HAMBURG, Germany -- Two months have passed since the German elections that led to a government formed by a "red-and-green" coalition of the Social Democratic Party (SPD) and the Green Party. But biotechnology companies and venture capitalists in Germany are not yet sure about the path research and technology politics will take during the next years.

Initial fears that the Green Party -- well known for its longstanding opposition to genetic technologies in general -- could have negative influence on biotechnology issues have almost vanished among the German biotechnology community. Instead, grave misgivings have set in about the future support for start-up companies and financing rounds. The tax reform plans of the new government and a possible restructuring of financing priorities are viewed as a serious threat to the young German biotechnology industry.

In the coalition agreement following the October elections, biotechnology has not been a major issue, but in the few paragraphs pertaining to this field the focus has been on green biotechnology. Both parties agreed on more risk and safety assessments, more monitoring and a shift in control of experimental and commercial releases of transgenic plants.

Further discussions are expected about issues of medical ethics that are high on the Green party's agenda. One of their health policy experts, Monika Knoche, member of the parliament, already announced that the coalition had agreed to establish a parliamentary inquiry commission to address bioethics issues including cloning; pre-implantation diagnosis of early embryos; cheap genetic testing; and germ-line gene therapy.

In the four years to come, these issues will be addressed mainly by the Ministry of Ecology and the Ministry of Health, both run by Green cabinet secretaries and undersecretaries.

Therefore, most companies expect hard times for biotechnology enterprises in Germany, much more red tape and again discussions on embryo and animal research. "The coalition agreement," said Björn Lindemann, spokesman for Evotec, of Hamburg, "contains much more protectionist declarations than details on how the new government will promote biotechnology." He said he fears that the coalition will stress supposed risks of genetically modified agrobiology products, rather than continue the supportive path of the former government.

Erich Felber, CEO of Micromet GmbH, of Martinsried, Germany, said repeated trouble could emerge.

"If the discussion on the release of genetically modified organisms [GMOs] flares up again, undifferentiated fears and a general rejection of genetic technologies, animal experimentation, etc., could surface again," he said. He recalled the blocking of Germany's recombinant insulin production plant in the 1980s and warned, "The mistakes of the past should not be repeated in the green biotechnology sector."

However, the two Green cabinet secretaries have not prominently participated in the fierce debate on genetic technology within the Green party, and the two parliamentary experts of the Greens which triggered the genetic technology debate during the last legislative period have not been re-elected to the Bundestag.

Companies that have been founded in federal states run by red-green coalitions in the past are keeping cool. "One should not forget," said Hermann Lübbert, founder of Biofrontera Pharmaceuticals GmbH, of Leverkusen, Germany, "that the biotechnology policy of the former federal government has been supported vigorously by the state and local governments in general, including those governed by a coalition of the SPD and the Greens."

Bureaucratic 'Backslide' Threatened

The new research minister, Edelgard Bulmahn, member of the Social Democratic Party, has been recognized as a technology expert since she became a member of the German parliament in 1987. In several parliamentary committees that dealt with research issues and as member of the board of various research agencies, Bulmahn has always been an advocate for increased investment in education, research and technology. She has greeted biotechnology as a key technology for the next century just as her predecessor Jürgen Rüttgers did.

In a message of greeting to the Max Planck Institute for Biochemistry, of Munich, Germany, which commemorated its 25th anniversary, Bulmahn wrote that she would take care to further increase the attraction of the German biotechnology landscape for scientists and investors and promised: "The new federal government will systematically advance the support of the life sciences and the innovative potential of genetic and biotechnology," she wrote.

However, biotech industry representatives are increasingly worried about the new distribution of responsibilities among the ministries. Bulmahn's research ministry is not the ministry for research and technology anymore. Technology has been transferred to the Ministry of Economics and Technology, which now is responsible for the promotion of start-ups, technology transfer from the universities, and related matters.

Both ministries will be forced to cooperate closely and will set up joint coordination and project groups, but this is just the bureaucratic scenario feared by biotechnology firms. "That's a backslide into the old split between basic and applied research, and, with lots of public officials in between trying to mediate with paperwork, this will lead to a standstill rather than a speed-up," said one company representative who did not want to be named.

Even more, with the restructuring of the grant system, some company representatives fear that federal grants and loans are lowered or even cut to zero in the future.

"As it were, this would be some sort of Darwinian selection for Germany's biotechnology landscape," said Björn Hoffstedt, CEO of Genetics Institute, of Martinsried. "But some companies are doomed to failure already."

Others are not afraid: Friedrich von Bohlen, CEO of Lion BioScience AG, of Heidelberg, Germany, told BioWorld International he could live a happy life in a world without public money granted to biotechnology companies. "However, in this case, first the tax burden for companies has to be much lower than it is today, and second, we have to have attractive stock option or equity interest models for our employers," he said.

The new government does not seem to live up to these expectations. Its tax reform plans have been widely criticized already, because critics say they do not take into account the needs of start-ups and entrepreneurial companies. Gain on sale of corporate equity holdings, for example, will be taxed with a rate of 40 to 60 percent in the future, if a participation of more than 10 percent is sold. So, company founders are expected to keep their participation rate below this threshold in the future.

On the other hand, no measures are taken to facilitate stock option models for employers. This could be a valuable incentive for managers and scientific staff of small entrepreneurial companies, business experts say. Such models could help start-ups to attract top-people despite lower wages. "Today, if an option is taken, it is subject to a 60 percent taxation," said Christoph von Einem, lawyer and president of the Venture Capital Club, of Munich, Germany.

To avoid this burden, von Einem has developed a new model in co-operation with the Bavarian state. Now, an option is subject to taxation when it is granted. "This model is interesting for companies not yet listed, which have to undergo second and third financing rounds," von Einem said. In this case, tax is much lower, depending on an assessment of the corporation by certain standards. Although the model has been applied in Bavaria already, whether it will be adopted by other federal states or the federal government remains uncertain. *