Historically, Austria was the dominant political power in Central Europe under the Habsburg dynasty which ruled until World War I. Although the 20th century has been marked by significant shake ups and power shifts between countries in Europe, Austria remains today a key strategic market thanks to its steady economic development and inclination for innovation. Because of its dynamics and ideal location, it is often argued that Austria is still a gateway for the Western World to Central Europe. But to what extent? What other roles does Austria play in the regional and global pharmaceutical landscape?
It only takes a matter of minutes walking down the streets of Vienna to envision a time when the city, placed at the center of Europe, was the focal point of an entire empire steeped in rich and magnificent history. From the premiere of Mozart’s most recognized works to the decisive Congress of Vienna, the city has had a wealth of cultural, political, and scientific experiences that make it truly stand out. While the entire country today is a different place compared to centuries ago, life for the average Austrian has consistently been excellent.
The standard of well-being in Austria is second-to-none. Vienna was rated by Mercer in 2012 as the number one city in the world for quality of living. Overall, Austrians enjoy very high standards in terms of infrastructure and public services, and healthcare could indeed be described as outstanding. 99 percent of all Austrians are protected by statutory health insurance as a result of the General Social Insurance Act of 1956, which created a simple insurance structure that promoted solidarity and social cohesion.
Alois Stöger, Federal Minister of Health, believes that good health is considered a truly invaluable asset in Austria, which is reflected in healthcare spending and health system resources. “In 2009, about 11 percent of gross domestic product was spent on health, of which 78 percent was generated from public sources,” comments Stöger. “A high density of easily accessible health care facilities exists, and patients have considerable choice of provider. Access to high-quality medical care is ensured for all citizens. Equitable health care for all patients is of great importance, services provided by social health insurance do not depend on social status or income.” An example of this high-quality care is demonstrated through the implementation of the “electronic health card” in 2006, whereby citizens’ information on medical history and insurance are electronically stored on a personally issued card that can be used by physicians for a variety of purposes ranging from diagnosis to billing. In the coming years, Stöger will be working hard to increase the lifespan of the average Austrian by two years.
In order to create reform, the Ministry of Health, which oversees all of the social security institutions in Austria, established the Federal Health Commission, which is composed of representatives of the Federal Government, the social insurance institutions, the federal states, the physicians’ chamber and other advocacy groups. Stöger is excited about the efforts that these various associations have recently made in an effort to improve the quality of healthcare in Austria. He explains that they have “agreed to negotiate a common and co-operative governance system for all relevant levels of health care delivery based on public health goals as well as financial targets for in- and outpatient care on a national as well as regional level.” Therefore, the Ministry plans to “raise the effectiveness of the health care system via the further development of the regional health care structure in line with public health needs and to enhance the efficiency of the system by adopting an integrating care perspective and ensuring health care delivery at the best point of service” remarks Stöger.
The macroeconomic environment for the Austrian pharmaceutical industry is quite positive: economic recovery is strengthening, with modest GDP real growth projected in 2013. With its 8.5 million people, Austria sits amongst the largest pharmaceutical markets in Europe, ranked 12th in 2011, with a market size of EUR 3.2 billion (USD 4.3 billion). The pharmaceutical industry in Austria represents between 10,000 and 11,000 individuals working for roughly 220 companies. Additionally, Austria serves as an important research hub. Vienna alone has 22 research institutes, five universities, two technical universities, and an impressive life science student population of around 35,000.
Austria’s entire pharmaceuticals market is expected to grow in the next few years. According to the Austrian Federal Chamber of Commerce, business volume is estimated at EUR 1.9 billion (USD 2.54 billion) and rising. More than 60 industrial pharmaceutical companies operate in Austria. Multinationals such as Sandoz, Eli Lilly and Roche not only have production facilities in the country, but have set up research and competence centers. However, despite Austria’s reputation of wealth, it is one of the more low-price countries for pharmaceuticals in Europe. Baxter Healthcare’s managing director in Austria Andreas Kronberger laments that “in terms of per capita sales for each product line, Baxter is selling more in other countries than in Austria. In the end, the commercialization of our R&D and production strengths ends at the price level of the European market.”
