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- News Features -
by Armin Rump in June, 2001
Biotechnology as an industry was hardly existent in Germany prior to 1995. In 2000, Germany surpassed Britain to take the top position in Europe in the number of operating biotechnology firms. This change was catalyzed by the political initiative of the "BioRegio" program at a time of favorable changes in public opinion and in the entrepreneurial environment.
While Germany had a strong research base in the 1980s, commercialization of biotechnology was hampered by a strong public resentment of anything "genetic", prompting politicians to over-regulate and strangle industrial activities at once. Furthermore, German companies used to turn to their house banks for credict financing, shying away from equity investment, thus keeping the enterprise in the hand of the owner and his/her family but shunting rapid expansion. Venture Capital's concept of high risk, high return equity investment was foreign to German investors, and the "closest" exit for such investment was the NASDAQ stock market in New York.
A general lack of new industries and young, dynamic enterprises drove skyhigh the jobless rate which had already jumped up due to the German reunification in 1989. As it became increasingly clear to the public that new industries are needed to sustain a high living standard, public opinion turned around. Politics and business responded by improving regulations, setting up the "Neuer Markt" high tech stock market, and creating new sources of finance such as venture capital funds. In this environment, the German Ministry of Education and Research, BMBF, implemented a remarkable program to stimulate the creation of a supportive infrastructure for the creation of biotech companies:
Establishing networks with a strong strategic focus was the aim of the BioRegio competition 1995: Economic regions were asked to submit proposals how to link reserach institutes, existing pharma/biotech companies and supporting services in order to create new biotech ventures which could develop globally competitive technologies. (An assessment of competing technologies worldwide was required.)
Already the act of phrasing out a regional strategy and focus, and defining ways to implement it within the existing infrastructure, brought together the important people and created an enthusiastic environment with a clear purpose. The three winner regions out of 17 participants were chosen by an international jury of experts in 1996:
Rhein-Neckar (i.e. Heidelberg), home to the German Cancer Reserach Center (DKFZ), EMBL, a Max Planck Institute, a university and reserach hospitals, with Lion Bioscience, founded in 1997, as its best know startup company,
Munich, which already featured a number of biotech companies at the time, with Martinsried as its epicenter, featurig the Max-Planck-Institutes for Biochemistry and Neurobiology and the university's Genzentrum, and
Rheinland (Cologne, Duesseldorf, Aachen, Wuppertal) with a number of universities, research institutes and pharmaceutical large pharmaceutial companies such as Bayer.
Each winning region received 25exp6 Euro over 5 years earmarked to facilitate the implementation of the envisioned strategy. A fourth region, Jena, specialized in biological apparatus manufacturing, received a special votum and 15exp6 Euro. The "losing" regions also followed through on implementing their plans, raising funds from state governments and other sources.
Regions chose a variety of forms to coordinate their respective development stragegies. In Munich, for example, BioM was set up as a full fledged company which offers commercial consulting service, a seed finance fund, as well as public relations work and networking services which are paid for by national or state funds. BioM has its office in an incubator building housing a dozen startup companies with their labs, guaranteeing close and informal contact and advice for the startups, located on the grounds of the Max Planck Institute for Biochemistry. In Rhein-Neckar, the Heidelberg Innovation GmbH has found acceptance for its "Service for Equity" business model.
While some regions such as Muenchen and Heidelberg are transforming their agencies into independent commercial enterprises, many chose to establish them as non-profit organizations, while others placed them directly under the regional government's umbrella.
A recent example of a business plan competition is the so-called Genius Biotech Award which announced the winners out of 116 participating teams on March 9th, 2001:
1. Apogenix, a company spin-out of the DKFZ Heidelberg, inducing apoptosis in tumor cells,
2. PEPperPrint, a group of seven scientists also at DFKZ is printing peptide chips with a laser printer,
3. Sensovation, developing optical signal detection technology for biochip evaluation, is just being founded as a company, and
4. Nanion Technologies, a Munich company developing "lab on a chip" technology for high throughput pharmacological screening.
