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The biotech sector in Bavaria has strongly developed over the last years

Bavaria has been able to establish itself as a location for biotechnology and innovation in recent decades. However, at an international level, still lags behind. One step in the right direction is the law on tax incentives for research and development, which came into force in Germany at the beginning of this year and is intended to boost private investment.

Eva Wesley

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The whole world is in a race to see which company can develop an effective drug and a vaccine against COVID-19 faster. The pandemic has achieved what would have been unthinkable just a few years ago: companies in the biotechnology industry have not only gained some momentum but are experiencing a real hype. Now investors are loosening their grip on capital – and a lot of money is at stake. 

Prof. Dr. Haralabos Zorbas, Managing Director of the Industrial Biotechnology Bavaria Network (IBB), described it as follows: “The Bavarian biotechnology scene is currently experiencing its greatest renaissance since the mid-1990s, when several biotechnology hotspots were established as a result of the Germany-wide BioRegio competition.” 

On the federal level, Bavaria is a biotech location that is far ahead of the rest of Germany: several regions exist there in which life science institutions have established themselves, such as Munich-Martinsried, Regensburg, Franconia and Straubing. Things look good for the industry – but there is still room for improvement.

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How many biotech companies are in the Bavarian region

According to Invest in Bavaria, the State of Bavaria’s business development agency, some 350 companies from the biotech industry are based in the region. That is also due to the renowned universities there with high competence in biotechnological research and teaching. 

“Bavaria can score points with its excellent networking of university-based scientific research with clinical know-how and access to diagnostic expertise. This is not often found in this density and quality,” said Dr. Regina Hodits, Managing Partner at Wellington Partners.

In addition, the Bavarian scene also benefits from the fact that major IT and high-tech companies are settling in the region. “This very good starting position should be further expanded by greater willingness to take risks on the part of founders and investors and by pushing ahead with digitization,” emphasized Zorbas. 

The corona pandemic has brought a lot of attention to the industry – but it is also a challenge: “I hope that the industry will seize the opportunities to quickly bring meaningful tests, vaccines and drugs to the market,” warned Dr. Matthias Kromayer, CEO of MIG Verwaltungs AG. It is a matter of doing justice to the newly won trust.

A good state support system for the biotech sector in Bavaria

The life sciences sector was also able to establish itself in Bavaria thanks to the broad-based state support system: “The assistance provided by the Bavarian Ministry of Economic Affairs for young start-ups and also for established companies in the biotechnology sector is remarkable. There are various support programs, but the IZB is also state-subsidized and has been there for start-ups in Bavaria for a quarter of a century,” explained Dr. Peter Hanns Zobel, Managing Director of the Innovation and Start-up Center Biotechnology (IZB).

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The Bavarian Cluster Initiative, the IBB, and others are also available to help companies in the sector transform scientific ideas into innovative products and processes – including comprehensive support and connection to professional networks.

Significant funds are now available for biotech companies in Germany

In Corona times, everyone is talking about biotechnology, especially the companies which deal with the development of drugs, vaccines and the like. After all, at the moment it is no longer about “genetically manipulated tomatoes,” but about curing diseases that scourge mankind and have far-reaching consequences for the economy. 

Against this background, this year even the German government has made a media-effective investment in the Tübingen-based company CureVac. Bavaria is an innovative location and Coronavirus pandemic has also improved the availability of capital in the Free State. 

“In the middle of the lockdown, we have started financing a new company in Munich, SIRS Therapeutics, which will further advance the development of a drug for the treatment of acute lung failure,” explained Hodits. Nevertheless, the extremely long, risky and expensive product development cycles for new drugs sometimes cause investors to hesitate. “Let’s put it this way – there have been much worse times in Germany and Bavaria. There is currently significant money available for biotech companies, both globally and locally,” Hodits added.

Germany biotech sector is still lagging behind at an international level

However, there is a need to catch up in the international comparison of countries. “In principle, it is still relatively more difficult for a biotech start-up to raise capital in Germany than in some other high-tech countries,” explained Zorbas. “We still perform below average in a European comparison alone: Of the approximately $15.2 billion (€13 billion) in capital raised in the European biotech sector in 2019, German companies have only acquired around $1 billion(€860 million),” he added. Kromayer of MIG sees difficulties rather in the further financing: “For Seed/A/B rounds the availability of capital is good”, but “for follow-up financing in the higher double-digit million range the outlook remains bleak.”

Bavaria has developed into an important biotechnology location and is currently experiencing a boom thanks to Coronavirus

Companies and investors who focus on innovation and do not shy away from costly development times that are longer than, for example, in software development will also be among the long-term beneficiaries. Founded in 1992 in Martinsried near Munich, MorphoSys is now one of the top ten biotech companies in the world – a picture-book success story, but one that is still rare. Of course, there are more of them, albeit not in the same dimension. 

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The biotech scene lags behind in international comparison – but this is not a regional problem, but a national one. There are still too few IPOs in the life sciences sector in Germany. “Most important would be a capital market with specialized biotech investors and analysts on the German or at least European stock exchanges. But we in Germany are probably simply too risk-averse for that,” emphasized Kromayer. 

One step in the right direction is the law on tax incentives for research and development, which came into force in Germany at the beginning of this year and is intended to boost private investment. Kromayer has another tip for the future: “The regions and organizations would have to cooperate closely. Even if competition is supposed to stimulate business, Bavaria can never compete with Boston, the Bay Area, or Cambridge as long as the forces are not bundled.” The conditions for promising projects are not perfect but good: lively scientific exchange and support from the State of Bavaria. 

The Corona crisis has shown the importance of the biotech industry; now the courage to invest more and in the longer term in order to turn ideas into commercial developments is needed, especially on the funding side. Zobel from the Biotechnology Innovation and Start-Up Center (IZB) is confident: “At the IZB we have many companies that have entered into successful collaborations with major pharmaceutical companies such as AstraZeneca, Roche and many other large companies. Development time is longer in the biotech industry. However, we will continue to develop new drugs and innovative processes in the future,” said Zobel.

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First published in VentureCapital Magazin, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevai

Eva Wesley is an experienced journalist, market trader, and financial executive. Driven by excellence and a passion to connect with people, she takes pride in writing think pieces that help people decide what to do with their investments. A blockchain enthusiast, she also engages in cryptocurrency trading. Her latest travels have also opened her eyes to other exciting markets, such as aerospace, cannabis, healthcare, and telcos.