project also benefited from a grant from the European Union program Interreg IIIA, a grant from the multinational private equity investment company 3i, and a pro bono agreement with BCG, in which BCG financed the majority of the total project costs. The study was completed between June and September Project Approach and Methodology This study aims at identifying research areas that are attractive from a commercial viewpoint. For this reason, it focuses on identifying areas within Medicon Valley s biomedical R&D that are commercially attractive, significant in relative size, and competitive with other biotech clusters around the globe. The study does not attempt to rank all research areas in the region. Rather, the work has focused on identifying the most commercially attractive areas. Thus, small but highly regarded research groups have not received the attention in this study that their academic performance alone would merit in a different type of study.

9 4 As Figure 2 shows, the study has assessed two overall dimensions of R&D: 1. Research in a specific therapeutic area 2. Research using specific technologies and drug development platforms Figure 2: Disease areas and technologies assessed Therapeutic areas assessed along four dimensions Technology assessment with focus on drug development companies Academic research funding Performance of MV researchers Volume Quality Corporate R&D funding Commercial attractiveness Basic research tools Specific technologies in pharmaceutical value chain Cell and molecular biology Epidemiology Genetics Pharmacology Target ID Target Opti- Screening validatiomization Preclin. dev l Clinical dev l Number of companies/technology area Number of research employees/ technology area Prioritization of strongholds with academic strength and sustainable commercial attractiveness Describe industry profile for MV Technology strengths and gaps Future demand and opportunities The study reviewed more than 25 therapeutic areas, both in academic and commercial research. For the technology areas, the study focused on their commercial applications primarily in biotech and pharmaceutical companies in the region. In academia, a broad toolbox of technologies is generally critical for success, so focus was instead on the biological area in which the technologies were applied. Therefore, although a limited set of larger technology areas has been assessed in academia, most research groups are categorized by the disease or therapeutic area most relevant for their work. The approach to analyzing therapeutic areas was pragmatic and iterative, as illustrated in Figure 3. The first step was to screen research strengths through interviews with more than 5 key opinion leaders. These interviews spanned academic researchers within and outside Medicon Valley, corporate researchers and executives, investors, and leaders of major academic institutions. The identified areas were then assessed and ranked by priority on four critical dimensions: Public funding: The study measured funding in both absolute and relative size. The latter was determined by identifying major research areas in Medicon Valley that receive a larger relative share of total academic funding than received by similar areas from the National Institutes of Health in the United States, the world s largest public funder of biomedical research. Generally, areas that receive only a small amount of funding have not been given a high priority. Corporate funding: The study focused on therapeutic areas in which Medicon Valley companies are engaged significantly. Detailed company information was gathered from a comprehensive survey sent to 72 biotech companies in Medicon Valley as well as from interviews, company Web pages, and annual reports.

10 5 Commercial attractiveness: To be rated commercial attractive, disease areas must be ranked among the world s most important; either as large potential markets only moderately developed because of lack of therapies (e.g., cancer), or as large and already developed markets (e.g., cardiovascular). Research performance: Research areas that are significant in terms of relative public and private funding as well as commercial attractiveness were assessed in greater detail. The five highest performing research groups were identified per area, based on publication activity and impact. For the derived strongholds, the five groups were benchmarked against leading international peer groups. Figure 3: An iterative process using multiple sources Academic Corporate researchers Academic research groups (in-depth) Researchers Companies Researchers Companies Funders Foreign experts Identify Likely strongholds Confirm strongholds Identify bulk of leading researchers In depth Assessment Prioritization Analyze strongholds in broader MV context Intl. benchmarking Business case development Investors Biotech executives Academic funding statistics Corporate accounts, web sites Corporate survey Publications/ databases Market data Population and health statistics International university statistics Corporate accounts, web sites Publications databases Corporate survey Interviews Other sources Technologies and drug development platforms were assessed by mapping the number of companies and employees working with each of a broad range of key technologies along the drug development value chain. This step established whether any technologies in Medicon Valley stand out as particularly strong in terms of available expertise. Furthermore, this mapping indicated whether Medicon Valley can offer potential partnerships, resource pools or other advantages to newcomers with activities in a given technology. The main source for the company information was a comprehensive survey sent to 72 biotech companies in Medicon Valley. The results were supplemented with information from interviews, company Web sites, and annual reports. 1.5 Structure of the Report This report has six chapters, as illustrated in Figure 4. Chapter One is an introduction to the study and this report. Chapter Two sets the scene by identifying the factors that are key for the success of a biotech cluster. Chapter Three describes Medicon Valley s position along three overall dimensions of R&D dynamics: basic research, corporate R&D, and clinical R&D. Chapter Four identifies Medicon Valley s specific R&D strongholds, i.e. large and commercially attractive research areas in which Medicon Valley potentially holds a world

11 6 leading position. In Chapter Five, each of these strongholds is examined in more detail and commercial opportunities for Medicon Valley are outlined. Finally, Chapter Six summarizes key improvement areas for Medicon Valley that have been identified in this study. Figure 4: Structure of the report Chapter 1 Introduction Chapter 2 Attracting investments to biotech clusters Chapter 3 Overall R&D dynamics in Medicon Valley Chapter 4 Medicon Valley s R&D strongholds Chapter 5 Commercial opportunities in R&D strongholds Chapter 6 Key improvement areas for Medicon Valley TEXTBOX 1: INTRODUCTION TO MAIN PROJECT CONTRIBUTORS Since 1997 Copenhagen Capacity and Region Skåne Inward Investment have promoted Medicon Valley ( internationally in a joint effort to develop the life science cluster in the Øresund Region. Copenhagen Capacity Copenhagen Capacity ( is the official inward investment agency of the capital region of Denmark. Established as a business foundation in 1994, Copenhagen Capacity promotes the Greater Copenhagen region internationally as a location for knowledge intensive industries within IT and biotech and for Scandinavian/North European headquarters and service centers. Copenhagen Capacity provides a range of services as well as practical location assistance to investors. Region Skåne Inward Investment Region Skåne Inward Investment ( is a publicly funded organization, set up to promote Skåne, the southernmost part of Sweden, to potential corporate investors. Region Skåne offers services free of charge to companies and organizations that consider Skåne as a base for further activities and establishments. Professional consultants are available with assistance and qualified advice.

12 7 (cont) The Boston Consulting Group The Boston Consulting Group ( is a general management consulting firm, widely acknowledged as a global leader in business strategy development. The firm s 2,8 consultants in 54 offices around the world serve companies in all major industries on a broad range of issues of strategy and performance. BCG has nearly one-fifth of its total business in the health care sector, where 12 of the world s 15 largest pharmaceutical companies and three of the five largest biotech companies are among the firm s clients. BCG works for companies in all segments of the health care industry and invests heavily in internal research to assess the impact of major industry trends. A recent example is the BCG report A Revolution in R&D, which assesses the impact of genomics and genetics. In the Nordic region, BCG operates four offices, in Copenhagen, Helsinki, Oslo, and Stockholm, with a total of approximately 13 consultants. BCG s Nordic health care practice is one of the larger industry practices with clients across all major segments of the industry: pharmaceutical and biotech companies, public and private health care providers, research financing agencies, and health care investors. Each year, BCG donates a portion of its resources to support organizations working for the greater benefit of society. In the Nordic region, such pro bono projects have been conducted for hospitals, charitable foundations, and cultural institutions and have explored issues such as strategy development, fund-raising, and organizational development. BCG financed the majority of the costs associated with this study of R&D capabilities in Medicon Valley as a pro bono project.

13 8 EXECUTIVE SUMMARY Driven by scientific advances with the potential to significantly improve global health care provision, biotechnology will continue to expand its role in the global health care value chain. Despite current turmoil and uncertainties in the capital markets, biotechnology investments will continue to increase in the long term. As these investments tend to cluster in regions with strong academic institutions, this represents a great opportunity for regional development. Consequently, many regions worldwide claim to be biotech clusters, and competition among regions for attracting investments is intensifying. At the core of any successful biotech cluster are strong capabilities in medical research and development (R&D). The size of a region s academic research budgets is a direct driver of private R&D spend in the region. However, size alone is not the only important dimension of R&D. The dynamics among a region s different institutions mainly universities, hospitals, and research-intensive companies are the glue that makes the cluster work. Even if Medicon Valley is among the largest biotech clusters in Europe, it is still smaller than the world s oldest clusters in Boston and the San Francisco Bay Area in the United States. As competition among clusters intensify, it becomes increasingly essential to define the region s particular areas of attractiveness. Measured on R&D strength, Medicon Valley is among the strongest regions in Europe and within several major medical fields among the strongest in the World. The region displays strengths along the three fundamental drivers of R&D strength for a biotech cluster: Strong basic academic research, a long tradition for clinical research, and not least a mature corporate structure including four fully integrated pharmaceutical companies. Within four large and commercially attractive disease areas, Medicon Valley has particular strength: In diabetes research, Medicon Valley is likely the strongest region in the world. Significant breadth of academic research with several world class research groups spanning widely from basic to clinical research, combined with the presence of Novo Nordisk, one of the world s two major diabetes care companies, makes the region truly unique. The wide span is attractive beyond diabetes, as synergies exist to major areas such as cardiovascular research. In inflammatory research, Medicon Valley is also very strongly positioned. Several world class academic research groups, ranging from basic immunology to rheumatoid arthritis applied inflammation research, combined with AstraZeneca s respiratory research center makes the region one of the world s leading in this area In neuroscience, Medicon Valley has a strong academic position, although more narrow in its scope than the world s leading academic centers in the United States. However, in combination with the presence of H. Lundbeck, a world leading pharmaceutical company in antidepressives, Medicon Valley is one of the most attractive regions in the world for neuroscience R&D overall.

14 9 In cancer, Medicon Valley s strong academic performance is mainly driven by excellence in very basic research areas and thus the scope is relatively narrow. With the presence of several companies active in cancer research, Medicon Valley is clearly among the strongest regions in Europe, although not quite at par with the best regions in the United States. In sum, Medicon Valley boasts very strong positions in four of the largest disease areas and the region is at the forefront globally in at least three of these diseases. Overall, the region has a strong basic and clinical research in many areas, and a mature and attractive corporate structure with strong technology platforms, especially in the increasingly important late-stage technologies. While having many strengths, as outlined above, this study has also identified some key areas where Medicon Valley needs to improve. Based on our observations, four specific recommendations emerge: Ensure adequate public research funding Strengthen ability to commercialize academic research results Increase attractiveness of Medicon Valley for Phase I clinical trials Integrate Swedish and Danish sides of Medicon Valley better

15 1 2. ATTRACTING INVESTMENTS TO BIOTECH CLUSTERS The global health care industry is under pressure to change, driven by increasing costs and enabled by scientific advances that will allow higher efficiency in diagnosing and treating patients. Biotechnology is at the core of these advances. Despite the current turmoil in the sector, biotech will continue to expand its role in the health care value chain. In recent years, investments into commercial applications of biotechnology have soared. Since biotech investments tend to cluster around strong academic research communities, this represents great opportunities for regional development. Strong R&D capabilities are critical in attracting private investments. Different investors emphasize different dimensions of R&D strength. Therefore, a deeper understanding of Medicon Valley s R&D capabilities is warranted. 2.1 The Global Health Care Industry Is Under Pressure to Change Health care is the world s largest industry, comprising 7 percent to 14 percent of the GDP in the larger Western countries. After a number of years of growth during which the industry has claimed an increasing share of the national wealth the sector s growth rate has been equal to GDP growth since the 198s and 199s. Many of the industries supplying the health care system with products, such as the pharmaceutical industry and medical technology industries, enjoy significantly higher growth rates in excess of 1 percent annually. While the new tools and therapies have had enormous impact on how care is delivered, however, they have not fundamentally reduced the staffing of our health care institutions; in fact, the number of physicians per capita has increased by approximately two percent annually. This gap between the growth of the health care system and some industries supplying it is at the core of why the health care industry is facing increasing cost constraints and why many players are struggling. Such times of change, however, afford opportunities for the well prepared. 2.2 Biotechnological Advances Will Be Key in Meeting Pressures for Change A surge of breakthroughs in biomedical research has fueled considerable investment into new areas of biomedical R&D over the past decade. The mapping of the human genome has generated a wealth of new information, causing opportunities to emerge for developing new therapies and diagnostic tools that span all major disease areas. New drugs that are more efficient and have fewer side effects are being developed, and drugs are increasingly tailored to patients individual characteristics. This, in turn, requires significant advances in the ability to diagnose diseases earlier and more effectively, and considerable research effort is focusing on this area. Combining improved methods for diagnostics and therapies with much more detailed patient information will allow more effective health care.

16 11 The larger fully integrated pharmaceutical companies are increasingly struggling to develop and launch new drugs. In fact, in recent years the number of new and successful drugs from these players has declined remarkably, as shown in Figure 5. The pharmaceutical industry is under considerable pressure from investors to develop new and improved drugs to sustain the growth rates implied in their market valuations. Figure 5: Pharma not meeting challenge of developing new drugs Pharma developing fewer new drugs Number of FDA (1) approvals of new chemical entities 6 Number of NME (2) withdrawals/year 4 and increasingly new drugs are pulled back from the market Gap in R&D pipeline widening even further (1) BCG team estimate, based on Jan-June approval rates in 98 of 38% of total NDA approvals and 42% of total NME approvals (2) FDA withdrawal decisions based on safety reasons Source: FDA CDER 2; HSBC; BCG analysis By supplying new drug candidates to fill drying pharma pipelines, new dynamic and innovative biotechnology-based companies are playing an increasingly important role in ensuring continued growth for the pharmaceutical industry. After the first wave of biotech drugs in the 198s, the biotech industry settled into a niche of a stable but low share of newly approved drugs until the early to mid-199s. Since then, the role of the biotech industry has expanded rapidly, as shown in Figure 6. Given the strong interdependency of biotech and more traditional integrated pharmaceutical companies, regions with a strong position in both are likely to have a competitive advantage in the future.

