Frankfurt At first glance, investments in the German biotech industry are still high: According to the biotech report by the auditing and consulting company EY, 2.4 billion euros were invested in 2021. This is the second-highest sum in the history of the industry in Germany. The capital inflow was even higher in 2020 at three billion euros, but half of it went to the mRNA vaccine developers Biontech and Curevac.
However, the difficult economic situation and the uncertain stock market environment are now dampening the mood in the German biotech industry. After a record year of IPOs, disillusionment has set in on the US capital market, which is also becoming increasingly important for German biotech companies. According to the EY experts, the investment climate there has deteriorated significantly, IPOs have become more difficult and financing rounds are now taking longer than they did a year ago. No biotech company from Germany has dared to go public this year.
And the inflows of other venture capital into German biotechs are now also lower: from January up to and including May of this year, around 400 million euros of fresh money flowed into the industry, the industry association Bio Deutschland has calculated. This is less than half compared to the same period last year, when 943 million euros were reached. However, the comparison is distorted by a substantial capital increase by the vaccine developer Curevac, which collected more than 430 million euros in February 2021. Overall, the German biotech industry is still doing better than before the pandemic.
However, the search for qualified employees is becoming more difficult. In the biotech industry, which now has more than 770 companies, the shortage of skilled workers could act as a brake on growth, the experts at EY fear. The number of employees has increased over the past year. But in an empty labor market, companies not only compete with each other for the best talent, but also with other sectors.
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The past year was an exceptional year of growth for biotech companies. In the industry as a whole (including non-listed companies), revenues quadrupled to a good 26 billion euros. Of this, however, 18.9 billion euros are attributable to the Mainz-based vaccine developer Biontech. The market capitalization of the 24 listed companies rose – also largely driven by Biontech – by the end of 2021 by 74 percent to 85.4 billion euros, but has since fallen again to almost 60 billion euros.
Too few start-ups
Industry observers are also concerned about the number of start-ups by German biotech companies. “Only ten start-ups last year are not enough,” said Oliver Schacht, chairman of the Bio Deutschland industry association. You now have the unique opportunity to become a leading international location for biotechnology. “The industry figures show that we have to significantly strengthen the start-up dynamic,” said Schacht. In the view of the organic chairman, the framework conditions for growth financing would have to be further strengthened.
However, the development of management talent is also critical. Better networking and targeted mentoring could help founders to avoid making mistakes when building companies. “A lot more can be done here,” says EY partner and life sciences expert Alexander Nuyken.
As far as financing via the stock exchange is concerned, German biotech companies have also turned their attention to the USA. All four IPOs of the past year took place on the US stock exchange Nasdaq. In addition to the small medical diagnostics specialist Mainz Biomed, which took advantage of Biontech’s appeal, Atai Life Science had collected the equivalent of 219 million euros from investor Christian Angermayer via an IPO. Atai wants to develop therapies for mental illnesses with psychedelic substances.
The companies Biofrontera and Evotec managed a secondary listing on the Nasdaq, with Hamburg-based Evotec also having the largest IPO of a European biotech company with a volume of 413 million euros. According to the specialist service Biopharmadive, the four German companies had a share of just four percent of the total volume of biotech stock market issues of almost 15 billion dollars in the USA.
Nasdaq is becoming increasingly important
While capital income from IPOs increased last year, income from venture capital, convertible bonds and follow-on financing fell about 20 percent from a year earlier. However, if one excludes the two vaccine developers who achieved particularly high inflows from venture capital and follow-up placements in the previous year, it shows that the industry achieved the highest level of capital raising in its history last year.
Investors are particularly interested in innovative cancer therapies. Three cancer specialists were among the largest venture capital rounds of the past year: Emergence Therapeutics from Essen, T-Knife from Berlin and IOmx from Planegg near Munich. Incidentally, Atai Life Science was able to collect the highest amount of venture capital, almost 133 million euros, in a financing round three months before the IPO.
Overall, the experts at EY are observing an increasing number of mergers and acquisitions in the German biotech industry. In 2021, Morphosys from Planegg made the largest acquisition ever made by a German biotech company: Morphosys took over the US company Constellation Pharmaceuticals for around 1.4 billion euros, which later led to high value adjustments and a sharp drop in the Munich company led.
The number of alliances between German biotech and pharmaceutical companies has meanwhile grown from 33 to 48 deals in 2021. However, overall volumes were smaller than in the previous year.
Two biotech companies stood out: Pieris signed a EUR 1.2 billion agreement with Genentech in the areas of respiratory diseases and ophthalmology, and another license agreement with Boston Pharmaceuticals in the area of immuno-oncology for more than EUR 30 million.
And Immatics from Tübingen, which develops immunotherapies against cancer, closed an alliance with Bristol Myers Squibb for 778 million euros. At the beginning of the month, both of them expanded their cooperation and want to develop cell therapies based on standardized, genetically modified immune cells. If successful, the alliance could bring more than $4.2 billion in payments to Immatics.
More: These could be the biontechs of tomorrow – five German biotech hopes of investors