Increasing investment in German biotech, but early-stage financing is a cause for concern: lowest figure in six years
(Stuttgart, June 5, 2024) More fresh capital for the German biotechnology industry: capital raising rose to 1.1 billion euros in 2023 – an increase of 17 percent compared to the previous year, when 921 million euros were raised. The current figure is thus roughly back to pre-pandemic levels – albeit well below the sums raised in the biotechnology sector in Germany during the coronavirus crisis of 2020 (€3.1 billion) and 2021 (€2.3 billion). During the crisis, numerous local companies in the sector were able to use their expertise to make an important contribution to containing the pandemic worldwide.
Investments in the form of venture capital also increased compared to the previous year, from 465 million euros in 2022 to 533 million euros last year. However, almost half of this amount (255 million euros) went to a single company, ITM Isotope Technologies Munich SE. And even by international standards, the investment sums appear rather small: in Germany, 0.01 percent of GDP was invested in biotech, while in the rest of Europe it was 0.02 percent and in the USA as much as 0.05 percent.
The situation remains challenging, especially with regard to early-stage financing at the start of a company's foundation: in 2023, biotech start-ups raised 203 million euros in early-stage capital, which is the lowest figure in the last six years and well below the average for that period (325 million euros). A total of eighteen investment rounds were conducted in the early stages, with the average transaction volume shrinking to eleven million euros, well below the six-year average of 21.2 million euros.
In total, the biotech industry's total revenue in 2023 was 12.7 billion euros – down 51 percent from the previous year. The drop in revenue is mainly due to the decline in demand for Covid-19 vaccines. By contrast, the number of employees rose by ten percent to 61,705 employees in what is now 996 companies (up three percent). The number of companies is comprised of 784 companies headquartered in Germany and 212 German subsidiaries.
Second year in a row without a biotech IPO
For the second year in a row, there were no IPOs of German biotech companies. This trend is particularly challenging given that IPOs are an important exit opportunity for investors. The fact that the last ten IPOs all took place on the US NASDAQ – and the last debut on a German stock exchange was in 2016 – underscores the negative trend. By way of comparison: there were only two IPOs in Europe last year, while there were 16 IPOs in the US.
These are the results of the German Biotechnology Report 2024, published by the auditing and consulting firm EY, which was prepared in close cooperation with the industry association BIO Deutschland.
Klaus Ort, Partner at EY and Head of the Life Sciences & Healthcare market segment: “The financing difficulties of young biotech start-ups represent a major challenge for the sustainable growth of the industry in Germany, also in view of the difficult overall economic situation. The situation in the early stages is particularly alarming, because this is the phase that is crucial for the future growth of the sector. It is decisive when it comes to developing innovative ideas into potential products with corresponding sales opportunities. Because the fact is: the potential and strength are there in the industry.”
One reason for the still unsatisfactory financing situation in the industry is that major investors such as pension funds, insurance companies and other institutional investors are still prevented from investing more heavily in high-risk asset classes such as biotech companies, explains Oliver Schacht, President of BIO Deutschland e.V.: “In principle, however, we are on the right track in Germany. The Chancellor's Council for the Future has outlined important measures for a strong biotech location. The EU Commission has recommended a significant strengthening of biotechnology and bioproduction. We can still catch up with the USA and China if we finally get down to action and implement the many correct recommendations.”
Full pipelines give hope
Despite current challenges and cautious investors, the pipelines of German biotechs are currently even better filled than in previous years. Especially in clinical phase 1 (60 clinical trials, six more than in 2022) and phase 2 (92 clinical trials, twelve more than in 2022). The number of clinical trials in phase 3 remained constant in 2023 compared to the previous year, at 17. The broad clinical pipeline includes innovative therapies from all types of drug classes. The focus remains on cancer research, with 94 clinical trials currently underway for the treatment of various types of cancer. The search for ways to combat infectious diseases is in second place, with 23 clinical trials currently underway.
Schacht: “Well-filled pipelines are a strong signal from the industry – to potential investors, but also to society. That is because German biotechs are making a decisive contribution to the search for solutions to challenges that affect us all with their research work on important health and nutrition issues.” For example, biotech companies in Germany are working on sustainable alternatives to conventional food. However, it is also important that we can protect our inventions “Made in Germany” with patents, adds Schacht. Only then will they be of interest to investors and thus have a chance of reaching patients and consumers as innovations.
AI will revolutionize numerous areas of biotechnology
Another hot topic in the industry is the potential applications of artificial intelligence – and these are more diverse and extensive in biotech companies than in any other industry. Nicole Damani, Partner at EY and Life Sciences Strategy and Transactions Lead: “Artificial intelligence is already helping biotech companies: the new technology can accelerate the development process of drug candidates, reduce failure rates, and even deliver better results, for example in the form of completely new or optimized drugs. Today, almost 500 drug candidates are developed using artificial intelligence every year – and the trend is rising.
Klaus Ort from EY adds: “Whether it's simulating clinical trials, analyzing big data or developing personalized drugs, the biotech industry is at the beginning of this development, which holds tremendous potential to usher in the next phase of life sciences innovation. However, while it is appropriate to be optimistic, we must always be mindful of the ethical and societal consequences of using AI, especially in the healthcare sector.”
What else gives us hope, in addition to innovative products, AI application possibilities and well-filled pipelines, is that the popularity of 'Biotech Made in Germany' among international investors and cooperation partners remains high, which is reflected in the composition of the financing consortia in the well-financed VC rounds and the consistently high transaction volumes in the partnerships. In addition, the largest M&A transaction in the history of the German biotech industry took place at the beginning of this year: MorphoSys signed a takeover agreement with Novartis worth 2.7 billion euros. Furthermore, the largest M&A exit of a German biotech company since 2020 also took place: the acquisition of Cardior Pharmaceuticals from Hannover by Novo Nordisk for one billion euros.
The current EY Biotechnology Report 2024 can be downloaded here:
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BIO Deutschland at a glance
BIO Deutschland e. V. represents the interests of biotechnology companies at every stage of maturity and their stakeholders with its unique network. Our goal is to support and promote the development of an innovative industry in Germany based on modern life sciences. Biotechnology transfers biology into industrial application. It has already shown visible benefits in medicine. Innovative bio-based economic systems can enable Germany and Europe to achieve sovereignty and prosperity in the long term. Our companies research, develop and market globally. We are a strong community. We value diversity, openness and equal opportunities and are committed to the free democratic basic order. www.biodeutschland.org
V.i.S.d.P: Dr. Claudia Englbrecht, englbrecht@biodeutschland.org , +4930233216430