17 12 Figure 6: Biotech strengthening its role in pharma innovation FDA approval of biotech drugs has increased significantly # FDA approved biotech drugs 4 Academia and Biotech with growing share of patents (2) # patents 6, and increasingly filling pharma pipelines # Pharma/Biotech deals , 4, 3, 2, 1, Academic institutions Biotech Top 25 Rx firms (1) '86 '87 '88 '89 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 1 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 1 '93 '94 '95 '96 '97 '98 '99 ' '1 (1) Estimated from January July 1999 (2) Human gene and genomics patents. May include some genomic technique patents Note: Academic institutions include universities, hospitals, and research institutes. Biotech includes known biotech companies. Other patent assignees were not included in this analysis Source: Derwent Biotechnology Patent Database; Science; Sveriges Tekniska Attachéer tillväxt inom bioteknikindustri i USA; Warburg Dillon Read; Recap.com; Company web sites; BCG analysis and database Scientists agree that we have seen only the beginning of the biomedical revolution, and in all likelihood the commercial applications of this rapidly expanding science will fundamentally change not only health care, but also many other aspects of people s lives. 2.3 Attractive Opportunities for Biotech Clusters Strong R&D Capabilities Are Key Academic centers have produced major biotechnology research findings that they, in turn, have commercialized by establishing companies that conduct applied research under license from the academic patent holders. This approach is still very much the foundation of the biotech industry. For example, some of the world s oldest and largest biotech companies, e.g. Genentech and Amgen, hold university patents at the core of their businesses. The level of funding for academic research is in fact the most important determinant of commercial clout in the biomedical field, as Figure 7 shows.

18 13 Figure 7: Public R&D spend drives private R&D investments Only well funded universities offer access to large number of successful ideas and well funded academia is a source of employees as well Number of licenses (1999) Licensing activity of US universities (1) Research expenditures of the University (1999) 5 MUSD Licensing revenue 1999 Correlation of public funding of biomedicine and number of R&D personnel employed by the pharma industry Pharma 1 R&D R 2 =,94 personnel USA (number) 1 DK FIN S NL I F GB D Public funding of biomedical research (BEUR) (1) Universities grouped into deciles according to size Sources: BCG analysis, ABPI, LIF, SNIP, VFA, PhRMA, NeFarma, Farmindustria, JPMA, Eurostat, BMBF, Statistisches Bundesamt, MPG, HGF, WGL, FhG, NSF, NIH, AIRI, Eurostat, Federal Reserve Board, EFPIA AUTM licensing survey However, R&D investments are not the only driver of a biotech cluster s strength. A combination of five key factors is believed to determine cluster success: 1. R&D quality and scope 2. Work force availability of people with appropriate skills and capabilities 3. Infrastructure access to space and strong networks including professional services 4. Commercialization ability to utilize research results commercially 5. Capital access to intelligent risk capital Factors 2 5 are to some extent environmental factors, which have been given a fair amount of attention in the public debate about regional strengthening. However, the single most important determinant of commercial investments in a biotech region is the quality and scope of the R&D, and thus understanding the region s strength and international attractiveness in this area is critical for attracting foreign investors. R&D capabilities are relevant for attracting both industrial and financial investors. Figure 8 provides a few examples of the factors investors will generally look for in Medicon Valley. Industrial investors seek to be present in regions with broad capabilities but also in areas with specific expertise in their areas of interest for instance, diabetes or manufacturing. Although pharmaceutical as well as biotech R&D has not been very mobile to date, we are seeing an increasing number of companies either transferring significant R&D operations (as Novartis has done to Boston) or establishing satellites in attractive areas (as several major U.S. biotech companies have done in, for example, Cambridge, England). Financial investors will seek investments both at the earliest stage and in later stages as, for example, spin-offs from mature companies.

19 14 Figure 8: Different investor types emphasize different elements of R&D Investor type Big pharma Main investment opportunities R&D European HQ R&D satellite office within special focus on MV TA stronghold Production facility Key attractiveness of MV to investors Globally limited mobility and strong U.S. focus Medium/high located near expertise for specific areas Very high level of staff skills Biotech firms R&D satellite office within special MV TA stronghold Production facility Expertise, biotech R&D concentrated to the U.S. Very high level of staff skills VC firms Start-ups Buy-outs and spin-offs Entrepreneurial spirit, strong academic research Mature company profile Attractiveness High Low Source: BCG analysis In sum, different investors will emphasize different dimensions of R&D. While breadth of capabilities is important to most investors, some will seek evidence of world-class research in more narrowly defined areas. Therefore, in exploring R&D capabilities in Medicon Valley, two questions must be addressed: What is the breadth of Medicon Valley s R&D, and in which areas does the region hold world-class positions?

20 15 3. OVERALL R&D DYNAMICS IN MEDICON VALLEY The strength of a region s biomedical R&D is driven primarily by three factors and their mutual interaction: basic research, clinical R&D, and corporate R&D. Medicon Valley has a uniquely balanced portfolio with strengths along all three dimensions: overall, the region s academic research is among the leading in Europe yet the best U.S. regions are more mature and still well ahead. Medicon Valley also has a strong clinical tradition, although this in isolation is not a clear differentiating factor. On the corporate side, the region is very strong and among the most well-developed clusters in the world. 3.1 Three Key Dimensions Of R&D Dynamics World-class academic research is at the core of any successful biotech cluster, and as discussed in Chapter Two, the level of academic research is in fact the most important determinant of commercial R&D activity in a region. However, size and quality of basic academic research is only one of three key drivers of a region s commercial attractiveness when it comes to R&D. This is illustrated in Figure 9 below, where: 1. Basic Research is the quality, impact, and scope of academic research in the region. 2. Corporate R&D is the region s ability to successfully commercialize academic research as well as the composition of the region s corporate resources, e.g., mature pharmaceutical companies vs. different kinds of biotech companies. 3. Clinical R&D is the resources available for conducting clinical trials. This is an important measure of the region s capabilities in applied medical research. Figure 9: Key R&D dynamics of a biotech cluster Basic research Strong academic research overall and in many areas Clinical R&D Strong tradition and resources for clinical trials Corporate R&D Commercialization ability and mix of large pharma and biotech firms

21 16 Beyond the scope and performance of the R&D at academic institutions, companies, and hospitals, the interaction between these institutions or the cluster dynamics is critical, since it is essentially the glue that binds the cluster together. While this study does not specifically address many of the better-known enabling factors (such as capital, workforce, support services, etc.), it assesses a set of dynamics that are closely related to R&D capabilities. Before we define Medicon Valley s strongholds in Chapter Four, therefore, this chapter will assess the three drivers of overall R&D strength, including the dynamics between them. 3.2 Strong Overall Research Performance in Medicon Valley In overall research performance, Medicon Valley is well-positioned among European biotech clusters. Figure 1 shows the combined number of publications and the combined impact (average number of citations per paper) for the entire Medicon Valley region, comparing these figures to those of other strong biotech regions in the world. As the figure illustrates, Medicon Valley is among the most productive European regions, and the research published has higher average impact than that of all European clusters, except East of England (Cambridge, UK), which is widely acknowledged as Europe s oldest, largest and strongest biotech cluster. In sum, Medicon Valley s academic research can claim to be the overall strongest in Continental Europe as well as nearly equal in importance to that of Cambridge. However, Boston and the San Francisco Bay Area clearly outperform all European clusters on these dimensions. Figure 1: Strong overall academic research performance in Medicon Valley MV among top performers on volume of biomedical publications per capita as well as on research impact No. of publications per 1, capita, Uppsala, Stockholm Medicon Valley Munich East of England (1), UK Bay Area (U.S.) Paris Boston No. 18 citations per 14 medical paper 12 published Bay Area (U.S.) East of England (1), UK Medicon Valley Uppsala, Paris Stockholm Munich Boston 1 2 1, 2, 3, 4, No. publications , 1, 15, 2, No. citations 97 1 (1) Region surrounding Cambridge Source: DTU; Medline; BCG analysis and estimate As stated earlier, Medicon Valley s academic institutions have a strong legacy in biomedical research, which also underlies the region s strong performance today. Since the field of biomedical research is constantly widening and competition increases from other regions, several initiatives are currently being taken to strengthen academic facilities even further. Some of the more prominent examples are discussed in more detail in Textbox 2.

22 17 TEXTBOX 2: EXAMPLES OF RECENT INITIATIVES TO FOCUS RESOURCES A series of initiatives have been taken recently to strengthen the region s biomedical research through the establishment of research centers and units that assemble the region s best resources in a set of highly relevant fields. Examples of these initiatives are: Copenhagen BioCenter in Copenhagen, Denmark A portion of the University Park in Copenhagen forms the construction site for a new research facility, the Copenhagen BioCenter. This entity will be based on cooperation between university groups, research and clinical hospital units, and industry. In addition, a privately financed and operated biotech science park will be established as part of the BioCenter. The vision is to create a strong cross-disciplinary environment that will encourage rapid development of new ideas from basic research discoveries to commercialization. The first phase will constitute a 27, sqm. building with a budget of US$64 million. It will contain state-of-the-art laboratories, animal facilities, and shared facilities such as a lecture hall and conference rooms. The construction of the BioCenter will be completed by 24. Biotech Research & Innovation Center (BRIC) in Copenhagen, Denmark BRIC is established on the initiative of the Danish Minister of Research with the three-fold objectives of creating a Danish front-line, inter-disciplinary biotechnological research unit, establishing research collaborations between public research institutions and the industry, and promoting the exchange of ideas within the Danish biotech research community. The focus of BRIC will initially be on the areas of bioinformatics, gene expression and gene regulation, transgenic technology, and functional analysis. BRIC will be located in the future Copenhagen BioCenter. Center for Stem Cell Biology and Cell Therapy in Lund, Sweden At the BioMedical Center (BMC) in Lund, plans are under way to establish a multidisciplinary Center for Stem Cell Biology and Cell Therapy. In addition to BMC s existing efforts, the center will include new areas such as embryonic stem cells, functional stem cell genomics, and non-mammalian stem cell biology. The new center will be funded by approx. US$12 million during the first six-year period, and it will engage 1 15 researchers, including several foreign researchers. Several international recruits have been contacted to strengthen staffing quality and to ensure a broad scientific base for the research. The researchers will concentrate exclusively on projects relating to stem cells, whether precursors to neural or hematopoetic cell lineages. In addition to this basic work, plans exist to incorporate the world-renowned clinical group of Professor Olle Lindvall, which will use neural cells that arise from differentiated stem cells or the stem cells themselves. Following a peer review, this center was ranked first by more than 1 applicants to the Swedish Foundation for Strategic Research, who were applying for the center s initiative to fund six national strategic research centers within the life sciences. Center for diabetes and Stem Cell Research in Lund, Sweden Lund and Malmö University Hospitals are about to establish a multidisciplinary center for diabetes research and stem cell research The goal of the center is to integrate the strongest diabetes research in southern Sweden. The center intends to work on genetics, cell biology, and pathophysiology of islets of Langerhans; to train researchers in diabetes, particularly physician scientists; and to foster the development of young researchers. Assembling this group in contiguous space, developing a center concept, and pooling resourses will markedly enhance research on the complex pathogenesis of this important series of human diseases. To strengthen the center, three new professors have been appointed.

23 18 (cont) SweGene-Proteomics Center In Lund, Sweden SweGene is a consortium within the field of Functional Genomics, established by the Chalmers University of Technology, Göteborg University and Lund University/Lund Institute of Technology. The purpose of SweGene is to create common technology platforms and research centers in southwestern Sweden. SweGene is funded by a 5-year grant of US$3 million from the Wallenberg Foundation as well as by the participating universities. The consortium s proteomics center in Lund, which is estimated to employ 1 15 researchers, acts as a Swedish resource for proteomics knowledge and research. 3.3 Strong Presence of Fully Integrated Pharma Key to Medicon Valley s Success Medicon Valley has seen very strong growth in the number of new biotech companies with 55 companies starting up since To date, more than 1 biomedical companies are present in the region making Medicon Valley one of the largest European biotech clusters. However, it is not Medicon Valley s size that sets it apart from other European clusters, but rather its relative maturity. For example, even if Munich has a slightly higher number of biotech companies, Medicon Valley has a higher number of research employees and significantly more academic funding. Furthermore, as shown in Figure 11, Medicon Valley s companies have a more mature R&D pipeline than, for example, Munich s companies, since Munich s are more early-stage and technology-oriented companies and Medicon Valley s are more product-focused companies. Figure 11: Medicon Valley s product pipeline more mature than that of Munich Index 1 Products in clinical development Phase III 23 Phase II Phase I Medicon Valley Munich Source: BioM; BCG database, analysis, and estimate One of Medicon Valley s greatest strengths is the presence of four fully integrated pharmaceutical companies. These four companies also largely drive Medicon Valley s mature corporate profile, as Figure 12 shows. Novo Nordisk, AstraZeneca, H. Lundbeck, and LEO Pharma all hold leading market positions and have a very strong presence locally. With some

