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German Biotechnology: Where’s the Love?


By Cormac Sheridan
Staff Writer

MUNICH and HEIDELBERG, Germany – Biotech’s summer of love has been an overwhelmingly American affair. The flood of U.S. initial public offerings (IPOs) completed in 2013 – by the end of August, 26 companies had raised $1.84 billion – threatens to further widen the already large gulf between the U.S. and European biopharma sectors.

In Germany, the investment cycle is completely out of kilter with that of the U.S. Little more than a decade ago, it was shaping up to be the main engine of European biopharma. Now, with a handful of notable exceptions, its listed companies are hanging on by a thread.

Many are struggling with anemic share prices, dwindling cash balances and a desperate need for more investment to enable them to reach their next clinical milestones. Institutional investors have exited the sector, however, while for privately held firms venture capital is in increasingly scarce supply.

“It’s just impossible for companies to get funded at the moment,” Simon Moroney, CEO of Martinsried-based antibody developer Morphosys AG, told BioWorld Today. For Morphosys, that’s not an issue, as it has about €300 million (US$396 million) on its balance sheet, following two recent antibody licensing deals, with Summit, N.J.-based Celgene Corp. and London-based Glaxosmithkline plc. (See BioWorld Today, June 5, 2013, and June 28, 2013.)

But many of its peers have fallen by the wayside in recent years. “I guess that companies that really could have kicked on have had product setbacks,” Moroney said. “If you do the same kind of exercise for other European countries you get the same picture, I expect.”

With the sole exception of Hilden-based tools powerhouse Qiagen NV (which was formally based in Venlo, the Netherlands), Morphosys is now the only listed German biotech with a valuation north of €1 billion – it is currently valued at around €1.3 billion.

It has gained that position through a gradual process of building out its antibody discovery platform and building up its roster of big pharma partners. It now has 21 partnered programs in the clinic, several of which have reached late-stage development. “We could be in a situation in three to four years’ time where we have multiple interesting products close to market introduction,” Moroney said. “From here forward, value is going to be much more directly linked to products than to the technology platform.”

Morphosys was formed in 1992 and went public in 1999. A full decade younger, Dutch firm Prosensa Holding NV, of Leiden, joined the wave of U.S. IPOs this summer and attained a peak valuation of $1.2 billion in early August, although this has since dropped to about $820 million. Nevertheless, several observers question whether the company, which raised $78 million for its pipeline of exon-skipping antisense drugs for Duchenne’s muscular dystrophy and other genetic diseases, would have fared quite so well had it gone public in Europe.

“On that measure, Morphosys would probably be valued five times higher in the U.S.,” said Thomas Taapken, CEO of Berlin-based molecular diagnostics firm Epigenomics AG. Right now, the optimism – and liquidity – of American investors is in stark contrast to the pessimism and of their European counterparts.

“It’s impossible to sustain companies in a meaningful way if you don’t engage U.S. capital,” Taapken said. “In one building I’ve met more people with capital to deploy in the health care space than in the whole of Europe.”

What’s a Safe Bet?

U.S. investors are also more willing to back high-risk projects. “European investors are dramatically more selective in placing their bets and are also significantly more risk averse compared to their U.S. colleagues,” said Christian Pangratz, chief business officer at Gauting-based Activaero GmbH, which develops drug-device combinations for severe respiratory disease. Pangratz recently returned to Germany after a decade in the U.S., including seven years at Nektar Therapeutics Inc.

“I’ve seen interesting technologies that could have absolutely grown wings in the U.S. had they been in the U.S.,” he told BioWorld Today.

Part of the problem in Europe is the available cash is spread too thinly across too many companies, said Dirk Wilken, managing director at Heidelberg-based CD-Venture GmbH, an investment fund of the Boehringer family. “Very few of them have enough money to do the programs right,” he told BioWorld Today. European firms are also more reluctant to face up to failure. “In the US, if something doesn’t work you move on. Europeans – they stick with what they started.”

CD-Venture, which has a portfolio of 36 firms – including Epigenomics – operates on both sides of the Atlantic, but it is focusing increasingly on the U.S. “The returns have been much, much higher,” Wilken said. Zurich, Switzerland-based oncology fund Nextech Invest Ltd., which has assembled a high-powered scientific advisory board to guide its investment decisions, is also taking a more U.S.-centric approach to investing. The U.S., said founding partner and CEO Alfred Scheidegger, has a higher concentration of repeat entrepreneurs and drug development teams with a record of success.

“There are very few teams here who can create this aura, this expectation, and hold it,” he told BioWorld Today.

No Shortage of Innovation in Germany

Despite the pervading gloom on the investment front, Germany remains a scientific powerhouse, and its biotech entrepreneurs do not lack confidence in their scientific capabilities.

“There have been worse times than now,” Daniel Vitt, chief scientific officer of Planegg-Martinsried-based 4SC AG, told BioWorld Today. “If you compare what we have and what others have, we would be in a very live position if we were on the East Coast right now.”

4SC has identified a biomarker, zinc finger protein 64 (ZFP64), the high expression of which is associated with an improved response to its lead cancer drug resminostat, a histone deacetylase inhibitor. The company saw similar signals in Phase II trials in Hodgkin’s lymphoma and in liver cancer.

“It’s a doubling of the median overall survival in each of the indications,” Vitt said. Those data were derived from a retrospective analysis, however, so the company is now seeking further funding to test the association prospectively, in a Phase IIb/III study.

Martinsried-based structural biology specialist Proteros Biostructures Gmbh is another case in point. The company recently co-founded a start-up, Rodin Therapeutics Inc., as a joint venture with Cambridge, Mass.-based Atlas Ventures, with additional investment from Johnson & Johnson Development Corp., the venture capital arm of Johnson & Johnson Co., of New Brunswick, N.J.

Rodin, of Cambridge, aims to develop drugs based on epigenetic mechanisms for neurological conditions. Its lead program in Alzheimer’s disease, originated in Proteros, which has industrialized X-ray crystallography analysis in order to provide detailed insights into the interactions between hit compounds and their targets. The program involves a new mechanism of action for Alzheimer’s disease. Other companies have previously tried but failed to develop compounds against the (undisclosed) target in question.

“We have specific know-how on that target,” Proteros chief financial officer Arnold Christ told BioWorld Today. “We have identified the structure of the target.”

Although German biotech is currently facing into a headwind, its progress, while slower than that of the U.S. sector, has not completely ground to a halt. Success in the clinic – and in the financial markets – could brighten the outlook very quickly.

“The equation is very simple,” Dirk Wilken said. n