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The German bio clusters

In the 1970s, West Germany was known as “the pharmacy of the world” with Hoechst, Bayer, Behring, and Schering dominating global markets. While the strains of reunification meant a late start in German biotech compared with the US, Germany is now catching up again to become a world leader.

A long-term German commitment to biotechnology cluster growth lies behind the resurgence and motivation to excel, which was evident in the 1999 BioProfile competition designed to allow regions to define expertise within the area in which they had competitive advantage. The goal of the competition was to encourage local biotech communities to develop into clusters, to create an entrepreneurial spirit among scientists and, in the long run, to make Germany Europe’s commercial biotechnology leader.

Clusters are regional concentrations of activities in groups of related industries. They emerge naturally in market processes and have shown themselves resilient in times of crisis. From the financial crash of 2008 until 2014, the share of European clusters in overall wages and employment increased, according to the European Commission’s European Cluster Panorama 2016.

A long-term German commitment to biotechnology cluster growth lies behind the resurgence and motivation to excel…

Clusters facilitate investor access to cutting-edge technology. Germany boasts more than 25, with Berlin and Bavaria among the most developed. The Berlin cluster capitalizes on the capital’s network of public research institutions and university hospitals, especially in regenerative medicine. Bavaria has expertise in both medical and biotechnology, with some of the top research and development clusters within the region. For example, Munich region’s first biotechnology company Mikrogen was established in 1989. Other companies including MorphoSys and Medigene followed in the early 1990s, the latter of which has progressed into clinical trials for its advanced T-Cell reception cancer research. More recently, a cluster based in Baden-Württemberg has become the coordinator of an inter-cluster collaboration to create a knowledge base for the fourth Industrial Revolution, or Industry 4.0. The three clusters involved have pooled their competences in ICT infrastructure (bwcon), microsystems technology (microTEC Südwest) and simulation and visualisation technology (VDC) to create a holistic resource for network members.

Clusters in Germany are at the interface of business and science.

A key initial aim of clusters was for start-ups to benefit from each other, according to Hubert Birner, managing partner with TVM Capital Life Science, a life science venture capital fund which has a team based in Munich. TVM was able to reap the benefits of clusters: the firm led the Series A investments in Direvo and Jerini, two of the largest M&A transactions in the history of German biotechnology. Birner now sees a lot of Germany managers currently returning from the US and from other countries given a more attractive financing environment.

According to the 2017 Ernst & Young Biotech Report for Germany, 627 million euros of external financing was poured into German biotechnology companies.

Clusters in Germany are at the interface of business and science. They promote networking and support international companies looking for local partners or considering relocation to the cluster region. The wider German healthcare market is among the most promising for foreign investors. In 2016 total healthcare expenditure in Germany was estimated at 11.3 per cent of GDP, well above an OECD average of 9 per cent. Germany is already the world’s fourth-largest pharmaceuticals market by turnover. Pharmaceutical spending per head in Germany was 35 per cent higher than the OECD average in 2016 and 15 per cent higher than in France, according to the Economist Intelligence Unit. According to the EIU’s latest forecasts, German pharmaceutical sales will rise at a CAGR of 6.9 per cent in 2018-22 in dollar terms. Brexit may also open some opportunities to attract EU-related R&D operations from the UK, the EIU says.

The BioRegions from the start included technology parks tailored to the specific needs of biotechnology companies. Known as BioParks, these centres offer infrastructure including lab space as well as a range of services for both start-ups and well-established companies. Germany’s success in growing a decentralised network of BioParks has created a mechanism for coordination between scientific researchers, biotech companies and international investors. According to the 2017 Ernst & Young Biotech Report for Germany, 627 million euros of external financing was poured into German biotechnology companies. This included the raising of 86 million euros by InflaRx through an IPO on Nasdaq, and the company, which originates in Jena, has raised more money on Nasdaq this year.

Germany’s BioParks have succeeded in breaking down a range of barriers that can hinder progress: barriers between start-ups and well-established companies, barriers between different scientific disciplines, barriers between science and industry. The country ranks second in the latest European Cluster Ranking published by Genetic Engineering & Biotechnology News, and leads the way in terms of European biopharma patent applications and awards. A virtuous circle of innovation is benefiting investors and leaves Germany well placed to contribute to solving the global challenges of our times.

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