Germany needs to focus on old strengths

Since the Russian invasion of Ukraine, investment-seeking capital from Germany and Europe has increasingly flowed into the USA, which is considered a safe haven. This and the US Federal Reserve’s major rate hikes have caused the euro to lose almost 15 percent of its value against the US dollar since the end of February.

The war is exacerbating a long-standing structural problem. Because German investors find too few attractive investment opportunities in their home market, capital flows abroad – as the example of biotechnology shows. In 2015, German financiers invested the same amount of venture capital in German as in US biotech start-ups. In 2022, five times more money is expected to flow to US companies than to German ones.

And this, although the hopes for a comeback of the pharmaceutical and biotech location Germany are high: After all, with Biontech, a German company is largely responsible for taking the fear out of the Covid pandemic. Successful basic research from Germany is therefore helping to effectively combat the pandemic – worldwide.

Significantly, Biontech did not go public in Frankfurt in 2019, but in New York. The reason: About 30 times more money is invested in biotech start-ups in the USA than in Germany. More than 500 medical US biotech companies have gone public since 2010, in Germany it was just over a dozen.

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The growth prospects for such companies are good: for example, around 20,000 diseases are still considered untreatable. Added to this are the chronic diseases from which more and more people in industrialized nations are suffering. And last but not least, it is important to develop cancer drugs that are better tolerated and have a more targeted effect than those currently available. Ultimately, there is hardly any therapeutic area that biotechnology cannot advance. Especially since the demand will increase: the number of people in the world continues to rise, as does the average age.

The site suffers from two important constraints

In addition, the share of biotechnological preparations in the overall market for prescription drugs is growing: while ten years ago this share was 20 percent, it is currently estimated at a third – a further increase is considered certain. Because biotechnology is likely to be one of the key technologies from which strong growth impulses can be expected in the 21st century. This applies to science as well as to business.

The growth rates of medical biotechnology in Germany are extremely impressive – between 2015 and 2020 sales increased by almost 80 percent. A little more than one billion euros of venture capital flows into this industry every year. And since 2010, there have been four “unicorns,” companies valued at more than $1 billion.

>> Read here: Medically innovative, profitable on the stock exchange – biotech stocks are interesting for investors

Irrespective of the positive dynamics, Germany as a location is characterized by two obstacles: Firstly, this segment is still small compared to countries such as Great Britain or the USA. The ten most valuable biotech start-ups in the USA are worth a total of 38 billion US dollars, the British top ten at least five billion – the Germans don’t even have three billion.

Secondly, the Biontech case shows that the development of the corona vaccine in Germany was possible, but that the Mainz-based company needed cooperation with the US company Pfizer in order to further develop the vaccine to market maturity and to produce it in sufficient quantities. These deficits were recognized by the federal government. The biotech location Germany is to be strengthened so that in future all stages of the value chain will be covered – not just basic research and the development of innovative products, but also commercialization and production.

There is a lack of risk-taking private investors

Three conditions are necessary for a successful location policy: On the one hand, young companies must be able to access capital more easily in order to be able to finance their growth phases. Secondly, the working conditions for researchers must be improved. And finally, the research infrastructure, such as suitable laboratory and office buildings, which is available for up-and-coming companies, must also be expanded.

The author

Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. You can find out more about the work of Professor Rürup and his team at

Unlike in the USA, there is no pronounced capital market tradition, and there is often a lack of risk-taking private investors in Germany. The federal government’s policy of improving conditions for investors is correct. However, she should be more courageous. The same applies to the option of making it easier for life insurance companies to invest in start-ups, for example by having the risk covered by the state. Since state subsidy programs traditionally play a major role in financing growth, this area should be further strengthened.

>> Also read here: The recruiting rebels: How German companies recruit skilled workers in the USA

Because almost all young German biotech companies have received capital from one of the major funding programs. This applies above all to the High-Tech Gründerfonds, an early-stage investor that is operated jointly by the Federal Ministry of Economics and Technology, the state development bank KfW and companies from industry and medium-sized companies. European funding projects should also be more involved, for example the health division of the European Institute for Innovation and Technology (EIT Health), the Eurostars SME program and the European Innovation Council of the European Union.

The same applies to the working conditions of scientists. Many of them would like to combine an academic career with an entrepreneurial one – and advance their ideas with their own start-up. But unlike in the USA, switching between science and the corporate world has not been common in this country so far.

A good research infrastructure is of crucial importance

The central key to a successful location policy – ​​this is shown not only by the example of the USA – are regional clusters, as a study by the Handelsblatt Research Institute on behalf of the German Finance Group shows. When companies, research institutes and universities from one industry come together in one place – in a cluster – everyone benefits from one another.

There are already promising biotechnology centers in Germany, for example around Munich or in Berlin. They emulate their great role models in the USA. In fact, thousands of jobs have recently been created in the industry in Massachusetts, the Bay Area of ​​California and New York. The biotech boom regions in the USA show that even in the age of the internet, it is beneficial for innovation processes if everyone involved lives and works close together.

A suitable research infrastructure is of crucial importance for the rise of such biotech clusters. Tailor-made real estate offers that combine laboratory and office space under one roof, for example, are a location advantage. In the USA, more than 20 billion US dollars were invested in these so-called lab offices in 2021, in Germany it was around one billion euros in the same period. This market is also growing in Germany, albeit slowly. If you take the USA as an example, it should be four to five billion euros a year, but at least double it.

If Germany does not want to fall behind in the global competition for attractive biotech locations, it must drive forward the development of such clusters – in order to build on a glorious past in the pharmaceutical sector. After all, Germany was long considered the “pharmacy of the world”. The splendor of earlier times has faded somewhat. But the substance, the first-class research, is still there – still!

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