Germany – Unifying Germany with innovation
After two world wars, forty-five years of foreign occupation, national division and a fallen wall, there are no doubts left over the German capacity to reinvent itself and overcome obstacles. In just 20 years since German hammers smashed their way towards unification, economic freedom and democracy, Germany has fully regained its sovereignty, its confidence in itself, and its place at the heart of Europe.
In the new nation, however, East Germans quickly learned “there’s no such thing as a free lunch,” and Germany as a whole has realized that harmony comes with a price. After years of subsidizing the poorer former communist neighbors, the Federal Republic is still pondering how to continue financing social equilibrium, without compromising its generous welfare state as both the German society and its economy continue to mature. The question is not whether but rather how this remarkable society, used to transcend colossal challenges, will deal wisely with more mundane ones.
Out of a big list of “ordinary issues,” one of the most relevant – and a hot issue in Germany’s 2009 September elections – is how to finance a universal health care system. Germany’s answers to such pressing issues in the last two decades have had an impact on the world’s third largest pharmaceutical market and how the industry is responding to them.
Henning Fahrenkamp, CEO of the German Pharmaceutical Industry Association (BPI) explains: “In the last 20 years, Germany has undergone almost 20 health care reforms and law changes, averaging one reform per year.” But the results have not always been to the taste of the industry, he complains. For instance, he says, in 2004 all non-prescription drugs were excluded from reimbursement, resulting in a massive decrease of investments in the OTC segment.
Some outsiders may perceive the German pharmaceutical market – not long ago known as the Pharmacy of the World – as a sad testimony of the negative effects of over-regulation, cost-containment policies and high labor costs in a mature and saturated market. Even though the room for critics and improvement is considerable, sceptics couldn’t be more mistaken.
The numbers of the German pharmaceutical industry speak for themselves: Germany is the number one pharmaceutical market in Europe; it is by far the biggest generic market in the continent with the highest penetration of generic drugs among OECD nations; it is currently the European leader for commercial clinical studies; it is the second biggest biotech hub worldwide; it is one of the world’s top five pharmaceutical manufacturers; and more.
Germany’s excellence in medical science has rendered the country the fame of the “land of innovators,” with 77 Nobel Prize winners in the fields of medicine, chemistry and physics in the 20th century. Companies such as Bayer Schering Pharma, Boehringer Ingelheim and Merck KgaA have long benefited from German scientists’ bright ingenuity – which have produced classics like morphine and aspirin.
The main strengths that justify such a durable predominance in the international pharmaceutical scene are Germany’s long standing know-how in manufacturing and logistics; its great expertise in areas ranging from basic research up to high-tech research and production; and the immediate market access given to drugs after approval. The German competitiveness is translated in its export-oriented tradition that benefits from a privileged location at the center of Europe and at the doors of fast growing emerging Eastern European markets.
Still, in the last twenty years, Germany has only barely been able to maintain its position as a production centre. It responded for 8% of the overall pharmaceutical yield from Europe, Japan and the USA in 2007, down from 9% in 1990 – and if we considered the appreciation of the Mark and Euro in the period the figures would be even worse.
The struggle of the German federal government to deal with the increased budgetary constraints and rising health care costs is enormous, especially in a country that for decades has provided universal health care coverage to its citizens. The ageing of the population; the continuous reduction in the numbers of young taxpayers; the rise of unemployment and decrease in wages; plus the dramatic increases in some chronic diseases such as diabetes are all good reasons for concern.
Unfortunately, finding the right balance between rising costs and shrinking revenues is not a “privilege” of Germans. However, what is unique about Germany is how it has stopped the rise of health care expenditures. From 1996 to 2006, the share of the GDP spent on health care services went from 10.4% up to 10.6%, much less than other OECD countries such as France, which scaled its out goings from 9.8% to 11.1%.
Generics are the key, as the strategy heavily rests on the German government and industry’s capacity to increase their penetration in the market. According to Peter Schmidt, CEO of ProGenerika, the German association of generic producers: “Generic drugs are responsible for more than 63% of the market from the statutory health insurance system (SHI) – which covers 90% of all Germans – and in the off-patent market generics hold 79% of the market share.” This is especially relevant for public coffers since, once a drug goes off-patent, generic producers take up to eight weeks to enter the market and drop average prices by more than 75%.
Cornelia Yzer, General Director of the German Association of Research-Based Pharmaceutical Companies (VFA), recognizes that the German government imposes a high level of regulation. However, according to her, German politicians are aware that further restrictive rules will have a negative effect on R&D in the country. As Ms. Yzer highlights: “the federal government has done a lot in the last two years to promote R&D in the pharmaceutical industry; they have understood that the only way to create a clean and knowledge-intensive economy is to constantly promote long-term R&D in Germany and cooperate closely with innovative sectors such as the pharmaceutical industry.”
Balancing all the pros and cons, if in terms of production the country has lost positions in international ranks, it is undeniable that Germany is at the forefront in biotechnology and other highly innovative-intensive areas such as genetically manufactured pharmaceuticals.
