Exclusive: Karolinska launches funds drive for spin-outs

Karolinska Institutet, one of Europe’s biggest biomedical universities, is seeking to raise an extra SEK 1 billion (around €110 million)to fund new campus spin-out companies, according to President Harriet Wallberg-Henriksson.

The financial campaign, expected to wind up in 2008, will more than double the capital that the institute’s fund managers can invest in on-campus discoveries. Target investors in the new fund, the institute’s third since 2002, include venture capital firms, Wallberg-Henriksson said in an interview with Science|Business.

The Karolinska initiative is the latest in a series of fund-raising efforts by Europe’s leading scientific and technical universities – all competing to meet rising investor appetite for hot new technologies, and to speed the transfer of their researchers’ discoveries from lab to market. For instance, the University of Cambridge plans to raise more seed capital; France’s École Polytechnique recently announced ambitious fund-raising plans to double its research operations; and Imperial College London last year floated its tech-transfer office on the London market to raise £26 million.

Nobel research

Karolinska’s spin-out efforts, begun in the 1990s, are among the most active in European academia – though still small by the standards of scientifically comparable US universities. The institute, whose faculty names the annual Nobel Prize in Physiology or Medicine, has in its labs, spin-outs and other parts of its innovation system about a third of all the new drug candidates under study in Swedish academia or industry; many are in development with big pharmaceutical companies, but some of them have been the basis for a spin-out community that now numbers about 45 companies. .

The Karolinska model has been to create free-standing investment funds on campus, with professional managers who raise capital from pension funds, venture capitalists and other big investors. The approach, Wallberg-Henriksson said, spreads the risk of the spin-out investments over a broad portfolio – a “more secure” arrangement for the VCs than investing in each spin-out company on their own.

Karolinska’s first fund, in 2002, started with SEK100 million, and its second has raised SEK 700 million and has 33 portfolio companies. Because the funds are relatively young, they don’t yet have an extended investment track record. In the second fund, Karolinska Development II, one company had reached the stage of selling products by the end of the fund’s fiscal year ended 31 March, while three companies had advanced their drug candidates beyond the lab into phase I or II clinical trials, according to the fund’s annual report. In the report, fund manager Conny Bogentoft promised for this year “a hardnosed prioritization to capture a sufficient number of exit candidates that will live up to our expectations.”

‘Now we’re pragmatic’

The fund-raising is part of a broader drive by Karolinska to get more of its discoveries into the marketplace – and reflects a fundamental change in the way researchers think about investors or corporate partners.

“The atmosphere has changed” on campus, said Wallberg-Henriksson. “When I started (as a researcher) there was an attitude about having contact with industry:  You shouldn’t. You should be pure. That is gone. Now we’re pragmatic.”

The institute now gets about 10 per cent of its research budget from industrial contracts – high by European standards, and competitive with the industrial-funding budgets of some leading US universities (Industrial support in 2006 provided 12 per cent of MIT’s revenues, for instance, according to its annual report.)  One of Karolinska’s biggest recent deals has Astra-Zeneca investing SEK 80 million in a high-tech positron-emitting tomography scanner for Karolinka’s affiliated teaching hospital.

Investment activities by Swedish universities have long been a politically delicate matter – and in 1995, Karolinska set up a separate holding company to handle its spin-out investment, licensing and some other commercial income – chiefly, from continuing education services for Swedish doctors and nurses. The holding company reported income of €5.2 million for the year ended 31 March. In 2005, Karolinska and the Swedish pharmaceutical association drafted a code of ethics to govern their relations – and prevent conflict-of-interest scandals of the kind that have plagued some American universities in their drug-industry contracts.