The principal challenge facing the Austrian healthcare system is an increase in costs due to the population and the uptake of new, more expensive pharmaceuticals. Many countries around the world face similar issues resulting from their ageing population. According to various sources, an additional 30,000 to 40,000 people join the 60+ age group annually in the country. Austria’s health system therefore follows an increasingly price sensitive model, which is becoming the number one criterion for health stakeholders. Additionally, as Frank Wartenburg, president of IMS Health Central Europe points out, “Loss of Exclusivity and the patent cliff are impacting the Austrian pharmaceutical industry in general. We expect the market to lose 250m Euros in revenues in the next two years, and half a billion in the next five years.”
Elisabeth Prchla, managing director of Merck Austria, points out that “the pharmaceutical industry has been the prime target for cost containment measures which has meant that patient access to innovative medicines is difficult.” Prchla believes that, together with the Austrian industry associations, it is fundamental for companies like Merck “to cooperate with politicians and payers in order to develop conditions that allow easier patient access to innovative medicines.”
One way in which pharmaceutical companies is dealing with this is by voluntarily paying back EUR 82 million (USD 111.1 million) into Austria’s health system until 2015, which will then be reinvested by the Austrian government into various pilot healthcare projects, mainly focused on child healthcare and prevention. This historic deal involved all stakeholders in the pharmaceutical industry consenting unanimously to this agreement, which is rarely seen in other countries.
In 2004, a new “traffic light” system for reimbursement was implemented that significantly altered the way in which pharmaceutical companies are reimbursed for their products. Essentially, products can be placed in one of three boxes. The green box includes all drugs that are automatically reimbursed by the government. The yellow box consists of drugs that are only reimbursed under special conditions that meet tightly defined rules for reimbursement, and the red box contains drugs that are highly unlikely to be reimbursed.
According to Jan Oliver Huber, general secretary of the Austrian pharmaceutical association PHARMIG, this change in the system caused slower growth rates in subsequent years because of stakeholders’ natural cautiousness and the time needed to adapt to this new structure. Like other European countries, Austria’s population is ageing. Huber notes that “considering two thirds of all prescriptions paid by the reimbursement system are destined to this age group, there is a natural, organic growth in Austria because of the demographics,” remarks Huber. “But this growth has not been steady: in 2005, the market grew by 1.65 percent whereas it grew by 8.29 percent in 2007 and by 7.41 percent in 2008.”
Entering this reimbursement system is not an easy process either. Karl Peter Schwarz, managing director of LEO Pharma Austria describes the system as being rigid. “It is very difficult to discuss the added value for patients, which is reflected in any product price,” he notes. “The maximum price of a drug within the reimbursement system in Austria is the EU average price,” continues Huber. “If your product is already on the reimbursement list in other European markets, you have to inform the Minister of Health, after which a price commission gives you clearance.” Karl Nikitsch, country manager of Menarini Austria, notes that “the market shares of some products are relatively high compared to other, much bigger, European markets. In spite of the hurdles Menarini faces in terms of market access, such as new products instantly falling into the yellow box category with many restrictions, there are green lights once this difficult stage has passed. In other countries, companies may need to renegotiate the presence of their product in the reimbursement system, such as Germany,” Nikitsch says.
A New Generation of Generics
This new reimbursement scheme and price referencing system has resulted in a lower generic market share. The clash between originators and generics is an unusual situation in Austria. In 2005, the Austrian Sick Funds put into place a new system for generic market entrance. If a product is to be reimbursed, generics companies have to lower the price of a product by 48 percent compared to the originator. The second generic that enters the Austrian market subsequently has to reduce the product’s price by an additional 15 percent and the third generic product an additional 10 percent. To make matters even more confusing, three months after the third generic hits the market, originators have to decrease the value of their product to the price of the third generic.