On the one hand, the German federal government is trying to cut costs in the health care sector and, on the other, it is firmly incentivizing innovation through support to research, foreign direct investments (FDI) and German start-ups. This paradox explains why even though the German pharmaceutical market has grown below the OECD average in the last 20 years its pharmaceutical industry has done fairly well, mostly thanks to exports. The German market has become small for its pharmaceutical industry and now its export rate is up to 56% of the national production, 20% more than 15 years ago. As the German pharmaceutical industry moves forward by focusing on international markets, it is difficult to ascertain which role the German market will play for its own industry.
Germany – Land of ideas, Land of rules
Germany, under the leadership of Otto von Bismarck in the late nineteenth century, was one of the first countries to introduce a system of widespread health care insurance. Today, every person in employment has to pay the Krankenkassen – the statutory health insurance program (SHI) – or opt out and pay a private health insurer.
A system that survived more than a century and reached practical universal coverage decades ago is a masterpiece of sustainability and a showcase for countries like the USA, still debating over universal care while spending a much higher share of its GDP on health care – 10.6% in Germany versus 15.3% in the USA. However, the bill for the success of the German health care system is now starting to look scary for some.
The way the German government has dealt with the sharp increase in healthcare costs and relative decline in revenues has been unevenly two-fold: it has strictly tackled costs while being loose on the increase of contributions. Needless to say, a tax increase or a raise on health care contributions would be much more unpopular than cutting revenues from heath care providers and pharmaceutical producers.
According to Ms. Dorothea Bronner, CEO of the G-BA (Federal Joint Committee), – an institution created by the health care reform of 2004 and that unites health insurers, physicians associations and hospitals deciding on the cost effectiveness of new therapies: “The combination of a highly profitable industry with a universal health care system represents an unsustainable burden that has to be rebalanced in order to guarantee future generations a decent and affordable health care system.” However, according to the VFA, in 2008 medicines and medical devices accounted for only 6% of SHI expenditures and the German prices were in the middle range among European countries – even though its income per-capita is one of the highest.
With the Health Care Reform Act that went into force on the 1st of April of 2007, the German Ministry of Heath intended to provide a new base for the general financing of the health care sector, as well as to modify part of the legal framework for the pharmaceutical industry.
It established a cost-benefit assessment performed by the IQWIG (Institute for Quality and Economy in Health Care) – a government agency whose main objective is to give technical recommendations to the G-BA. From then on, new drugs underwent an assessment on whether they had a real therapeutic improvement compared to existing substances, which would justify reimbursement.
Another big change brought by the Health Care Reform Act of 2007 was the directive that allowed health care insurance companies to rebate directly with pharmaceutical companies. Before this reform, price competition between generic companies was fierce; nowadays, with the additional power given to health care insurers, many in the industry say it is unbearable.
Sven Dethlefs, CEO of Teva Germany, agrees that this reform will generate further consolidation in the generic market. He believes that only those companies that manage to increase their efficiency, lower their costs and expand their scale will be able to survive. To do so and achieve the 5% market share Teva aims to have in the German generic market by 2012, he has two main directives.
Primarily, Mr. Dethlefs is focusing his attention on creating a sole Teva entity in the German market, which today is divided between different units such as GRY Pharma, IVAX, AWD and Teva Pharma. They were a result of Teva’s past acquisitions in search of greater scale and efficiency, especially in the case of IVAX in 2006 and AWD Pharma in 2008. “The integration of Teva’s different legal entities is our biggest challenge in the German market; so many different identities and brands weakens Teva’s recognition among costumers,” he says. The complete integration of the group should be finished in the next two years.
Secondly – and more related to the increased competition created by the last health care reform act – Teva is aggressively bidding within the rebate system in order to automatically gain market share. Winning a rebate with a big SHI provider can jump start the market share of any company in the German market, since some health care insurers hold a considerable share of the market (AOK, the biggest one, covers 35% of all Germans). Only companies with an extremely efficient cost-structure like Teva will be able to take advantage of that.
Cegedim Dendrite gives another good example of how companies can turn challenges into promising opportunities in the world’s third biggest pharmaceutical market. Before the health care reform act of 2007, health insurance companies simply had to pay what physicians prescribed. With the new system, they can bargain and auction big purchases of drugs that will be later reimbursed.
As Arnim Jost, the General Manager of Cegedim Dendrite Germany says: “Since the 1st of April 2007, Cegedim Dendride has seen an increased search for commercial key management and political account management from the pharmaceutical industry.” Before, the industry could introduce small changes in their products without any assessment on whether these advances really benefited patients proportionally to the price increases, but now the situation has changed.
Time To Pay Attention Attention
Deficit and Hyperactivity Disorder (ADHD) has long been part of the human condition, but it has only gained notoriety in the last 30 years, as sufferers and physicians become more aware of the disorder. Today, (ADHD) is a niche therapeutic specialty that has grown at a rapid pace in Germany over the last five years. The market for treatment increased in value from USD 23 million in 2004 to USD 145 million today, due among other factors to increased diagnosis rates.