The budget of 0.8exp6 Euro was shouldered by the state of Baden-Wuerttemberg. The competition was carried out jointly by a venture capital company, 3i, the life science arm of the consultancy Ernst&Young, and BTA, the biotechnology agency of the State of Baden-Wuerttemberg.
As the first step, a business competition launches a strong PR initiative in universities and research institutes to recruit graduating Ph.D. students (among others) to try a test run of commercializing the subject of their research. Workshops and seminars are held to teach the candidates how to draw up a sound financial plan, assess market potential, etc. In the course of the competition, candidates have contact with top specialists in finance and consulting as well as with managers of leading companies in the region. While some founding teams have already set up their respective companies and others do follow through with their plans, perhaps the more typical case is that the contacts and ideas floating up during the competition remodel both the actual business scope and the founding team: Some of the more risk-averse scientists may chose to take a back seat and recruit managerial types into the team - consultants and organizers often and up as a CEO or CFO. Several groups may find that their technologies complement each-other and join to form a single company. It is the dynamics of the personal network that accounts for the creative power of business plan competitions.
BioFuture funds individual young scientists, giving them the independence needed to start a scientific career or to set up a company. In 1998, an international jury chose 32 winners out of over 600 proposals. In the mean time, the scientists have established their research groups of up to six people people in various universities and Max Planck Institutes. BioFuture has a budget of 40exp6 Euro, running over five years.
BioChance supports pre-competitive research which is likely to help the biotech company establish itself in the market place. The grant, averaging ~1exp6 Euro, has enabled companies to expand their scope of research and broaden their product pipleine, thus reducing the risk of failure. The total budget is 1exp8 Euro over five years.
BioProfile asks regions to shape a unique local profile of global competence in one strategic area of biotechnology. Its focus differs from BioRegio in that BioProfile intends to broaden the scope of biotechnology in Germany: Apart from the popular field of therapeutics and diagnostics, it wants to create competence in areas such as bioinformatics, agricultural and environmental biotechnology.
20 out of 30 applicant regions were granted 50 000 Euro each in Nov. 1999 to work out their concepts in detail. Among these participants, the three winner regions announced on May 22, 2001 were awarded 15-17exp6 Euro each:
Stuttgart/Neckar-Alb: Regenerative biology
Potsdam/Berlin: Nutrition-related diseases
Braunschweig/Goettingen/Hannover: Improved diagnostics and therapy
Additional programs of the BMBF support strategic areas of research. For example, the "Biotechnologie 2000" program suports structural concepts to network, promote and enhance existing bioinformatics activities in academia and research. In addition, other federal agencies run similar competitions. For example, the DFG (equivalent of the American NSF) rewarded 6exp6 Euro to the most promising bioinformatics centers out of 31 applicant universities, namely Tuebingen, Bielefeld, Muenchen, Leipzig and Saarbruecken, to coordinate and integrate research between their institutes and neighboring research centers.
Within Europe, Britain and France have had an earlier start and therefore have the older, better established companies. Particularly in Britain, the big players are consolidating and breaking into the top-100 national firms, as exemplified in Celltech's acquisition of Chiroscience and Medeva and by Shire's takeover of Roberts. Because it is less mature, Germany's biotech industry has less than half the total revenue compared to Britain and also trails signifficantly behind France.
Last but not least, first class biotech statups are springing up in some smaller European countries, namely in Switzerland, Austria, the Netherlands, Belgium, Denmark, Sweden and (though not stictly European) in Israel. Cooperation and networking is a key word for the small, highly specialized new companies. Therefore, many regional biotech clusters extend across national borders. Two examples are the "Biovalley Oberrhein" between Freiburg, Basel and Strasbourg and Greifswald-Rostock's cooperation with the Swedish-Danish "Medicon Valley".
Critical voices see Britain already as an old man who has lost touch with the dynamics at the forefront of technology, while Germany is called the "most densely populated kindergarden in the biotech world": It is pointed out that too much government support is likely to lead to the development of companies that cannot survive on their own in the market. In both cases, out in the field, such concerns sound gray as theory: The feeling is that companies have a strong drive forward. But only the future can show whether the German approach can sustainably establish a new industry with global leadership.
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