US investors back German biotech companies

New York, Boston Caroll Neubauer has no doubt: „Germany is currently very interesting“, says the chief consultant of the US investment company Water Street, which is looking for investment opportunities in Germany. Water Street specialises in pharmaceuticals, biotech and medical technology and, according to its own information, has already invested one billion dollars out of a total of six billion dollars in Europe, most of it in Germany.

„We have never been as active in Europe and Germany as we are now. We are not looking for restructuring cases, but for growth companies“, emphasises Neubauer. Water Street intends to invest a large part of a new fund totalling 1.4 billion dollars in Germany.

Amir Nashat from Boston-based venture capitalist Polaris Partners is similarly positive about Germany. „There is a lot of good research in Germany“, Nashat is convinced. He has already invested several times in Germany, most recently tens of millions in the company Dewpoint Therapeutics from Dresden. Dewpoint specialises in cell therapy and employs around 40 scientists in Germany and almost 100 in Boston.

In the near future, Nashat wants to invest in another German company that specialises in brain research and also has two offices on both sides of the Atlantic - in Berlin and in Colorado. The name is still under wraps.

The Americans' interest comes at a time when German companies are in urgent need of external funding. While billions of dollars had flowed in during the pandemic and the fame of big names such as Biontech and Curevac shone on the entire industry, financing in 2022 has fallen to a third compared to the boom year of 2020, according to the Bio Deutschland association. There have been no bottlenecks.

Cell and gene therapy and platform companies remain interesting

Oliver Eitelwein, Partner at the international strategy consultancy Oliver Wyman, analyses: „The valuations of biotech and digital health companies have slumped massively worldwide and also in Germany after their boom during the pandemic.“ Even though financing has fallen sharply recently, the situation could „quickly turn around again“, believes Eitelwein. „I don't see a real crash here.“ Cell and gene therapy start-ups remain interesting for the future, „and Germany also has a lot to offer“, says the consultant.

In addition to mRNA technology, gene sequencing and so-called „liquid biopsy“, in which blood or stool samples can be used to detect cancer at an early stage, for example, could also be lucrative. „There are also interesting companies in Germany“, says Eitelwein. 

Julie Grant is a trained biochemist and partner at the biotech venture capital firm Canaan in California. There she invests in start-ups with new therapeutic approaches. Grant was also invited to the launch of US President Joe Biden's „Cancer Moonshot“initiative to accelerate cancer research. In a few weeks, she will fly to Frankfurt again to look at potential investment targets, says Grant.

„We are working with an excellent network of scientists in Germany, including around the German Cancer Research Centre in Heidelberg“, says Grant. She sees biotech in a two-year bear market: „Currently, more than 50 per cent of small biotech companies are below their last valuation. Many are running out of cash.“

A part of the problem is that many investors around the world were desperate to invest money at the start of the Covid-19 pandemic in 2020. As a result, a lot of money flowed into the biotech market, including into less promising companies. „Now we are seeing a dramatic amount of consolidation and layoffs.“

Ventures investor: Germany has solid, undervalued companies

Grant, however, believes that start-ups with solid balance sheets, life-changing drugs in development and a good database for their research endeavours will gain the upper hand this year. „Many of these start-ups are undervalued, and many of them come from Germany.“ There is cutting-edge research and „young companies from experienced managers with an enormous amount of talent“ in this country,

A simple trend will help German biotech start-ups to get on the radar of US investors in 2023, according to Grant: „In the past, investors often looked for companies that were no more than a two-hour drive away. But during the pandemic, we have all learnt to keep in touch virtually. This makes it much more convenient to look around other regions of the world.

The financing problems in the biotech and medtech sector are helping Water Street's new builder in his search: „Valuations are just getting back to a reasonable level.“ If Börsengänge are no longer so easy and the banks demand ever higher interest rates for their loans, then strategic investors like Water Street could become more interesting for young and established companies, Neubauer hopes. „We are currently being made very welcome.“

Investors help on the way to the USA

Florian Wegener also expects 2023 to be the year of acquisitions given the low valuations. The ex-Qiagen employee runs the Boston start-up Zageno, a kind of „Amazon for laboratory materials“. Zageno enables researchers to order preliminary products for medical research as easily as ordering from the world's largest online supermarket.

Many innovative companies are currently available at favourable prices. It is true that the price that can be achieved in the event of an exit - i.e. resale or going public - in the USA is higher than in Germany. However, the profit that can be achieved in Germany is often even greater.

The entry of US investors helps German companies to gain a foothold in the USA. „Many entrepreneurs want to become more international or diversify more strongly“, says Neubauer. „We can help with our expertise.“

Investor Nashat from Polaris Partners is also convinced that Germans and Americans benefit from each other. German biotech entrepreneurs are extremely thorough and reliable. But the Americans have the economic ecosystem with expertise and investors in places like Boston or San Francisco.

Sometimes German politicians also beat the drum for their companies: In order to attract the attention of US investors to German companies such as those in Dresden, the Saxon Minister of State for Science, Sebastian Gemkow, recently travelled to Boston. There he met with Nashat, among others.

Release of the Handelsblatt from 6 February 2023