Mr Terp, General Manager of Shire’s Deutschland’s Specialty Pharma Business Unit, predicts that the ADHD market will continue to grow in Germany just as it did in the US. In Germany, there is currently no indication for ADHD in adults. This was historically the case in the US, but this has now changed, with the result of dramatically increasing the demand for effective ADHD treatment. Shire Deutschland is excellently positioned to capitalize on this growth, as Mr Terp explains. “Shire is a leading company in ADHD, because the company has innovative franchise of products for this disease, and one of the key advantages of this is that physicians need to tailor the ADHD treatment for every patient. At the end of September 2009, Shire launched Intuniv in the US, and two years ago we launched Vyvanse, and now in Europe the company has acquired Equasym from UCB.”
It is this success in tackling ADHD in the US that has propelled Shire’s sales in the country over the last few years, and today the US market accounts for 70% of the company’s global sales. However, Shire is launching an ambitious internationalization strategy, which the company hopes will mean that by 2015, 50% of sales will come from the US, with 25% from Europe, and the remaining 25% from emerging markets.
Over the 20 years of its existence, Shire has traditionally grown through mergers and acquisitions. One of the most important of these recent acquisitions took place in Germany, where the company acquired the renowned German biotech company Jerini. Jerini’s main product is Firazyr, which will complement the Human Genetic Therapies (HGT) division of Shire, and its products to tackle serious but rare maladies such as Gaucher disease, Hunter syndrome and Fabry disease.
Get up, stand up
Unfortunately, not every company is in the position of taking advantage or adapting quickly to the constant changes in the German pharmaceutical environment. However, instead of joining the lines of those who simply complain about the system or threaten to downgrade their investments in the country, a few well-established companies are using their influence and proved commitment to Germany to build a constructive dialogue with policy makers.
As Cameron G. Marshall, General Manager of GSK Germany, the fifth biggest pharmaceutical company in the German market, puts it: “GSK believes very strongly in building a constructive and respectful partnership with governments, doctors and sickness funds. The company wants to build productive mutual relationships where it attempts to stand in the shoes of its customers and partners and not only see the world from its own point of view.” According to Mr. Marshall, “Value” is the language that companies should speak. By saying so, he means that companies should fully accept their responsibility to prove the value of their products with supporting evidence to their peers, physicians and government. “The pharmaceutical industry must be prepared to engage with authorities that set the standards. In return, we expect a system that is consistent, harmonious, clear and transparent. GSK is very determined to make it happen.”
Sanofi-Aventis is another player supporting this position. With revenues of more than USD 5.8 billion, Martin Siewert, the German General Manager, recognizes that the burden of the current over-regulated system for investments in innovation is big. However, he qualifies, the immediate market access and incomparable human resources that Germany offers make companies like Sanofi-Aventis eager to further invest in the country, and to convince politicians of the importance of their investments to keep Germany as a powerhouse of knowledge and innovation. “My main desire is to work closely with the German industry and government in order to rebuild some of the features that made Germany once known as the Pharmacy of the World,” he states.
The recently elected centre-right coalition, still presided by Chancellor Merkel – from the Christian Democratic Coalition (CDU), – in its new alliance with the liberal Free Democratic Party (FTP) has already signalled what future reforms will aim at. The main proposals on the table are to freeze employer’s contributions to the SHI system as a share of worker’s pay and set worker’s contribution at a fixed premium, instead of the current fixed share of their wages. Now, the government target seems to be health insurers.
In charge of passing such reforms is the liberal Mr Philipp Rösler, who will try to both stop future rises in health care costs from being transferred to employers and to promote a competitive market in health care. This seems in line with the desires of the pharmaceutical industry, which for too long has been complaining about being the only target of the German government in its quest to make healthcare cheaper.
Changing Diabetes, Changing Germany
“The costs involved in treating diabetes in Germany are USD 23 billion annually,” says Martin Soeters, President of Novo Nordisk Europe, “whilst the amount spent on diabetes drugs is USD 1.74 billion, or 7% of the total figure. 75% of this figure is spent on the treatment of late complications. If diabetes treatment is optimized, this figure can be dramatically reduced.” Novo Nordisk, world leader in diabetes care, has decided to make reversing this figure a major priority. Stepping out of the realms of the lab, Novo Nordisk has jumped into the world of political lobbying. The company recently opened a European Changing Diabetes Advocacy Office in Brussels, whose sole priority is to get diabetes on the EU political agenda. This culture permeates through all levels of the company. After over 30 years with Novo Nordisk, Mr Soeters has one clear altruistic aim. “In five years from now, I hope I will be able to tell my future grandchildren that I did not just sell three million insulin vials to patients, but that I have done something significant for their wellbeing.”
Building on Germany’s scientific muscle
The pharmaceutical industry, like few others, benefits greatly from the strengths and competitive advantages offered by Germany. Being the first pharmaceutical market in Europe and at the heart of the continent – served by an extremely efficient and world-class infrastructure – Germany enjoys a scale and market access no other country can dream of. The European pharmaceutical market alone represented 32% of the global pharmaceutical market in 2008, according to IMS numbers, and its privileged market access to important Eastern countries such as Russia, Ukraine and Middle Eastern nations make Germany an even more strategic hub for global pharmaceutical players.
