Pharmaceutical companies criticise Germany as a business location

Düsseldorf Germany was once the pharmacy of the world. Today, pharmaceutical managers are warning that the country is losing touch. „International competition between locations is tough. We are seeing increasingly attractive conditions in the USA and China to promote innovation and high-tech companies, respectively," Bayer pharmaceuticals boss Stefan Oelrich told Handelsblatt. „Europe, especially Germany, is losing ground in this international competition.“

From the industry's perspective, this is partly due to excessive bureaucracy and the sluggish digitalisation of the healthcare system. In the EU, pharmaceutical companies are soon threatened with restrictions on patent protection. And in research and development, it is already clear that Germany is falling further and further behind in international competition.

While pharmaceutical companies conducted 641 clinical trials in Germany in 2016, this figure fell to 589 in 2021, with Germany slipping from second to sixth place in the world, according to an analysis by the industry association VFA. This has consequences: Bayer has already announced that it will focus even more strongly on the USA, for example with biotech collaborations or the construction of a new research centre in Boston, Massachusetts.

Bayer, Roche and Co.: pharmaceutical companies complain about restrictions

One reason for the industry's anger is the law passed in autumn to strengthen the statutory health insurance funds. For the pharmaceutical industry, this means higher compulsory discounts and restrictions on the pricing of innovative medicines. The companies see this as limiting their ability to finance their investments in the development of new drugs.

„We are increasingly being cut off here“, complains Hagen Pfundner, Head of Germany at the Swiss pharmaceutical company Roche. Anyone who wants to guarantee investment in research and production should do everything in their power to strengthen Germany as a business location.

Roche employs around 18,000 people in Germany alongside Boehringer Ingelheim, Sanofi and Bayer one of the largest producers in the local pharmaceutical industry and is also one of the largest investors. Over the past six years,Roche has invested a total of around 3.2 billion euros in production facilities, technologies and site development in this country.

This means that around 16 per cent of investments in property, plant and equipment were made in Germany, while Roche only generates five per cent of its sales in the country. However, according to Pfundner, new investment projects in Germany will be scrutinised critically in view of the political decisions.

Pharmaceutical companies clearly save higher costs

Like other sectors of the economy, the pharmaceutical industry is feeling the effects of significantly higher energy prices and higher costs for preliminary products. However, because prices in the pharmaceutical market are capped, companies cannot pass on their cost increases directly.

In spite of this, according to the German Association of Research-Based Pharmaceutical Companies (VFA), the industry will have to bear the lion's share of the cost savings this year, which are to be achieved with the law to strengthen the statutory health insurance funds.

3.7 billion euros will go to the pharmaceutical industry if the extended price moratorium, i.e. a time-limited price fixing, is included. That is 83 per cent of the total amount that healthcare providers have to save.

„With its policy, Germany is sending a fatal signal to the global industry: research and invest elsewhere,

said VFA President Han Steutel at the Handelsblatt pharmaceutical conference on Wednesday. In view of the demographic imbalance, Germany is more dependent than ever on key sectors such as pharmaceuticals.

The high bureaucratic requirements and slow 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 behind and that other countries are overtaking us, says Marco Penske, Head of Market Access and Health Policy at Boehringer Ingelheim in Germany. This is home-made. The company invests almost half of its research and development expenditure in Germany.

Bayer and Co. are important for Germany

There is a lot at stake for Germany as a business location. With a production value of around 55 billion euros, the pharmaceutical industry is significantly smaller than the automotive industry, as figures from the Federal Statistical Office show. Nevertheless, pharmaceutical companies are an important investor in Germany: in terms of gross value added, the pharmaceutical industry's investment ratio is almost as high as that of the automotive industry, with a recent share of 36 per cent.

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. During the coronavirus pandemic, some key figures are likely to have increased even further due to the development and production activities relating to mRNA vaccines.

The discussion as to whether Germany is still an attractive enough location for the pharmaceutical industry has recently gained new impetus. In January, the Mainz-based company Biontech announced a multi-year research collaboration with the British government to develop personalised mRNA cancer immunotherapies and vaccines against infectious diseases.

UK lures pharmaceutical companies with digitised health data

At the moment, Biontech is continuing to invest heavily in its sites in Mainz and Marburg. But the decision to set up cancer research was deliberately made in favour of the UK because the relevant health data is available there. The National Health Service, academic research institutions, regulatory authorities and the private sector work so well together that drugs can be authorised more quickly, according to the explanation.

The Bayer Group in turn announced at the beginning of March that it would invest one billion dollars in the further expansion 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 generates around 25 per cent of its pharmaceutical sales of around 19 billion euros in the USA, and around 39 per cent in the Europe, Middle East and Africa region.

Novartis had also adopted an „America first“strategy. „We are underrepresented in the USA“, Novartis pharmaceuticals chief Marie-France Tschudin told Handelsblatt. In Europe, Novartis is the largest pharmaceutical company in terms of sales. In the USA, Novartis is only ranked twelfth. In the medium term, the aim is to move up into the top five. This is because global pharmaceutical companies generate the majority of their profits in the US market.

All in all, the global players are earning well: the ten largest companies in the pharmaceutical industry worldwide were able to generate a consistent net return of 22 per cent in the past economically difficult year.

However, more and more industry experts are assuming that the industry's profitability will come under pressure in the coming 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 prices are falling with new competitors.

This is due to intense global competition. In addition to the USA, the number of studies in China in particular is growing rapidly. An analysis by the industry association Alliance for Regenerative Medicines shows that 43 per cent of trials for innovative gene and cell therapies, the major topic of the future for the industry, are currently being conducted in the USA, 38 per cent in the Asia-Pacific region and only 18 per cent in Europe.

Bayer criticises EU plans for patent protection

The EU could impose new restrictions on the refinancing of innovation. The EU Commission is currently finalising 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.

According to the plans leaked so far, patent protection for certain medicines could be reduced from ten to six years so that cheaper copycat products can be brought to market more quickly. This would also leave less time for the innovative pharmaceutical industry to recoup 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 dependency on other markets," he says.

Pharmaceutical industry worries about deindustrialisation

Germany is still considered an attractive location for the pharmaceutical industry. Basic and medical research is considered to be very good, the many manufacturing companies have proven their functional and cooperation capabilities in the production of Covid-19 vaccines, and there are also many good specialists.

But the major concern for pharmaceutical managers is that a creeping deindustrialisation is taking place. Roche Germany CEO Pfundner: "If we do not retain our technological leadership in biotechnology, then others will realise the added value. However, they will then also determine the conditions for this.

Release of the "Handelsblatt" from 22 March 2023