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STRATEGIC INSIGHTS 

International Economic Development For companies in search of a better location or international presence, countries in Asia and Europe are offering a host of incentives, including tax credits and reduced red tape.

BY TERI ROBINSON AND BOB VIOLINO

October 14, 2004

Asia 

AUSTRALIA 
Australia is counting on its knack for innovation, keen respect for intellectual property, and strong entrepreneurial spirit to play well among biotechnology startups and companies seeking to relocate their operations. Approximately 300 biotech and biomedical companies, including Merck, Pfizer, GlaxoSmithKline, and Wyeth, call Australia home for at least some of their initiatives.

The government has thrown its considerable weight behind developing biotechnology business, according to the groups Austrade and Invest Australia. It recently awarded a $28.5-million grant to the country's National Stem Cell Centre on top of initial funding of $30 million given in 2000.

Many government initiatives are aimed at boosting R&D efforts and reducing costs. The Pharmaceuticals Partnerships Program gives companies 30 cents for each additional dollar they spend on eligible R&D in Australia. Over five years, the program is expected to disburse $78.5 million. Eli Lilly has already nabbed a $5-million grant to increase its investment in drug discovery and pharmaceutical development.

According to Invest Australia, all companies can get a 125-percent tax deduction for eligible expenditures on R&D exceeding $14,300. And those companies that invest even more in R&D are eligible for a 175-percent tax deduction under the Premium R&D Tax Concession.

And companies considering expanding into Australia will find investment dollars available. Three new biotechnology funds emerged in 2003: the Burrill Australia Fund ($71.4 million), Scientiaus ($178.4 million), and Intersuisse ($107 million).

The country has streamlined its regulatory process, essentially promoting a deregulated system in which 99 percent of clinical trials are approved within a week by the Australian Therapeutic Goods Administration (ATGA) under the Clinical Trial Notification system. At the same time, the ATGA has signed a memorandum of understanding with the U.S. FDA that lets the two groups freely exchange information on pharmaceutical facilities inspections and clears the way for Australia-based companies to market their wares in the United States.

Many of Australia's 40 universities have strong biotechnology programs and provide the basis of much of Australia's research.

Research institutes are plentiful. A Major National Research Facility (MNRF) initiative by the government identifies and supports facilities that are key to developing the country's research infrastructure. Since July 2001, more than $110.6 million has been allocated to 15 MNRFs, seven of which are related to biopharma and will receive the lion's share ($71.4 million).

For more information: AusTrade, www.austrade.gov.au;
Invest Australia, www.investaustralia.gov.au


NEW ZEALAND 
It may be a small country, but its relatively open economy, lack of bureaucracy, and pro-enterprise stance have the biomedical services industry taking a hard look at New Zealand. Currently, the land that was Middle Earth is home to 40 core biotech companies and another 300 companies involved in service and support, and the industry employs approximately 3,900 people.

New Zealand's efforts to attract biotech have paid off. More than 50 percent of the core biotechs in the country were founded in the past three years.
The New Zealand government in recent years has taken steps to make the environment more inviting for startups and companies that are relocating. The government has created grants to aid with product development as well as training of scientists. R&D is 100-percent tax deductible.

The government has supported establishment of a venture investment fund, which offers matching dollars from both government and the private sector.

New Zealand places a strong premium on corporate governance, with legal procedures that guide auditing, governance, and business ethics. But the regulatory environment is relatively free of red tape and obstacles. "New Zealand has a practical regulatory environment" that moves quickly, says Gerard Dunne, director of Beltas, a clinical research organization.

A number of groups promote New Zealand's biotechnology industry within the country's borders and to the rest of the world. They include Invest New Zealand, the New Zealand Biotechnology Association (NZBio), and BioTenz, a group of providers of biotech products.

New Zealand's efforts to attract biotech have paid off. More than 50 percent of the core biotechs in the country were founded in the past three years, according to New Zealand Trade and Enterprise.

The nation recently signed the Australia-New Zealand Biotech Alliance, which seeks to raise the profile of both countries in the international arena and build a more collaborative relationship between the two. Michael Werner, chief of policy at the U.S.-based Biotechnology Industry Organization (BIO), said the two countries represent "one of the most exciting growth areas in the world for the biotechnology industry."