On top of its geographic and commercial attributes, the most valuable asset Germany offers pharmaceutical companies is its highly skilled workforce. With little more than 80 million people, the country pumps every year around 70,000 new graduates in biology, chemistry and engineering and some 12,000 in the field of pharmaceuticals. Besides, more than 343 German universities and over 330 research institutes are increasingly active in partnering with the private sector in translational research.
This sounds like music for the pharmaceutical industry. The sector accounts for more than 10% of the overall industrial investments in R&D. The 50 members of the VFA alone were responsible for investments of USD 7 billion in R&D in 2008 and responded for more than 90,000 jobs with 17,000 of them in R&D related areas. Bausch&Lomb is one of the foreign companies taking advantage of the German expertise in research and manufacturing. According to Gäelle Walinger, CEO of Bausch&Lomb Germany, after the acquisition of Bausch&Lomb by the Warburg Pincus group, the integration of the German activities with the rest of the group has increased considerably.
“Bausch&Lomb has taken advantage of our well-educated specialists in R&D and manufacturing and sent them to other parts of the world for a determinate amount of time – China, for instance – to train our counterparts and help them build new facilities.”
The group is now trying to harmonize their international operations and use the assets of their different international bases – Germany being their lighthouse in Europe– to rationalize and specialize their production lines, unifying their brands in the main markets. This had a special impact on Bausch&Lomb Germany’s operations since their brand and product portfolio is linked to Dr. Mann Pharma, an important local player acquired in 1986.
“With the current harmonization and specialization put in place, Bausch&Lomb Germany closed its plant for three months to completely optimize the production site and further investments will be done in the same direction in order to continually optimize and integrate the German operations with the rest of the group, making the best out of our unique human resources and market access,” says Ms Walinger.
The German pharmaceutical attractiveness for foreign direct investment (FDI) reaches beyond the Atlantic. Astellas is prime example of a Japanese company that chose Germany as an important base for their international operations not only due to its great market potential but also thanks to its competitive advantages. Long established in the German market through its predecessors Yamanouchi and Fujisawa, the company has nowadays around 400 employees covering a wide range of activities from clinical development to distribution. With a turnover of more than USD 290 million only in the German market, Astellas is a leader in transplant medicine and urology.
In the words of Ulrich Eggert, Astellas Germany Managing Director, “Besides transplant and urology, Astellas Germany has a very comprehensive portfolio including OTC, dermatology and pneumology products, and the company is working in the clinical development of several products yet to enter the market.” When asked about the importance of the German market for the group as a whole Mr. Eggert is categorical: “Germany is the biggest European market for Astellas, being our main contributor in sales and profits. Therefore, whatever happens to our German operations will invariably affect Astellas’ activities in the continent.
Keep it in the family
Germany has a great tradition of successful family businesses. For instance, Merck KGaA, founded in 1668 is one of the oldest existing pharmaceutical companies worldwide, and still majority owned by the Merck family.
Centuries on, what are the odds for small German family owned pharmaceutical companies in such a competitive market? Dr. Franz Köhler Chemie might have a good answer. This second generation pharmaceutical company that carry the name of its founder, was created in 1959 and handed over to Gernot Köhler, Franz Köhler’s son, 25 years ago. Nowadays, Dr. Franz. Köhler Chemie is a leader in organ protection solutions, being the first company to launch this type of product already in 1964 with Cardioplegin. Since the launch of this cardioplegic solution, Dr. Franz Köhler has developed other products such as antidotes, contrast media, electrolyte solutions, zinc and other therapeutics, e.g. for anesthesia, which have been developed in very close cooperation with a wide variety of experts ranging from surgeons to pharmacologists not only from Germany but also from the USA, China and India.
According to Gernot Köhler, the future of the company relies on its internationalization: “Dr. Franz Köhler Chemie aims to extend its export share from the present 35% up to 67% in the coming years, remaining the leading provider of organ protection in the German and international markets alike,” he says. Being an independent company free from short-term pressures from shareholders will clearly help Köhler pass on the heritage of a fast growing company to future generations.
It’s better if it’s “Made in Germany”
Nowadays, Germany concentrates a considerable international share of highly sophisticated activities throughout the entire pharmaceutical value-chain even without hosting the headquarters of any top ten pharmaceutical multinational.
Pharma giants from neighboring countries, especially Switzerland – with its top three players, Novartis, Roche and Nycomed heading the list – take special advantage of their proximity to Germany and have made the country home to some of their biggest – if not the biggest – R&D and production operations worldwide.
Hagen Pfunder, CEO of Roche Germany, makes it clear: “Germany has always been regarded as a strategic country for Roche not only because of its market size but also due to its leadership in cutting-edge technologies – it is the second biggest biotech hub in the world and offers great opportunities that meet perfectly Roche’s present and future ambitions.”