24 19 4, research employees in Medicon Valley and annual investments in R&D of approximately US$1 billion between them, the four companies drive research in the region very significantly. Figure 12: Large pharma drives mature corporate presence Number of research employees Total: 5,118 2, 1,8 1,6 1,4 1,2 1, Target ID Target validation Optimization Screening Pre-clin. dev t Clinical dev t Large pharma (1) Other (1) AstraZeneca, Novo Nordisk, Lundbeck, LEO Pharma, Ferring, and ALK-Abelló Note: 36 companies with drug discovery and/or drug development included. Survey data used for 26 companies responding to survey. Employees of SMEs distributed according to activity areas mentioned in annual reports, web sites. Distribution of employees for large pharma estimated at level with int l peer group (8%, 8%, 15%, 15%, 22%, 32%) Source: BCG survey; Annual accounts; Company web sites; BCG database, analysis, and estimate The large pharmaceutical companies contribute to Medicon Valley s development in four significant ways, as they: Provide biotech companies with a large source of highly educated staff at all levels, both in terms of researchers and technicians as well as experienced executives that are often assigned as directors of biotech companies. The corporate survey revealed that a very high percentage of all biotech employees in Medicon Valley (42% of total) have been recruited from large pharmaceutical companies. Interviews with biotech leaders confirm that this resource pool is significant, and that it supplies highly qualified staff at all levels. Furthermore, former employees of the large pharmaceutical companies have founded many of the region s biotech firms. Invest in biotech companies. E.g., Novo Nordisk has invested in many of the region s biotech firms through its parent company Novo A/S. Also a few Medicon Valley biotech companies are direct spin-offs from pharma. This spin-off activity is expected to increase, with companies such as LEO Pharma only recently establishing incubator functions. Raise the level of research conducted in the cluster, both directly through collaboration in academic research projects, and indirectly through grants and commercialization of academic research results. For example, Novo Nordisk works in conjunction with University of Copenhagen to train 3 PhDs. Furthermore, the Novo Foundation is a significant contributor to academic research groups both in the region as well as outside. Invest significant sums in clinical development, raising the overall clinical activity of the cluster as well as providing the smaller biotech companies with a channel for

25 2 developing their products. For example, Novo Nordisk contributes US$5 6 million annually to the Steno Diabetes Center. The strong presence of large pharmaceutical companies is likely to be the single most important factor behind Medicon Valley s success and is quite unique in a worldwide comparison. The only other biotech cluster with a comparably strong presence of large pharma companies is Boston, where Novartis, Pfizer, AstraZeneca, Abbott, Wyeth, and Merck all have significant research activities. Novartis (with its recent decision to move its research headquarters from Basel) is the first one to locate its global research headquarters here. Compared with the other major U.S. biotech clusters in San Francisco Bay Area, San Diego, and North Carolina, Medicon Valley has unique strength in this respect. In Europe, few large pharmaceutical companies are located in biotech clusters, and few of these companies have fully integrated value chains in place locally. Another way synergies between business and academia are visible is through direct application of academic research results in Medicon Valley companies. There are several examples of such applications, as shown in Textbox 3. However, Medicon Valley has relatively little patenting activity 1 and few resources to actively drive commercialization. A comparison with universities, particularly in United Kingdom and the United States, but also for example with the Karolinska Institutet in Stockholm, leaves Medicon Valley with considerable improvement potential. This is particularly apparent on the Danish side. For this reason, recent actions have been taken to establish a dedicated technology transfer office at the University of Copenhagen. Even with this initiative in place, however, resources will still be well below best practice. TEXTBOX 3: EXAMPLES OF THE APPLICATION OF ACADEMIC RESEARCH IN MEDICON VALLEY COMPANIES Pharmexa Dr. Søren Mouritsen (current CEO, CSO) and Dr. Henrik Elsner founded Pharmexa in October 199. The company is based on basic immunology research performed by Dr. Mouritsen at the University of Copenhagen. Pantheco Pantheco holds an exclusive worldwide license to develop, manufacture, and sell human pharmaceuticals based on Peptide Nuclide Acid and a discovery by Professor Peter E. Nielsen and others at the University of Copenhagen. 7TM Pharma Professor Thue W. Schwartz and Dr. Christian E. Elling founded 7TM Pharma as a spin-off from the University of Copenhagen. 7TM's focus is discovering and developing drugs that target a variety of 7TM receptors (seven transmembrane segment receptors). The company has managed to raise US$21 million in capital during its first year of existence. 1 Based on benchmarking of patenting activity vs. international peer regions within Medicon Valley s four major R&D strongholds.

26 21 (Cont) Novo Nordisk Novo Nordisk currently has a GLP (Glucon Like Peptide) analogue in Phase II studies based on research performed by the group associated with Professor J.J. Holst at the University of Copenhagen. H. Lundbeck H. Lundbeck is currently conducting Phase III trials for a GABA (Gamma Amino Butyric Acid) analogue based on a patent by Professor Povl Krogsgaard-Larsen from the Royal Danish School of Pharmacy. The product is being explored for use as a combined analgesic and sleeping disorder drug. 3.4 Medicon Valley Is Well Suited for Clinical Trials - Although Not A Clear Competitive Advantage As discussed previously, an increasing share of biotech companies is focusing on drug development. In most cases, the drug candidates will be sold off to or developed and marketed in collaboration with pharmaceutical companies. To minimize the risk, most pharmaceutical companies will want the candidates to have cleared Phases I and II clinical trials before signing on. This means that biotech companies in most cases will have to take their candidates through these trials themselves. Since the Scandinavian countries have a strong tradition of clinical research, they can therefore claim to be well equipped to support biotech companies in this way. Given this, specific analysis of Medicon Valley s strengths in clinical trials was performed. When biotech and pharmaceutical companies decide where to conduct their clinical trials, seven criteria are considered to be of particular importance 2 : Quality (researcher expertise to facilitate trial design, for instance, epidemiology, access to registers, and follow-up possibilities) Speed of execution (processes and registration, e.g., MPA, facilities available) Costs (physicians, facilities) Patient groups (sample size, homogeneity) Key opinion leaders (researcher reputation) Track record (historical performance) Market potential (market size, international regulations) 2 Criteria based on interviews with pharmaceutical executives and researchers.

27 22 The relative importance of these seven criteria varies with phase of the trial. For Phase I, speed is the most important criterion, while for Phase II, quality in terms of research expertise is most critical. For Phase III, where a large trial patient group is necessary, the cost of the trial, the size of the market, and an ability to find untreated patients become more important. All these factors are contributing to a shift in the share of clinical trials from the smaller and relatively expensive Nordic markets to emerging markets such as Eastern Europe and Latin America. Medicon Valley s greatest advantage in clinical trials is its high scientific quality and the credibility of key opinion leaders. Relatively disadvantageous however, is the perceived speed of Medicon Valley. In particular, the ethics committees in Denmark have been criticized for its slow approvals 3. Medicon Valley appears best positioned to carry out Phase II trials, where quality in terms of research expertise is most appreciated. Figure 13 illustrates how Medicon Valley rates overall, compared with competing clusters, in Phases I, II, and III in terms of the seven success criteria and their relative importance in the three phases. Figure 13: Medicon Valley well suited for Phase II trials, however not a clear competitive advantage Phase I Phase II Phase III Medicon Valley Boston/San Diego/Bay area Stockholm/Uppsala Eastern Europe UK Weakness in Phase I trials important to address Source: Pharmaprojects, Statistisches Bundesamt 2; interviews; PhRMA annual survey 2; Prudential Securities; Press and media; BCG estimate and analysis 3.5 High Level of Collaboration Among Medicon Valley Institutions Medicon Valley functions well as a cluster, measured on the fundamental ability of different institutions to interact and collaborate. Generally close ties exist between basic research (academia) and applied research (companies). The corporate survey performed in this study shows that Medicon Valley s discovery 4 companies have formed a very high share of their partnerships within Medicon Valley, and that a very high share of those partnerships exist within basic research. This is illustrated in Figure 14. Interviews broadly confirm that both 3 This is expected to become less of a restriction for Medicon Valley as the European Union rules are to be harmonized by May Companies with drug discovery and/or drug development activities.

28 23 biotech firms and the local pharmaceutical industry have strong ties to the region s academic medical centers, as well as to leading researchers outside Medicon Valley. Figure 14: Strong ties between corporate and academia in Medicon Valley Most partnerships are intra-mv Number of corporate partnerships (Per company) Corporate partnerships Academic partnerships Strong basic research collaboration within MV Number of corporate partnerships (Per company) Unspecified Drug licensing Clinical research Basic research MV North America Rest of EU United Kingdom Other Sweden Other Denmark Asia Other MV North America Rest of EU United Kingdom Other Sweden Other Denmark Asia Other Note: Source: Data for 29 survey respondents. Excluding large pharma BCG survey

29 24 4. MEDICON VALLEY S R&D STRONGHOLDS Medicon Valley is a well-functioning biotech cluster with strong research overall. But which research areas drive strength in particular, and in which areas is the region truly world class? World leadership that will attract investors requires not only high productivity and high impact of the region s researchers. Considerable breadth several, rather than few research groups and large rather than small budgets is required, and so is high commercial attractiveness of an area. Finally, a strong corporate side is an important element. This chapter reviews some 25 research areas on these dimensions, deriving four major areas where Medicon Valley is potentially world class. Benchmarking of these four areas against the leading regions of the world mostly confirms their strength. Finally, it is shown that most technologies and drug development platforms are well represented in Medicon Valley, not least the increasingly important late stage technologies. 4.1 Four Therapeutic Areas Stand Out as Most Attractive to Medicon Valley The results of the analysis of Medicon Valley s research within specific disease areas are summarized in Figure 15. As the figure shows, a range 5 of research areas has been evaluated with respect to academic funding, corporate funding, commercial attractiveness, and performance of Medicon Valley researchers. When combining these four criteria, four research areas emerge as the strongest: neuroscience, diabetes, cancer, and inflammation. Figure 15: Four disease areas stand out as most attractive in Medicon Valley TA/research area Academic research funding (MUSD) (2) Corporate R&D funding (MUSD) (2) Commercial attractiveness (3) Performance of MV researchers Relative importance for Medicon Valley Neuroscience Diabetes Cancer Inflammation (1) (5) Cardiovascular 9 4 Disease focused Hematology Respiratory Infectious diseases Psychiatry (7) 329 (4) (6) (6) Gastro-intestinal 2 2 (6) Endocrinology (8) 2 34 (6) Social medicine 3 N/A (6) Ophtalmology 2 (6) (1) Including immunology, autoimmune diseases (2) Significant funding (3) For corresponding diseases (6) Not evaluated Note: 1 USD = 7.6 DKK (4) Neuro-psychiatric diseases (7) Part of neuroscience Source: BCG analysis and estimate (5) The majority is AZ respiratory research (8) Excluding diabetes High Low 5 Only the major research areas evaluated are included in the figure.

30 25 In the following sections, the evaluation of the research areas against each of the four criteria is described in greater detail Five Disease Areas Largest in Terms of Relative Public Research Funding As shown in Figure 16 a significant share of public 6 research funding in the region is focused on a handful of disease areas with cancer, neuroscience, infectious diseases, diabetes, and inflammatory being the largest ones. Figure 16: 25 percent of research areas receive ~5 percent of academic funding Medical R&D spend (3) (MUSD) (1) Including pain Note: 1 USD = 7.6 DKK Note: largest areas account for ~5% of funding (1) (2) Disease focused funding Cancer Neuroscience Infectious diseases Diabetes Inflammatory Cardiovascular Hematology Psychiatry Respiratory Social medicine Endocrinology Ophtalmology Gastro intestinal Breakdown based on break-down of ~75% of total public medical research spend p.a. in Denmark (1998 2) and ~85% in Sweden 21. All numbers extrapolated to comprise 1% of funding Note: Stem cell research center in Lund will be funded with ~88M DKK annually, effective 23 Source: Medical Faculty for 21; Lund University; University of Copenhagen; Danish Cancer Society; Statens Seruminstitut; Web search; BCG analysis and estimate (3) 69 5 (4) (5) Other TAs Other research tools (2) Including microbiology (3) Including rheumatic, connective tissue, immunology (4) ~28 therapeutic areas. 39M DKK consists of noncategorized hospital research in Copenhagen (5) Research without apparent TA focus, 7 categories Since some research areas are by definition broader than others, size alone is a poor proxy for regional R&D strength. Research areas with the largest relative public funding have therefore been identified using a funding index. The index is the funding from the National Institutes of Health (NIH) in the U.S., because NIH funding is so broad that it gives a good picture of the relative size of the different research areas. As shown in Figure 17, in comparison with this funding index, Medicon Valley has relatively high funding of the larger (nominal) disease areas: cancer, neuroscience, infectious diseases, diabetes, and inflammatory diseases. 6 Based on the breakdown of public research funding across universities and hospitals, on both the Swedish and Danish sides.

31 26 Figure 17: Largest Medicon Valley areas also strong relative to U.S. funding index MV funding (4) (% of total) Academic research, funding per area in MV and by NIH 2 15 Cancer Neuro science (1) 1 5 Infections (2) Diabetes Inflammatory (3) Cardiovascular Genetics Psychiatry Respiratory National Institute of Health, U.S. (NIH) funding 2 (% of total) (1) NIH funding including Neuroscience, Parkinson s Disease, and Stroke; excluding Muscular dystrophy, ALS, TSE, Brain disorders, spinal cord injury, MS (2) Microbiology included Note: NIH total ~44B USD = 1%. MV total 1.5B DKK ~7% of total (3) RA, immunology, connective tissue vaccines, auto immune Source: NIH; Medical Faculty Lund; Copenhagen University; Copenhagen hospitals; BCG analysis and estimate diseases (4) 21 for Sweden, average for Denmark Four Areas Stand Out in Terms of Corporate Funding Corporate R&D expenditure in a biotech cluster will typically be larger than public expenditure yet often concentrated to fewer disease areas. As shown in Figure 18, corporate R&D expenditure in Medicon Valley is concentrated to four main companies and four disease areas (respiratory, diabetes, neuroscience, and inflammatory), each with an annual R&D expenditure in the US$1 3 million range. Still, there is also corporate R&D in several other disease areas. Figure 18: Neuroscience, respiratory, diabetes, and inflammation comprise majority of corporate R&D in Medicon Valley Four companies together account for vast majority of R&D spend in MV R&D expenditure by company, 21 (MUSD) 1,2 5 Four major disease areas dominate R&D expenditure by therapeutic area, 21 (BUSD) 1, 8 Other (1) ~15% LEO Pharma H. Lundbeck Novo Nordisk Astra- Zeneca (2) ~85% 1 Respiratory Diabetes (3) (4) Neuro Inflammatory Hematology Cancer Endocrinology Dermatology Other TAs (1) 32 other discovery companies (2) Estimate for AstraZeneca R&D Lund (3) Excluding diabetes (4) Mainly cardiovascular, infections diseases, and dental Note: 1 USD = 7.6 DKK Source: Annual reports; web sites; BCG analysis and estimate

32 Six Disease Areas Stand Out as the Most Commercially Attractive The commercial attractiveness of diseases is driven by three main factors: Unmet medical need (i.e., market demand for new therapies) Current size of pharmaceutical market Breakthrough potential (opportunities for major breakthroughs in the short- to midterm) Unmet need can be measured in terms of disability-adjusted life years (DALY), as compiled by the World Health Organization. To measure current market size, pharmaceutical sales data have been used. For breakthrough potential, however, a combination of measures has been used as proxy, namely, research activity (measured as number of articles written on each disease area) and forecast blockbuster 7 sales, as shown in Figure 19. Figure 19: Three principal drivers of commercial attractiveness of diseases for Medicon Valley Commercial attractiveness Driver Unmet need Current market size Break-through potential Size of demand for new therapies Current global sales Research activity and products in late stage of development Proxy Disability Adjusted Life Years (DALY) Global sales top 1 drugs Forecasted blockbuster sales 27 Research activity As shown in Figure 2, neuropsychiatric conditions and cardiovascular diseases hold the largest commercial potential, followed by cancer, respiratory diseases, infectious diseases, and diabetes. 7 Blockbuster drugs are defined by Datamonitor as drugs expected to bring in more than US$75 million annually by 27.

