Some disillusionment-but also a little bit of hope, Biotech in Bavaria–Report 2018/19

By Dr. Mathias Schott  and Sebastian Sommer

To start off with the good news, Bavaria has proven its position within the German Biotech scene last year. The Free State accounted for an astonishing 40 percent of the German deals, which ranged from EUR 25m to EUR 222m in the last three years. The by far biggest transaction, however, was the 2018 BioNTech deal with a volume of EUR 222m. With such a remarkable sum, the German BioNTech placed the 2nd biggest transaction within the European Life Science industry of the last three years. What is more, Bavaria still dominates with the “conventional VC rounds” with an invested volume of EUR 113m and AuM of EUR 4,550m, not taking into account the governmental KfW Förderbank – the biggest Life Science investor in Germany.

Nevertheless, a look at the German market is still associated with a drop of bitterness. While the number of VC deals in Europe increased, they have decreased in Germany. Practically, Germany only accounted for 7% of the European volume.

In a market that is dominated by the United Kingdom, France being a distant second, Germany only made it to the 3rd rank based on volume and 4th rank based on number of deals. One can look at it with cautious optimism: Less deals but higher volumes, underlining the principle “quality over quantity”, which is not necessarily wrong, especially in a sector as sophisticated as biotechnology. Still, one might ask whether Germany is selling themselves short.

Many transactions take place in the United Kingdom, these are however also the most important. During the last 3 years, 60 percent of the top 10 deals originated on the island. As previously mentioned, BioNTech is the only German company that could break through the phalanx of British top deals. This underlines a significant point.

One might argue that the British dominance is no surprise, as over the past five years 85 percent of the UK’s funding has been reinvested into its own country, which is why the largest deals come from the UK. But this idea lags: Germany in comparison invested only 70 percent in domestic companies during this period – the home bias is apparently not as distinctive as across the English Channel. In fact, for the first time, German investors invested more in foreign companies than in their own country in 2018. The question arises as to whether foreign biotech companies simply perform better or are smarter in attracting capital.

Putting it another way: German biotech companies are more dependent on foreign investors. Most of the funds come from Switzerland, followed by, not surprisingly, Great Britain. Another reason why no German investors are among the top 10 investors in Europe in the last three years, thus making German biotechs increasingly dependent on foreign investors, is probably the backlog demand Germany has for investor hubs: German cities were not among the locations of the largest investor hubs of the past five years. Again, the UK and France are much better represented.

Nevertheless, it is doubtful that Germany’s lag in Life Sciences is due to the performance of the biotechs themselves for the following reasons: The importance of Germany’s contribution to the international biotechnology sector is apparent when looking at the indications that receive funding. Excluding the BioNTech mega deal, the majority of the funds target oncology. Additionally, three investments were made into companies specialising in cardiovascular diseases, thus supporting research and development in the fight against the world’s leading cause of death. The development stage of the companies is a major factor in Germany, where investments are preferred from phase II onwards (three transactions in phase II, one in phase III and one in market maturity).

However, Germany is not inactive in the fight against capital shortages. In 2018, five VC funds with a total volume of EUR 1,500m were set up in Germany, which include LSP and Forbion due to their large involvement in the German life science industry. With TVM Capital, to get back to the point made at the beginning of this article, one fund comes from Munich and another one, namely Occident Capital from Switzerland, successfully settled in Munich. This, last but not least, emphasises again the important role Bavaria plays in biotechnology on both the technical and financial side, not only for Germany but also for Europe.

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