Swedish Health Startups Ignore Venture Funds to Boost Cash 600%

Swedish entrepreneur Bert Junno needed money for his biotechnology company, WntResearch AB (WNT), after rejecting proposals from venture capital firms.

“One offer was $150,000 for 80 percent of the company,” Junno said. “I wouldn’t say that’s a fair offer.”

WntResearch raised about seven times that amount when it sold shares on the Stockholm-based AktieTorget AB exchange, where investments average $4,800. The company’s market value has climbed 34 percent since trading began Dec. 17, compared with the 4.1 percent advance of the 17-member Bloomberg index of European pharmaceutical stocks.

A record 12 health-care and biotech stocks have gone public on Sweden’s four exchanges in the past 18 months, data compiled by Bloomberg show. The share sales have emerged as the Nordic economy delivers one of Europe’s strongest rebounds, with the economy growing an annual 6.4 percent in the first quarter, and after venture capital investments slumped to a five-year low.

A survey of 19 listed and 100 unlisted companies found that about half expect to seek as much as 50 million kronor ($8 million) of funding within three years, said Hans Sievertsson, chairman of Stockholm-based industry group SwedenBIO. That may exceed what investors are willing to spend, he said.

“We may have too many companies that are competing for the same buck,” Sievertsson said.

Venture capital firms “are trying to buy projects and companies very cheaply,” said Junno, whose Lund-based WntResearch in southern Sweden is developing a cancer treatment that slowed tumor growth in mice. “I don’t need their money at those prices.”

Seeking IPOs

Government efforts to encourage scientists to turn their products into profits are sending more startups to market, said Lennart Hansson, the life-science investment director for Industrifonden, a government initiative to bolster innovation.

They “are being stimulated to form companies and file for patents and then, when they need 20, 40, 60 million kronor, they are in deep trouble,” Hansson said.

An average of one Swedish company per month announced plans to pursue an initial public offering in the year ended May 31, according to Bloomberg data. In the same period, Poland had nine IPOs, France five, and the U.K., Switzerland and Germany none.

Venture capital was a major funding source for industry newcomers before the global economic crisis cut off funds, said Marie Reinius, the Stockholm-based chief executive officer of the Swedish Private Equity and Venture Capital Association. Now, venture capitalists have shied away from an industry where the chances of getting a product to market can be as low as one in 10,000, according to Pharmaceutical Research and Manufacturers of America in Washington.

‘Too Little Money’

Swedish venture capital investments in all industries fell to a five-year low of 2.66 billion kronor in 2010 from a high of 5.8 billion kronor in 2008, the association said in March.

“We have too little money in the market for the early- stage companies,” Reinius said.

An absence of capital also is denting the industry outside Sweden. In the U.S., early-stage biotechs cut research spending by about 1 percent after available funds dropped 21 percent last year, London-based consulting company Ernst & Young said in a June 14 report.

Swedish health-care companies developing products such as cancer therapies have sought a combined 939 million kronor in IPOs since May 2010, Bloomberg data show. The amounts range from 608 million kronor for Solna-based Karolinska Development AB to 4.84 million kronor sought by PharmaLundensis AB (PHAL) in Lund.

Investors are hoping they are buying into the next Pharmacia AB, the Swedish drugmaker that New York-based Pfizer Inc. (PFE) bought for $58 billion in 2003, said Guenther Maarder, the CEO of the Swedish Shareholders’ Association in Stockholm.

Cancer Test

Charlotte Aronsson, the CEO of Uppsala-based AroCell AB, figured her chances of reaching an acceptable deal with a venture capital firm were so low that she traveled across Sweden to pitch the company’s experimental cancer test directly to investors. A 25-year veteran in the diagnostics industry, Aronsson raised 7 million kronor. AroCell shares have gained 21 percent since trading began on May 25.

“Many people can relate to this kind of business,” Aronsson said. Many investors are older, and “disease is always close to them,” she said.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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