Industry Opinion: The German Biotech sector is still in good spirits but doubts remain about foreseeable improvements of political frameworks

(on the picture the Chairman of BIO Deutschland, Dr. Peter Heinrich)

Germany has a strong biotechnology sector with about 550 dedicated biotechnology companies and about 130 other biotechnology-active companies such as pharmaceutical or clinical multinationals. The yearly turn-over of the dedicated companies alone is about 2.5 billion Euros. How do these companies feel about the current market situation and what are their expectations for the future? A survey conducted by BIO Deutschland and the biotech industry magazine “|transcript”, identified the willingness to invest in R&D but at the same time an increased discontent regarding the political climate for R&D in Germany.

143 German biotech companies participated in the “Trends and expectations in 2013” survey of BIO Deutschland and “|transcript”. The survey has been conducted for seven years in a row and is considered to be indicative for the prevailing spirit in the German biotechnology sector. This year’s answers in regards to e.g. current state of company, expectations for the upcoming year, investments in R&D and human resources and general assessment of current and future political ramifications for R&D in Germany, were compared to reference values from previous years.

In a nutshell, German biotech companies in 2012 on average have been satisfied with the current state of their businesses. The willingness to invest in R&D increased, but companies are more reluctant to hire new personnel in the next year. Compared to 2011, there is less optimism when it comes to future perspectives, as fewer companies think they will do better in 2013 than in 2012. There have been a couple of large business deals where big players bought into smaller successful biotech companies, e.g. Johnson & Johnson paid 80 Mio. Euros for the biotech company Corimmun. But unfortunately, expensive failures of clinical trials were also part of the picture. The bioeconomy has become a reality and industry is showing increasing interest in biotechnological expertise.

The good news is that German biotechnology companies have so far been able to withstand the financial crisis. However, the survey also showed that the actual and future political climate for R&D is considered to be worse than in 2011. While in 2009, the year of the last German federal election, the survey indicated that high hopes were pinned on the German government, expectations of the future political climate have been dropping ever since. One reason for this is that the political support promised by the government has not translated into action.

The coalition agreement of 2009 contained several important issues relevant to the biotech sector. The responsible use of the potentials of green biotechnology – as indicated in the agreement – has been neglected entirely. In fact, R&D in green biotech is difficult to find in Germany and companies are closing their research facilities or moving them abroad, like BASF did last year. In order to promote medium-sized businesses, new regulations for losses carried forward should have been taken under consideration. However, thus far, no changes have been made to the current legislation. BIO Deutschland emphasizes that changes should be made that allow small and medium-sized companies to find new investors without losing the possibility to carry their losses forward. The current rules discourage interested parties from investing in innovative biotech companies. The coalition agreement also envisioned tax incentives for innovative SMEs in order to promote research activities. Although in effect in most EU-countries, Germany still has not implemented any tax legislation that would work in favour of innovative SMEs in addition to project-oriented funding. The implications of Basel III also cause problems as they make it difficult and costly for SMEs to receive loans.

Venture capital and the stock market are also essential for the growth and success of biotech companies. Unfortunately, the financial crisis and regulations of prudential ratios for banks and insurance companies decrease the appetite of investors for private equity. The strong tax incentives in the U.K. and France continue to make venture funds reasonably well funded, while German venture capital has sharply declined for a number of reasons, e.g. lack of tax incentives for VCs and private investors.

In addition, VC funds create value and they should not be subject to the same regulations or tax treatment as hedge funds and private equity. Without a more favorable tax treatment, VC funding will continue to fall and reduce funding available to support innovation in German Biotech Industry– this is precisely the wrong direction and will lead us to an even more difficult financing situation for German and European biotech companies.  The end result could even be that German biotech can no longer compete on the world market.

But there is some hope for improvement, because Germany will elect a new government this fall. Therefore, it is particularly important to clearly formulate what needs to be changed and what new regulations are needed to stabilize and promote domestic (and European) biotech industries. If the various issues will be addressed the biotech industry can stay innovative and thrive in the future.

Survey Information:
More details, index-values and figures of our trend report you can find here: http://www.biodeutschland.org/survey-of-companies-20122013.html]

BIO Deutschland:
With 300 members, including companies, BioRegions and sector service providers, the Berlin-based Biotechnology Industry Organisation of Germany (BIO Deutschland) aims to support and promote the development of an innovative economic branch based on modern biosciences in Germany. Dr Peter Heinrich is the Chairman of the Board of BIO Deutschland. Further information is available at www.biodeutschland.org.

BIO Deutschland’s supporting members are:
Boehringer Ingelheim, Celgene, Clariant, CMS Hasche Sigle, Deutsche Bank, EBD Group, Ernst & Young, KPMG, Merck Serono, Miltenyi Biotec, PricewaterhouseCoopers, Roche and Sanofi.