In 2000, the Austrian Generics Industry Association (OEGV) was created to represent the interests of generics companies in Austria. Compared to many other countries in Europe, the penetration rate of generics in Austria is still relatively low; although compared worldwide Austria finds itself in the middle of the road. IMS data from 2010 indicates that generics only had 26 percent of the market share, putting Austria as one of the lowest in Europe. Bernd Leiter, president of OEGV, notes that until recently, most Austrians were not even aware of the existence or the role of generic drugs. His main task as President is to “raise the awareness of the other stakeholders in the pharmaceutical industry about the existence and actions of an association entirely focused on defending the interests of generics companies in Austria.” Leiter feels that through convincing authorities, physicians and patients about the quality and safety of generic drugs, the potential savings by switching to generics in the future could equate to roughly EUR 256 million (USD 344 million), which represents a 55 percent difference in price between patent-free originators and third generics.
Dr. Martin Spatz, general manager of generics company Teva Ratiopharm is optimistic about the future of generics in Austria. “Whereas the total pharmaceutical market in Austria is expected to grow by one or two percent, the generic market could grow by five to seven percent. If it is not spoiled by voluntary price cuts and we fully exploit the potential, it could even grow by 10 to 15 percent,” remarks Spatz. “If your brand is not known, you will need huge upfront investments; if you are here as an established generic player, the market is rather protected. Barriers to entry are rather high because it is a branded market.”
Dr. Robin Rumler, CEO of Pfizer Austria and president of PHARMIG, is also aware of the shift towards generics that is gradually taking place. “With respect to the cost of drugs, Austria belongs to the low cost countries in Europe,” Rumler remarks. “Drug costs are approximately 18 percent below the EU-15 average. Nevertheless sick funds and payers still put pressure on drug cost to decrease health care expenditure. The so called ‘block-buster’ era is over; the future belongs to more targeted therapies. The industry is talking about the patent-cliff, which means that many of the block-busters are losing their patent these days.”
Additionally, there has been some evidence in Austria that biosimilars tend to be treated as generics. Alexander Papanikolaou, managing director of Hospira for Austria, Czechia, Slovakia & Switzerland, says that “the biggest development in the future lies in monoclonal antibodies. If these are treated as generics, we start to destroy a future market that has huge potential for hospitals and for patients. You will not launch a product if you do not have the potential to get a return on investment. If you do not launch these products in the first place, there will be no ‘generic’ solutions for the market.”
The Gateway to the East
Following the end of the Second World War, Vienna served as an important hub that connected Western and Eastern Europe for many industries. However, following the end of the Cold War, and particularly in recent years, the emerging markets of Eastern Europe may give the impression that Vienna’s status as a hub or gateway is becoming somewhat obsolete.
Gerald Schrot, managing director of Biotest Austria, believes that “centralizing talent in Vienna is good for Austria. With competence comes a network of talented individuals as well as capital, particularly in the financial world, where Austrian companies have been very successful in former Soviet satellites. Austria is a small country with a history of diplomacy, and I believe that resonates with individuals when doing business in other parts of the continent.”
Such an example of this success can be seen with hygiene specialists Schülke and Mayr. Alfred Grün, general manager of the company’s Austrian affiliate, says that Austria is “the leading country in the Schülke group, by 40 percent more than the next country. This is important as the mentality in Austria is very sensitive and flexible, which allows it to cover the Eastern European market successfully.”
Michael Norman, general manager of Austria, Czech Republic, Hungary and Romania for Bristol-Myers Squibb, noted that while many international companies still use Vienna as an operations center, “more companies are putting satellite organizations in cities like Bratislava, due to lower costs when compared to Vienna. Additionally, moving across borders is much simpler today, and so the sensitivity that comes with asking a North American CEO to put a significant plant or office in Bratislava or Bucharest has diminished.”
Robert Lefebvre, vice president of commercial operations for Europe, Middle East and Asia for blood-plasma derivatives company Kedrion International, notes that “as the markets of countries like Poland, Romania, Bulgaria and the Czech Republic continue to evolve and their healthcare systems strengthen and mature, their ability to start accessing rare disease products that we make is growing. They need to be able to access them in a way that allows for stable and consistent supply.”