33 28 Figure 2: Neuro and cardiovascular comprise the largest disease areas from a commercial perspective DALY (2) (M) Unmet need and breakthrough potential by therapeutic area Neuro-psychiatric conditions Opthalmological diseases Dermatological conditions -1 Gastro-intestinal diseases Musculo-skeletal diseases Endocrine diseases (4) Cancer Respiratory diseases Infectious diseases Diabetes Hematological diseases Cardiovascular diseases Breakthrough potential (3) (index) 15 Sales 2 (1) (BUSD) (1) Global sales of drugs in Top 1 (2) Disability Adjusted Life Years (3) Index calculated as weighed average of a) forecasted blockbuster sales (indexed) and b) level of research activity (indexed) - each given 5% weight (4) Excluding diabetes Note: Sales of the top 1 drugs in 2 accounted for 125B USD or 4% of total drug sales Source: WHO World Health Report 21; Datamonitor The Top 1 Drugs of 2; Datamonitor The New Generation of Blockbusters, Four Areas with Particularly Strong Research Performance To quantitatively compare the seven major research areas in Medicon Valley, a bibliometric analysis has been performed. The analysis focused on the number of high-quality publications (i.e., with a citation impact factor 8 above seven), but has also determined the total number of publications. To not only compare the performance of single groups, but also ensure that the breadth and volume of research are considered, the performance of the five top research groups in each area was analyzed. The analysis shows that diabetes, inflammation, and cancer are clearly the strongest research areas in terms of number of published quality articles. Neuroscience in Medicon Valley is also very strong although fairly narrow in its scope and slightly weaker in this respect. These differences become more apparent when performance is broken down by each of the top five researchers per area 9, as shown in Figure 21A-D. 8 The impact factor is the average number of citations (the times an article is mentioned in other articles) per article in a specific journal. As such it is a measure of the paper s quality and impact on the research community. Impact factor 7 is generally viewed as being of high quality. The ~7 journals identified during this study had an average impact factor of The Top Five researchers was chosen from the group of nine to fourteen top researchers identified by interviews, and consisted of the five researchers with the highest total number of articles published in journals with impact factor above 7 during the period January 1998 to June 22.

34 29 Figure 21A-D: Performance of top five researchers within diabetes, cancer, neuroscience, and inflammation Diabetes No. of articles with high impact factor (>7) Average impact factor, (1) (1) For articles published in journals with impact factor (2) All articles Source: Medline; Journal citation report; Interviews; BCG analysis and estimate No. of articles published (2) ( ) Neuroscience No. of articles with high impact factor (>7) Average impact factor, (1) (1) For articles published in journals with impact factor (2) All articles Source: Medline; Journal citation report; Interviews; BCG analysis and estimate No. of articles published (2) ( ) 21

35 3 Inflammation No. of articles with high impact factor (>7) Average impact factor, (1) (1) For articles published in journals with impact factor (2) All articles Source: Medline; Journal citation report; Interviews; BCG analysis and estimate No. of articles published (2) ( ) Cancer No. of articles with high impact factor (>7) Average impact factor, (1) (1) For articles published in journals with impact factor (2) All articles Source: Medline; Journal citation report; Interviews; BCG analysis and estimate No. of articles published (2) ( ) The top research groups within diabetes and inflammation/immunology have similar performance with respect to the number of high-quality articles and considerable breadth of research performance. In cancer, one group dominates, and the tissue repair research performed in Lund dominates in neuroscience. These two areas have less breadth in their top research than diabetes and inflammation/immunology. Later in this chapter, Medicon Valley s strength is benchmarked in detail against the world s leading regions in each field. It should be noted that there are other than the four fields mentioned above in which regional research groups have an outstanding international reputation. In this study, very high-quality research has been found in areas such as hematology and infectious diseases in Malmö, receptor studies and molecular biology in Copenhagen, and stem cell and cardiology research

36 31 in Lund. However, even if the research performance of single groups is outstanding, analysis has shown that that these areas have less breadth, less related corporate funding, or are expected to have very limited short- to mid-term commercial potential. Given the commercial perspective of this study, these areas have therefore been given less priority, and will only be commented on in connection with their contribution to the priority research areas. 4.2 Significant Presence of Most Major Technologies/Drug Development Platforms in Medicon Valley As shown in Chapter Three, the distribution of research employees of Medicon Valley s companies along the different phases of drug development reveals that Medicon Valley has broad coverage throughout and that the activity and resources in clinical development is quite impressive, with approximately 1,8 researchers. When taking a more detailed view of the different technologies used in the drug development value chain, it is apparent that the region has access to significant capacity in all the main technology areas, as shown in Figure 22. Animal testing and all phases of clinical trials stand out as particularly large. Thus, while Medicon Valley has several companies focusing on early stages of drug development, such as target identification, the region is also very strong in the later stages of drug development. Figure 22: Significant expertise in most main technology areas Number of research employees Target ID Target validation Screening Optimization Pre-clinical development Clinical development Molecular biology, biochemistry Gene mapping Bioinformatics Cel/ tissue studies Mouse knock-outs HTS, assay dev'l Chem libraries, parallel synthesis Structural biology SAR profiling of chemical libraries LTS, Assay dev'l, virtual screening Bench synthesis Parallel synthesis Early ADM/tox (1) Animal testing In silico ADM/tox In vitro tox Phase I Phase IIa Phase IIb Phase IIIa Phase IIIb Other discovery companies Large pharma companies (1) In silico supported: bench synthesis Note: 36 companies with drug discovery and/or drug development included. Total of 5,118 research employees Source: BCG survey; Annual accounts; Company web sites; BCG database, analysis, and estimate There are several indicators that this profile may be increasingly attractive in the future. As part of a major internal research program, BCG has modeled the likely need for different types of technologies over time. With the mapping of the human genome, new technologies to identify and screen millions of targets have emerged. With an explosion in the number of new targets identified, the value of new tools for target identification will fade. Instead, a shift is already seen toward later-stage technologies and tools that, for instance, identify and validate lead molecules. To test the myriad of new lead molecules for toxicology, etc., new and better pre-clinical testing techniques will be required to replace costly and slow animal testing.

37 32 Given its profile, Medicon Valley seems well positioned to play a strong role in meeting the demand for new technologies. Apart from the strong corporate presence across technologies, there are academic centers within Medicon Valley that are widely recognized as highly competent within some of the new and high-potential technology areas. One example is the Bioinformatics Center at Copenhagen Technical University, which employs some 3 people with a distinct focus on developing and applying bioinformatics. Another example is the SweGene consortium, in which Lund University participates and that has recently received a five-year grant of US$3 million from the Wallenberg Foundation to improve access to postgenomic technologies. The consortium s proteomics center is going to be located in Lund. It is estimated to employ 1 15 researchers and will serve as a Swedish resource for proteomics knowledge and research. Contrary to some European clusters with a technology focus, such as Munich, Medicon Valley does not rely on one or a few technology areas. Instead a broad range of capabilities and the expertise in integrating the drug development value chain can be leveraged. The presence of companies and individuals that can operate a wide range of relevant biomedical technologies and development tools will be a supporting factor for any company considering locating in the region. Although clinical trials are not a technology by definition, Medicon Valley s solid position in this area, as discussed in Chapter Three, is another important element in the region s strength in late-stage technologies and drug development platforms. 4.3 Within Four R&D Strongholds, Medicon Valley Is Generally Well Positioned Among International Peers For each of the four therapeutic areas identified as strongholds, Medicon Valley s commercial and academic strength has been benchmarked against the two leading 1 biotech clusters in the world. Six benchmarks 11 were used: Three academic benchmarks - Number of scientific articles - Number of PhD researchers - Academic funding Three commercial benchmarks - Number of patents - Number of biotech companies 1 The leading clusters where identified through interviews with local and international researchers and investors. 11 These six benchmarks were selected because they together provide a solid, yet pragmatic measure of a region s academic and corporate research capabilities.

38 33 - Presence of large pharmaceutical companies The international benchmarking is summarized in Figure 23. It reveals that Medicon Valley has its strongest positions in diabetes and inflammation. In diabetes, Medicon Valley s commercial strength in particular stands out, due primarily to the strong presence of Novo Nordisk, and overall Medicon Valley is stronger than both Boston and Seattle. In inflammation, Medicon Valley is on the same overall level as Boston, but slightly below San Diego. Within arthritis research specifically, however, Medicon Valley is the absolute leader. In the third stronghold, neuroscience, Medicon Valley holds a very strong position within tissue repair. However, the region is behind the leading clusters in the world, San Diego and Boston, in neuroscience more broadly. Finally, Medicon Valley s position within cancer is relatively weak overall in comparison with the leaders, Boston and Washington, but is on a par with Amsterdam, which is considered the leading European cluster in cancer. This is mainly the result of the somewhat lighter corporate footprint in cancer in Medicon Valley. Academic cancer research is relatively strong here, albeit narrowly focused. Figure 23: Medicon Valley with strongest relative positions in diabetes and in inflammation y MV leading global cluster in diabetes Strong position in tissue repair in neuroscience... MV Boston Seattle MV San Diego Boston Academic Academic Commercial Commercial and leader in arthritis research in inflammation MV San Diego Boston MV with strong basic cancer research, however limited pharma presence Washing- Amster- MV Boston ton dam Academic Academic Commercial Commercial Source: BCG analysis Strong Weak All four strongholds contribute to the strength of the region, and all are potentially of great interest to different categories of investors. In the next chapter, these commercial opportunities are outlined for each of the four strongholds.

39 34 5. COMMERCIAL OPPORTUNITIES IN R&D STRONGHOLDS Medicon Valley s major R&D strongholds are all highly attractive for potential investors that consider locating R&D activities in proximity of world-class research institutions and leading pharmaceutical companies. In diabetes, Medicon Valley is likely the strongest region in the world, but also in inflammation, neuroscience, and cancer does Medicon Valley offer attractive opportunities to investors. In this chapter, these opportunities are outlined for each of these four R&D strongholds. Each outline contains five key elements: 1. Overview of the disease area Need for treatment, market size, global burden of disease, and focus of research including key unsolved issues. 2. Overview of Medicon Valley s academic research Medicon Valley s academic research in terms of size and funding, leading researchers and their fields of interest, and observed research synergies across technologies and disease areas. 3. Overview of Medicon Valley corporate activities Medicon Valley s corporate presence, including overview of leading companies and dynamics with academia. 4. International benchmarking of Medicon Valley against globally leading regions Benchmarking of Medicon Valley s academic and corporate research along several key dimensions, including benchmarking of the performance of the Top Five research groups in Medicon Valley against the Top Five in the best two or three regions in the world. 5. Key selling points and target investors Summary of the key selling points as well as identification of likely target investors.

