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Confidence with restrictions

In their 9th German Biotechnology Report, the industry experts from Ernst & Young paint an essentially confident picture of the German biotech industry. However, despite the general optimism, the picture has a few negative points: no company will go public in 2008 and with only ten newly founded companies in 2007, the German biotech industry has reached a historical low.

The report by Ernst & Young only concerns companies that focus their business entirely on modern biotechnology methods.

Greater revenue, more employees

The Ernst & Young experts’ optimism is based on the following figures: for the first time since 2004 (1.003 billion euros) the revenues of the German biotech sector rose once more to in excess of a billion euros; the revenues grew from 948 million euro to 1.003 billion euros in 2007. Private companies even managed to achieve a 15 per cent increase in revenues. The number of employees also increased to 10,162 (up 400), and when the employees of the subsidiaries of foreign biotech companies are included, the number of employees reaches 13,000. However, the number of companies decreased from 403 to 395.

More money into research and development

Siegfried Bialojan foresees stable growth for the German biotech industry (Photo: E & Y)
For the first time in several years, German biotech companies have once again invested more money (980 million euros) in research and development, particularly in expensive clinical studies carried out by drug development companies. This led to a higher overall loss reported by the German biotech sector, which the report estimates as 665 million euros (up seven per cent). However, the report also highlights the growing number of biotechs that are posting profits. In 2004, about 29 per cent of all biotech companies were in the black, at present the figure is about 40 per cent. Many companies make their money with technological developments, diagnostics or by providing services.

“The German biotech sector is continuing a stable growth,” said Siegfried Bialojan, head of Biotech at Ernst & Young, commenting on the results. “This growth is mainly based on well-founded and mature product developments and more solid business models that convince both financial as well as strategic investors,” said Bialojan.

Biotech IPOS 2007: nil return

The development of the 19 stock market-listed German biotech companies seemed to be in contrast with the industry trend: their revenues decreased by 19 per cent, while the number of employees dropped by 12 per cent. However, the report also highlighted that this was particularly due to individual events, which concealed the essentially positive development of the stock market-listed companies. However, the example of the Berlin-based company Jerini shows how quickly the situation can change. Given a negative vote by the American FDA, Jerini’s share value dropped drastically only to shoot up again a day after the positive results of the European Medicines Agency (EMEA) were announced.

Six drugs in the pipeline

The report foresees considerable progress in product development. Six drugs (2006: two) are close to approval, 17 are in clinical phase III. In total, the number of drugs in the pipeline of German biotech companies dropped from 322 to 316. Ernst & Young found a total of 5 more drugs (129) in clinical development compared to last year.

Progress in product development

Recent events show the high risk and uncertainties associated with the development of drugs. Including recent failures, costs have already surpassed the one-billion euro mark. The evaluation of Julia Schüler, author of the report, shows that drugs, in terms of their value, need approval success more than ever.

“The industry has made considerable progress in product development. It is expected that the authorities will decide on marketing authorisation of the aforementioned six drugs, something that would represent a considerable breakthrough. In the meantime, there is a solid portfolio of drugs that are undergoing testing and that are able to demonstrate their future value”.

Fewer company establishments, fewer mergers and acquisitions

Not all that glitters is gold: the ninth biotech report only lists ten newly founded companies in 2007, and thus the “lowest number of company foundations in the history of the German biotech industry”. Twelve companies went insolvent or closed down. Other companies disappeared from the market due to mergers and acquisitions.

However, the number of mergers and acquisitions also decreased. It dropped to seven transactions in which German biotech companies were involved. The fact that the additions do not always give the correct picture, is reflected by the number of cooperations and licensing agreements (that became known) and which the report lists as alliances. Although these seemed to have fallen from 73 (2006) to 60, the value of contracts signed quadrupled from 159 to 675 million euros, something that, according to the author “confirms the progress of companies in product development”.

More risk capital for biotechs

In contrast to the previous year, equity capital financing of the German biotechnology sector has improved slightly, so the report states (increase to 456 million euros). Risk capital financing increased by 50 per cent (213 to 319 million euros). However, 2007 was a very black year for biotech companies on the capital market. After four IPOs in 2006 and twelve secondary financing rounds, not one single biotech company in 2007 dared to go public. In the case of eight secondary financing rounds, the stock market-listed biotech companies borrowed a total of 137 million euros. Thus, the volume of equity capital borrowed from the capital market dropped from 220 to 137 million euros.

The global biotechnology report had not been published at the time of the editorial deadline. However, according to Ernst & Young’s German press office, the consulting company does not expect huge differences from previous years’ trends. The older and more mature biotech industry in the USA, and to a similar degree also that in Great Britain, is a lot more successful than the German biotech industry.

Website address: https://www.gesundheitsindustrie-bw.de/en/article/press-release/confidence-with-restrictions