Skip to main content

Business and Markets

. . .Your Huddled Pharmas Yearning to Breath Free

Genetic Engineering News reprints parts of a speech given by Rolf Krebs, chairman of the German drug firm Boehringer Ingleheim, at a recent conference in Hannover. Dr. Krebs was speaking on the differences in pharma research between Europe and America, and he didn’t leave much bottled up:

“The framework conditions for the pharmaceutical industry in Europe and the U.S. could not be more different. . .Germany serves as a good example of these changes. Last year, the “pharmacy of the world,” as Germany used to be known, reported its first-ever negative export-import ratio. In the meantime, the government has realized that of the seven pharmaceutical firms previously doing R&D work in Germany, only four remain. . .it is alarming that only ten of the world’s 185 industry research centers are now located in Germany. This is symptomatic of the situation throughout Europe, where 20 research centers have been closed down over the past six years.”

All true. It’s been clear for some time now that pharma and biotech companies are not expanding in Europe – the American ones aren’t going there, and the European ones are coming here. After going over the well-known problems the industry has been having with fewer good drug targets and more complicated drug development, Krebs says, correctly that this situation raises the risks for all existing project. The higher financial stakes make late-stage project decisions very important, and those decisions are based (naturally) on expected economic return. And where do you go for that return?

“It is becoming increasingly evident that the success of the major pharmaceutical companies depends on the extent of their U.S. presence. . .There are many reasons why the U.S. market has acquired greater importance compared with the European market. Although growth has slowed more slightly over the past two years, the U.S. market is still expanding much more dynamically than the European market.”

And what brings on such differences? The answer “money” is always an appropriate first guess in these situations, but there are several factors at work:

“In contrast to the high degree of freedom that exists in the U.S., all the individual European markets are subject to state regimentation. This applies both to pricing, as well as to the recognition and reimbursement of pharmaceutical products by the statutory health insurance funds. This lack of regulatory intervention in the U.S. has had a number of positive effects for the pharmaceutical industry. Prices are based on therapeutic quality; products are subject to a cost-benefit analysis all along the line (including patients.)”

This is a bit idealized, but compared to the European situation, he has a point. Krebs goes on to contrast the fundamentally different attitudes that have led to this situation:

“In comparison with Americans, we Europeans are less innovative and, above all, less inclined to take risks. We take comfort in the argument that it takes longer to create the conditions for new technologies due to our democratic processes. But democracy as such is not the root cause of these regrettable delays, as evidenced in the U.S. and the U.K., both of which are democratic states. The unwillingness to innovate and take risks results directly in an overabundance of rules and regulations. We want to lay down the final result without gaining the necessary experience first.”

As he goes on to say, it’s harder to get venture capital in Europe, and if you do manage to get a new idea off the ground, you run into a mass of inconsistent regulation. Hack your way through that, and your reward is compulsory government pricing. “The message is clear,” he concludes, “it is an advantage not to invest in innovation.”

Having observed both the American and European pharma industries at close range, I think there’s a lot of truth in what Krebs says. It’s not that the European companies haven’t done good work, just that they could have done still better in a different environment. Being intelligent and capable, they’ve come to understand their problem. And finding themselves with nowhere to go in their home countries, the French, German, and Swiss firms make their cutbacks at home – but not here. Or if they’re in better shape they break ground on their new research centers – not in Basel, but in Cambridge. How much of a company’s R&D has to take place outside Europe before they’re not a European company any more?