Life science is an important industry for the Swedish economy. According to statistics from SCB Pharmaceuticals are currently the second largest export from Sweden, with a value of SEK 100 billion and a positive net trade of SEK 47 billion. Over the past ten years, the industry has increased its exports from Swedish production facilities by 60 percent.
The government has identified the sector as important for Sweden's development and since 2014, life science has been one of the government's highest priority areas.
"Sweden shall be a leading life science nation. Life science contributes to improving the health and quality of life of the population, ensuring economic prosperity, further developing the country as a leading knowledge nation and realizing Agenda 2030," states the government's strategy for life science.
Johan Jarte is active in several companies and is the contact person for the industry association IML, Innovative Small Life Science Companies. He has been active in the Swedish life science sector for just over twenty years.
Good conditions for clusters
– Sweden has excelled in life science during all the years I have been involved. We in Sweden are and have been incredibly good at stimulating innovations and creating breadth in the field. An important strength is that we have created good conditions for clusters.
Johan Järte emphasizes the importance of clusters and hubs for start-ups.
– I am working with a company in AWL's co-working environment at Karolinska Institutet, it is an environment that is good for new companies. When you have raised some money and can get started, you can sit here, use the laboratory, meet people from the industry, academia and experts on patents, for example.
Sweden has a good environment for small start-ups according to Johan Järte. Among other things, he points out the abundant support that Vinnova distributes to new innovations.
– It gives us a good breadth. The teacher exemption has been very important, it means that researchers can go in and patent their discoveries, which the universities encourage.
Then follows a tough period for the companies
Then comes a more difficult phase. Once a company has started and received the start-up capital, it often goes well for a period. But then the really tough journey begins. Johan Järte has noted that when a company needs to do a clinical trial or a more advanced study, it immediately becomes more difficult. This requires broader financing and since projects in life science often have a long way to go to market, there are not many players who are willing to put in money.
– Several years ago, a survey was conducted that showed that more than 50 percent of new companies in life science had financing for at most nine months ahead. Sweden is a small country with few private investors who can get in, it's tough.
In that situation, some companies choose to list.
– Some companies go to the market to be able to carry out their studies. But unfortunately many innovations end up in the “startup graveyard” at this stage if they don’t manage to raise enough capital. Then when the candidate proves to work and you are closer to the market, investors suddenly pounce.
Sweden has good conditions to continue to excel, but then we need to get better at taking advantage of innovations, says Johan Järte.
– We are clearly good at innovation and creation. We have a level of innovation called "duga" and we produce an enormous amount of research. We just need to get a little better at taking care of the innovations.
Johan Järte would have liked to see more financing opportunities.
– For example, Vinnnova could set up a financing fund. In Denmark, they have a system with many foundations, which is smart, then innovation stays in the country. We are good at innovation in Sweden, but it is often a foreign investor who buys up and makes a lot of money instead of Sweden taking advantage of the innovation that we have already spent tax money on supporting.
Sweden is a unique market
BioStock has also spoken to Adam Kostyal who is European listing manager at NasdaqAccording to him, the Swedish market is the most active for life science in all of Europe right now.
– What is unique is that the market supports small and medium-sized companies in a way that other European markets have not succeeded in doing, while we also have several large players.
Adam Kostyál is positive that companies have the opportunity to go to market early.
– Companies here often go to the market at an earlier stage when they need to raise money to move on to the next step. We have succeeded better there than many other markets. It is important that the stock exchange continues to act as a catalyst for venture capital for future growth.
Attractive also for international players
But it is not just the access to venture capital that makes Sweden successful. The knowledge cluster that has emerged in Sweden makes the market attractive, even for international players.
– We have a well-functioning ecosystem in Sweden where there is a lot of knowledge about life science among investors. The market in Sweden is much more active than other comparable markets. For example, Germany had 24 listings last year, we had over 60. Since the Swedish life science cluster is so strong, many international players follow the Swedish market. Something that attracts international players to Sweden is that companies can be listed here at very different stages. We have seen that companies from different parts of the Nordic region are coming here because they think there is a strong cluster here around Stockholm that continues to grow.
Sweden is doing well in comparison with the rest of the Nordic region.
– Markets like Helsinki and Copenhagen lack the activity we see here. If you list your company, you don't want to be completely alone in your sector, you want to be among other comparable companies so that you don't have to educate the market on your own.
Now challenges await
As risk appetite now appears to be decreasing, Adam Kostyál believes that the big challenge will be to get companies and investors to agree on the correct valuation.
– We can expect a tough market ahead, both publicly and in unlisted environments. We will see many who need to raise money earlier than expected and perhaps at lower valuations. It will be a big challenge to reach the right valuation between companies and investors. The willingness to take risk may not be as great, but there are enormous opportunities to invest at lower valuations than before.
Adam Kostyál says that there are several companies that have shown interest in listing on the market, but are now choosing to wait.
– Now it is the listed companies that are raising capital, with the new listings having stalled a bit. Interest remains from both Sweden and the Nordic countries, but many want to wait for the right opportunity.