Hoechst and Hesse Create Joint Life Sciences Fund

As the biotechnology boom in Germany continues, the state of Hesse and the pharmaceuticals and chemicals giant Hoechst, which is based in Hesse in central Germany, have joined forces to carve themselves a slice of the action. The two groups in November announced the formation of a DM125 million (ecu 64 million) joint-venture fund, Future Capital AG, to invest in life sciences and chemicals ventures in Hesse.

The public-private sector partnership is the first such collaboration between a German corporation and a state government. The initiative, which demonstrates Hoechst’s commitment to its home state, is expected to boost job creation and underline the region’s potential as a nucleus for leading-edge life sciences enterprises. The joint venture might also help to calm fears in the business community regarding Germany’s new Social Democrats/Green Party coalition’s policies towards industry.

Future Capital, which will open for business at the beginning of 1999, is Germany’s largest life sciences fund and will invest in both existing Hesse-based businesses and start-ups within the region; it may also provide funding to foreign enterprises which have, or plan to establish, operations in Hesse. Dr Hans-Hermann Mller of Hesse’s Ministry of Trade and Commerce, said many foreign biotech companies, particularly US groups, are looking to set up branches in Germany.

The fund also expects to benefit from deal flow from within Hesse’s universities, and the fund’s co-founders in November launched a competition to attract life-science-based business proposals from academic researchers. As many as ten projects will be selected for closer evaluation and might ultimately receive funding from Future Capital. Future Capital will have access to Hoechst’s own research and development operations, with a view to spinning out companies based on technologies that Hoechst itself does not wish to exploit.

The founders expect Future Capital to make some 20 investments during the next three to four years, many of which are likely to be co-investments with other fund providers.

Hoechst and Hesse are each providing half of the fund’s capital but will not be directly involved in the day-to-day management of Future Capital, which will be handled by an independent management team. At press time, the co-founders had not announced the identity of the fund managers.

Future Capital’s managers will have a remit to manage the fund according to purely commercial criteria to maximise financial returns. Investments of DM5 million or more will be referred to an investment advisory committee comprising around six industrialists and technology experts alongside representatives of Hesse and Hoechst. A separate scientific advisory board will be established to ensure the fund managers keep up to date with the latest technological developments in Future Capital’s target sectors.