m o c . e b o d a . k c o t s – u u s n a u K s a m o u T © j : o t o h P Introduction Nasdaq in April, its IPO being the largest to date of a German biotech company in the USA. Dr Siegfried Bialojan, EY Tax reliefs as possible measures capital Venture and the capital market – Dr Sieg- fried Bialojan, Head of EY‘s life science centre, concurs that these are key to Germany‘s biotech industry. “Ger ma- ny‘s promotion of research, driven by politicians through numerous pro- grammes, is ample and extensive,” he says, adding that this results in significant potential. A lack of financing, according to him, is the reason why attempts at trans- lating this potential into innovation on the market have been unsuccessful. “We are aware of this problem, but we continue to lack viable solutions.” Bialojan suggests the creation of a better framework for in- vestors in a form similar to gearing incen- tives, where the interest paid on a loan is normally tax-deductible. “No such incen- tive exists for equity stakes.” Bialojan goes on to explain that there is already a trend towards overly cautious and risk- averse investing, and that it is being reinforced by a lack of stimuli. “Venture capital investors bear the full risk that comes with their investments. Instead of being rewarded for successfully investing, however, they are punished by being forced to pay taxes on their profit.” Suspending the collection of capital gains taxes or flat-rate taxes under certain con- ditions, he adds, could be a viable way to boost Germany‘s venture capital culture. “The powers that be” cannot simply order more venture capital Dr Claus Kremo- ser, CEO of Phenex Pha rmaceutica ls and member of Bio Deutschland’s exe- cutive board, sha- res a similar view on the matter: “Other than Crea- thor and Welling- ton, I do not see Dr Claus Kremoser, Phenex Pharmaceuticals any real investors in Germany. That is just sad,” he says, adding that family offices and other investors need to be prepared to invest larger sums of equity into the biotech industry for more funds to be created. “And this will only happen if investors see lucrative exit opportuni- ties.” According to Kremoser, politicians need to come up with a clear strategy to build a “capital market food chain”, from seed investors to crossover funds at stock exchanges. After all, he adds, the powers that be cannot just order more venture capital. Kremoser believes that concrete action is required: “One interesting poten- tial measure would be to make returns on capital investments in biotech companies tax-free under pre-defined conditions.” Two experts, one opinion. Some politi- cians do not quite agree, however. Hirte admits that there is room for improvement on the German venture capital market, as compared with its international counter- parts: “We need to improve in this depart- ment,” he concedes. His proposed soluti- on, however, is quite different: “The new- ly founded ‘KfW- Beteiligungsgesell- schaft’ will pro- vide innovative companies with EUR 2 bn. Further- more, we are plan- ning to set up more financing compa- in the nies, e.g. form of a tech growth fund.” Christian Hirte, parliamentary state secretary at the Federal Ministry for Economic Affairs and Energy The capital market: Another “patient” Whether or not these ideas bear fruit, another “patient” is in dire need of atten- tion – the capital market. “During the last few years, there was some hope of setting up Euronext as a pan-European stock exchange. At the moment, however, this project is rather regressive,” says Bialo- jan, further stating that biotech compa- nies are again increasingly eyeing Nasdaq, “because there they can find investors who have an actual understanding of this industry, and the markets they need.” The government cannot afford to allow this jumping-ship phenomenon to go on, he claims: “You cannot just idly watch as companies that were fed German aid money end up creating value elsewhere.” Bialojan reiterates that Germany’s capital y k z t e p o K n a J © : o t o h P 12 ls 02-2019 “Investing in Biotechnology“ markets ecosystem is suffering from a lack of investor incentives; in addition, he has spotted a cultural problem: “Germany‘s equity culture is generally under developed. We need to initiate and establish a debate on this matter among the public.” “We lack business programmes” Kremoser has furthermore identified a “mindset problem”, and not just in terms of any sort of generally positive stance towards stock exchange listings: “Innova- tion does not exclusively stem from springboard innovation agencies which have Nobel Prize laureates carefully sorting out what they consider to be brilli- ant ideas. That is utter nonsense.” He claims that instead, economic thinking is required: “We need people who say, ‘I like this idea because it is profitable.’” This is more prevalent in the USA, he says, adding that investors and pharmaceutical cor- porations act more aggressively there. Bialojan furthermore points towards the country’s successful incubators and com- pany builders, stating that in the USA, founders have the environment and infra- structure necessary to focus on their busi- ness idea exclusively. “Meanwhile, Germa- ny is focusing on the funding environ- ment, which is typical. We lack business programmes.” Conclusion Kremoser and Bialojan agree that it is clear what the German government and parliament need to do: boost venture capi- tal and the capital market by creating tax incentives, thereby rewarding risk pro- pensity; as well as promoting entrepre- neurial spirit so as to convert innovation potential into economic strength. Kremo- ser states: “The system is sufficiently dy- namic. We are every bit as intelligent as the Americans, and we have a sufficient amount of private capital – it is just not put to use. If proper measures are taken, we could create thriving environments within five years.” There it is again, the most German word of them all, “if”.