40 Diabetes: Medicon Valley Is Probably the World s Leading Region in Diabetes Medicon Valley occupies a world-leading position in diabetes with the presence of Novo Nordisk, one of the world s two major diabetes care companies, and a high number of worldclass academic research groups that together span a wide range of issues and thus provide extensive breadth of research in the region. This provides a very strong case for attracting diabetes related R&D and other investments to the region The Diabetes Market Is Commercially Highly Attractive Diabetes is one of the major diseases in the world and currently the 11th largest measured in terms of burden on society, as shown in Figure 24. Globally, more than 15 million people are diagnosed with diabetes. About 97 percent of these have Type 2 diabetes, which is lifestyle-induced. The minority, some 5 million people, has Type 1 diabetes, which is an autoimmune disease. Patients suffering from either of the two types of diabetes are not cured, only relieved by e.g. insulin. The total therapeutic market for diabetes comprised approximately US$9 billion in 2 with Type 2 diabetes accounting for the vast majority of the market. The diabetes market is growing more than 17 percent annually and is thus one of world s fastest growing therapeutic areas. This growth has three main components: an increase in the number of diagnosed patients, an increase in the number of patients being treated with insulin, and an increase in the cost of treatment. Figure 24: Market size and growth of therapeutic areas and Top 15 diseases in terms of society burden Global sales (BUSD) Sales and growth of therapeutic areas Alimentary Cardiovascular CNS Inflammation (1) Antiinfectives Respiratory Musculoskeletal Cancer Genito-urinary Dermatological Blood Diabetes Hormones Sensory organs Global CAGR, (%) Top-15 diseases in terms of society burden Top 15 burdens (3) for high income countries Depression Ischaemic heart decease Alcohol abuse Cerebrovascular decease Alzheimer and other dementias Road traffic accidents Trachea, bronchus, lung cancers Osteoarthritis COPD (2) Hearing loss Diabetes Self-inflicted injuries Colon and rectum cancers Asthma Breast cancer 5 1 % of total DALY (1) (1) Disability Adjusted Life Years (2) Chronic Obstructive Pulmonary Decease (3) In terms of DALY (4) Anti-asthma and anti-rheumatics Source: IMS World Review 2; World Health Organization; BCG analysis The number of diagnosed Type 1 diabetes patients grows at around 5 percent annually, while the number of diagnosed patients with Type 2 diabetes grows at around 8 percent annually. The growth of the latter is driven by mainly two factors:

41 36 1. Increase in total number of patients. Poor eating habits in large parts of the Western world and increasingly in the Third World are the main underlying cause of a continued increase in the total number of diabetes patients. 2. Increasing proportion of diagnosed patients. It is estimated that there are as many undiagnosed Type 2 diabetes patients as there are diagnosed. The enhanced ability of physicians to screen for diabetes and an increasing focus on the disease outside the Western world are key reasons why an increasing proportion of patients is being diagnosed. Diabetes research is challenged by a broad set of questions because of the dual nature of the disease. Both Type 1 and Type 2 are chronic diseases that, if mismanaged, lead to consequences for patients later in life. Proper handling of these problems places high demand on patient databases and interdisciplinary research. Groups in Medicon Valley currently addressing these needs are L Groop and K Borch-Johnsen. For the same reason, it is important to diagnose the disease early in order to prevent later problems or even an outbreak of disease. Such efforts place high demands on disease markers and genetics, and research in those areas is currently being performed at Steno hospital and by several groups in Lund and Malmö. The current treatment with insulin is another area where improvement is needed. The problem is twofold: current treatment does not cure the disease, and administration of the drug is often problematic. Research into preventive measures (as conducted by, for example, Å Lernmark s group) could lead to a more effective way of treating the actual disease, and innovations in biotech/medical technology and pharma companies are needed to improve insulin administration (e.g., through oral treatment) Medicon Valley Academic Research in Diabetes Is of High Quality and Uniquely Broad The diabetes research community in Medicon Valley is estimated to comprise approximately 12 PhDs. Academic research funding in this area is approximately US$16 million annually, of which the majority, approximately US$9 million, comes from Lund University. The high-quality diabetes research in Medicon Valley is unique in covering the entire field, from understanding disease at the molecular level (e.g., P Rorsman) or via molecular genetics on family cohorts with Type 2 diabetes (e.g., L Groop) to classic epidemiology of metabolic syndromes and cardiac diseases (e.g., K Borch-Johnsen). Figure 25 illustrates the breadth of this research, while Textbox 4 describes the research of selected top researchers in more detail.

42 37 Figure 25: World-class diabetes research in Medicon Valley spans widely p j Basic research Clinical research Immunogenetics of type 1 diabetes Molecular biology of insulin release Animal models Genetic complexity of type 2 diabetes and dysmetabolic syndrome Cardiology and ophthalmology diabetes related research Cohorts for epidemiologic studies Examples in Medicon Valley Search for cell surface molecules predisposing for type 1 diabetes Pancreatic hormone release in experimental diabetes Type 1 Pig model for examining hormone release Endocrine pancreas Gastric hormones Large population based studies of correlation between genetics and disease Lipid related inflammation in coronary arteries Eye complications in late diabetes Basic epidemiology aimed at discovery of life style diabetes correlations Example leading researchers Å Lernmark P Rorsman JJ Holst L Groop Cardiology J Nilsson Ophtalmology CG Agardh K Borch- Johnsen Source: Interviews; BCG analysis This wide span of research areas is the basis for the many cross-therapy and cross-technology synergies emanating from the diabetes research. The close connections between diabetes and dysmetabolic syndrome explain some of these activities, but diabetes research in Medicon Valley is also performed in many other areas, as shown in Figure 26. Figure 26: Other strong areas contribute to diabetes strength Å Lernmark: Immune genetics of type 1 diabetes, investigating the possibility to predict disease by combined genetic and antibody testing Basic Tools Epidemiology Genetics Immunology Stem cell CD Agardh: Molecular pathophysiology of diabetic eye complications Therapeutic areas Ophtalmology Dysmetabolic syndrome Diabetes L Groop: Investigating genetic complexity of type 2 diabetes and metabolic syndrome K Borch-Johnsen: Epidemiological studies aimed at preventive efforts Cardiology J Nilsson: Mechanisms for lipid mediated artery inflammation and immune response. Arteriosclerosis vaccine. Stem cell repair of myocardium Source: Interviews; BCG analysis Of the top five researchers within diabetes, four are above 55 years of age. However, there are also many talented young researchers in the region.

43 38 TEXTBOX 4: EXAMPLES OF DIABETES RESEARCH CONDUCTED IN MEDICON VALLEY CG Agardh, Lund University Pathophysiology of diabetic microvascular disease. B Ahrén, Lund University Characterization of the regulation of islet hormone secretion and how this regulation is adapted to insulin resistance and fails during development of diabetes. Studies of cellular signaling pathways, such as cytosolic calcium and signaling involving PKA and PKC examination of expression of transcription factors. K Borch-Johnsen, Steno Diabetes Center, Copenhagen Epidemiological studies aimed at preventive efforts and pattern analysis of Type 2 diabetes. Studies of correlation between Type 2 diabetes and cardiovascular disease. Immunogenetics of Type 1 diabetes. L Groop, Malmö University Hospital Investigating genetic complexity of Type 2 diabetes and the dysmetabolic syndrome. Provide novel knowledge on the molecular mechanisms leading to Type 2 diabetes. Access to one of the largest and best characterized Type 2 diabetes family cohorts in the world, i.e. the Botnia Study. JJ Holst, University of Copenhagen Molecular biology of Type 2 diabetes and dysmetabolic syndrome and reaction to glucagon like peptides in these conditions. Animal models (pig and transgene mice) for hormone release. Å Lernmark, Malmö University Hospital Immunogenetics of Type 1 diabetes, investigating the possibility to predict disease by combined genetic and antibody testing. Immune tolerance induction with human recombinant GAD65. The immune response to GAD65 is correlated to increased risk for Type 1 diabetes. Dissection of type 1 diabetes genes in humans and the BB rat. J Nerup, Steno Diabetes Center, Copenhagen Molecular and genetic processes important in the interactions between genes, immune system, environment, and the insulin-producing β-cell. Cell maturing and differentiation. J Nilsson, Lund University Mechanisms for lipid mediated artery inflammation and immune response. Arteriosclerosis vaccine. Stem cell repair of myocardium. O Pedersen, Steno Diabetes Center, Copenhagen Molecular genetics of the metabolic syndrome. Focus of interest on the genetics of the various phenotypes of the metabolic syndrome including type 2 diabetes, obesity, dyslipidemia and hypertension and the complex interactions with environmental factors. Studies based on de novo gene discoveries and large scale genetic epidemiology in some of the largest and most well-characterized and homogeneous cohorts of the world.

44 39 (Cont) P Rorsman, Lund University Pancreatic hormone release in normal and diabetic islets. Elucidation of the mechanisms underlying islet cell electrical activity (which controls hormone release). Optical imaging of the intracellular movements of the insulin storage vesicles prior to insulin secretion. Efforts to generate insulin-secreting β-cells using pancreatic progenitor cells A World-Leading Diabetes Pharma Company Is Based in Medicon Valley On top of the US$16 million spent annually on academic diabetes research in Medicon Valley, approximately US$26 million is spent on corporate R&D. Almost all of this originates from Novo Nordisk. As one of the two leading diabetes care companies in the world, Novo Nordisk naturally dominates corporate diabetes research in Medicon Valley. Furthermore, with approximately 1, employees in the region, 2, of which are in R&D (an estimated 75 percent of these in diabetes), it is the area s largest pharmaceutical company. Overall, Novo Nordisk drives diabetes R&D in Medicon Valley in several ways. Its large annual research budget makes it possible to conduct world-class research within a broad range of diabetes care applications. It also enables Novo Nordisk to channel significant funds into public diabetes research conducted at the region s universities. Such grants include the US$5 6 million that Novo Nordisk donates annually to Steno Diabetes Center. In return for its grants, Novo Nordisk enjoys strong relationships with many of the region s leading diabetes researchers as well as the research institutions with which it cooperates, e.g., on the education of PhDs. It also enables Novo Nordisk to monitor the public research in the region closely, which among other things has resulted in Novo Nordisk buying several locally developed patents, e.g., for a GLP-1 analogue 12, which they are currently trying in Phase II. The presence of Novo Nordisk in Medicon Valley also provides a large pool of skilled research staff at all levels for other companies and academia to draw from. Although Novo Nordisk conducts the vast majority of commercial diabetes research, several other companies are active in diabetes research in Medicon Valley, e.g. Acadia Pharmaceuticals, Azign Bioscience, BioImage, Maersk Medical (devices), and Zealand Pharmaceuticals. Zealand Pharmaceuticals in particular is interesting from a diabetes perspective, as the company has an ongoing project for Type 2 diabetes based on the GLP-1 that is about to start Phase I clinical trials in the United States. 12 Glucagon like peptide (GLP) is an effective anti diabetic agent. Much research is currently performed on substances with analogue actions.

45 International Position Medicon Valley Is The Strongest Region Globally in Diabetes R&D The volume of research conducted, the breadth of the field, and the presence of Novo Nordisk, places Medicon Valley in a truly unique position within diabetes research. Benchmarking Medicon Valley against Boston and Seattle, widely acknowledged to be the other two key regions for diabetes research, has validated this. As shown in Figure 27, Boston slightly edges out Medicon Valley on the academic side of the benchmarking, mainly because of significantly higher academic funding. On the commercial dimension Medicon Valley has fewer diabetes patents than Boston and also fewer biotech companies active in diabetes than Seattle, but is still perceived to be stronger than these two regions, because of the significant presence of Novo Nordisk. In sum, this gives Medicon Valley a slight competitive advantage over Boston in the overall benchmarking result. Figure 27: Medicon Valley is the world s most attractive cluster in diabetes Quality articles (1) # patents Index 2 Index Boston MV Seattle Boston Seattle MV # Ph.D. researchers (academic) Overall # biotech companies Index 1 5 Academic MV Boston Seattle Index MV Boston Seattle Commercial Seattle MV Boston Academic funding High Low Big pharma presence Index Boston Seattle MV Nowhere in the world can you find such depth and breadth in diabetes research on all major dimensions it s unique CSO, big pharma (1) Number of publications with impact factor >7 Source: Medline; Journal citation report; Institute homepages; USPTO; Bioscan; Interviews; BCG analysis MV Boston Seattle Key Selling Points and Target Investors For Diabetes The unique character of diabetes research in Medicon Valley provides several good opportunities for attracting investments to Medicon Valley, as illustrated in Figure 28. The broad clinical research experience in the area makes it possible to quickly implement basic research and in this way attract companies with basic research in diabetes, or with diabetes applications, wanting to quickly develop and test clinical applications of their research. Both the groups in Steno diabetes hospital and southern Sweden have a clinical approach to their research. Å Lernmark is currently initiating a study of the umbilical cord blood of all newborn infants in Malmö, in order to test early markers of disease as well as methods of intervention. In general, Scandinavian countries have a very high prevalence of diabetes and very experienced clinicians, which should be attractive to companies with clinical trials in diabetes. The Steno diabetes hospital performs clinical studies yearly.

46 41 The focus on dysmetabolic syndrome is attractive for companies in related research areas, particularly cardiovascular research. Furthermore, several successful research groups in related areas are present in Medicon Valley and have been identified in this study, such as J Nilsson s group, which does research on lipid-induced artery inflammation. Finally, Medicon Valley is attractive for diagnostics companies and drug delivery companies, which need access to leading researchers and well-managed patients. Figure 28: Unparalleled breadth should sell diabetes Features of Medicon Valley Broad clinical and research experience in Medicon Valley makes quick implementation of basic research possible Medicon Valley with sufficient population and high prevalence of disease Dysmetabolic syndrome a core strength in Medicon Valley Access to broad spectrum of leading researchers as well as patients Attractive for Companies with basic research tools wanting to expand into diabetes Companies with clinical trials in diabetes Companies within areas linked to diabetes such as cardiovascular research Companies developing diagnostics and drug delivery tools Both early and late stage VC investors

47 Immunology and Inflammation: Medicon Valley Strong Within Basic Research and Arthritis Research, and with Significant Corporate Presence Medicon Valley holds a strong position in immunology and inflammation through the presence of AstraZeneca s respiratory research center in Lund, as well as through the presence of many world-class academic research groups ranging from basic immunology to rheumatoid arthritis applied inflammation research. This provides for a relatively strong case for attracting immunology and inflammation based R&D and other investments to the region Inflammatory Diseases Remain an Unsolved Problem Inflammatory diseases are a major cause of suffering around the world and represent a large and growing market, as shown in Figure 24 above. Two key conditions in this group are osteoarthritis (OA) and asthma (an inflammation in the airways), both very significant burdens to society. An important subset of inflammatory diseases are autoimmune diseases. In these diseases, the body s tissues are attacked by the body s own immune system. Important diseases in this group are rheumatoid arthritis (RA), multiple sclerosis (MS), Type 1 diabetes, Sjögren syndrome (SS), and systemic lupus erythematosus (SLE). In spite of enormous research efforts resulting in a large number of publications, very little is in fact known about the cause of these diseases. For example, it is not known whether they are truly autoimmune, which genes predispose for disease, or which environmental factors trigger them. More importantly, there are currently no effective treatments. Research on inflammation is complicated by the elusive nature of these diseases. Some specific problems are: Phenotypic heterogeneity. There are many different clinical variants of the disease that need to be distinguished. Genetic heterogeneity. The same disease could be caused by different sets of genes in different individuals. Polygenicity-controlled by many genes. Many of these penetrate only upon interaction. Complexity-influence by environmental and stochastic factors. These problems place high demands on research for disease markers (e.g., performed by D Heinegård) and population and epidemiological databases as well as genetic epidemiology (e.g., performed by R Holmdahl). Inflammation is a complicating mechanism or actual cause of many other diseases, thus making basic immunology research, such as that performed by N Ødum, C Geisler and S

