Bildnachweis: Bayern Kapital, MIG Capital, Forbion, VentureCapital Magazin.
There are many uncertainties in the world, but this much is certain: the demand for innovative life sciences solutions will continue to grow, from research to therapy development. Despite regulatory hurdles and financing challenges in the early stages, the sector offers start-ups and investors in Germany tremendous opportunities. Artificial intelligence (AI) in particular enables developmental leaps in drug discovery, personalised medicine and patient care.
More capital is flowing into the German life sciences sector again. In 2024, the total from venture capital (EUR 898 million, +68%), capital increases via the stock exchange including convertible bonds (EUR 999 million) and an IPO (EUR 20 million) amounted to more than EUR 1.9 billion (+78%), according to figures from the industry association Bio Deutschland and the auditing and consulting firm EY. Excluding the special effects of the coronavirus pandemic, even a new all-time high was reached. Both private (+68%) and publicly listed (+82%) biotech companies saw their financing volumes increase significantly.
New technologies are driving development
New and innovative approaches are currently opening up opportunities in the life sciences sector and attracting investor interest. ‘The entire field of biotechnology is experiencing dynamic development. Advances in the research of complex molecular structures and their application in personalised therapy approaches are particularly exciting’, explains Monika Steger, Managing Director of LfA subsidiary Bayern Kapital. ‘AI plays a key role here by making research processes more efficient and precise. This results in advances in gene therapy, cell therapy, and RNA-based therapeutics, to name but a few. In addition, robotics and VR technology are becoming increasingly important in the medical field’.
Industry expertise is key to successful investments
One thing is clear: the need for innovative solutions in the broad field of life sciences will continue to grow. After all, the increasing cost pressure in the healthcare sector means that prevention and proactive health promotion are becoming ever more important. In addition, the ageing society and the increase in chronic diseases are fuelling demand for modern therapies and medicines. ‘The constantly growing market makes the segment attractive for investors’, says Steger. ‘Other than that, a once-established life sciences product is quite resilient thanks to the stable demand’. Unfortunately, such opportunities do not come without challenges. For example, the long and capital-intensive research and development times initially represent a risk. Fulfilling the strict regulations in EU legislation also costs time and money. Examples of this are the European Medicines Agency (EMA) authorisation requirements for drugs and the Medical Device Regulation (MDR) for medical technology. Phase III studies in drug development in particular can often only be financed via an IPO or by large pharmaceutical companies. Another problem: although start-ups have innovative technologies, they rarely have the infrastructure for mass production. However, outsourcing these to contract manufacturers can create dependencies and supply chain risks. ‘From a venture-capital perspective, this environment requires industry expertise, sufficient capital, and patience’, explains Steger. With Tubulis, CatalYm and SciRhom, Bayern Kapital has already seen some of the largest European life sciences financing rounds of the past twelve months in its portfolio. More are to follow. ‘We will continue to expand our team and portfolio as we still see considerable opportunities in this segment in the medium to long term’, says Steger.
Life Sciences also attractive for financial investors
Forbion, a venture-capital company based in the Netherlands, the US, and Germany, specialises entirely in life sciences in Europe. It currently manages total assets of EUR 5 billion. The money is invested in sustainable solutions in the areas of food, agriculture, materials and environmental technologies as part of a ‘BioEconomy strategy’, as well as being used for pure drug development via various fund vehicles. ‘Our approach is opportunistic across all phases’, explains Holger Reithinger, General Partner and Head of the company’s Munich office. ‘Whether oncology, cardiology, or neurodegeneration – our declared aim is to bring novel therapies for unmet health problems to the market in order to improve the lives of patients. To achieve this, we are looking for genuinely innovative ideas and product developments that will make a real difference in a highly competitive market and therefore justify their price. Antibody-drug conjugates are still examples of this. Another current trend is radiopharmaceuticals – antibodies that attack tumours with a radioactive particle’. Thanks to its established market position as an experienced and specialised investor, fundraising is generally easy for Forbion. ‘Under the premise of an internationally competitive return, large financial investors such as pension funds and foundations are also channelling their means into life sciences start-ups these days. That is due to their ESG-driven focus on creating a positive social impact in addition to financial value creation’, says Reithinger. The molecular biologist is satisfied with research in Germany: ‘As a high-tech country with a great scientific tradition, renowned research institutions and numerous patent applications, we have no reason to be shy in international comparison’. However, he advocates improving the effective translation of cutting-edge university research into successful business models. ‘Furthermore, good political framework conditions, especially in highly innovative fields such as medicine, gene editing, and the sustainable bioeconomy, are crucial to channelling more private capital into innovation financing and being able to maintain and expand our strong global position in
one of the most dynamic markets’.
Intelligent data management detemines innovation leadership
However, it is still not entirely uncommon that founders originating from the German life sciences sector ultimately decide in favour of other locations. ‘One reason is that some foreign markets are more focused on promoting innovation while having an ecosystem in place where capital, infrastructure, and flexible regulation go hand in hand’, explains Dr Sascha Berger, a global biotech investor in Saudi Arabia. ‘Especially in regions such as the Middle East, large investments, clear strategies, and a greenfield approach are being used. This means less legacy and more room for disruptive approaches, including leapfrogging projects in the field of digital health or precision medicine’. He is certain that the decisive success factor for future innovation leadership is the efficient collection and intelligent use of data. Those who act faster and make data accessible to both academic and industrial research can gain an enormous competitive advantage. ‘In this way, development cycles can be shortened, and new technologies can be transformed into market-ready solutions more quickly’. China is one example: thanks to its targeted national strategy and access to several billions of patients’ data, the country continues to catch up with the international research leaders. According to China’s National Development and Reform Commission, the number of biopharmaceuticals currently in research and development (preclinical stage) already exceeds their USA counterpart. Berger: ‘It requires strong investors, a clear culture of innovation, appropriate regulatory framework conditions, and the willingness to take radically new paths in development in order to retain and grow biotech in a country in the long term. In my view, a global readjustment is currently taking place here, with some regions acting more courageously than others’.
Europe has the opportunity to build its own champions
Dr Fei Tian, Principal at German venture capitalist MIG Capital, brings the attention back to Europe: ‘Driven by promising startups and significant investor interest, Europe has become a strong player in the life sciences sector’. Indeed: while follow-up financing used to be a challenge, large financing rounds now dominate the European life sciences markets. Thereby, building its own champions has become a real possibility. Pre-seed and seed financing, on the other hand, are currently considered challenging. ‘Global economic and political developments are making it more difficult for start-ups to raise capital in the early stages. Market uncertainties and rising interest rates are leading to tighter venture capital financing and longer due diligence processes. Government funding, corporate venture capital, and strategic pharma partnerships are becoming crucial sources of funding’, says Tian, and advises start-ups to focus on capital efficiency, early validation, and robust business models. MIG itself is looking for real disruptions with long-term impact and value creation. Recent investments in companies such as mbiomics in the field of microbiome, HawkCell in the field of imaging data analysis in animal radiology, and SciRhom in the field of new biology for autoimmune diseases are proof of this. Tian: ‘The data-driven discovery and development approach requires a broader, multidisciplinary handling. The more we as investors are able to transition from the traditional asset development-focused strategy to a data-driven strategy, the better we can assist in further realising the potential of the sector’. She concludes: ‘The venture capital and start-up innovation segment of the life sciences sector in Europe will maintain its important position as the research and development engine of the industry and continue to provide technical and medical solutions to unmet clinical and healthcare needs. We are about to take a technological leap forward, and this excitement, together with the challenges, offers tremendous opportunities’.
