Financing slump for biotech companies

After two record years, significantly less money flowed into the German biotechnology sector last year. Capital raised fell from 2.4 billion to 812 million euros - a drop of 67 per cent. These are the findings of the German Biotechnology Report 2023 by the auditing and consulting firm EY. In 2020, a total of three billion euros was invested in German biotechnology companies. The industry has now come back down to earth after the coronavirus boom, says Klaus Ort, Partner at EY and Head of the Life Sciences and Healthcare market segment. "The hype is over, the financing situation is critical again."

A similarly sharp decline as in Germany was also recorded across Europe last year: Capital raised fell from 22 to 7.8 billion euros, a drop of 65 per cent. Manuel Bauer, EY Biotech Leader Germany, explains: "At first glance, the slump in financing is devastating. However, after the two boom years of 2020 and 2021 and an overheated financing market, a certain adjustment was definitely necessary." EY cites the uncertainty among investors triggered by the war, rising interest rates and the withdrawal of investors who had only invested in biotech companies during the coronavirus peak phases as reasons for this.

Strong "product pipeline" and more alliances

In EY's view, it is encouraging that the product pipeline of German biotech companies is very strong. The maturity of the companies is increasing and they now have many more products in the second and third, and therefore late, phase of clinical development. After focussing on coronavirus vaccines and therapies, research and development is once again concentrating on "classic biotech topics" such as studies on cancer drugs as well as infectious and autoimmune diseases.

In the past year, German biotechnology companies entered into new alliances with a potential sales volume of 14.2 billion euros - a new record. The companies have increasingly focussed on partnerships instead of risky acquisitions in order to secure a supply of new drugs.

"Germany is lagging behind when it comes to financing"

However, EY partner Ort criticises: "When it comes to financing, Germany as a biotechnology location lags far behind other important countries. Promising late-stage products in particular require high levels of investment." In the start-up scene, the term "late stage" refers to the final phase of a financing cycle. The companies in question have usually already established themselves on the market and are even generating profits. They want to use the fresh money to expand into new markets, restructure or launch new services or products on the market. According to VC-Magazin, this phase is particularly interesting for venture capitalists. According to EY, venture capital financing for biotech companies has almost halved compared to the previous year, but is still roughly at pre-pandemic levels.

Venture capital providers are often based in the USA

The industry has long been calling for easier financing conditions for investors. According to EY, large investors such as pension funds, insurance companies and other institutional investors should also be able to invest considerably more in high-risk companies, including biotech companies. According to EY, there is also an "urgent need for more attractive amortisation options for losses." Financing remains one of the key challenges for the German biotech sector.

Biotech companies are working on complex active pharmaceutical ingredients and therapies and are also contributing technologies to the chemical and agricultural sectors. This is expensive and time-consuming, which is why biotech companies are dependent on a lot of money from investors, most of whom are based in the USA. In Germany, there is a lack of investors, especially for larger sums, which is a problem for the biotech sector. Companies such as BioNTech were drawn to the US technology stock exchange Nasdaq to go public.

Article of the "Tagesschau" from 01/06/2023