Germany does not sell its silverware.
That was the refrain repeated by economics minister Peter Altmaier last week, as he announced Berlin would plough more than €300m into a small biotech company that had never produced a marketable product, but was about to proceed to clinical trials of a Covid-19 vaccine.
CureVac, founded by graduates of Tübingen university some 20 years ago, first hit international headlines in March on reports that the US government had sought to buy a stake in an effort to secure supplies of a potential vaccine.
Fast forward to June, and Angela Merkel’s administration flexed its muscles in response, taking a 23 per cent share in the privately owned company — on the same day it emerged CureVac was planning an initial public offering in New York.
Germany, it seemed, was very much in the business of protecting potential national champions from the grasp of Washington, not just Beijing. But even within the country’s borders, there was disquiet about the decision.
“That firm now has an advantage,” said Achim Wambach, president of economics institute ZEW and chair of the German Monopolies Commission. “It has government backing; it has better financing conditions.”
One of the biggest puzzles to observers was the rationale given by Mr Altmaier’s ministry for picking CureVac, rather than one of its rivals.
“Germany needs companies . . . that work to ensure that research results obtained in Germany are used for innovative products in these central healthcare areas,” the ministry told the Financial Times.
Yet, at least according to CureVac’s majority owner — SAP co-founder Dietmar Hopp — its most coveted product was not in immediate danger of leaving German shores. The billionaire, who owns 80 per cent of the company, insisted in March he was committed to creating “sustainable innovative infrastructure” in the country.
Additionally, CureVac is one of two German companies seen to be at the forefront of developing a Covid-19 vaccine that makes use of messenger RNA, which could lead to a viable product sooner than traditional methods.
Mainz-based BioNTech, already a listed company, began testing its trial vaccine on humans in April. It too needs to raise money to pay for mass production, but has yet to attract investment from Berlin or European authorities.
“I think this is all a bit headline driven,” said one representative of a large US investor in Germany.
“If Mr Hopp had gone out and IPO’d the company, the next headline would have been that the IPO allocations were, whatever, 90 per cent to non-German investors.”
Berlin’s fear of negative press is understandable in some ways. The acquisition in 2016 by China’s Midea of industrial robotics giant Kuka led to an outcry, and vows from politicians that they would prevent a repeat.
But investors are increasingly concerned that Berlin will end up cordoning off swaths of Europe’s largest economy.
“Kuka was the trigger, but it’s a general policy shift,” said Horst Henschen, counsel in the global antitrust and FDI practice at law firm Covington.
“Ten years ago, Germany, an export country, was very much for globalisation and no one thought of introducing hurdles,” he added. “The shift is serious, and Covid-19 accelerated it.”
A few days after the CureVac announcement came a development that further raised worries about protectionism, when parliament passed an update to Germany’s Außenwirtschaftsgesetz or Foreign Trade Act.
While there have long been restrictions on foreign investment in critical infrastructure including energy and telecoms, the bill, which looks set to become law later this year, broadens the range of transactions that require approval from the state to include “critical” technologies, including robotics, biotech and quantum computing.
Non-EU investors looking to buy 10 per cent or more of a German company of any size deemed to be in that category will have to wait two months to learn if they have clearance to do so.
“My clients are not amused,” said one adviser to some of the world’s largest investors.
“Our fear is that we end up with a lot of the machinery sector being on the list of critical technologies,” said Ulrich Ackermann, head of the foreign trade department at the VDMA, which represents Germany’s mechanical engineering sector.
The VDMA’s concern, he added, was that in addition to cutting the flow of foreign capital into Germany, there would be retaliatory measures from other countries.
Others said that the updated foreign trade act will have the unintended effect of convincing more companies, including biotech businesses, to base their research facilities outside Germany.
Yet Berlin’s biggest worry should be the circumstance — CureVac’s decision to list in the US — that seems to have prompted its investment.
When in need of money to grow, Germany’s “silverware”, especially in the life sciences and technology sectors, often attracts more interest from the US and Asia.
The representative of a large US fund said “there is not a single name that would come to mind in Germany” when it comes to sophisticated institutional investors.
Even Mr Hopp, venerated by politicians for building SAP into the country’s most valuable company, could not resist a swipe at Ms Merkel’s administration for what he sees as an inhospitable environment for building innovative businesses.
“The funding of this research,” he said at a press conference on Monday last week, “has been neglected in Germany.”
No doubt policymakers beyond the EU are taking notes.