For more information: New Zealand Trade & Enterprise, www.nzte.govt.nz


CHINA 
Read enough about China and one gets the notion that the country is poised, somewhat precariously, to become the leader in biotechnology in Asia — although statistics supporting that contention are not easy to find.

According to a report from the Market Support Division of the Department of Foreign Affairs and International Trade in Canada, biotechnology investment grew by a "remarkable 2,500 percent" between 1988 and 2000. Indeed, the report notes, there is plenty of opportunity for "joint-venture initiatives with foreign biotechnology enterprises and research institutes that would contribute to the development of China's biotechnology output capacity."

China has attracted big names such as Bristol-Meyers Squibb, Johnson & Johnson, and GlaxoSmithKline. Shanghai alone has approximately 300 biotech companies and pharmaceutical firms, employing more than 10,000 scientists and engineers.

Companies seeking to relocate or start up in China would do best to partner with local entities or at least develop strong business connections. Networking among personal contacts is extremely important in China, not only in terms of opening doors to the country's tremendous opportunities but also as a way to help shepherd companies through and around the complicated regulatory and business environments.

The Chinese government has clearly made biotech a priority. The Ministry of Commerce developed a set of guidelines in 2000 aimed at R&D centers invested in by foreign companies. The guidelines, which specified that programs must be worth $3 million or more to qualify, sought to define technology transfer and foreign participation in R&D. They also require approval by a provincial department. Even joint ventures that are already in existence must register with provincial authorities, according to the Canadian report.

In 2000, the government also made clear its intentions to revamp its scientific environment, saying it would begin privatizing more than 100 government-run scientific research institutes as it had done with 242 research organizations in 1999.

China boasts an array of research bodies and institutions that feed the biotech industry, including the National Science Foundation of China, Shanghai Centre of Bioinformatics Technology, China National Institute for the Control of Pharmaceutical and Biological Products, and Zhongshan University Biotechnology Research Centre. But even with all of those resources and an estimated 20,000 researchers in the life science arena, it can be difficult to find the right talent to staff pharmaceutical endeavors, according to some reports.

Funding, too, is still iffy. While the government plan means investing $1.45 billion in biotech between 2001 and 2005, venture capital is harder to come by — at least from U.S. companies. And, according to China Daily, banks routinely turn down requests for loans from small companies.

For more information: Ministry of Commerce of the People's Republic of China, english.mofcom.gov.cn/


SINGAPORE 
Already home to facilities run by major pharmas such as Lilly, Pfizer, and Novartis, the Asian republic of Singapore has invested in building an infrastructure that will support a thriving biotech industry.

Twenty companies are currently considering starting up or relocating their operations in Singapore, and an additional 20 to 25 companies are involved in developing products for biomedical purposes, according to Beh Swan Gin of the Singapore Economic Development Board (EDB).

Biopharmaceuticals and other biotechs have set their sights on Singapore for several reasons: The country's technology infrastructure is sophisticated; taxes are virtually non-existent, according to a KPMG Canada report; and companies "setting up or doing R&D won't be plagued with a lot of regulation or bureaucratic red tape," Beh says.

Spearheading Singapore's foray into biomedical sciences is the Biomedical Sciences Group of the EDB, and the Biomedical Research Council of the Agency for Science, Technology and Research (A*STAR). A*STAR funds five major institutes.

Beh notes that 150 financial management firms handle approximately $16 billion in venture capital. While the republic's financing experience is strongest in the IT sector, three or four VC funds are dedicated to biomedical ventures. Bio*One Capital, the EDB's investment branch, manages $700 million in funds aimed at biomedical sciences.

The crown jewel of Singapore's biomedical community is Biopolis, a 185,000-square-foot, seven-building facility that will house the R&D labs of pharmaceutical and biotech companies as well as publicly funded research institutes. The center enters its second stage of development next year.

For more information: Singapore Economic Development Board, www.edb.gov.sg


JAPAN 
The flagging economy could use a boost from the biotechnology industry, one of five main industries the government has identified as key to a turnaround. Japan has long hosted biopharmaceutical firms but more recently has redoubled its efforts in the broader biotech field.

"The biotech market is becoming very lucrative because of the financial market, and the valuation is very high compared to places like the U.S.," says Toshihiro Nakada, managing director of investment firm Soft Bank Life Science.

