Dusseldorf Germany was once the pharmacy of the world. Today pharmaceutical managers are warning that the country is falling behind. “International location competition is tough. We see increasingly attractive conditions in the USA and China to promote innovations and high-tech companies,” says Bayer Pharma CEO Stefan Oelrich of the Handelsblatt. “Europe, especially Germany, is losing ground in this international competition.”
From the point of view of the industry, this is due to excessive bureaucracy and sluggish digitization of the healthcare system. In the EU, pharmaceutical companies are soon threatened with restrictions on patent protection. And research and development is already showing that Germany is falling further and further behind in international competition.
In 2016, pharmaceutical companies were still conducting 641 clinical studies in Germany, but in 2021 there were only 589. Germany slipped from second to sixth place in the world, according to an evaluation by the industry association VFA. This has consequences: Bayer has already announced that it will focus even more on the USA: for example with biotech cooperations or the construction of a new research center in Boston/Massachusetts.
Roche manager: “We are being more and more choked off here”
One reason for the anger in the industry is the law passed in autumn to strengthen statutory health insurance. For the pharmaceutical industry, this means higher compulsory discounts and restrictions on the pricing of innovative medicines. The companies see the possibility of financing their investments for the development of new medicines as limited.
“We are being cut off more and more from the air here,” complains Hagen Pfundner, head of Germany at the Swiss pharmaceutical company Roche. Anyone who wants to ensure investments in research and production should do everything possible to strengthen Germany as a business location.
>> Read also: Despite harsh criticism of politicians – Roche is expanding diagnostics production in Germany
With around 18,000 employees in Germany, Roche is one of the largest producers in the local pharmaceutical industry alongside Boehringer Ingelheim, Sanofi and Bayer and is also one of the largest investors. In the past six years, Roche has invested a total of around 3.2 billion euros in production facilities, technologies and site development in Germany.
This means that around 16 percent of capital expenditure went to Germany, while Roche only generates five percent of its sales in this country. However, according to Pfundner, new investment projects in Germany are being critically reviewed in view of the political course that has been set.
The costs for preliminary products are rising, but the sales prices are capped
Like other sectors of the economy, the pharmaceutical industry is also feeling the effects of the significantly higher energy prices and higher costs for primary products. However, because the prices in the drug market are capped, companies cannot pass on their cost increases directly.
Irrespective of this, according to the Association of Research-Based Pharmaceutical Manufacturers (VFA), the industry will have to bear the largest share of the savings contributions this year, which are to be achieved with the law to strengthen statutory health insurance companies.
With its policy, Germany is sending a fatal signal to the global industry: Research and invest elsewhere Han Steutel, President of the VFA association
According to this, the pharmaceutical industry accounts for 3.7 billion euros, if you include the extended price moratorium, i.e. price fixing for a limited period of time. That’s 83 percent of the total amount that healthcare providers need to save.
“With its policies, Germany is sending a fatal signal to the global industry: research and invest elsewhere,” said VFA President Han Steutel on Wednesday at the Handelsblatt Pharma Conference. In view of the demographic imbalance, Germany is more dependent than ever on key sectors such as pharmaceuticals.
The high bureaucratic requirements and sluggish approval processes are also disrupting the industry. With 54 ethics committees and 17 data protection authorities, it is not surprising that Germany “is slipping further and further and other countries are overtaking us,” says Marco Penske, Head of Market Access and Health Policy at Boehringer Ingelheim in Germany. That’s homemade. The company invests almost half of its research and development expenditure in Germany.
There is a lot at stake for Germany as a business location. The pharmaceutical industry, with a production value of around 55 billion euros, is significantly smaller than the automotive industry, as figures from the Federal Statistical Office show. Nevertheless, the pharmaceutical companies are an important investor in Germany: In relation to the gross value added, the investment ratio of the pharmaceutical industry with a share of 36 percent is almost as high as that of the car industry.
