US investors rely on German companies

New York, Boston Caroll Neubauer has no doubt: “Germany is currently very interesting,” says the chief adviser to the US investment company Water Street, who is looking for investment opportunities in Germany. Water Street specializes in pharmaceuticals, biotech and medical technology and, according to its own statements, has already invested a total of six billion dollars in Europe, most of it in Germany.

“We have never been as active in Europe and Germany as we are now. We are not looking for restructuring cases, but for growth companies,” emphasizes Neubauer. Water Street plans to invest a large portion of a new $1.4 billion fund in Germany.

Amir Nashat from Boston-based venture capitalist Polaris Partners has a similarly positive view of Germany. “There is a lot of good research in Germany,” Nashat is convinced. He has already invested several times in Germany, most recently in the tens of millions in the company Dewpoint Therapeutics from Dresden. Dewpoint specializes in cell therapy and employs around 40 scientists in Germany and almost 100 in Boston.

Nashat plans to invest in another German company that specializes in brain research and also has two offices on either side of the Atlantic – in Berlin and Colorado. The name is still secret.

The interest of the Americans comes at a time when German companies urgently need external financing. While billions of dollars flowed during the pandemic and the fame of big names like Biontech and Curevac spread across the entire industry, according to the Bio Deutschland association, financing in 2022 fell to a third compared to the boom year 2020. There were no IPOs.

Cell and gene therapy and platform companies remain interesting

Oliver Eitelwein, partner of the international strategy consultancy Oliver Wyman, analyses: “The valuations of biotech and digital health companies have collapsed massively worldwide and also in Germany after their boom during the pandemic.” Even if financing has recently fallen sharply, it can However, the situation will “quickly turn again”, believes Eitelwein. “I don’t see a real crash here.” Cell and gene therapy start-ups remain interesting for the future, “and Germany also has a lot to offer,” says the consultant.

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In addition to mRNA technology, gene sequencing and so-called “liquid biopsy” could also be lucrative, in which blood or stool samples can be used to detect early-stage cancer, for example. “There are also interesting companies in Germany,” says Eitelwein.

Julie Grant is a biochemist by training and a partner at biotech venture capitalist Canaan in California. There she invests in start-ups with new therapeutic approaches. Grant was also invited to the launch of US President Joe Biden’s Cancer Moonshot initiative to accelerate cancer research. In a few weeks she will fly to Frankfurt again to look at potential investment targets, says Grant.

“We work with an excellent network of scientists in Germany, including in the vicinity of the German Cancer Research Center in Heidelberg,” says Grant. She sees biotech in a two-year bear market: “Currently, more than 50 percent of small biotech companies are below their last valuation. Many are running out of cash.”

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Part of the problem is that when the Covid pandemic began in 2020, many investors around the world were desperate to invest. Therefore, a lot of money flowed into the biotech market, also into less promising companies. “Now we are seeing a dramatic level of consolidation and layoffs.”

Venture capitalist: Germany has solid, undervalued companies

However, Grant believes this year will see the upper hand for start-ups with strong balance sheets, life-changing drugs in development and a good data base for their research efforts. “Many of these start-ups are undervalued, and many of them come from Germany.” In Germany, there is cutting-edge research and “young companies run by experienced managers with an enormous number of talents,” says Grant.

According to Grant 2023, a simple trend is helping German biotech start-ups to get on the radar of US investors: “In the past, investors often looked for companies that were no further than a two-hour drive away. But during the pandemic period, we all learned to keep in touch virtually. That makes it much more convenient to look around in other regions of the world.”

mRNA vaccine

While billions of dollars have flowed into biotech companies during the pandemic, funding in 2022 plummeted to a third of what it was in 2020.

(Foto: imago images/Wolfgang Maria Weber)

New builders from Water Street are accommodating the financing problems in the biotech and medical technology sector in his search: “Valuations are just getting back to a reasonable level.” Neubauer hopes that strategic investors such as Water Street could become more interesting for young and established companies. “We are currently being given a very welcome reception.”

Investors help on the way to the USA

Florian Wegener also expects that 2023 will be “the year of acquisitions” given the low valuations. The ex-Qiagen employee runs the Boston start-up Zageno, a kind of “Amazon for laboratory materials”. Zageno enables researchers to order preliminary products for medical research as easily as ordering from the world’s largest online supermarket.

Many innovative companies are currently available cheaply. It is true that the price that can be achieved with an exit – i.e. resale or an IPO – in the USA is higher than in Germany. But the profit that can be made in Germany is often even greater.

The entry of US investors help German companies to gain a foothold in the USA. “Many entrepreneurs want to become more international or diversify more,” says Neubauer. “We can help with our know-how.”

Investor Nashat from Polaris Partners is also convinced that Germans and Americans will benefit from each other. German biotech entrepreneurs are extremely thorough and reliable. But the Americans have the economic ecosystem with expertise and investors in places like Boston or San Francisco.

Sometimes German politicians also drum up drums for their companies: The Saxon Minister of State for Science, Sebastian Gemkow, recently made a special trip to Boston so that US investors would be made aware of German companies like those in Dresden. There he met Nashat, among others.

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