Alternative routes needed to secure serious foreign capital (consultation response)

There are better ways to protect serious foreign investors - without creating administrative obstacles for Swedish life science companies. This is what SwedenBIO writes in its response to the government's proposal for a system for reviewing foreign direct investments.

Photo: Iris Öhrn, investment advisor life science, Business Region Göteborg

The government’s report on Review of foreign direct investments (SOU 2021:87) was circulated for consultation in February, to develop proposals on how a Swedish system for this can be designed in areas worthy of protection. The purpose of the regulations is to control takeovers and strategic acquisitions of companies based in Sweden whose activities or technology are of importance for security or public order.

Many of SwedenBIO’s member companies are active in the areas mentioned – for example in biotechnology and nanotechnology; databases with sensitive information such as personal data such as human genetic data; artificial intelligence; and critical infrastructure for healthcare.

Safeguarding both protected areas and serious investments

The proposed review system is based on the influence that the investor gains as a result of the investment and would mean that a foreign investor who owns at least 10% of a Swedish company in one of the protected areas must notify all other investments.

In the life science industry, it is not uncommon for a foreign investor to acquire more than 10% of a company’s shares in a capital raising, as many financing events involve relatively small amounts in companies with low valuations, such as SEK 10-100 million.

Among SwedenBIO’s members, 74% are companies with less than 49 employees, which reflects the composition of the industry in Sweden as a whole. These companies depend on substantial investment to carry out value-creating research and innovation. An average phase 2 study in a drug development company costs in the region of SEK 100 million.

To meet the capital raising needs of the Swedish life science industry, both national and international capital is required. International investors play an important role here as domestic investors focused on life sciences cannot fully cover the needs of the industry. At the same time, there is fierce global competition for international capital.

Iris Öhrn, investment advisor in life science at Business Region Göteborg, is one of those who contributed to developing SwedenBIO’s response to the report.

“I understand the importance of introducing reforms or mechanisms to review investments with regard to national security. However, we need to keep in mind that foreign direct investment is an important source of capital for Sweden’s innovative companies and complements domestic private and public investments”, says Iris Öhrn.

SwedenBIO believes that the review system can worsen the conditions for our life science companies to compete for international capital. It may also impose disproportionate administrative burdens on small companies and risk slowing down time-critical processes in the context of raising capital.

Better global positioning and strengthened innovation support systems

Strengthening long-term sustainable access to capital from serious players is a prerequisite for Sweden to be a leading life science nation, which is the government’s ambition with the National Life Science Strategy. However, our assessment is that the current law already does not take into account the reality for Swedish SMEs, and we therefore present alternative ways for the government to address the potential impact of FDI on security and order.

One way to protect serious direct investors in life science companies is for the government to actively promote Sweden’s position as a life science nation in the leading investor networks around the world. This can be done by strengthening regional and national investment promotion and stepping up Nordic cooperation on life sciences.

Another important part is alternative measures that are important for meeting the problems addressed by the Committee’s directive. Sweden has a strong innovation system that surrounds the early stages of life science company development. A number of state or semi-state actors are required to support early stage life science companies, where the need for capital is high and often time-critical, and the company’s resources to qualitatively evaluate different international funding opportunities are limited.

Here we want to point out the importance of all actors who are tasked with supporting the companies, or who themselves have interfaces with international direct investors, being able to carry out their assignments with good transparency and understanding of the risks of rogue capital, as well as the importance of not creating administrative obstacles for Swedish life science companies. Project-based initiatives and temporary pilot projects create fragmentation and a lack of continuity; for example, Vinnova closed down the national incubator platform after two years, just as Sweden’s life science incubators had set up a well-functioning way of working to share expertise among themselves.

“I hope we can see more focus on how to maximize the positive impact that foreign direct investment can have on our industry and our Swedish companies,” says Iris Öhrn.

“Foreign investment can contribute to the development of the Swedish life science sector by creating new jobs and supporting the inclusion of our companies in global value chains, giving them access to new markets and the opportunity to develop new skills. In the health sector, they can help improve the quality of our health systems, for example in terms of medical equipment and health infrastructure, and thus support Sweden’s efforts to achieve the SDGs,” she says.

Given the critical importance of the life science industry to society, administrative burdens based on different national interests should be weighed against the importance of the industry’s companies being able to capitalize and continue to bring new medical breakthroughs to the market.

Read the full consultation response here .