According to the Japan External Trade Organization (JETRO), goods and services in the biotech sector should reach $16 billion in 2005, up from $12 billion in 2002. More than 300 biotech companies have started up in Japan in the past three to four years, and the government expects that number to reach 1,000 by 2010.

The rapid rise in startups is due in large part to fundamental changes in the way Japan regulates and does business. The country has made a concerted effort to deregulate, and in 2000 eliminated a rule that prohibited professors at national universities from holding executive positions at private companies. Before that, there was no formal way for universities to move their technologies into the commercial sectors, says Brandon Boyle, assistant director of business development and public relations at JETRO. Large companies are now spinning off startups to partner with universities and turn their developments into commercial offerings.

As privatization has taken hold, much of the earlier funding that existed for biotech has dried up. But the government is prioritizing funding for biotechnology, setting aside a budget of at least $1 billion to build the industry. And JETRO, in addition to other groups, is looking to private companies to provide more money to bolster biotech revenue streams for the next five years. JETRO expects the pace of venture funding to increase significantly.

Japan is devoting resources to developing its infrastructure, growing bioclusters, conforming to international standards, reducing regulation, and developing its talent pool to attract biotech business, observers say. In 2005, the country plans to become more aggressive in pursuing foreign alliances.

For more information: Japan External Trade Organization, www.jetro.go.jp


Europe 

UNITED KINGDOM 
Some of the world's top-selling medicines were developed in the United Kingdom, and scientists there have made key breakthroughs in biomedical research, so it's no surprise that the nation's biotechnology sector is the largest in Europe, and second in the world only to the United States. There are more than 480 biotech businesses in the United Kingdom, employing some 26,000 people. U.K. companies have produced at least 42 marketed biotechnology drugs. The sector raised more than $820 million in investments in 2002 (the latest figures available).

The productivity of drug discovery in the United Kingdom, measured by patents filed per pound invested, is higher than in any other G7 economy, according to UK Trade & Investment, a group that works closely with English regional development agencies and national development agencies in Scotland, Wales, and Northern Ireland. Pharmaceutical companies spent $5.9 billion on R&D in the U.K. in 2002 (latest figures available), accounting for 10 percent of global R&D spending. Biopharma companies get no specific tax benefits beyond the standard corporate R&D tax credits.

GlaxoSmithKline and AstraZeneca have their global headquarters in the United Kingdom. The world's largest pharmaceutical company, Pfizer, has its European research and development center in Sandwich. Among the major biopharma companies with facilities in England are UCB Celltech, Cambridge Antibody Technology, Acambis, Eli Lilly, Chiron, Syngenta, and Aventis. About 71,000 people are employed in the pharmaceutical industry in the U.K., of which 29,000 work in R&D.

Key academic and research organizations in England that contribute to the biotech sector include Oxford University, Cambridge University, Kings College, the Sanger Institute, and the European Bioinformatics Institute.

For more information: U.K. Trade & Investment, www.uktradeinvest.gov.uk/ukti/appmanager/ukti/home


SCOTLAND 
It's only 29,000 square miles, and it's part of Great Britain, but Scotland stands on its own as a biotech region. It has one of the largest and most diverse life science clusters in the world, with more than 100 companies involved in developing products. More than 30 of these companies are in drug discovery and development, according to Scottish Development International.

Scotland has invested heavily to create an infrastructure for biopharma. Science and research centers are scattered throughout the country. A $368-million biomedical research facility is being built adjacent to the new Edinburgh Royal Infirmary. Edinburgh is also home to a 25-acre biomanufacturing center.

Scotland has one of the largest and most diverse life science clusters in the world.
Financial incentives for biopharmas include regional selective assistance (RSA), a national grant scheme aimed at encouraging investment and job creation in the areas of Scotland designated for regional aid under European Community law. Businesses of all sizes can apply for RSA, whether they are Scottish-owned or owned or headquartered outside Scotland. In the five years through the end of March 2004, businesses in Scotland accepted more than 900 offers of RSA, totaling more than $737 million.

Scottish Equity Partners, one of the largest independent private equity groups in the U.K., is currently investing from a fund in excess of $184 million. Some life science investments include Cyclacel, a pioneering cancer therapeutics company, and Gendel, a drug delivery company. The Archangel Investment consortium, one of the first business angel groups to be formed in Scotland, is currently investing between $9 million and $11 million a year.

