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Pharma giants underpin biotech minnows

Germany’s established presence in life sciences began with the founding of its market leader, Qiagen, more than 20 years ago.

Qiagen, a multinational with more than 30 subsidiaries in over 18 countries, is Europe’s largest listed biotechnology company. It has a portfolio of more than 500 products and more than 1,000 patents – and it was the first German company to go public on NASDAQ, the US stock exchange, 12 years ago.

Now, 15 German biotechnology companies are listed in regulated markets, and more in open markets, and the industry in Germany has more than 500 companies employing nearly 15,000 people, with a turnover of 2.19 billion euros (USD 2.99 billion) (2008 figures). A further 15,000 people are employed in academic and public sector biotechnology departments.

Most German life science companies are small to middle market-sized (SMEs). The average number of employees is 30; more than 40% of companies have fewer than 10 employees; and only 5% of companies have more than 100 employees. 

More than half of all employees in the sector have a university degree and the sector is also highly research-driven: 88% of companies conduct their own research and development, and more than half of all revenues goes into research and development.

Such has been the growth in the industry that in 2008 alone, 202 million euros (USD 276 million) was invested into it by venture capitalists.

Over those same years, UHY’s group of German firms, UHY Deutschland AG, has gained considerable life science expertise as it extends its reach significantly into the industry.

“Then the global credit crunch took hold" says Reinhold Lauer, of UHY Deutschland AG. “It has been a particular problem for ‘seed’ companies such as in the biotechnology sector. Venture capitalist investment dried up."

Consequently, another source of finance has become important: it has resulted from alliances between biotechnology ‘minnows’ and ‘giants’ of the pharmaceutical industry, such as Glaxo and Pfizer.

Government grants for SMEs have also been a major financing source – they can amount to 50% of fundable costs. Conditions apply: a certain number of people have to be employed over a specified period, variable from state to state.

And the Government has continued to actively promote the industry – since 1996 it has staged the Bio Regio competition that grants subsidies to ‘clusters’ of biotechnology companies that can be found regionally around major cities (see map below). The launch of the Bio Regio competition spawned an upsurge in new biotechnology companies.

The UHY Deutschland AG group head office is at the heart of one of the principal ‘clusters’, in Berlin; it has branch offices in Bremen, Hamburg, Cologne and Munich – and is actively engaged in extending into other major German business centres.

About 40 established biotech companies are clustered in the same area as the UHY group’s principal office, in Berlin and Brandenburg. Ten of them are UHY Deutschland AG clients. “In Berlin, in biotechnology, it is either a Big Four firm or UHY Deutschland,“ says Lauer, highlighting UHY Deutschland AG’s long-standing expertise.

That expertise sets the group apart at business pitches in this sector, but now, in particular, its services are even more in demand because biotechnology companies are facing special tax problems:

1. Tax losses carried forward are not deductible partly or in total when more than 25% of all shareholders have changed

2. The transfer of shareholder loans into equity might under certain circumstances be treated as taxable income.