BNTX BioNTech SE

By Ruth Bender 

BERLIN -- A small German company's success in coming up with the West's first Covid-19 vaccine is drawing attention from investors in a country where biotech has struggled to raise funding in recent years.

Mainz-based BioNTech SE partnered with U.S. pharmaceutical giant Pfizer Inc. to develop the first coronavirus vaccine approved in the U.S. and Europe last year. Domestic rival CureVac NV is hoping its own shot will get approved in Europe in the coming weeks.

Now, more German and international investors are looking to invest in search of the next hidden gem in German biotech, venture capitalists, executives and analysts say.

In 2020, German biotech companies raised a record of EUR3.05 billion, equivalent to $3.7 billion, through venture capital, share offerings and convertible bonds, triple the amount for 2019, according to Ernst & Young. While half of that went into BioNTech and CureVac, companies working on non-Covid-19 related treatments also got important financing rounds.

"People in the industry used to say, 'If a company isn't based in Boston or California or in the U.S. generally, then it will be difficult to attract U.S. investors,' " said Claudia Ulbrich, founder and chief executive of Hanover-based Cardior Pharmaceuticals GmbH, which is developing RNA therapies against heart failure and seeking to raise EUR50 million to EUR60 million for a crucial clinical study. "That's changing," Dr. Ulbrich said.

Germany, once known as the world's pharmacy, was a leading source of medical innovation during the 19th and 20th centuries. Its scientists, for instance, discovered X-rays and invented aspirin.

Yet Germany-based startups have struggled to attract funding in recent years, investors and executives said.

Much investment in the sector has concentrated on the U.S., where firms raised $100 billion last year, according to Ernst & Young. China's biotech sector, while still a fraction of the U.S., has also grown rapidly recently, as the government has prioritized the sector.

Luring investment in biotech is always difficult because of the heavy risks involved. Most experimental drugs fail testing. Adding to the difficulties that German biotech startups faced raising capital has been a dearth of tax and other government incentives encouraging the risky investments, said Alexander Nuyken, head of Ernst and Young's Life Sciences branch for Europe, Middle East, India and Africa.

For years, few Germans invested heavily in German biotech and their investments were met with skepticism, said Friedrich von Bohlen, who manages the biotech investments of SAP SE software company co-founder Dietmar Hopp. "It was like the joke of the town: How can these 'idiots' sink so much nice money into such 'idiotic' companies?" Mr. von Bohlen said.

Mr. Hopp holds just under 50% of CureVac directly and via his investment company Dievini Hopp Biotech Holding GmbH, according to Mr. von Bohlen.

BioNTech had never brought a product to market before the pandemic and ended 2019 with a loss of EUR179 million. In March, it forecast sales of roughly EUR9.8 billion for 2021 from its vaccine. Its shares have more than quadrupled in value since the World Health Organization declared a pandemic on March 11, 2020.

The success has heightened U.S. venture capitalists' interest in German startups, said Markus Enzelberger, a Switzerland-based partner at U.S. healthcare fund Versant Ventures. Last year, Versant teamed up with Boston-based RA Capital Management to lead a EUR66 million financing round for T-Knife GmbH, of Berlin, which is developing cell therapies to treat solid tumors.

Many wealthy Germans are also reassessing their previous aversion to German biotech firms, according to investment fund managers.

"We're getting calls from family offices and other people saying they would like to invest with us in healthcare," said Thomas Strüngmann, who with his twin brother, Andreas, is a founding investor and majority shareholder in BioNTech. The brothers, who became billionaires with the sale of their generic drug company Hexal to Novartis AG in 2005, are among the small group of Germans who have been investing in German biotech for the past 15 years.

Munich-based venture-capital firm MIG AG has been fielding inquiries from family offices and wealthy individuals in Germany since the firm paid its own investors EUR600 million in dividends after selling most of its 6% stake in BioNTech, the highest single payout in the firm's history.

"People realize the risk is manageable and that the return can be much larger than previously thought," said MIG partner Matthias Kromayer.

While German biotech executives and their investors hope the current enthusiasm will revive Germany's contributions to drug development, they warn hurdles remain.

One problem is that Germany still lacks a pool of experienced executives to lead companies to commercial success, said RA Capital managing director Josh Resnick.

T-Knife, for example, just hired a CEO from the U.S. CatalYm GmbH, a startup that raised EUR50 million last year and is working on an experimental cancer drug designed to help the patient's immune cells battle tumors, recently hired Phil L'Huillier from Merck & Co.

UnternehmerTUM, a startup incubator that was founded by Susanne Klatten, heir to the family that controls car maker BMW AG, in the middle of the pandemic last year added a healthcare venture hub to boost company creation in that space.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

May 10, 2021 07:14 ET (11:14 GMT)

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