48 43 Buus, very important. Their MHC molecule 13 studies and other basic immunology research also have potential implications for the development of new vaccines against, for example, tumors and HIV High-Quality Academic Research on Immunology and Inflammation in Medicon Valley The immunology research community in Medicon Valley is estimated to comprise approximately 15 PhDs. Academic research funding of the area is approximately US$13 million annually, of which the majority is from the Copenhagen area. As illustrated in Figure 29, the high-quality academic research in Medicon Valley in focused on arthritis (e.g., animal models of RA used by R Holmdahl) and basic immunology (e.g., MHC molecule research by S Buus), providing ideas for several interesting applications. A detailed assessment of a number of key researchers in the area reveals a uniform picture of high quality for all, as shown above in Figure 21C. The fact that three of the top five researchers are less than 5 years of age is promising for the future. Figure 29: Immunology and inflammatory research with focus on arthritis Basic research Clinical research MHC molecules Vaccine studies Connective tissue and arthritis studies Animal models Cartilage and bone turnover markers Examples in Medicon Valley Detailed understanding of MHC molecules and peptides as immune targets MHC specific peptides used to increase vaccine effect Research in mechanisms for joint disease such as cartilage damage Genome research on RA models in one of southern Sweden largest animal parks Well characterized patient samples used to rapidly explore activity of new markers New methods for recombinant MHC production Examples of scientists S Buus S Buus C Geisler D Heinegård R Holmdahl R Holmdahl D Heinegård Source: Interviews, research Because inflammation is a key process in a wide range of diseases, the field has several strong synergies with other research areas in Medicon Valley, as shown in Figure 3. One example of this is Å Lernmark s research on the immunogenetics of Type 1 diabetes, investigating the possibility of predicting disease with combined genetic and antibody testing. Another good example is L Björck and B Dahlbäck s research on mechanisms for bacteria pathogenicity and inflammation induction. This research has clinical applications within anti-infective treatment as well as sepsis-induced hypovolemia. 13 The MHC (Major Histocompatibility Complex) molecule is a crucial part of the immune system of humans as well as of other species.

49 44 Figure 3: Immunology with several strong synergies with other research areas Å Lernmark: Immuno genetics of type 1 diabetes investigating the possibility to predict disease with combined genetic and antibody testing Therapeutic areas N Borregaard: Gene expression analysis for single hematopoetic cells Stem cell Genetics Basic Tools Immunology/ inflammation Hematology Rheumatology Diabetes Microbiology Lars Björck and B Dahlbäck: Mechanisms for bacteria pathogenicity and inflammation induction. Clinical applications within anti infective treatment and sepsis induced hypovolemia R Holmdahl: Definition of genetic regions in RA animal models L Salford: Immuno-gene therapy with autologous glioma cells transduced with interferon gamma gene Oncology Respiratory Dermatology H Bisgaard: Pediatric asthma research with focus on steroids and leukotriene receptor antagonists T Menne: Contact allergy, exposure studies, and epidemiology Source: Interviews; BCG analysis More examples of inflammation research groups can be found in Textbox 5. TEXTBOX 5: EXAMPLES OF INFLAMMATION/IMMUNOLOGY RESEARCH CONDUCTED IN MEDICON VALLEY S Buus, University of Copenhagen Structure and function of MHC molecules and search for MHC restricted peptide epitopes applied in experimental vaccine development towards tumors, HIV and Chlamydia etc. Methods for high scale production and cleaning of MHC molecules. C Geisler, University of Copenhagen Regulation of T-cell receptor (TCR) on the T-cell surface mediated by CD3-gamma. Physiological role of this TCR regulation. Cytotoxic T-lymfocytes reactivity towards malignant melanoma antigens. Long-term goal to develop a vaccine based on this knowledge. D Heinegård, Lund University Research on cartilage and bone tissues with applications extending to blood vessels and tendon/ligaments. Studies of how cells produce and assemble its molecules into the matrix that constitutes the tissue, and how the cells obtain signals to modify the properties of this matrix in normal development as well as in joint disease (rheumatoid arthritis and osteoarthritis) and osteoporosis. Disease markers and diagnostic tools.

50 45 (Cont) R Holmdahl, Lund University Studies of inflammatory autoimmune diseases, such as multiple sclerosis and rheumatoid arthritis, mainly through animal models but also clinical samples. Isolation of the disease- causing genes and their pathogenic pathways. The role of T-and β-cells in these diseases, and their association with MHC molecules. A Svejgaard, The National University Hospital, Copenhagen Understanding of the autoimmune inflammatory response in multiple sclerosis (MS). Polymorphic genes involved in this process as possible candidates for determining of the severity of disease. Linkage analysis of genetic regions in Scandinavian sib pairs with multiple sclerosis. Rheumatoid arthritis (RA) association with HLA molecules. N Ødum, University of Copenhagen The correlation between a transcription factor (STAT3) known to regulate interleukin transcription and interleukin expression due to such regulation. STAT3 role in survival and growth of malignant cells. Spontaneous interleukine production in cutaneous T-cell lymphoma AstraZeneca Is the Major Driver of Corporate Inflammation Research in Medicon Valley In addition to the academic research in immunology and inflammation, Medicon Valley s companies spend approximately US$12 million on R&D in these areas. AstraZeneca s respiratory research in Lund accounts for approximately two-thirds of this amount. AstraZeneca is one of the world s largest pharmaceutical companies, with sales of over US$16 billion in 21. Particularly, in the gastro-intestinal (no. one in the world), cancer (no. two in the world) and cardio-vascular (no. four in the world) therapeutic areas, but also in respiration (top five in the world), AstraZeneca is among the leading pharmaceutical companies. Of its total sales, as much as US$1.6 billion come from respiratory drugs, mainly dealing with asthma, an inflammatory condition in the respiratory tract. A large part of AstraZeneca s respiratory research is conducted in Medicon Valley, where the company has approximately 8 research employees in the Lund research facility focusing solely on this therapeutic area. This makes AstraZeneca by far the largest company within respiratory and inflammatory research in Medicon Valley. The strong presence of AstraZeneca in Medicon Valley is a major asset for the region, since the world-class respiratory and inflammatory research conducted at the company s facilities in Lund ensures a critical mass of research within this field. Furthermore, AstraZeneca represents a strong pool of skilled staff from which other companies can recruit. However, even though AstraZeneca s research is closely connected to basic immunology research, some scientists have voiced concern over the limited cooperation that exists between AstraZeneca and academic researchers in Medicon Valley. AstraZeneca does not have strong ties with

51 46 Lund University, for example, with neither joint projects nor shared education of PhDs. This is therefore an example of an area where corporate-academia relations could be improved. Besides AstraZeneca, several other companies contribute to the inflammatory research conducted in Medicon Valley. Active Biotech, Genmab, Pharmexa, and ALK-Abelló are key examples International Position Strong Arthritis Research and Corporate Presence Although of high quality, the academic inflammation research in Medicon Valley is not quite at par with that of the world leaders. As shown in Figure 31, this is evident from the benchmarking conducted against San Diego and Boston, two centers internationally recognized for leadership in inflammation research. Figure 31: Medicon Valley inflammation research almost on par with that in U.S. AstraZeneca s presence makes Medicon Valley very strong overall Quality articles (1) # patents Index Index Boston San Diego MV Boston San Diego MV # Ph.D. researchers (academic) Overall # biotech companies Index San Diego MV Boston Academic Commercial MV San Diego Boston Index San Diego Boston MV Academic funding High Low Big pharma presence Index San Diego Boston MV MV Boston San Diego (1) Number of publications with impact factor >7 Source: Medline; Journal citation report; Institute homepages; USPTO; Bioscan; Interviews; BCG analysis Boston and San Diego produce approximately 5 percent more high quality articles than Medicon Valley. Medicon Valley also comes out below the leading region on most other dimensions. Both with respect to academic funding and number of biotech companies are the other two clusters clearly in the lead with San Diego in the absolute top. Boston has approximately twice the patent output of San Diego, which in turn still has a higher output than Medicon Valley. However, the presence of AstraZeneca gives Medicon Valley the top spot with respect to big pharma presence. Boston and San Diego alike lack the competitive edge this represents. Overall, this puts Medicon Valley at a par with the U.S. clusters on the commercial dimensions of the benchmarking, while on the academic dimension it is somewhat behind the two U.S. clusters Key Selling Points And Target Investors for Inflammatory And Immunology Research Medicon Valley possesses some unique features among inflammation clusters, making the area attractive for investments in inflammation in several ways, as illustrated in Figure 32. In

52 47 particular, the unique combination of world-class arthritis research and clinical research found in Medicon Valley would be attractive to companies with arthritis products in their pipelines. Both D Heinegård and R Holmdahl perform important research in this area. The MHC molecule research (e.g., S Buus and C Geisler) in Copenhagen could form the base needed for companies that develop vaccines. Finally, AstraZeneca s presence ensures a critical mass of immunology expertise, which could be the basis for the establishment of other corporate activities. Figure 32: Arthritis and vaccine development are the most attractive areas of Medicon Valley immunology research Features of Medicon Valley World class arthritis research and local expertise in translational medicine Research in MHC specific peptides with clinical implications AstraZeneca with estimated ~7M DKK spend on immunology/ inflammation research ensures work force availability Attractive for Companies with arthritis products in pipeline Companies within vaccine development Companies searching for critical mass of expertise in immunology research VC investors broadly

53 Neuroscience: Medicon Valley Is a World Leader in Applied Neuroscience Medicon Valley occupies a strong position in neuroscience with the presence of H. Lundbeck, one of the world s major developers of antidepressives, as well as world-class academic research. Although the latter is relatively narrowly focused, this provides for a relatively strong case for attracting neuroscience R&D and other investments to the region Neuroscience Diseases Comprise A Highly Attractive Market Diseases affecting the central nervous system (CNS) represent a major part of unmet medical need in the Western world, as shown in Figure 24 above. Depression, alcohol abuse, Alzheimer s and Parkinson s disease all are connected to this field. The total market for CNS drugs comprises approximately US$48 billion, making it second only to the cardiovascular market. Furthermore, the market is growing at about 1 percent per year, making it highly attractive. There are currently no curative treatments for several large CNS diseases, such as Parkinson s (PD) and Huntington s disease (HD). Each affects more than a million people in Europe alone. In PD, the substantia nigra degenerates, leading primarily to akinesia, rigidity, and tremor. Except for a few inherited forms of PD, the cause is unknown. Drug treatment provides only temporary symptomatic relief. HD is autosomal dominant and caused by a CAG triplet repeat expansion in the gene for Huntington s. Striatal and cortical degeneration results in motor hyperactivity, dementia, and emotional disturbances. For HD, no effective treatment exists. The inherited nature of these diseases suggests opportunities for early diagnosis and preventive measures. This need is driven by the social cost represented by these conditions, as well as their affect on the quality of patients lives. To solve these issues, good biochemistry markers, disease genetics, and epidemiological databases are needed. A key weakness in the field of neuroscience is the lack of curative treatment for many of the diseases. A neuro-protective approach, stem cell research, and tissue repair may very well be the long-term solution to some of these disorders. In these areas, Medicon Valley has a leading position through the presence of several world-renowned neuroscience groups in Lund (A Björklund, P Brundin, O Lindvall and others). Current treatment of neurodegenerative diseases as well as affective disorders often has significant side effects. Approaches to new drug design are important to reduce these effects (e.g., through research such as that being conducted by P Krogsgaard-Larsen at the Royal Danish School of Pharmacy) Academic Research in Neuroscience Is of High Quality but Narrowly Focused The neuroscience research community in Medicon Valley is estimated to comprise approximately 2 PhDs. Academic research funding in the area is approximately US$33 million annually, of which the Copenhagen area accounts for the majority.

54 49 As shown in Figure 33, the high-quality academic research in Medicon Valley is focused on tissue repair (e.g., neural tissue transplantation research by Professor P Brundin), a field with clinical, but very long-term commercial applications. Figure 33: Neuroscience research with both basic and clinical research, however with focus on tissue repair Basic research Clinical research Gene therapy of neuro degenerative diseases Stem cell repair in neuro degenerative diseases Animal models of nerve regeneration Receptor studies Neural transplantation Clinical trials Examples in Medicon Valley Recombinant vectors used to deliver neurotrophic factors Transplantation of neural progenitor cells influenced by growth factors Rodent models of brain ischemia and mechanisms for stimulation of neurogenesis Drugs targeted toward muscarine and nicotinic-acetyl choline receptors Neural tissue from aborted features grafted into brain of Parkinson patients Use of immune modulatory drugs for multiple sclerosis patients Examples of researchers in Medicon valley ABjörklund A Björklund O Lindvall P Krogsgaard- Larsen P Brundin R Holmdahl Source: Interviews Portions of the neuroscience research in Medicon Valley attain the highest international standard, but is concentrated to a relatively narrow field and most of it to Lund research groups, as previously shown in Figure 21B in Chapter Four. In the neuroscience field, four of the top five researchers are above 55 years of age, and the Medicon Valley neuroscience field may be facing a generation transition challenge. A wide variety of technology platforms are used in the Medicon Valley neuroscience research, and several synergies with other therapeutic areas exist, as shown in Figure 34. One example is P Krogsgaard-Larsen s research of a GABA agonist now in Phase III clinical studies by H. Lundbeck, as this research also has applications within psychology.

