Biotechnology in Germany

A German biotechnology company based in Martinsried, GPC Biotech, raised €78.6 million in June through public and private placements in Germany, the US, and other countries. "Our recent financing was one of the most successful biotech offerings in terms of proceeds for the year to date, on either side of the Atlantic," said Dr. Bernd Seizinger, CEO of GPC. It is now one of the few German biotechnology companies listed on NASDAQ.

Horst Domdey

More good news came from Berlin-based biotech company Epigenomics, which went public on the Frankfurt stock exchange in July — the first biotech IPO in Germany for almost three years. Despite early doubts, this IPO signals hope for many other biotech companies waiting to enter the stock market. It may also signal an upcoming revival of financial markets.

There is other good news for German biotechnology companies. This spring, for example, Jerini, also based in Berlin, raised €31 million in private financing. There have been additional announcements of important deals with large pharmaceutical and biotech companies. MorphoSys, a Martinsried-based company, sealed a strategic collaboration deal with Novartis and will receive $30 million in R&D funding and technology license fees over the first three years, as well as a strategic investment worth €9 million.

As the biotech industry in Germany matures, companies are starting to bring products to market and report the first sales revenues. In 2004, MediGene, one of Germany's public biotech companies, recorded its first sales revenues from Eligard, its first product on the market. In the first six months of the year, MediGene received €8.6 million from their marketing partner Yamanouchi and raised its revenue forecasts for the year to €12 million.

Pharmaceutical companies are also increasing their biotechnology efforts in Germany: Roche Diagnostics announced in June that it will invest nearly €300 million in new production facilities for recombinant antibodies in Penzberg (south of Munich), which is currently Europe's largest biotechnology production facility.

Table 1. Examples of Biotech Cooperations in 2003 and 2004

And, last but not least, Germany is a leading producer and exporter of pharmaceutical and chemical products. In 2001, for example, the country exported pharmaceuticals worth €14.8 billion — more than Switzerland, the US, or the UK, according to the UN Export Statistical Division. It is among the top three pharmaceutical markets and has frequently been called the "pharmacy of the world."

BIRTH OF GERMAN BIOTECHNOLOGY

The German biotech industry did not take off until the early 1990s, but it has made a tremendous effort to make up for lost time. Now Germany leads Europe in the number of privately held biotech companies, following only the US and Canada worldwide.

In their latest biotech report on Germany, Ernst & Young counted 350 companies whose main business is commercialization of modern biotechnology, who use new technologies, and who aim for growth. More than 90% of these "core" biotechnology companies are active in drug development, diagnostics, or drug delivery, but only three percent in the area of transgenic plants. In addition, there are numerous biotech-related companies, suppliers, and service companies in Germany as well as a range of large, international pharmaceutical companies.

Dr. Bernd Seizinger, CEO of GPC Biotech

OPPORTUNITIES FOR PARTNERING

More important than the number of companies, however, is the number and quality of drug candidates in these companies' pipelines. By the end of 2003, approximately 200 compounds were under development in German biotech companies, about one quarter of them targeted at combating cancer. The number of candidates is increasing. Several companies will reach significant product milestones or even product launches in the near future.

Since most of the young German biotechnology companies have not yet established their own sales and marketing divisions — and many do not plan to ever do so — these strong product pipelines offer plenty of opportunities for partnering. Leading German biotech deals announced in 2003 and 2004 are shown in Table 1.

From the point of view of the pharmaceutical companies, partnering is urgently needed. "Biotechno-logy remains the most important source of new products for the pharmaceutical industry. One half of the 30 products expected to be launched into the market in 2004 are thought to have biotechnological origins," said Harald Schwarz, investment director for Medical Strategy.

Dr. Simon Moroney, CEO of MorphoSys, added, "In contrast to the interest shown during the economic downturn in 2002, current interest from Big Pharma derives from long-term considerations. Observations of investments of Big Pharma into research and development over the last few years clearly seem to prove this trend. Those investments have grown continually, reaching $33.2 billion in 2003."

