To help Germany become a biotechnology leader, the software giant's creator has invested $425 million in 15 companies
Dietmar Hopp, the founder of German software giant SAP, has a new project on his agenda: biotechnology. With the help of two advisors, Hopp plans to rescue an industry that has fallen into irrelevance in Germany.
"Weinheim? Oh, really?" Dietmar Hopp attempts to downplay the issue. It was pure coincidence, of no importance whatsoever, and it certainly had no hidden or symbolic meaning. He jumps up, walks to his computer and prints out a few documents -- clearly attempting to change the subject.
The subject is the city of Weinheim, where Hopp, now 67, launched an effort once before that started small and ended up huge. In 1972, Hopp and four colleagues from IBM founded a company called SAP.
Three decades and one success story later, Weinheim is once again the starting line for the man who shaped three letters into the world's fourth-largest software corporation.
Weinheim is the home of Cytonet, the company that represents Hopp's entry into the world of biotechnology. In 2000, Hopp invested 15 million ($20 million) in the company, which is developing liver cells that it hopes will eliminate the need for transplants in the future. "Perhaps you've heard the name," says Hopp, "the company was awarded the Innovation Prize of the German Economy in January." He beams like a father whose child was just awarded the top honors in his graduating class.
Hopp is proud of the success of his investment, and proud of having had the right instincts, once again, in an industry that has become unattractive to investors in the wake of the shattered dreams of the New Economy. But for Hopp, the industry represents the "new great wave" after information technology. And, as always, when the obstinate entrepreneur, a native of southwestern Germany, is committed to something he throws his full weight behind it. Hoppe has already invested a total of 320 million in 15 biotech companies, making him Germany's largest individual investor in the sector. His son Oliver and his brother Rüdiger have also invested in the industry.
Helping Germany Become a Biotechnology Leader
His goal isn't exactly modest. Hopp plans to transform the many small biotech firms into strong companies, create jobs stable enough to weather a crisis and, last but not least, help Germany become a biotechnology leader. It sounds almost like a politician's campaign promise, but that's where the resemblance ends. Hopp has had enough of politicians. Convinced that the government invests too little money in research and education, Hopp has decided to take matters into his own hands.
This is no small vision, and yet it materialized entirely by chance.
In the beginning Hopp, a software expert, knew nothing at all about biotech. He had already resigned his post as chairman of SAP, and everyone assumed that the sports-obsessed retiree would move on to more leisurely pursuits, like putting on his own golf course in St. Leon-Rot near Heidelberg or pampering his favorite baby, the local soccer club in the village of Hoffenheim. He was a member as a child, and now Hopp is determined to turn the club into a first league team.
Hopp loves such shows of strength, and perhaps that was what prompted his advisor of many years, Christof Hettich, to propose an investment in Cytonet. Hettich, an attorney, has been Hopp's trusted advisor since he extracted Hopp from a money-hemorrhaging partnership in German brewery Henninger Bräu.
Instead of beer Hopp, who prefers wine, is now placing his bets on biotech. In 2004 he acquired Heidelberg Pharma, a company that develops drugs for fighting cancer and AIDS, rescuing it from bankruptcy. His investment didn't go unnoticed, attracting the attention of Heidelberg biotech pioneer Friedrich von Bohlen.
The nephew of steel magnate Alfred Krupp, Bohlen was the industry darling in the days of the bioscience boom. At the turn of the millennium his company, Lion Bioscience, which developed software for drug researchers, was considered the next big thing, the global company of the future. The analysts praised the company and the media celebrated its founder: a paratrooper trained in hand-to-hand combat, a man who could catch fish with his bare hands. Bohlen was a true Renaissance man -- a stunt pilot with a doctorate in neurobiology, a businessman trained in Switzerland, and an aficionado of Led Zeppelin, modern art and the German fast food known as Currywurst.
Everything Bohlen touched seemed to turn to gold. The Lion Bioscience initial public offering, in August 2000, raised a sensational 220 million. Full of optimism, the company called itself the "SAP of the healthcare industry."
Money burned like straw in the company's capital-intensive research division. But the company's great misfortune came on Sept. 11, 2001, when its chief financial officer, Klaus Sprockamp, was meeting with investors on the 94th floor of the World Trade Center in New York. It was 8:30 a.m. Sprockamp died in the ruins of the twin towers.
By July 2002, Lion's stock had lost 90 percent of its value. The media were quick to ridicule the company as a "lion that has ended up as a bedside rug," and shareholders at the company meeting could be overheard grumbling: "I lost my money in Heidelberg." When Bohlen resigned as chairman in late 2003, the company was still worth at least 60 million.
Despite Lion's woes, Bohlen's reputation as an authority on the biotech sector remained untarnished. A friend soon contacted Bohlen and told him about a company that was urgently in need of private investors: Cosmo Pharmaceutical, headquartered near Milan.
Bohlen researched the company, which develops drugs to treat colon disease and cancer vaccines, and decided to bring in Dietmar Hopp. The two had once met, albeit briefly, at a conference, but the chemistry was right between Bohlen and Hopp, both men of action. "I said to him: Cosmo, now that's a slam dunk." Hopp decided to join the venture.
Hopp did not so much as mention Bohlen's ailing company. Instead he suggested, almost casually, that Bohlen meet with his advisor, Hettich.
The move was evidence, once again, of Dietmar Hopp's legendary talent for bringing together the right people.