55 5 Figure 34: Neuroscience with several interactions with other research areas R Holmdahl: Plans for clinical studies of immune modulatory drugs for multiple sclerosis patients Basic Tools Stem cell Physiology Immunology Pharmacology P Krogsgaard-Larsen: Research of GABA agonist now in phase III clinical study by Lundbeck Therapeutic areas Hematology Neuroscience SE Jacobsen: Functional properties of hematopoetic stem cells and mechanisms for differentiation induction O Paulsson: Studies of cerebral circulation and the Renin Angiotensin system Psychiatry A Björklund: Stem cell repair in neurodegenerative diseases Source: Interviews; BCG analysis More examples of neuroscience research conducted in Medicon Valley can be found in Textbox 6. TEXTBOX 6: EXAMPLES OF NEUROSCIENCE RESEARCH CONDUCTED IN MEDICON VALLEY A Björklund, Lund University Research aimed at developing new restorative and neuroprotective treatments for neurodegenerative diseases using cell transplantation and direct in vivo gene delivery. Use of cells obtained from rat and human embryos to restore dopamine neurotransmission in rats with lesions of the nigrostriatal dopamine system. Studies on molecular mechanisms underlying neurodegeneration in Parkinson s disease. E Bock, University of Copenhagen The importance of neural cell adhesion molecule NCAM in neuronal differentiation and survival. Search for NCAM-mimetics in order to develop compounds for treatment of neurodegenerative diseases. P Brundin, Lund University Transplantation in experimental and clinical Parkinson's disease, using human embryonic dopamine neurons and stem cells derived from embryos or adult tissues. Techniques for refining grafting technique in order to reduce the number of donors required. Pathogenic mechanisms in Parkinson s and Huntington s disease in cell culture and transgenic disease models. P Krogsgaard-Larsen, Royal Danish School of Pharmacy, Copenhagen Interdisciplinary research aiming at the discovery of novel drugs for the treatment of neuro degenerative diseases. Receptor studies (nicotinic aceltylcholine- and muscarine receptor).

56 51 (Cont) O Lindvall, Lund University Novel strategies for the treatment of neurological disorders based on cell transplantation and gene therapy, with the general aim to repair and protect the brain. Exploration of mechanisms for the regulation of neurogenesis and how this should be stimulated in rodent models of focal and global forebrain ischemia and epilepsy. OB Paulson, The National University Hospital, Copenhagen Molecular brain imaging, especially cerebral neurotransmitter systems. Functional brain mapping including cognitive neuroscience. Neuroinformatics with data analysis of structural and functional brain images. Cerebral metabolism and circulation including autoregulation of cerebral blood flow A Major CNS-Specialized Pharmaceutical Company Is Located in Medicon Valley In addition to the US$33 million in academic funding of neuroscience research, Medicon Valley s companies spend approximately US$22 million on corporate R&D. The vast majority of this sum originates from H. Lundbeck s operations. H. Lundbeck is a pharmaceutical company specializing in CNS. It has total sales of US$1 billion and an annual R&D expenditure of US$2 million. H. Lundbeck is among the world s leading companies within the area of antidepressants, and its lead drug Cipramil is among the best selling drugs in this area. Furthermore, H. Lundbeck s new drug Cipralex is forecast to become the number one antidepressant. With approximately 2, employees in Medicon Valley (of whom 75 are researchers), H. Lundbeck is the dominating neuroscience company in the area. As such, it is a major driving force behind the neuroscience research conducted in Medicon Valley, particularly through its connections with academia at Lund University. Here, H. Lundbeck is involved in the education of PhDs, and the company exchanges ideas with Lund neuroscience professors, e.g., by using the professors as external consultants. H. Lundbeck also helps fund selected research projects, often in connection with the education of PhDs. With its many skilled researchers and technicians involved in neuroscience research, H. Lundbeck also represents an important source of highly educated research staff that companies locating in the region can benefit from directly and indirectly. In addition to H. Lundbeck, several other companies, such as NeuroSearch, Maxygen, and Pharmexa, contribute to the corporate side of Medicon Valley s R&D within neuroscience. NeuroSearch, which like H. Lundbeck is specialized in CNS, has a particularly strong product pipeline with four products in clinical trials.

57 International Position Medicon Valley Neuroscience Leads in Applied Tissue Repair and Strong Corporate Presence The neuroscience research in Medicon Valley leads the world in the narrow field of clinical applied tissue repair. However, as the benchmarking of Medicon Valley s neuroscience research shown in Figure 35 reveals, the overall position in CNS is not quite on a par with those of the two leading international regions, San Diego and Boston. In comparison with these two regions, Medicon Valley ranks second or third on all dimensions except for big pharma presence where Medicon Valley, being the only cluster to benefit from the presence of a fully integrated pharma company, holds an edge over the other two regions. In sum, Medicon Valley is strong in selected research areas, but does not have the size and breadth of academic research in San Diego and Boston. Figure 35: Medicon valley s neuroscience research more narrowly focused again big pharma presence is unique Quality articles (1) # patents Index 5 Index San Diego Boston MV Boston San Diego MV # Ph.D. researchers (academic) Overall # biotech companies Index Academic MV San Diego Boston Index Boston San Diego MV Commercial Boston San Diego MV Academic funding High Low Big pharma presence Index Boston San Diego MV Academic neuro research in Medicon Valley is more narrowly based than e.g., Stockholm Global Head of Neuroscience, Top 5 pharma (1) Number of publications with impact factor >7 Source: Medline; Journal citation report; Institute homepages; USPTO; Bioscan; Interviews; BCG analysis MV San Diego Boston......

58 Key Selling Points and Target Investors for Neuroscience Medicon Valley s position within neuroscience research is attractive to investors in mainly three ways, as shown in Figure 36. Figure 36: Neuro degenerative diseases attractive in Medicon Valley Features of Medicon Valley Research in repair and prevention of neurodegenerative diseases of highest standard and with international reputation Medicon Valley with skills in translational medicine Neurologist in the groups Research with a clinical perspective Closeness to hospitals Medicon Valley with strong stem cellneuroscience synergies Attractive for Companies with interest in CNS repair/protection VC investors primarily late stage Companies with basic research tools wanting to expand into clinical applications in neurology or psychiatry Stem cell research companies First, Medicon Valley s reputation within tissue repair with several famous research groups (A Björklund and others, as mentioned earlier) is attractive for companies within this particular field. Second, the general knowledge in translational medicine is rare, and is attractive to a company that has basic research and wants to expand into clinical applications. The earlier-mentioned groups have gained a reputation for world-leading skills in bridging the gap between basic research and clinical application. Finally, Medicon Valley is also generally well-regarded for its ability to perform research with a clinical perspective. The stem cell research in the area is of high quality, but clinical applications are expected to take another ten and possibly 2 3 years. However, even at this stage, biotech companies with activities within stem cell research could take advantage of the newly formed Strategic Research Center for Stem Cell Biology and Cell Therapy (see Textbox 2 in Chapter Three).

59 Cancer: Medicon Valley Is Among The Leading European Regions In Cancer Research However, Not Quite At Par with Leading U.S. Regions Cancer research in Medicon Valley is focused on basic research, and although the community is large, on the whole it is not fully competitive with the world s leading centers mostly because of the lack of critical mass in world-class performance research. Furthermore, corporate-academic synergies are limited within cancer research. In sum, the case for cancer appears less attractive for attracting R&D and other investments than the cases for the three other therapeutic areas this study has explored The Market for Cancer Drugs Is Highly Attractive Cancer is one of the largest causes of human suffering in the Western world, in total exceeded only by neuropsychiatric diseases, as shown in Figure 24 above. Currently cancer drugs have net sales of approximately US$17 billion per year and this market grows at about 8 percent per year. In this respect, cancer represents a very attractive market. Many existing cancer treatments have side effects that severely affect patients quality of life. Therefore, besides finding new treatments for cancer, much research is focused on discovering treatment approaches with fewer side effects. A major problem in cancer research is the difficulty of predicting the outcome of treatment. One way to lessen this uncertainty is by individualizing treatment according to patients genetic profiles. In Medicon Valley, L Salford s research on immunogene therapy with autologous glioma cells is examining one possible method for achieving this goal. Cancer incidence increases with increasing age, and epidemiological studies based on good databases and patient records are an important method to increase our understanding of cancer etiology. G Berglund of Malmö University Hospital is currently in charge of a cancer-diet relationship study including approximately 28, people Medicon Valley s Academic Cancer Research Is Focused on Basic Research The cancer research community in Medicon Valley is estimated to comprise approximately 4 PhDs and the academic research funding in the area is approximately US$37 million. The strongest cancer research in Medicon Valley is focused on basic cancer mechanisms, such as cell cycle studies by J Bartek. Other strong areas are laminin-cell surface interactions (U Wewer) and proteins with tumor suppression or protection activities (e.g. M Jäättelä), as shown in Figure 37. More examples of key cancer research groups Medicon Valley can be found in Textbox 7.

60 55 Figure 37: Cancer research with basic research as main strength Basic research Clinical research Cell cycle studies Tissue degradation Cell receptor studies Tumor suppression and survival Identifying syndromes and responsible genes Epidemiological studies of dietcancer relationship Examples in Medicon Valley Exploration of cell cycle defects in tumor cells Mechanisms behind proteolytic degradation of the extracellular matrix in cancer Proteins responsible for laminin cell surface receptor interactions Possible implications in breast and colon cancer Tumor suppressing proteins in testicular germ cell tumors Heat shock protein role in tumor protection Genetic and environmental factors in breast and ovarian cancer Malmö diet and cancer study with >28, participants Examples of MV researchers J Bartek K Danø U Wewer NE Skakkebaek M Jäättelä H Olsson G Berglund When looking at the individual achievements by the top five researchers, it is obvious that a few very strong research groups are the main drivers of quality output in Medicon Valley, as as shown in Chapter Four. However, it is promising for the future that four of the top five researchers are under 5 years of age. Cancer research in Medicon Valley has relatively few synergies with other research areas, as shown in Figure 38. One of the few examples is the Malmö Diet and Cancer study by G Berglund, where the region s historical skills in epidemiology are being applied. Synergies should however also be achievable between cancer research and the newly formed stem cell research center (see Textbox 2 in Chapter Three). Stem cells are already in clinical use for treatment of some hematological malignancies where the patient s blood-building cells are destroyed by radiation therapy, and then replaced with hematological stem cells through bone marrow transplantation. Figure 38: Limited synergies for cancer research G Berglund: Malmö diet and cancer study: Epidemiology of cancer prevalence including 28, subjects Epidemiology Basic Tools Stem cell Immunology/ inflammation L Salford: Immuno gene therapy with autologous glioma cells transduced with interferon gamma genes Therapeutic areas NE Skakkebaek: Markers for germ cell cancer Cancer Reproductive medicine Clinical practice: Use of hematopoetic stem cells as treatment of blood malignancies Source: Interviews; BCG analysis

61 56 TEXTBOX 7: EXAMPLES OF CANCER RESEARCH CONDUCTED IN MEDICON VALLEY J Bartek, Danish Cancer Society, Copenhagen Identification and exploration of cell cycle defects in tumor cells, especially focusing on the so-called restriction point (late G1 switch). Coordination of G1/S transition, DNA replication and cell division. DNA damage checkpoints. G Berglund, Malmö University Hospital Research based on the The Malmö Preventive Project (over 33. subjects) and the Malmö Diet and Cancer Study (over 28. subjects): Two large, prospective, epidemiological cohorts with epidemiological database of exposures/life style and versatile biobanks including DNA, long follow-up and hence many cases. Analysis of the interplay between genetic and environmental factors in the development of chronic diseases such as cardiovascular disease and cancer. Å Borg, Lund University Molecular genetic characterization of susceptibility genes for familial breast cancer and malignant melanoma, and characterization of genetic alterations and gene expression profiles in breast tumors. K Danø, The National University Hospital, Copenhagen The mechanisms behind proteolytic degradation of the extracellular matrix in cancer. Tissue degrading proteases, and their role in the spreading of cancer cells. Protease inhibitors as a base for treatment. Use of the molecules involved in matrix degradation as prognostic markers in various types of cancer. M Jäättelä, Danish Cancer Society, Copenhagen Identification and characterization of alternative (caspase-independent) cell death pathways in cancer cells. Special focus on cathepsins and calpains as mediators and heat shock proteins as inhibitors of cell death. H Olsson, Lund University Studies of environmental and genetic factors in patients with malignant tumors. Identifying syndromes and responsible genes for breast and ovarian cancer, prostate cancer, malignant melanoma, colon cancer. Identifying markers of disease risk and study modifying genes. NE Skakkebæk, University of Copenhagen Tumor suppressing proteins in testicular germ cell tumors. Also other research of reproductive system, e.g. testicular problems. U Wewer, University of Copenhagen Proteins responsible for laminin-cell surface receptors interaction modification. One such protein (ADAM12) is suggested a role in breast and colon cancer. Research also with possible applications in muscular dystrophy.