Mr. Pfunder summarizes the reasons behind Germany’s protagonist role within the Roche group: “It’s thanks to Germany’s unique technological expertise; highly skilled personnel; well established and cutting-edge research institutes and biotechs; and stable market environment that Roche has placed the country at the heart of its present and future strategies and invested more than USD 2.6 billion on expanding its R&D and production capacity.”
Nycomed, another Swiss giant, has also successfully bridged the integration between the German and Swiss pharmaceutical industries. Germany is by far its main international market and its German headquarters are in Constance, a city in the shores of an idyllic Alpine lake that carries the same name – the similarities with Switzerland are not a mere coincidence.
In the words of Mr Stefan Brinkmann, Nycomed Germany Managing Director: “Germany, being the biggest international market of Nycomed, influences greatly Nycomed’s global corporate strategy.” Being so close to its headquarters, surely makes the necessary coordination between the market, research and production activities of the subsidiary and its main office much easier.
Sanofi-Aventis, France’s biggest pharmaceutical group, also chose its neighbouring country as home to one of its largest research and development facilities, at the Frankfurt-Höchst industrial park. This strategic production, manufacturing and development center has approximately 7,800 employees out of the 10,000 members of the Sanofi-Aventis group in Germany – one in every ten employees of Sanofi-Aventis is based in the country.
Of the USD 6.7 billion invested in R&D worldwide in 2008, Sanofi-Aventis directed USD 870 million towards Germany. Since Sanofi-Aventis’ revenues in the country reached USD 5.8 billion in the same year, the group invests 15% of its German revenues in R&D.
Even with the challenges previously highlighted by Martin Siewert, the German General Manager of Sanofi-Aventis, he recognizes the importance of the German operations to the group as a whole. For instance, two years ago Sanofi-Aventis inaugurated a new medical device site in Frankfurt, a turning point in the creation of a competence center for medical devices for the whole group. “Besides, the German operations received important investments in R&D into cell culture manufacturing of clinical materials; which highlights the key contribution of Sanofi-Aventis Germany to the groups’ global development programs in all monoclonal antibody areas – one of the most important bets of Sanofi-Aventis for the future” he says.
Sanofi-Aventis Germany is especially relevant in the field of diabetes. The German affiliate was responsible for the entire research, development, clinical production, pharmaceutical formulation and packaging of Lantus, Sanofi-Aventis’ insulin drug star. This product contributed decisively for the USD 5.8 billion revenues in 2008, especially its exports.
The German competitiveness is also reflected in Germany’s prominence in clinical research. According to Cameron Marshall, the General Manager of GSK Germany, the country is the second biggest clinical market after the USA. “The clinical quality found in Germany is as high as the one found in the USA, but internal and external costs can be twice as cheaper in Germany than in the USA,” he says. The high quality of German doctors and the ethical guidance in which the German federal authorities carry the process of clinical approval are Germany’s main advantages. GSK has partnerships with more than 1,200 test centers for clinical studies of 30 innovative substances involving more than 8,000 patients in the country from phase I to III.
As Johannes Löwer, president of the German Federal Institute for Drugs and Medical Devices (BfArM), points out the number of clinical trials’ applications in Germany has increased almost threefold in the last two years. Even though this adds pressure to the system, it is a good sign of the advantages that Germany has to offer in the clinical research field.
The biggest and the best is no drama for Bayer Schering Pharma
When people think of Bayer, Aspirin immediately comes to mind. One hundred years after the German company lost the patent on one of the most versatile and wonderfully simple painkillers, Bayer Schering Pharma today is about so much more. Andreas Fibig, its CEO, believes that the firm has a very good chance of rebuilding former successes, thanks to an enviable position in the BRIC countries and an innovative approach to pharmaceuticals. Bayer Schering Pharma wants to be a top ten company by 2015, he declares.
This is an edited version of the interview that Focus Reports conducted with Mr Fibig. To read the full transcription of the interview, log on to Focus Reports’ dedicated pharmaceutical website at www.pharma.focusreports.net.
Given that Bayer Schering Pharma seems to be finished with mergers and acquisitions for the time being, what are the company’s strategies for consolidating and advancing its position worldwide?
Bayer Schering Pharma has a growth strategy in place that will let the company grow above the market over the next couple of years, which is driven by its strong internal pipeline, and differentiates the company from its competitors, in that it is not facing any LOE (Loss Of Exclusivity) on its products.
The company has a very strong position in emerging markets. Bayer Schering Pharma was the number one healthcare company in China last year, the third in Russia, and the sixth in Brazil. In many of these markets, the company has a much stronger position than any of its competitors. Many of these emerging markets still have very strong double-digit growth, and this will be a big help in propelling the growth of the company in the years to come.
How challenging do you think that aim of sustainability will prove to be for Bayer Schering, given the global trends we are seeing today?
Research always comes into the discussion about sustainability over short-term strategies. R&D productivity within the industry is still suffering, and has been for more than a decade. As an industry we have been investing more than 11% of our budgets in R&D during this time, but the outcome has been much less than we have been accustomed to. Companies have to find a way to finance and prioritise research and development in these new times.
