The intersection of geopolitics and healthcare has fundamentally changed how governments view the life sciences sector. Traditionally, foreign direct investment (“FDI”) screening focused on sectors like defense, energy, and telecommunications. However, recent years have seen a significant expansion of what is considered "strategic," now including biotechnologies, health data, and critical medical supply chains. The COVID-19 pandemic accelerated this shift, highlighting vulnerabilities in healthcare infrastructure and supply chains, and prompting governments to add healthcare and life sciences to the list of sensitive industries subject to FDI review. The European Union has moved towards coordinated FDI screening, with Member States implementing or tightening national regimes. The Regulation (EU) 2019/452 (“EU FDI Screening Regulation”) outlines factors for screening, such as the impact on critical infrastructure (including health), critical technologies (like BioTech), and access to sensitive information (such as patient data).
A defining trend is that life sciences deals are coming under government scrutiny even when there is no direct connection to defense or military applications. The EU and Member States have expanded FDI screening to cover food security, health data, and biotechnologies, beyond traditional defense concerns. The rationale is that life sciences are integral to national resilience, public health and economic security. This includes:
- Access to or control over patient health data (a critical asset in the digital age).
- Supply chain security for essential medicines and medical devices.
- Biotechnological innovations with potential dual-use applications.
Regulatory Framework for Foreign Investment in German Life Sciences
Germany has one of the most developed and stringent FDI screening regimes in the EU. The legal basis is the Foreign Trade and Payments Act (Außenwirtschaftsgesetz – AWG) and the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV), which have been repeatedly tightened in recent years to align with the EU FDI Screening Regulation and to address emerging geopolitical and security concerns. FDI proceedings are coordinated by the German Federal Ministry of Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz – “BMWK”).
Key Features:
- Sensitive Sectors: Germany’s FDI regime mandates screening for foreign acquisitions in BioTech, explicitly listing healthcare and biotechnology as sensitive. Covered activities include developing or producing pharmaceuticals, certain medical devices, and biotechnologies.
- Scope and Expansion: The regime covers share deals and equivalent asset deals as well as follow-up investments that increase a foreign investor’s stake above certain key thresholds. Expansion to greenfield investments, research collaborations, and critical know-how transfers is under consideration, with potential impact on BioTech.
- Mandatory Filing: Non-EU/EFTA investors acquiring at least 10% of voting rights in a “critical” German BioTech firm must file and obtain governmental clearance before closing. Higher thresholds (20–25%) apply to less sensitive sectors, but BioTech – often linked to health, critical infrastructure or advanced technology – typically falls under the strictest rules.
- Voluntary Filing: For unlisted but potentially security-relevant activities, voluntary filings are possible and advised – especially for innovative or dual-use technologies. Authorities may also call in a transaction ex officio within two months of becoming aware of it, up to five years after signing, if the deal is later deemed relevant to public order or security.
Practical Relevance for M&A, Venture Capital and Partnerships
The broadened scope of FDI screening has direct implications for mergers and acquisitions (M&A), Venture Capital (VC) investments and strategic partnerships involving foreign investors. Any transaction involving a life sciences company engaged in activities deemed essential – such as drug manufacturing, medical device production, or biotechnological R&D – may trigger a mandatory notification and review process. The EU’s harmonized approach means that even minority investments or non-controlling stakes can be subject to review if they involve sensitive assets.
Practical Implications for Investors and BioTech Start-Ups seeking funding:
1. Venture Capital:
- Early-stage investments, especially those involving sensitive technologies or data, are increasingly scrutinized, affecting how VC funds structure deals and select syndicate partners.
- For example, if a BioTech start-up company in Germany seeks funding from non-EU investors (e.g., U.S., UK, China, etc.), and a significant stake is acquired, FDI screening will likely apply if the start-up operates in a sensitive sector.
2. Due Diligence and Deal Timing:
- The FDI review process can add complexity, uncertainty (especially for non-EU investors) and significant delays (often up to 40 days for most cases; longer for in-depth reviews), which must be factored into the deal planning and negotiations.
