Strong science and early support are not enough on their own. Europe needs more capital depth, cross-border investor backing and a lighter policy framework to keep companies scaling at home, according to two venture capitalists.
Germany has the science, capital and talent to produce biotech champions, as demonstrated by the massive, recent M&A news of Tubulis GmbH. Still, Europe needs deeper funding pools, more open syndication and less restrictive capital and employment mandates to help those companies remain true to their European roots, while allowing global scale.
The country drew life science headlines after Gilead Sciences announced in April its acquisition of Tubulis, a private, Germany-based, clinical-stage biotechnology company developing next-generation antibody-drug conjugates. Deal terms included $3.15 billion in cash plus up to $1.85 billion in potential milestone payments.
Tubulis’ success is not unusual in the dynamic German science environment.
There is a strong link between academic centers and hospitals, plus a history of strong science in nucleotide chemistry, antibody engineering and gene editing, said Regina Hodits, the Munich-based managing director at Angelini Ventures. In addition, Germany also benefits from a wider life science tradition, including an established pharma, medtech, CRO and CDMO infrastructure, added Sofia Ioannidou, the Paris-based VC partner at Andera Life Sciences. Tubulis was an Andera portfolio company.
The heady combination means Germany allows for excellent science to be translated into companies because the ecosystem is already well-developed, they agreed.
Bavarian hub
The majority of German life science activity is in the state of Bavaria, with Munich as the hub. There are 540 biopharma companies alone in the region, according to the BioM biotech cluster that represents the region.
Munich thrives due to the concentration of universities and research institution, Ioannidou explained. They include Ludwig Maximilian University of Munich, the Technical University of Munich, Max Planck Institutes and biotech centers like the Innovations- und Gründerzentrum Biotechnologie (IZB).
In addition, pharma and biotech presence in the region–such as Roche Diagnostics, with one of the largest biotech locations in Europe and MorphoSys, before its acquisition by Novartis–fermented an innovative environment, Hodits said.
Munich also hosts a concentration of capital through locally based yet internationally active firms such as Wellington Partners and EQT Partners, alongside the presence of global VC firms such as Andera and Forbion. The ecosystem of science and funding in the same ecosystem bode well for innovation.
Besides Munich, Heidelberg and Berlin are important life sciences centers as well.
Strong domestic funding support
Outside of VC funding, strong early domestic support in Germany is attractive. “If I had to advise founders with regards to the public funding on where to go, Germany would definitely be a place,” Hodits said. Schemes include state-backed capital, grants and co-investment funds.
She names examples such as the Federal Ministry of Research, Technology and Space’s (BMFTR) GO-Bio initiative that supports life science researchers who are looking to go into business and the Exist grant program to improve the start-up climate at universities and non-university research institutions.
Co-investment funds include Bayern Kapital and NRW Bank, Hodits said. Germany’s High-Tech Gründerfonds (HTGF) is one of Europe’s largest seed investors, managing more than 2 billion euros in capital.
In addition to domestic programs, there are early stage life science investment funds like the Carma Fund, based in Munich and Frankfurt, and KHAN, based in Dortmund, Hodits noted.
They nurture the ecosystem but there is the need for more capital pools, Hodits said. Additional early funding would move the translation needle far enough to become institutional venture investments.
Local capital constraints
Despite the impressive backbone of German domestic financial opportunities, both Hodits and Ioannidou stressed that the best European companies are built with broad syndicates, not just local money.
To become true champions of European companies with a good anchor in Europe, it’s important to have strong VCs in the respective countries collaborate to bring firms to scale.
Both Tubulis and France-based ImCheck Therapeutics started with European investors and later brought in US capital, Ioannidou added. Firms need access to wider talent, clinical expertise and regulatory knowledge across Europe, rather than staying trapped inside one local ecosystem, Hodits said.
In that regard, Hodits explained the detriment of local investment stipulations that force capital to stay inside specific regions. This rationale fosters an investment culture based on allocation rather than on merit, which is a detriment to innovation and company creation. For Europe to thrive, it needs to remain open to the U.K., U.S., and Asian funding sources, because tighter internal regulation could restrain the ecosystem unfavorably, Hodits said.
To maintain the competitive edge
To have Germany produce more life science stories that stay rooted in Europe, the most important stimulus will be more growth capital for rounds beyond Series A and B, plus public initiatives that mobilize institutional investors, Ioannidou said. In laymen’s terms, that translates to large European funds that can support three-digit rounds. This would allow entrenched domestic success stories without them disappearing to the U.S. too early.
Some drives to foster this larger funding do exist in Germany, such as the WIN initiative , a public-private partnership coordinated by the federal government designed to bolster Germany’s start-up and scale-up ecosystem.
Hodits agreed, adding that Germany still needs better treatment of stock options, tax policy, employment law and talent mobility if it wants to stay competitive.