Since I was appointed at Bayer Schering Pharma, the company has looked at what it can do to change the traditional R&D model, and increase its efficiency, looking at what the company has to do on its own, what it can do with partners, and how it can build a smart network with other companies to help absorb innovation into the business.
Maintaining the company’s strengths in the German market is also important in the search for sustainability. Although some companies are focusing either on being the biggest or the best in the industry, at Bayer Schering Pharma we believe that it is possible to be both at the same time.
Given that you believe Bayer Schering Pharma has the potential to be the biggest and best pharmaceutical company in Germany, what is your vision for the future development of the business?
BSP wants to be a top ten company by 2015. The company is looking at ways to consolidate its achievements in the therapeutic areas where it has previously has great success. With women’s health, we have shifted our focus in research to endometriosis and myoma, whereas in the past, it was very much contraception. Bayer Schering Pharma has a strong diagnostic imaging business: the company is the world market leader, and today it is building a molecular imaging business, and the first project will be an Alzheimer’s tracer, which will hopefully be accepted by EMEA, and we can launch it in the 2011-12 timeframe. That will be a huge breakthrough.
Exit door – East
Besides all the hard earned attributes that Germany has developed throughout its large development path, its central location and historical ties to the East are a fortune much appreciated by the pharmaceutical industry.
The example of Berlin Chemie/Menarini is very illustrative. This once Eastern Germany company was acquired after the German unification by one of the biggest family owned Italian pharmaceutical enterprises, the Menarini group. In one bold move, Menarini opened the biggest European market and paved its way towards the East.
“When I joined Berlin Chemie in 1997, its revenues were around USD 145 million; in 2008, they reached the USD 1.45 billion level – in eleven years our figures were multiplied by ten,” celebrates Reinhard Upperkamp, the chairman of Berlin Chemie. These numbers were only possible thanks to Berlin Chemie’s wide expansion of its product portfolio in fast growing areas such as cardiovascular diseases, diabetes, painkillers and ovarian cancer and thanks to its further penetration in Western Germany and in important markets such as Russia, Ukraine and the Baltic countries.
The expectations to further use Germany as an exit door to eastern markets are high. As Mr. Upperkamp puts it: “Today, Germany accounts for 30% of our market, but our target is to lower its share to 10% thanks to the group’s increased internationalization.” According to him, in the coming years the main markets for Berlin Chemie will be Russia, Ukraine and Poland; markets that put together count with a population almost three times the size of the German one.
For him, Germany’s advantages as an export hub towards more than 30 different countries worldwide are unequivocal. “Germany offers important incentives for the pharmaceutical industry; in addition to its free pricing policy, it serves as a cutting-edge R&D base with an extremely qualified workforce and has high quality standards that guarantee the superiority of the products Made in Germany.”
Germany’s reputation as a “quality haven” plays a decisive role for German companies in Eastern markets. According to Gregor Schulz, Chairman of Biotest, “The biggest bet to continue with Biotest’s steady growth is to keep on internationalizing its business; for that, Eastern Europe, together with the USA, are our main markets.”
Biotest’s strategy has two components. On the one hand, it is investing heavily in the American market, a more sophisticated environment that concentrates more than 40% of the immunoglobulin market worldwide – the company’s main niche area. On the other hand, it is investing in less saturated and fast growing markets such as Russia and Hungary, where it can leverage its international presence and gain forces to continue with its internationalization process. “In the past five years, Biotest nearly doubled its sales from USD 316 million in 2004 to USD 610 million in 2008. In the same period its earnings increased by nearly 200% reaching USD 80 million in 2008,” says Mr. Schulz. No doubts his strategy seems to be working.
Celgene, an American biotech company based in Munich, has also grown considerably by looking east. It established itself in Germany in 2006 with a team of 3 people, but only three years later, it has more then 100 employees responsible for the German market as well as Austria, Eastern Europe, Russia and some Arabic countries. According to Michael Pehl, Managing Director of Celgene Germany, the most promising market for his affiliate is by far Russia. In his words: “Celgene is working hard to introduce a Multiple Myeloma (ML) product on the Russian market; however, the company has just been registered in Russia, so its operations are starting on a small scale.” Thanks to its booming business in other Easter European countries such as the Czech Republic and Poland, Mr Pehl is surer then ever that the sun do rises in the East.
Grünenthal: When pain brings success
Do Germans manage pain better than others? Looking at the numbers of pain expert Grünenthal it would seem so. Today, the company is consolidating on an impressive international affiliate base, whilst at the same time taking advantage of the German quality stamp, and high levels of innovation and research. Harald Stock, CEO of Grünenthal since January 2009, explains some of the major turning points in the company’s development, and the challenges of being a family owned company with international aspirations.
This is an edited version of the interview that Focus Reports conducted with Harald Stock. To read the full transcription of the interview, log on to Focus Reports’ dedicated pharmaceutical website at www.pharmaboardroom.com
What would you point to as the most important milestones for Grünenthal over recent years that have helped the company achieve the position that it is in today?
