German pharma's hopes and fears

The German pharmaceutical market is a key territory for companies selling products in the EU. In terms of per capita sales in Europe, Germany is third only to France and Switzerland. According to the VFA, the trade association that represents pharmaceutical companies in Germany, the country is the third largest international market for pharmaceuticals when analysed by volume and represents approximately 4.5% of global pharmaceutical sales.¹ Nevertheless, the VFA believes that the country is underperforming with respect to international rivals, citing pharmacy sales as evidence. Between 2001 and 2008, sales in the German pharmacy market increased by about 25%, but comparative growth in the UK and Spanish pharmacy markets exceeded 50%. Pharmacy sales in France and the UK were also higher than those in Germany.

Faiz Kermani

Steady decline

Given Germany's historical strength in the pharmaceutical sector, companies are concerned at the recent decline in the strength of the market. The high profile cost-containment policies of the government have caused many companies to re-evaluate their approach to investing in the market — this was particularly the case in 2003 when 82.1% of pharmaceutical companies reported to the VFA that they would be cutting jobs.² The survey showed that 53.6% of companies expected sales to slump, with another 7.1% of respondents stating that sales were set to stagnate. This negative mood was linked to the finding that half the companies surveyed expected to decrease R&D spending with a quarter freezing spending at 2002 levels. This alarmed the VFA, which had already noted the increase in R&D investment in other European countries, as well as in developing economies, such as China and India. Since then, the VFA has lobbied very strongly against government policies that it believes will further damage the sector.

Others, however, have argued that German pharmaceutical companies have themselves contributed to the decline by not keeping up with the times and making the right investments in R&D.³ Critics argue that while some international companies used aggressive strategies involving mergers and acquisitions to deal with the rising expense of developing and marketing new drugs, German companies failed to adapt. Hoechst was once a prominent German pharmaceutical company, but its incorporation into Rhone-Poulenc and then Aventis diluted its link to the country. By the time it became part of Sanofi Aventis, the company was considered to have "disappeared".³

Bayer remains a famous German pharmaceutical company, but it is no longer viewed as the innovative force it once was. In 1980 the company was ranked second in the world, but by 1999 it had fallen to 16th place in rankings, with the company considered to lack critical mass in R&D and marketing, particularly in the important US market,⁴ and cost cutting further dented the company's ability to improve its product strategy. In addition, the company's approach to partnerships was considered inflexible in light of the management's desire to maintain a 50% stake in such ventures.

What really damaged Bayer, however, was the 2001 Lipobay (cerivastatin) controversy. Bayer had forecast eventual annual sales of $2.5 billion for the product, but reported deaths due to rhabdomyolysis led to its rapid withdrawal from the market. The company handled the matter badly, with there being a public outcry in Germany when shareholders were informed of the situation before patients and doctors.⁵ The company has been forced to restructure and despite its merger with Schering AG, there is still occasional speculation in industry media that it might be a target for acquisition by a larger foreign rival.^6,7

New pressures

The government has targeted spending on pharmaceuticals as a means of controlling rising healthcare costs, but companies have argued that this is unfair since the increases are linked to providing citizens with better treatment options. In 2008, pharmaceutical expenses for the statutory health insurance increased by nearly 8%.⁸ In total, overall expenses for medicines, including vaccines, were predicted to reach €30.5 billion in 2009.⁸ These calculations were based on a study called the Pharmaceutical Atlas (Arzneimittel-Atlas), which differentiates between different therapeutic indications. The author of the study explained that the additional expenses tied in well with the political goal of providing preventative therapy for citizens; for example, the increased use of vaccines in 2009 was estimated to contribute €490 million in medical spending.⁸ Similarly, the cost of medicines to manage the complications of chronic conditions also had a heavy impact on spending in 2009. Analyses showed that hypertension accounted for spending increases of €310 million; diabetes for increases of €60 million; immunological disorders for increases of €200 million; and osteoporosis for increases of €60 million. Separately, spending on out-patient treatment for cancer was estimated to increase by €320 million for 2009.⁸ In light of the study, the VFA criticised what it perceived as the government's rigid approach to healthcare, arguing that increased spending was necessary for therapeutic progress.

Officially, pharmaceutical pricing is unregulated in Germany, but the authorities exert influence over prices through a reference system. Cost containment has been a growing feature of the German market since 2004, with the government's Agenda 2010 platform having the goal of reducing healthcare costs by €20 billion.⁹ A concern for pharmaceutical companies is that the German health minister, Philipp Rösler, has signalled his intention to change the pricing system in the country further.¹⁰ He has stated that drug prices are still too high and that companies will have no choice but to negotiate more favourable prices directly with the country's health insurers. They will also have to submit, at launch, a study demonstrating their drug's benefit to patients. According to media reports the changes are set to be introduced by the end of 2010. The Minister believes that such measures could save the healthcare system approximately €2 billion a year. Even though the move is unpopular with the pharmaceutical industry, market observers expect companies to comply because the alternative is the government imposition of pricing ceilings.