Günter Cseh, managing director of Meda Pharma Austria, also says that smaller Eastern European countries will probably continue to use Austria as a hub, but will require more independence. In a region like the Balkans for example, “distance between countries is far less. Doing business remotely does not always work in this region, despite modern communications. Face-to-face relations are essential, and the farther east you go, the more important it becomes. Companies must be able to make decisions in those countries without constantly having to consult headquarters in other nations.”
On top of Oncology
A significant amount of revenue is invested in Austria by pharmaceutical companies into research and development. Oncology serves as one of the most important and active areas of therapeutic research in Austria. Berthold Cvach, general manager of Astellas, a merger of Japanese pharmaceutical companies Yamanouchi and Fujisawa, says that “for oncology, as Yamanouchi was not present in the Austrian market before the merger, we had to launch the portfolio from scratch in 2006. In a couple of years, I expect that we will be leading in this therapeutic area as well. I can only make predictions, but I am very confident. We will introduce the molecule enzalutamide (branded Xtandi in the US), which is a significant breakthrough and is expected to become a blockbuster drug.” Teva has also managed the acquisition of Cephalon to strengthen their oncology business, and Takeda Austria has a hospital and oncology franchise where the company distributes and manufactures TachoSil® patches in Linz. Pfizer is currently working on a personalized treatment for lung cancer. Many other companies in Austria also have a strong research focus in this therapeutic area, making the country outstanding in this segment.
Biotech’s path to glory
Historically, Austria has provided an attractive environment for innovation. “For over a hundred years, Vienna has always been a center for talented scientists and groundbreaking medical research, as well as having strong hospital infrastructure” says Ingo Raimon, general manager of Abbott spinoff AbbVie GmbH. “From the perspective of AbbVie, we are represented with the best scientific research in the country.” The organization runs clinical programs on some of the most widespread and serious diseases, such as Hepatitis C and uveitis.
Life Sciences Austria (LISAvienna), a joint venture between the City of Vienna and the Austrian government, is an organization dedicated to helping upcoming life science companies get started financially through public and private funding. Johannes Sarx and Peter Halwachs, both managing directors of LISAvienna, are optimistic about the future of biotech in Austria. “The Austrian government understands that although we do need to put austerity measures in place like other countries to balance the budget, these cuts are not being made in innovation and startup support. In an economic recession you need to invest into innovation.”
Additionally, the environment for biotech in Austria is very welcoming in terms of bringing a wide variety of international people to the scene. Even without being able to speak German, it is possible for individuals to move to Vienna and get started in the life sciences industry with a startup, putting Austria in a very easy and welcoming position compared to its Eastern neighbors.
That being said, the road to success for biotech companies in Austria is not a piece of Sacher torte. Only three to four percent of biotech companies actually manage to bring a product successfully to the Austrian market. Additionally, the environment in failure in a clinical trial for biotech companies in Austria is generally one of intolerance. Thomas Lingelbach, CEO of Intercell, notes that this is an attitude that is specific to the German-speaking world. “This is not only public perception, but also the perception among the investor community. Investing in biotech means investing in risk. High risk and high return is not something very much appreciated in the German-speaking world.” Compared to the more forgiving atmosphere in the United States, the perception of failure in clinical research in Austria and its German and Swiss neighbors tends to make the Germany-Austria-Switzerland (DACH) region hazardous. Sarx points out that, particularly among serial entrepreneurs, “It is important not to judge people if they fail. It is not about names or brands; in biotech it is about the people and the talent.”
Furthermore, with a relatively small population, Austria may not always have an adequate number of people with a certain disease to justify developing a drug to treat the disease. Jürgen Balthasar, country manager of Austria and Switzerland for Genzyme, says that “proportionally, the numbers in Austria are smaller than other European countries. Sometimes, there are diseases that affect about five to seven patients in this country and we have to decide whether we want to launch a product here, or whether to have Genzyme’s German counterparts take care of such a product. If a disease is extremely rare, Genzyme may not be able to handle it in Austria alone. Then we can work with bigger teams in Germany and look for a way to bring the product to Austrian patients.”