Part 2: Why Hopp Likes to Invest in Risky Sectors
In 2005 Hettich and Bohlen founded the Dievini consulting firm, which, since then, has identified and managed all of Hopp's biotech investments. In Latvian mythology, Dievini is a term used to refer to minor gods that were considered patrons of the home, but the two biotech experts prefer to see themselves as good spirits -- the good spirits of Dietmar Hopp.
Hettich and Bohlen have studied more than 200 business plans and listened to dozens of presentations in the last two years, but they end up investing in only a fraction of the companies they consider. "If the two of us are not 100 percent convinced, we don't even present it to Hopp."
Although their client isn't exactly known as a gambler, anyone who invests in biotech has to be willing to accept risks. Very few companies survive the years of hard times and the countless tests and approval requirements before a drug or a process is finally ready to be marketed. The average duration of this development period is at least 10 years. A failed experiment or an unexpected side effect can dash all hopes.
Given all these potential pitfalls, why on earth would Hopp invest his money in such a risky industry?
Of course, with his estimated assets of 5.3 billion, Hopp has the necessary cash to survive setbacks relatively unscathed. Besides, like any good investor he prefers to take an anti-cyclical approach, buying when prices are low and hopes high. But most of all Hopp sees the potential to develop something lasting: an industry that could truly end up playing in the big leagues one day.
Germany is a laggard internationally when it comes to the biotech industry. Annual industry sales in Germany of close to 945 million represent barely one-twelfth of the sales of US market leader Amgen alone.
Rescuing an Industry from Obscurity
The Heidelberg biotech trio's dream is to rescue the German biotech industry from obscurity. "What we are doing is called company building," says Bohlen. The group invests exclusively in three areas: cancer treatments, disorders of the central nervous system, like Alzheimer's and Parkinson's, and information-based medicine. The companies in each segment are selected to complement one another. The plan is to turn a profit by selling companies, licensing products to pharmaceutical corporations and taking companies public.
Four of Hopp's picks are already publicly traded. In November 2006, Hopp backed the IPO of Wilex, which is developing a treatment for cancer tumors, by acquiring about 25 percent of the volume of initial shares issued. Cosmo, the Milan company, was taken public in March 2007. Sygnis Pharma, a Heidelberg-based company formed in 2006 through the merger of Lion Bioscience and Axaron, a subsidiary of German chemical and pharmaceutical giant BASF, expects to raise additional capital in the stock market within the next 12 months.
Hopp's hottest candidate is GPC Biotech. The Munich-based company has Satraplatin, a prostate drug, in the pipeline that stands a good chance of gaining approval in the United States this year and in Europe in 2008.
"It was the first time we had gotten such tremendous feedback," says Bohlen. Experts estimate the sales potential for Satraplatin to be at least 500 million a year. Hopp has already earned more than a 50 percent return on his initial investment of 36 million for just under 10 percent of shares.
The Heidelberg entrepreneurs hope this first major venture will attract more investors to biotech. It would be investment that is urgently needed. According to the "German Biotechnology Report" by corporate consulting firm Ernst & Young, only 433 million was invested in biotech in Germany last year, an 11 percent decline over 2005.
Given this reluctance to invest, it is hardly surprising that many companies are trying their luck with Dievini, which receives heaps of business plans in its mailbox on a daily business. But how does it go about finding the right candidates?
"We place great emphasis on the companies pinning their hopes on more than one product," Hettich explains. But even more important, he adds, is gut feeling. "The people have to be convincing." Those who make it past the initial assessment are invited to St. Leon-Rot, the center of Hopp's universe. There, a few kilometers from SAP headquarters in Walldorf, Hopp, a sports fanatic, has fulfilled one of his dreams in the form of a luxury 18-hole golf course. It goes without saying that the multi-billionaire's course is one of Germany's most attractive, a place where the world's golf elite compete.
While the athletes swing their irons on the green, the heads of the selected companies sweat their way through presentations for Hopp in the clubhouse. In most cases he agrees with the suggestions of his house gods, but then the real work begins for Hettich and Bohlen. Unlike run-of-the-mill financiers, they pay close attention to the investments. "We're something on the order of godparents," says Hettich, "we provide the companies with assistance in matters of organization, structure, business development, everything, really." One of the two men always holds a seat on the supervisory board of each of Hopp's investments.
Once every four weeks Hettich and Bohlen report to their investor on the development of his babies, and twice a year Hopp arrives at his own assessment of the companies. This is when the man they call "Vadder" (father) at SAP, because of his thoughtfulness, brings together all the CEOs and CFOs of his biotech empire together for a meeting in St. Leon-Rot.
One of the aims of this semiannual conference is for the executives to get to know each other, brainstorm, think outside the box and plan the impossible -- the same things Hopp and his friends once did. And because achieving the right corporate culture is so important to him, Hopp always puts in an appearance to impart his recipes for success to the youngsters: "As executives, you should behave like team members. Every employee must have the freedom to make mistakes. You should not build walls, engage in intrigues or condone office politics."
These principles are a matter of course for Hopp, who applied them to build SAP into the company it is today. But anyone who reads today's news of corporate scandals, corruption and intrigues can be easily exposed to temptation. That's why, says Hopp, "it's important to tell young people what the most important attributes are in business: decency and honesty."
Of course, one should also never underestimate the importance of proper appearance, a principle Hopp seems to take to heart when he sprints from the conference room up to his apartment and exchanges his orange polo shirt for a business shirt, tie and jacket -- for his photo in this magazine. Heaven forbid that someone might think that Hopp doesn't mean business.
Translated from the German by Christopher Sultan