The discussion as to whether Germany is still attractive enough for the pharmaceutical industry has recently been fueled.
(Photo: Biogen)
In 2020, the pharmaceutical industry in Germany invested almost eight billion euros in research and development, about as much as the second largest German industry, mechanical engineering. In the corona pandemic, some key figures are likely to have increased due to the development and production activities related to mRNA vaccines.
The discussion as to whether Germany is still attractive enough for the pharmaceutical industry has recently been fueled. In January, the Mainz-based company Biontech announced a multi-year research collaboration with the British government to develop personalized mRNA cancer immunotherapies and vaccines against infectious diseases.
Great Britain attracts with digitized health data
Biontech continues to invest heavily in its locations in Mainz and Marburg. But the decision to set up cancer research in Great Britain was a conscious decision because the relevant health data is available there. The National Health Service, academic research institutions, regulatory authorities and the private sector work together so well that drugs could be approved more quickly, the reasoning goes.
The Bayer group, in turn, announced at the beginning of March that it would invest a billion dollars in the further development of research and development in the USA. The company wants to double its sales in the world’s largest and highest-margin pharmaceutical market by the end of the decade. Bayer currently makes around 25 percent of its pharmaceutical sales of around 19 billion euros in the USA, and around 39 percent in the Europe, Middle East and Africa region.
Novartis also adopted an “America first” strategy. “We are underrepresented in the USA,” said Novartis pharmaceutical boss Marie-France Tschudin to the Handelsblatt. In Europe it is the largest pharmaceutical company in terms of sales. In the US, Novartis is only twelfth. In the medium term, they want to move up into the top five. After all, the global pharmaceutical companies generate most of their profits in the US market.
“We are underrepresented in the US.”
(Photo: Novartis)
Overall, the global players earn well: The world’s ten largest companies in the pharmaceutical industry were able to generate a constant net return of 22 percent in the past economically difficult year.
However, more and more industry experts are assuming that the profitability of the industry will come under pressure in the next few years. Not only because of government regulation, but also because there are more and more drug development projects. New therapies approved on the market are not alone in the field for long, and with new competitors, prices are falling.
This is due to intense global competition. In addition to the USA, the number of studies in China is growing rapidly. In the case of innovative gene and cell therapies, the major topic of the future in the industry, 43 percent of the studies are currently being carried out in the USA, 38 percent in the Asia-Pacific region and only 18 percent in Europe, according to an analysis by the industry association Alliance for Regenerative Medicines.
The EU wants to reduce patent protection from ten to six years
The EU could introduce new restrictions on the refinancing of innovation. The EU Commission is in the process of finalizing its new pharmaceutical strategy for Europe in order to make the supply of medicines more future-proof and crisis-proof. The aim is to make medicines more accessible and affordable for all EU citizens – not just for people in rich member states.
>> Read also: After the Corona boom, the pharmaceutical industry is facing a dip in growth
According to the plans that have been leaked so far, the patent protection for certain drugs could be reduced from ten to six years so that cheaper imitation products can come onto the market more quickly. This also leaves less time for the innovative pharmaceutical industry to earn back its research and development investments.
Bayer manager Oelrich finds such plans worrying and counterproductive: “Because as soon as the protection of intellectual property is restricted, the incentive to invest in research decreases. This in turn worsens the general supply in Europe and increases our dependence on other markets,” he says.
The new processes in biotechnology determine future value creation
Germany is still considered an attractive location for the pharmaceutical industry. The basic and medical research is considered very good, the many manufacturing companies have proven their ability to function and cooperate in the production of Covid-19 vaccines, and there are also many good specialists.
But the big concern that worries pharmaceutical managers is that there will be a creeping deindustrialization. Roche Germany boss Pfundner: “If we don’t retain our technological leadership in biotechnology, then others will create value. However, they will then also determine the conditions for this.”
Collaboration: Jürgen Kloeckner
More: Biotech companies must prepare themselves for a dry spell in terms of financing