Among the key academic and research organizations in Scotland with bioscience programs are Dundee University, University of Edinburgh, and University of Glasgow. Biopharmas with facilities in Scotland include Invitrogen, Inveresk Research, Quintiles, Organon Research Scotland, and Ardana Bioscience.

For more information: Americas Scottish Development International, www.scottishdevelopmentinternational.com


FRANCE 
If the wine, food, museums, and countryside aren't enough enticement, France has added significant tax credits. The government this year increased the size of R&D credits and dramatically widened the scope of eligibility, according to Invest in France. The government raised the tax credit cap per company from $7.2 million to $9.6 million annually and the total annual R&D tax credit to $1.2 billion.

Companies are now eligible to receive tax credits on a combination of their total R&D investment and the year-to-year investment increase. The new provisions apply to R&D spending since Jan. 1, 2004, and are available to international companies seeking to expand their presence in Europe as well as existing and new French companies. The credit applies to fundamental research, applied research, and experimental development. Other forms of support include subsidies and interest-free loans.

The French biotech industry includes more than 300 "pure biotech" companies, according to Invest in France, the French government agency for international investment. Biotech research and development investments in 2002 totaled $282.4 million. The industry employs more than 7,500 people, and the pharma industry overall employs 100,000 people, 18,000 in R&D.

The country has some of the world's top national research institutes, and is a leader in drug discovery, oncology, and immunology, the organization France Biotech says.

There are 10 biotech clusters around the country, located near major cities such as Paris and Bordeaux. Biopharmas that already have facilities in France include Abbott Laboratories, Amgen, Bristol-Myers Squibb, Chiron, and Lilly.

For more information: France Biotech, www.france-biotech.org/TEMPLATES/HOMEPAGE_UK.asp.


GERMANY 
It seems only fitting that the birthplace of aspirin has one of the largest biotech industries in Europe. Germany has about 350 core biotech firms located in 25 fast-growing BioRegions, according to the trade group Biotech Industry Organization. The industry employs more than 13,000 people, and it is estimated that 200,000 jobs in Germany now depend directly or indirectly on biotechnological know-how. Germany leads Europe in the number of pharma-related patent applications, according to the German Federal Ministry of Economics and Labor.

In the past several years the German government has provided various incentives that would appeal to biotechs, including financial support for R&D. The Federal Ministry of Education and Research is helping to restructure the German biotechnology sector by introducing new funding measures for small and medium-sized companies. In addition, the European Investment Fund has launched an "umbrella fund" specifically to invest in Germany. Under this plan, up to $2.1 billion will be mobilized over the next five years.

Among the academic and research institutions in the country with biosciences programs are the Institute for Applied Biosciences, German Center for Biotechnology Research, Max Planck Institute for Molecular Genetics, and the Resource Center of the German Human Genome Project. Companies based in or with established facilities in Germany include Bayer, Schwarz Pharma, Aventis, Exelixis, and Munich Biotech.

For more information: Association of German Biotechnology Companies, www.dechema.de


SWEDEN 
Sweden has a strong pharma/biotech tradition. The country offers close links and collaboration between industry, universities, and the public healthcare system; several dedicated pharma and biotech funds; and good access to skilled staff.

With nearly 200 companies, Sweden is home to Europe's fourth-largest biotech industry, according to Invest in Sweden Agency (ISA), the government department that assists foreign investors with local business opportunities.

The Swedish biotech sector employs some 6,000 workers. There's a mix of big companies such as AstraZeneca, Pfizer, Amgen, Amersham, and GE Healthcare, and innovative smaller firms such as Affibody, Cellartis, and Neuronova.

The nation's biotech firms are active in the entire supply chain of new therapy and drug development, with particular strengths in drug discovery and development, biotech tools and supplies, and bioproduction, ISA says.

Sweden provides good access to specialized venture capital and technology transfer. Swedish biotech firms are among Europe's largest recipients of venture capital. University-based technology transfer units facilitate the early stages of commercialization.

Sweden does not offer any R&D tax incentives, but ISA says the country has the lowest corporate tax rate in Europe.

For more information: Invest in Sweden Agency, www.isa.se



ILLUSTRATIONS BY JOSÉE MASSE 





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