We are amongst the top three companies worldwide in pain management. Our position is due to a very early internationalization of the company, particularly capitalizing on the Latin American region. Today, over 83% of our revenues come from outside of Germany, which leaves us in the unexpected position of our home market competing with France for title of Grünenthal’s largest market.
The second milestone for Grünenthal has been the year 2009, when we launched Tapentadol, perhaps the only blockbuster that will make it to market in the early 2000s. Together with our partner J&J we have launched the drug in the US, and it will launch in Europe next year. That will drive growth, which is a great opportunity for us, and will help Grünenthal to double in size in the next five years.
Given Grünenthal’s level of international development, how difficult has it been to maintain the German roots of the company, and how important is that for the company today?
The German roots are very important regarding the research and development capabilities and the technical capabilities that Grünenthal has in the country. Keeping its German core is very important to Grünenthal, and the company is very much committed to maintaining this and exploring it.
On the other hand, Grünenthal’s strategy needs to strike a balance, because what fits for Germany does not necessarily fit Ecuador, Italy or Spain. To be rooted in Germany but still be open-minded internationally is a constant challenge. Of my first nine months at Grünenthal I will have spent about half my time in one of the international affiliates. Reaching out to the affiliates is one of the important things that we at Head Office can do to make the people at the forefront of our business more successful. I have gained some extremely valuable insights, but it was also a signal for everyone to reach out and support the people at the front, those who see the customer day in and day out, because that’s what it’s all about.
Restructure your force
There are no doubts that the greatest attractiveness that Germany offers the pharmaceutical industry is its outstanding abundance of skilled and productive workforce. With a net added value of USD 145,000 per employee, (German Federal Statistics Office) the German pharmaceutical industry runs high in every international rank of productivity.
But as the number of hunters outpaces the number of prey, pharmaceutical companies have to struggle to attract and retain the best talent inside their labs. The need for qualified and experienced staff is also magnified by the German over-regulated market, as Ulrich Eggert, Astellas Germany Managing Director, highlights: “Germany has a very regulated environment; therefore, you have to be better organized in terms of sales force and medical reps. This is why Astellas’ average age is 47, meaning that the company has the most experienced people in the market.”
Raymond Francot, Gilead Sciences Germany’s General Manager, agrees. According to him, in such a competitive market, the secret for success doesn’t depend on increasing the head-count. Instead, success is built upon training people and promoting “great discipline, passion and focus amongst all of our staff,” as he puts it. Thanks to Gilead’s greater productivity, the company ranks above other big players in the industry that have much bigger workforces. Mr Francot concludes by saying: “Gilead has exceptional seasoned and mature people to do the highly skilled jobs that are expected from us – they are the reason for our success.”
Hospira Germany concurs with the observation that attracting the best talent and organizing them well is paramount to achieving success. Marcus Blum, the CEO of Hospira Germany, says the main element behind Hospira’s double digit growth in the past years in the German market – and growth expectations of around 30% for 2009 and 45% for 2010 – was the construction of synergies between the different activities of the company and the complete training of its sales force.
According to Mr. Blum, “The sales force effectiveness is extremely important and it’s a key element of Hospira’s success; the company is training its reps to cover the whole product portfolio in smaller territories.” The challenge this strategy arises is to keep the reps close to their traditional clients that are now under someone else’s territory. “We are trying to find the best strategy to cut costs and increase synergies with a holistic approach while maintaining the close contact we have with our clients,” explains Mr. Blum.
The test is greater since Hospira is expanding its product portfolio in Germany. Nowadays, the company has product specialists focusing in oncology, nephrology and medical devices, but it also wants to become a key account manager in those fields – creating a whole package of products and services that can completely fulfill its clients’ needs. More than ever, the company is counting on its highly skilled workforce to do so.
Other medical devices companies such as Baxter have a different approach. The company has reps in all areas where it operates, not having a model where one shoe fits all. It currently runs sales forces in hemophilia, dialysis, parenteral nutrition, anesthesia and biotherapeutics.
Beyond a specialized approach, it is necessary for companies to understand costumers beyond the medical element, knowing about their economic and social needs. According to Wolf Kupatt, Managing Director of Baxter Germany, “This means that our reps are people that can satisfy costumers beyond the cheer medical value of Baxter’s products. In order to do so, they engage into a constant dialogue with our costumers, creating new models and approaches towards the optimization of patients’ care.”
Thanks to Baxter’s wide portfolio in Germany, it is easy to understand why its strategy has been to have specialized reps for each of its main therapeutic areas. However, only to attract the best talent is not a guarantee of success. Companies clearly need to continually train and develop their workforce, providing them a clear path towards professional growth – or otherwise they will be left behind by the brightest. Mr Kupatt agrees: “Baxter has a strong emphasis on the carrier development of its employees. It is not enough to attract the best talent available in the market – it is paramount to know how to better develop them.”
The Biolab of the World
Germany’s success in the biotech industry depicts the benefits raised from solid public policies allied with market incentives and entrepreneurship. Cost-containment policies aside, the German federal and local governments are widely praised for nurturing start-ups and establishing public and private partnerships (PPPs) with biotech industry and research institutes throughout the country.