62 Several Examples of Strong Corporate Cancer Research In addition to the US$37 million spent annually on academic cancer research, approximately US$5 million is spent on corporate research, making cancer the only stronghold where corporate spending does not significantly outpace academic spending. In Medicon Valley, a broad spectrum of companies are involved in cancer research ranging from drug discovery done by, for example, Acadia Pharmaceuticals and Active Biotech to drug development done by, for example, Genmab and LEO Pharma and from drug delivery in LiPlasome Pharma to diagnostics in DakoCytomation. However, within the field of cancer, Medicon Valley does not have a major pharmaceutical company that can drive the region s corporate research. Although LEO Pharma is relatively large compared with the other drug development companies, cancer only comprises a part of its total research budget. LEO Pharma therefore does not quite play the role in cancer that Novo Nordisk does in diabetes. That being said, LEO Pharma does have significant resources committed to cancer research and currently has two cancer products in the pipeline, one of which is in Phase III. Of the other cancer companies in Medicon Valley, Genmab, Pharmexa, and Active Biotech also have products in clinical trials. In sum, the corporate side of the cancer research in Medicon Valley includes a range of companies, but it is not, however, quite as strong as in the other three strongholds described earlier. Similarly, the ties between academia and corporate cancer research are not quite as comprehensive as in the other strongholds. However, notable exceptions are TopoTarget, which is currently developing a cell growth control active substance discovered at the Danish Cancer Society, and DakoCytomation, which markets the monoclonal antibodies discovered by J Bartek International Position Medicon Valley Is Among The Strongest Regions In Europe in Cancer R&D However, Not Quite At Par With Leading U.S. Regions To evaluate the region s position within cancer research overall in comparison to the position of its peers, Medicon Valley was benchmarked against Amsterdam, Boston, and Washington all widely recognized as leading regions for cancer research. Medicon Valley research had about the same number of quality articles as Amsterdam, but fewer than Washington. Compared to both Boston and Washington, Medicon Valley has very little patent production, as well as few cancer biotech companies. Furthermore, cancer research in Medicon Valley is the least funded. The overall result of this benchmarking and our interview findings is that Medicon Valley lacks critical mass, making its focus on basic research less attractive overall than its competitors within cancer research, as shown in Figure 39. In sum, Medicon Valley is in the lead in a European context together with Amsterdam, whereas the best U.S. clusters are well ahead on most key dimensions.

63 58 Figure 39: Medicon Valley with solid European position in cancer research overall Quality articles (1) # patents Index N/A Boston Wash. DC MV Amsterdam Index 8 4 Boston Wash. DC MV Amsterdam # Ph.D. researchers (academic) Overall # biotech companies Index 3 2 MV Boston Wash. DC Amsterdam Index Academic 1 Boston Amsterdam MV (2) Wash. DC Commercial Boston Wash. DC MV Am-sterdam Academic funding High Low Big pharma presence Index 1,6 1,2 8 4 Boston (3) Wash. DC Amsterdam MV (1) Number of publications with impact factor >7. Boston not available (2) Large share of researchers are M.D. Source: Medline; Journal citation report; Institute homepages; USPTO; Bioscan; Interviews; BCG analysis Boston Wash. DC MV Amsterdam (3) Dana-Barber and UoM constitute 2/3 of total Key Selling Points and Target Investors for Cancer Researchers on the Swedish and Danish side alike acknowledge the fact that Medicon Valley probably not is very attractive for pharmaceutical companies within cancer research, given the less apparent relative corporate strength combined with the quite narrowly focused academic research. Their international peers also have the impression that Medicon Valley, however strong within certain basic research, lacks the critical mass to attract significant corporate interest compared to the leading cancer regions in the world. The epidemiological studies performed in the area are interesting, but their findings are most likely as accessible from the United States as they are locally. The broad basic cancer research that Medicon Valley represents could, however, be attractive to companies already active in cancer research or starting new activities in this field, as illustrated in Figure 4. Figure 4: Medicon Valley s cancer research with more narrow investor attractiveness Features of Medicon Valley Broad basic cancer research Attractive for Companies active in or moving into cancer research VC with focus on early stage

64 59 6. KEY IMPROVEMENT AREAS FOR MEDICON VALLEY Although Medicon Valley has many strengths, this study has also identified a range of areas in which the region needs to improve its competitiveness vis-à- vis other biotech regions. While interviews and analyses also have revealed other potential areas of improvement, we will emphasize four key areas here, in which responsible authorities and politicians in Medicon Valley need to take significant action. The four areas shown in Figure 41 are all consistently seen as major concerns by a broad range of executives, investors, researchers, and other key opinion leaders within and outside Medicon Valley. They are also all areas in which fact-based analysis can establish and support the need for change. Figure 41: Four recommendations to local authorities 1 Ensure adequate public research budgets 2 Strengthen ability to commercialize results 3 Increase attractiveness for Phase I clinical trials 4 Integrate Swedish and Danish sides better 6.1 Ensure Adequate Public Research Budgets As discussed earlier, it is an established fact that the amount of public research drives the amount of private investments within a defined geographic region. As Figure 42 shows, Denmark and Sweden have a disproportionately low share of public R&D spending relative to the private spending (positioned over the curve on the right graph). Thus, we cannot assume that private investments will increase without increasing public spending.

65 6 Figure 42: Denmark and Sweden with low share of public R&D spending relative to private spending Pharma R&D personnel (number) 1 1 Correlation of public funding of biomedicine and number of R&D personnel employed by the pharma industry DK FIN S NL I GB F D USA R 2 =, Public funding of biomedical research (BEUR) Critical to ensure academic research funding at internationally competitive level Sources: BCG analysis, ABPI, LIF, SNIP, VFA, PhRMA, NeFarma, Farmindustria, JPMA, Eurostat, BMBF, Statistisches Bundesamt, MPG, HGF, WGL, FhG, NSF, NIH, AIRI, Eurostat, Federal Reserve Board, EFPIA AUTM licensing survey It is critical to recall that private R&D investments rarely are made in regions with little or no public research. Significant public research resources are key determinants in the eye of potential investors. Therefore it is unlikely that Medicon Valley can sustain its relatively high level of private R&D unless public funding increases. The risk is not only that new potential investors will choose other regions with more public research, including education of researchers. Perhaps an even more serious risk is that major companies currently located in Medicon Valley will direct an increasing share of their R&D investments abroad to ensure that their R&D sites are located close to leading and well-funded academic research groups. The gap is considerable. Even within the four identified R&D strongholds where Medicon Valley academic institutions spend a large share of funds today, the funds available per researcher are diminutive compared to the leading research centers in each of the four R&D areas, as shown in Figure 43.

66 61 Figure 43: Even in R&D strongholds, public funding in Medicon Valley significantly below peer regions Diabetes Neuroscience (MUSD per researcher) Boston Seattle MV (MUSD per researcher) Boston San Diego MV Inflammation Cancer (MUSD per researcher) Boston San Diego MV (MUSD.5 per.4 researcher) Washington DC.29 Boston.8 Amsterdam.4 MV Note: Source: Public funding per researcher BCG analysis 6.2 Strengthen Ability to Commercialize Results Even if several examples exist of successful applications of academic research results, Medicon Valley s commercialization ability can be strengthened. Comparing patenting activity across the four R&D strongholds with their international peer regions shows that commercialization performance is moderate, as shown in Figure 44. Figure 44: Medicon Valley patenting activity generally below peer regions Diabetes Neuroscience # patents # patents MV (1) Seattle (6) Boston (5) MV (1) San Diego (4) Boston (5) Inflammation Cancer # patents MV (1) San Diego (4) 66 Boston (5) # patents MV (1) Amsterdam (2) Washington DC (3) (1) Estimated as 9% of Danish and 2% of Swedish patents (2) Estimated as 75% of Dutch patents (3) City specific search using Washington DC Note: Numbers are total patents in Note: Patent search completed using USPTO database of patents issued Source: USPTO database; BCG analysis and estimate (4) City specific search using San Diego and La Jolla. Calibrates with total California state number (5) City specific search using Boston and Cambridge, MA. Calibrates with total Massachusetts state number (6) City specific search using Seattle. Calibrates with total Washington state number One factor underlying commercial success is the initiative of academic institutions in driving commercialization via technology transfer offices (TTOs). Despite recent actions taken to

67 62 strengthen Medicon Valley s abilities in this respect, it is clear that the region still has insufficient resources to drive and facilitate commercialization, as illustrated in Figure 45. Figure 45: Limited commercialization resources in Medicon Valley Research spend p.a. Lund University Copenhagen University Technical University of Denmark Royal Danish School of Pharmacy MV total Stanford (3) UK Best Practice (4) 315M USD 9M USD 8M USD 13M USD 5M USD 42M USD 24M USD Patents filed p.a. ~ ~ Start-ups formed p.a ~ # FTEs 4 (2) 3 2 <1 (1) ~ TTO started year (1) TTO function part of legal office. Less than one FTE (full time equivalent) work with patenting issues (2) Including Forskerpatent i Syd (3) 1999 numbers (4) 1999 numbers Oxford (best practice among Edinburgh, Oxford, Glasgow, Manchester, UCL and ICL) Note: 1 USD = 7.6 DKK Note: Unless otherwise indicated, numbers are 21 Source: Interviews; AUTM; BCG analysis 6.3 Increase the Attractiveness of Medicon Valley for Phase I Clinical Trials Late-stage clinical trials are increasingly conducted in low-cost countries. Because of the increasing ability to meet requirements and because of the activities of contract research organizations to transfer trial volumes to these countries, Sweden and Denmark hold a traditionally strong position on the less volume-intensive but knowledge/research-intensive early-stage trials in Phases I and II. High activity levels in early-stage clinical trials are a key element in all R&D strongholds, since they enable companies to conduct trials locally and to recruit staff with the necessary skills to conduct and manage trial processes. Benchmarking analyses and interviews suggest that Denmark, especially, is increasingly becoming a less favorable location for Phase I trials, mainly as a result of the practice of the local ethics committee, as shown in Figure 46. It is key for Medicon Valley to seek to better accommodate the needs of the pharmaceutical industry, either by adjusting the focus and practices of the ethics committee on the Danish side or by actively channeling trials to Sweden where the environment is somewhat friendlier.

68 63 Figure 46: Ethics committee key barrier to higher share of Phase I trials j Denmark s and Sweden s MPAs have relatively tough set goals and high level of achievement... Duration from application to approval (1) GCP UK Achievement level 82%...but ethics committee in MV is subjected to extensive criticism They focus not only on ethics, but on academic details that make it impossible to move fast Medical director, global pharma comapny MV is much worse on this than other Swedish sites CSO, global pharma company US Denmark Sweden Week days 95% 92% Speed is everything in phase I. MV don t stand a chance. We do it all in UK, as they don t approve separately between pre-clinical and phase I Head of CT, global pharma company There are too many small popes with power that don t see the importance of speed and collaboration with the industry Medical head, global pharma company MV authorities should look for quicker ways of handling applications in early phases Approval cooperation could make trials possible over country borders? (1) GCP = good clinical practice, in use by May 24 Note: Federal medical approval and ethics committee approval can usually be applied for and processed simultaneously; MPA = Medical Product Agency Source: Lægemiddelstyrelsen; Etisk komité i Københavns Amt; Medical Control Agency (UK); London s Ethic Committee; DeARk (SE); Läkemedelsverket (SE); FDA/CDER; interviews Particularly, the weaknesses seen in Phase I trials are important to address, and their correction should be feasible. Phase III is less important, since it is increasingly difficult to compete with the generally lower-cost level of conducting them in Eastern Europe. As illustrated in Figure 47, Medicon Valley has much strength in clinical trials in general and relatively few weaknesses. The former should be exploited and the latter addressed to further improve Medicon Valley s position in clinical trials. As shown in Figure 47, several specific opportunities for improvement exist, many of which could be readily addressed. Figure 47: Clinical trials in Medicon Valley face both opportunities and threats Strengths Highly skilled and well reputed researchers and investigators Relatively cost efficient High quality usually leading to global acceptance Epidemiological expertise support CT design Weaknesses Very complicated application process Often not enough patients for later studies Opportunities Leverage on strengths in branding Connect CT and regular health care more Educate top investigators Closer collaboration with the industry Strong in phase I and II CT means strong in biotech Cooperate in application process for pan-national trial setups Threats Complexity in application makes pharmas move Diminishing health care budget, leading to loss of competitive quality strengths It is important to note that the rules regarding clinical trials are to be harmonized in the European Union by May 24. This will likely mean that some of the issues outlined above, e.g. the ethics committee issue, will decrease itself over time. However, it is recommendable that action on the issues outlined above is taken already now.

69 Integrate the Swedish and Danish Sides Better While it is evident that Medicon Valley must function across different legislative structures, regulatory authorities, and tax regimes, it cannot be emphasized enough how crucial it is to increase the cooperation and dynamics between the two sides of Øresund. Several studies suggest that both companies and academia are increasing their partnerships and the degree of networking 14. Still, these interactions are just emerging. Our observations suggest that, in fact, collaboration is limited even within an area of strength such as diabetes R&D, where both sides boast world-class research and the region as a whole is potentially the strongest in the world. There are several means for increasing the level of cooperation, which clearly is an important issue for potential international investors that want to be reassured that locating on one side of Øresund means that the resources on the other side are still available to that company. One way is to facilitate PhD exchange programs between institutions. Another is to install a frequent and free-of-charge-transportation system between campuses in the two countries. 14 The formation of Medicon Valley Academy is a good example of the increasing degree of networking.

70 This report identifies the R&D strongholds where Medicon Valley potentially holds a world-leading position and is commercially attractive to potential investors. The report is the result of a collaboration between Copenhagen Capacity, Region Skåne Inward Investment and The Boston Consulting Group. Copenhagen Capacity and Region Skåne Inward Investment are the partners promoting Medicon Valley in a joint effort to strengthen the life science cluster in the region. Medicon Valley the cross-border region comprising greater Copenhagen in Denmark and Skåne in Southern Sweden is one of the most successful European biotech clusters and well positioned to attract companies, capital and talented people. The companies in the region represent a broad range of activities across all stages of drug discovery, production, medical technology and devices as well as a wide range of supporting technologies and services. To date, more than 1 biomedical companies have established themselves in the region that also have a very solid presence of major pharmaceutical companies as well as leading academic research labs working in a number of commercially attractive areas. For further information visit or contact: KIBERG&GORMSEN Copenhagen Capacity Gammel Kongevej 1 DK-161 Copenhagen V Denmark Tel Fax info@copcap.com INWARD INVESTMENT Region Skåne Inward Investment Stortorget 9 SE Malmö Sweden Tel Fax invest@skane.se The project has benefited from a grant from the European Union program Interreg IIIA and a grant from the private equity company 3i. Part-financed by European Regional Development Fund Interreg IIIA-Øresund