While certain organizations are in place to help provide private funding for biotech companies, many of these start-ups could benefit from additional funding from big pharmaceutical companies. The founder and CSO of local biotech company Polymun Scientific, Hermann Katinger, points out that it is often the case that unless a biotech company has solid Phase II data from clinical trials in place, the large pharmaceutical companies will not display interest unless the biotech company has something truly groundbreaking.
Perhaps one of the most interesting and popular subjects of study among biotech companies is the development of monoclonal antibodies. The antibody market is currently estimated at between USD 50 and 70 billion worldwide. Polymun, based just north of Vienna, is noted for having developed the first human monoclonal antibodies to neutralize HIV. However, Katinger noted, “during these studies, it was extremely difficult to raise money, partly because of the lack of organizations that seemed to truly care about this critical issue.”
Despite big pharmaceutical companies having the capital to invest in such companies, according to Hans Loibner, CEO of Apeiron Biologics, there is great potential for symbiotic relationships between big and small in Austria that is being passed up. “I do not understand why big pharmaceuticals are not investing more in these small companies, as it is a win-win situation. By doing so, you have access to potentially new developments which would help young companies and also create a significant return on investment. It is much cheaper than using money for internal research, which is inflexible and poorly run. With the money big pharmaceuticals have, this could be done for hundreds of biotech companies, who would consequently be motivated to work even harder.”
Clinical trials: justice is served
The clinical trials environment is generally considered quite attractive in Austria. While capital invested in clinical trials only amounts to between EUR 200-400 million (USD 271-542 million), and the number of trials performed annually has declined in recent years, the reason it is generally attractive is its efficiency. As PHARMIG’s Jan Huber states, “Physicians, ethics commissions and legal bodies here work in a very professional and timely manner.” If a company needing to perform clinical trials in a setting that allows the company to get a product on the market faster without compromising on quality, then Austria is a shining example in comparison to its fellow European counterparts.
János Filakovszky, vice president of Quintiles Eastern Holdings, noted that this is also due to “the very favorable regulatory environment and a well-regulated clinical research industry. Austria usually obtains regulatory approvals before most European countries.” This is beneficial not only to clinical research organizations but also major pharmaceutical companies that invest in this kind of research, such as Bayer, which conducts a number of Phase II-IV trials in Austria. Bayer Austria managing director and senior Bayer representative for South East Europe, Martin Hagenlocher, notes that “The country has high quality research institutes, university clinics, and the hospitals outside of universities have very high standards and qualified personnel to run clinical studies. There is a good base for clinical research in Austria and combined with reasonable support from government.”
There are some minor limitations. Austria’s population consists of approximately eight and a half million people, and thus obtaining a high number of patients for a clinical trial for one disease can be quite difficult in comparison to countries with larger populations. As Klaus Fischer, CEO of Austrian contract research organization Assign Group, points out, sometimes only a dozen patients will have a certain disease in Austria’s largest hospital. “If you want to demonstrate efficacy, safety and quality, you need 400-1000 patients and this would take an extremely long time in Austria. In China there are hospitals with thousands of patients with such conditions. If you want to have those diseases treated, you have to go to those hospitals where treatment is offered.”
While there may be a number of hospitals in Austria that offer treatment, these hospitals may be spread across the country, thus making Austria a rather decentralized environment for conducting such trials. “In order to obtain patients,” Fischer continues, “you have to talk to many smaller potential study centers and this is an additional cost factor in clinical studies. This is also recognized by pharmaceutical companies. If you know the right study centers, then you can compete against larger recruiting countries with larger populations.”
The pharmaceutical industry in Austria, while growing slowly, is still ahead of many of its European counterparts simply because of this growth. The quality of healthcare, innovation, and drugs themselves are extremely high, and there is certainly a positive feeling and direction within the Austrian pharmaceutical community. While not the biggest market in Europe, the collaboration between the industry and academia, as well as private and public partnerships, makes Austria a particularly favorable and exciting place to work. As Papanikolaou notes, “Personal relations tend to be very important in Austria. Even if what you are offering does not match entirely with customer expectations, they will be satisfied at the end of the day because of the relationship management involved. Austrians are a little bit more flexible in both thinking and working. There is usually only one way to cross a river – but Austrians can find several!”