Added to Germany’s strong competitive advantages, such policies have created the second biggest biotech hub in the world. Germany is home to the main research centers of huge biotech conglomerates – such as Merck-Serono, Roche, Boehringer Ingelheim and Sanofi-Aventis – as well as to a series of small and medium biotech companies, such as Biotest and Cytolon. These medium and smaller companies have a large amount of phase two and three products that might soon give a new nickname to the German pharmaceutical industry – “the Biolab of the world.”
Biotest’s strategy is to be the key global specialist in clinical immunology, focusing on the so-called hyper-immunoglobulin, and expand its activities into other fast growing fields such as anti-hepatitis B immunoglobulin. Its investments in R&D increased 27% from 2007 to 2008 reaching USD 64 million, especially in plasma protein and bio-therapeutics. “Thanks to our strong investment in R&D, Biotest built a promising pipeline; for instance, the company has a monoclone antibody already in phase II presenting auspicious results,” says Gregor Schulz, chairman of Biotest. According to him, such an encouraging pipeline accompanied by Biotest’s recent establishment in the American market with the acquisition of Nabi Biopharmaceuticals’ biologics business unit have rendered important partnership opportunities that will soon boost Biotest businesses worldwide.
Wolfgang Rüdinger, managing director of Cytonet – a fast growing German biotech company born out of a spin-off from Roche Diagnostics in 2000 – explains that only a few years ago the best chance for a German biotech company to gain access to venture capital or to partner with research and academic institutes was to establish itself in the USA – just as his company and Biotest did.
However, as Mr. Rüdinger puts it: “Germany is experiencing a very positive tendency to value such partnerships. Only ten years ago it was almost impossible to convince the academic world that patents were of great value, whereas in the USA everybody understood so and institutions financed research because they could see the economic value on it. Nowadays, the same is starting to happen in Germany.” As examples of this change, Mr Ründiger highlights Cytonet’s partnerships with German institutions such as the Hannover Medical School and the University of Heidelberg in the fields of liver cell based preparations used in the treatment of severe liver diseases as well as metabolic liver defects in newborns and infants.
Even with such progress, there are still good reasons for a German biotech company to establish itself in the American market. Cytonet, for instance, recently concluded a strategic cooperation agreement with Vesta Therapeutics Inc. from North Carolina, which will allow Cytonet to have access to 58 different organ procurement organizations, whereas in Germany there is a monopoly of the German organ procurement organization.
“To isolate liver cells from donned organs requires a bureaucratic procedure that is much more pragmatic and simpler in the USA. In America, these institutions are much more opened to work with the industry and they understand that if an organ can’t be transplanted, then its liver cells should be (used) since the desire of the donor was to help saving lives through his donated organs,” says Mr. Rüdinger. This is a clear example of how the German over-regulated system is still a long way away from perfection, but it has started to improve.
As the second biggest biotech market worldwide, Germany is an attractive market for growing international biotech companies. However, such a competitive and high performance playground is not for amateurs. “No company can survive in this market without very innovative products”, says Raymond Francot, General Manager of Gilead Sciences Germany.
According to him, Gilead’s molecules are the best in market clinical data thanks to the company’s close partnerships with hospitals, physicians and universities in all countries where Gilead is established. Thanks to Gilead´s unique business model and strategy to focus strongly in virology areas such as HIV and hepatitis it managed to become a leader in the HIV and hepatitis B and C treatment in the German market.
Roche, once a conventional pharmaceutical company, has shifted its focus towards biotechnology, investing large sums of money in new areas alien to the original structure of the company, and being able to successfully establish itself in those new fields. By acquiring world biotech and diagnostic leaders such as Genentech, Boehringer Mannheim and Chugai Pharmaceuticals, and reinvesting large sums of its traditional blockbusters to link its vast diagnostic pipeline directly to its pharmaceutical business, Roche paved its way to become the number one biotech company worldwide.
Nowhere else the synergies between the pharmaceutical and diagnostic business is more evident than at Roche Penzberg, in southern Germany, the world’s largest biotechnology research, development and production center in the Roche Group. Roche Penzberg is the only global location inside Roche group where research, development and production of pharmaceuticals and diagnostics system are completely integrated. This results in an intensive networking of the two divisions with a variety of synergies; what is particularly relevant in the field of Personalized Medicine.
According to Hagen Pfundner, CEO of Roche Germany, Personalized Medicine is a key element of the corporate strategy of the Roche group; and where Penzberg plays a decisive rule as an R&D and production center. Linking revolutionary diagnostic technologies such as the PCR technology with the pharmaceuticals involved in the treatments of the newly identified diseases or new variants and stages of diseases Roche opened new niches of great medical need. “Clearly, this has benefited us as diagnostics is a prerequisite to put in place any therapy, from risk assessment to a monitoring treatment. It is through this combination of diagnosis and treatment that Roche will continue to deliver better health with less side effects, less time and much more effectiveness” says Mr Pfundner.
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