According to the doctoral thesis of Laura Heinonen M.Sc.(Econ), public funding for Finnish drug development companies should be more sustained than at present and target larger companies. The business economics thesis On the pursuit of growth in technology-based companies. The role of public financing in the start-up process of Finnish drug development companies, will be defended at the Turku School of Economics on 4 December 2009.
In her doctoral thesis, Laura Heinonen examines the growth process of Finnish drug development companies and how public financing has influenced their growth possibilities. The case companies of the research are four Finnish drug development companies between 1995 and 2006: Juvantia Pharma, Hormos Medical and Biotie Therapies from Turku and FIT Biotech from Tampere. Their activities have relied heavily on public financing from Tekes and Sitra.
A prerequisite for growth is success in drug development, which requires sufficient external financing, even at the preliminary stage.
– In the beginning, financing is difficult to obtain from elsewhere, and companies would perhaps not even start risky drug development projects without public financing. In the financing of the companies being researched, however, we were talking about tens of millions of euros, whilst the development costs of a new drug can easily rise to 500-700 million euros, illustrates Laura Heinonen.
In order that companies can conclude co-operation agreements with large pharmaceutical companies that are significant from a point of view of growth, their own drug development projects should achieve certain milestones, such as patient trials. Within the framework of financial resources, the researched companies had difficulties in achieving these targets.
The importance of international venture capital investors
In the financing of the growth of drug development companies, international venture capital investors play a significant role. They can offer not only large financial investments but also significant strategic support in business decision-making. This is important, because small technology-oriented companies often lack business expertise.
– If a company's product portfolio is too thin, and consists of projects at a very early stage, it does not meet the criteria of international venture capital investors. In order to spread the risk, such investors require a company to have several projects at the clinical trials stage, which are already close to the market, says Heinonen.
Of the companies in Heinonen's research, Biotie Therapies has succeeded in receiving significant investment from international venture capital investors and is continuing to operate successfully. Juvantia Pharma has ceased operating in Finland, and Hormos Medical has been transferred to American ownership. FIT Biotech is continuing its operations, but is in constant need of raising new finance.
Public financing must aim for larger entities
On the basis of the research, it can be reckoned that decisions concerning public financing should take into account companies' long-term growth requirements. Companies must be developed up to the point at which they have a sufficient number of product development projects at a late stage, which is attractive to international venture capital investors. In order to achieve this aim, such things as company mergers must be considered.
– Public financiers should be able to support companies in strategic decision-making, when they face challenges in their business operations. Finnish financing organisations have not been able to offer companies such support, says Heinonen.
Public ownership in companies dilutes the interest of international venture capital investors in companies.
– Investments should be made through ways other than share ownership. The establishment of new companies could also be postponed and work could be done for a longer time through university projects, for example, says Laura Heinonen.
Further information:
Laura Heinonen
+358 50 501 5522, laura.heinonen(a)turkuamk.fi
The thesis can be read at: http://info.tse.fi/julkaisut/vk/Ae14_2009.pdf