OPPORTUNITIES FOR INVESTORS

Until the early 1990s, regulatory and legislative barriers kept German scientists from setting up their own companies. These barriers have been addressed, and a range of federal and regional initiatives have encouraged rapid growth of the new industry.

One of the most important initiatives was the federal government's 1995 BioRegio program. This program provided funding for biotech startups in Munich, Heidelberg, and the Rhineland. By 2001, Germany surpassed the UK in the number of biotech companies and became one of Europe's biotechnology hot spots. Venture capital became readily available and the public fell in love with stock markets. The 2001 financial market crash made financing a major issue for Germany's still largely private companies. Fierce competition persists and is expected to significantly reduce the number of companies in the coming months. Difficult economic times have created opportunities for investors in the form of low valuations.

TECHNOLOGY TRANSFER

Excellent science is the basis for a flourishing biotech industry. There are 359 colleges — including 99 state universities, 95 private colleges, and 158 universities for applied sciences — in Germany. There also are world-class research institutions, such as the well-known Max Planck Institutes and the Helmholtz Gesellschaft, a research foundation that operates the German Cancer Research Center in Heidelberg, the National Center for Health and the Environment (GSF), and several other respected research institutes. The Fraunhofer Gesellschaft is famous for applied sciences.

As a result of the country's strong science basis, German scientists are responsible for 9% of all publications in internationally renowned journals, following the US and Japan. The highest percentage are in space science journals, followed by physics and molecular biology.

The quality of German research also can be seen in the number of healthcare patent applications, where Germany is surpassed only by the US. This level of innovation makes technology transfer essential to bringing research results into the market. While hardly discussed a decade ago, technology transfer has become increasingly sophisticated. There are numerous technology transfer offices, including Garching Innovation, the technology transfer office of the Max Planck Society (with more than 20 years of experience), and Ascenion, the tech-transfer organization of the Helmholtz Gesellschaft.

GOVERNMENT SUPPORT

The German government, while generally cutting costs, increased R&D expenditure by €1 billion between 1998 and 2003 to approximately €9 billion. Over the same period, private companies also increased R&D investment. With R&D currently 2.5% of GDP, Germany is in a leading position in Europe.

Biotechnology is considered a key technology for the 21st century by the German government. The Federal Ministry for Education and Research (BMBF) will spend approximately €800 million on life sciences between 2001 and 2005. The BMBF also supports small and medium biotechnology enterprises with its own complimentary €100 million program. A special fund created by the Federal Ministry of Economics and Labor — €500 million — is expected to leverage VC funds to encourage further private VC investment. A joint effort involving private and public lenders, this fund is designed to trigger €1.7 billion in investments over the next five years.

BIOCLUSTERS

Munich now hosts approximately 100 biotech companies, 63 of which are classified as "core" biotech companies. Similarly, 28 and 27 core biotechs are located in the Rhineland and Heidelberg bioclusters, respectively. Other locations also have promoted the biotech industry, some of them very successfully. Berlin, for example, now harbors 50 core biotech companies.

Strong networks exist among local biotechs, with coordinating agencies such as Bio^M AG in Munich (www.bio-m.de) and BioTop in Berlin (www.biotop.de) acting as central points of contact. These agencies are excellent starting points for anyone seeking in-depth information about a region or contacts among local industry and academia.

THE FUTURE

Raising money remains difficult for biotech startups, especially younger companies that do not yet have compounds in clinical trials. Therefore, startups must be cost efficient and well managed, with an excellent scientific basis and good connections to industry leaders, to flourish. Lower labor costs compared to Boston or the San Francisco Bay area will likely provide a competitive advantage for German companies.

In addition, more mature companies are starting to find it easier to attract investors. Jerini AG's recent €31 million financing round may be just the opening of future financing rounds. The successful IPO of Berlin's Epigenomics on July 16, 2004 may be the first for a number of German biotech companies waiting to enter the stock market. Companies frequently mentioned as possible candidates include Develogen, Jerini, Micromet, Paion, and Wilex. At the moment, however, there are still some bargains to be found within the German biotech industry.