- While the review process is generally efficient, parties should allocate sufficient time and resources for regulatory review, especially in cross-border deals involving sensitive technologies.
3. Transaction Costs: Legal and compliance costs increase as parties must assess FDI risks early and allocate resources for potential regulatory hurdles.
4. Deal Certainty: There is a risk of deal prohibition or required mitigation measures if authorities find national security or public order concerns. Investors may opt for voluntary filings even when not strictly required, to gain legal certainty and avoid later intervention by authorities.
Specific BioTech Sectors Facing Increased Foreign Investment Scrutiny in Germany
Germany’s FDI regime places the following sectors among the top areas of scrutiny for foreign investments:
- Health & biotechnology as a core focus
- Critical infrastructure and sensitive technologies
- Emerging and high-tech BioTech fields
Biotech Subsector: Pharmaceuticals & Vaccines
- Scrunity Level: High
- Rationale: Critical for public health, pandemic response
Biotech Subsector: Medical Devices & Diagnostics
- Scrunity Level: High
- Rationale: Part of critical healthcare infrastructure
Biotech Subsector: BioTech R&D (e.g., gene editing)
- Scrunity Level: High
- Rationale: Sensitive technology, dual-use potential (civilian and military applications)
Biotech Subsector: Health Data Platform
- Scrunity Level: High
- Rationale: Sensitive personal / medical data
Biotech Subsector: AI-driven BioTech
- Scrunity Level: Increasing
- Rationale: Emerging as a focus under EU / Economic Security
Biotech Subsector: Synthetic Biology, Biomanufacturing
- Scrunity Level: Increasing
- Rationale: Advanced, high-impact technologies
Key Take-aways
Life sciences are now considered security-relevant in Europe and globally due to their role in public health, critical infrastructure, and innovation. As a result, FDI screening routinely applies to transactions in this sec-tor – including M&A, VC, and partnerships – even without defense links. Early FDI risk assessment and pro-active regulatory engagement are essential for successful deals.
Consequently, investors and companies should
- Integrate a systematic, proactive FDI risk management into their processes
- Monitor the evolving regulatory landscape continuously
- Consider alternative structures (e.g., staged investments, local partnerships) to reduce FDI risk and minimize regulatory exposure
- Anticipate different regulatory outcomes (clearance, mitigation, prohibition) and build flexibility into the transaction documentation and
- Engage early and proactively with regulators to ensure compliance and deal certainty.
Trends and Outlook
- Increased Scrutiny: FDI reviews in healthcare and BioTech are rising. In 2024, 34 of 261 screenings by the BMWK involved this sector. While most were cleared within 40 days, about 3% led to restrictions or prohibitions. Deals involving investors linked to foreign governments or military — especially from China — face heightened risk of blockage.
- Political Discretion: The substantive test for approval is broad and allows the authority significant discretion to assess risks to public order or security, making outcomes somewhat unpredictable.
- Market Momentum: Despite regulatory hurdles, BioTech investments in Germany reached record highs in 2024, driven by innovation and strong market fundamentals.
- Reforms Ahead: Both the EU and Germany are moving towards further tightening and harmonization of FDI regimes. The possible introduction of a German Investment Screening Act (Investitionsprüfgesetz – IPG) and revisions to the EU FDI Screening Regulation are likely to reinforce scrutiny, especially for BioTech and health-related investments. However, these changes are not expected to take full effect before 2026.
- Strategic Importance and Attractiveness: Despite the strict FDI regime, Germany remains highly attractive for foreign BioTech investments. For example, major international players like AbbVie and Eli Lilly have made significant investments in German R&D and production facilities in recent years. The sector benefits from robust legal frameworks, strong patent protection and dynamic life sciences and industry innovation clusters such as bioRN in the Rhine-Neckar region which seeks to attract international investment and top-tier talent.