Glimmers of hope

Although Germany's pharmaceutical sector has a gloomy shortterm outlook, its longer term prospects are brighter. A 2008 study by the Hamburg Institute of International Economics found that a weakness in Germany was the high level of regulation and an inconsistent approval system. However, the authors stated that the country appeared to fare worse in surveys than an objective analysis of its strengths and weaknesses warranted.¹¹ The cost cutting approach of the government in the field of healthcare appeared to influence the viewpoints of those surveyed because it created the perception that new drugs were not appreciated in the German healthcare system, that research efforts into innovative therapies would not be rewarded and that patents would not be fully respected. This contrasts with data from the VFA showing that 31 new molecular entities (NMEs) were launched onto the German market in 2008 — a dramatic recovery from the low point of 17 NMEs in 2003. Also, in 2008, Germany's pharmaceutical industry actually increased its total R&D expenditure by nearly 7%.¹

The authors of the Hamburg Institute study noted that there have been real efforts to improve Germany's R&D competitiveness through the launch of dedicated research initiatives, tax incentives and the promotion of centres of research excellence; however, pessimistic respondents have cited these features as only serving to prevent Germany from falling further behind its rivals. This negative mood is reflected by the VFA, which believes that the decline in the global economy has had less of an impact on the German pharmaceutical industry than continuing the government's cost containment measures.

Germany's Federal Ministry of Education and Research (BMBF) is currently running a 'Pharmaceuticals Initiative' as part of its high tech R&D strategy. The government has identified biotech research as a promising area for future investment; according to government statistics, products from biotech firms accounted for €4 billion or 15% of the total turnover of the pharmaceuticals industry in Germany in 2007.¹² Germany is also often described as having the largest number of biotech companies in Europe, although the sector in the UK has been more successful in launching products onto the market. To support German biotech, a programme called BioChancePlus will provide up to €100 million in funding for small and medium-sized biotech companies, with the aim of improving coordination for drug development from networks of biotech and pharmaceutical companies.

Another important area for Germany is clinical trials — the country is widely recognised as a major European centre for clinical trials. As such the BMBF wants to support translational research that can have a practical benefit in this field and has established the "Competence Networks in Medicine", which will bring together experts in different therapeutic fields to develop novel medical solutions for target diseases. At present, 17 such networks are being funded in the fields of cancer, cardiovascular disease, infectious and inflammatory diseases and neurological and psychiatric diseases. The BMBF also has a specific goal of improving the conditions for clinical research in Germany; for example, the BMBF provides funding for non-commercial clinical trials and for centres to conduct interdisciplinary clinical research.

Outlook

Germany has certainly suffered a decline in its reputation as a centre for pharmaceutical R&D and for commerce, but its position is not irretrievable. There are areas in which Germany still has an excellent reputation — identifiable areas of strength include clinical trials, biotechnology and a skilled workforce. Initiatives to revitalise the pharmaceutical sector should take advantage of Germany's strengths in these important areas and take account of the globalisation of the industry. In addition, the government needs to make a determined effort to win over skeptics who believe that the country's healthcare system does not value innovative new drugs because future progress in medicine will depend on research into novel treatments.

Faiz Kermani is a freelance consultant and President of the Global Health Education Foundation, a charity that supports medical education and research projects in developing countries. He is a member of Pharmaceutical Technology Europe's Editorial Advisory Board. faiz@doctors.org.uk

References

1. Statistics 2009. The Pharmaceutical Industry in Germany (VFA, Germany, July 2009).

2. VFA, "Red-green actionism results in a reduction of jobs, a decline in sales and shifts in research projects" (2003). www.vfa.de

3. Deutsche Welle, "The Decline of German Pharma Companies" (2005). www.dw-world.de

4. R. Angelmar, Journal of Medical Marketing, 7, 77–88 (2007).

5. BMJ, "Bayer faces shake up after Lipobay withdrawn" (2001). www.bmj.com

6. Marketwatch, Bayer buying Schering stake to fend off Merck (2006). www.marketwatch.com

7. BioSpectrum Asia Edition, "Is Pfizer trying to buy Bayer?" (2008). www.biospectrumasia.com

8. VFA, "Increase for medical reasons" (2007). www.vfa.de

9. Deutsche Welle, "A Quick Guide To 'Agenda 2010'" (2003). www.dw-world.de

10. Europharma Today, "German Health Minister Attacks Drug Prices With Forced Rebates" (2010). www.europharmatoday.com

11. M. Bräuninger et al., Policy Check: Status and Perspectives of the Pharmaceutical Industry in Germany (Hamburg Institute of International Economics, 2008). www.hwwi.org

12. Federal Ministry of Education and Research, "The Pharmaceuticals Initiative for Germany" (2007). www.bmbf.de

The author says...

1. Germany is the third largest international market for pharmaceutical sales by volume.
2. Sales in the German pharmacy market have increased by 25% over 2001–2008 compared with an increase of more than 50% for Spain and the UK.
3. The government's targeted spending on pharmaceuticals, as well as German pharmaceutical companies themselves who are accused of failing to adapt to changing market dynamics, have been blamed for the damage to the sector.
4. The longer-term outlook for Germany is more positive than the short term thanks to initiatives to take advantage of Germany's strengths in biotechnology and clinical trials.