EMCC European Monitoring Centre on Change

Biomedical healthcare industry - policy issues and major challenges

The third and final article in the series about biomedical healthcare discusses policies that could enhance the international competitiveness of the European biomedical healthcare industry. In particular, it looks at issues related to bioethics, globalisation, economic growth and employment as well as demographics and welfare.

This last article in the series on biodmedical healthcare builds on the discussion of the first two articles in the series. Article 1 outlined the significant features of the sector: the size and structure of its market, the nature of employment, the main trends and drivers shaping the present and future of the sector and the principal issues and uncertainties that it faces. Article 2 investigated the future of the biomedical healthcare sector under four alternative scenarios. Under the Present day scenario, which is based on the assumption that the fundamental conditions do not change, the sector has only poor prospects. The Police state scenario, which was judged to be the most likely of the four, anticipates better prospects for the sector because of improvements in the supply side. The sector has the best prospects under either of the other two scenarios (Techno-utopia and Grass roots), because of stimuli from the demand side, but neither is very likely to come about.

Major policy issues and challenges

Bioethics: the pros and cons of biomedical healthcare

In modern democratic societies, it is difficult to make full use of new technologies unless they command widespread public acceptance. This means that public discussion of their advantages and disadvantages is essential. However, such discussion is often hampered because expert knowledge is not widely available and the opponents of new technologies generally believe that expert advocates have a personal interest in the adoption of the technology. One side tends to accuse the other of ignorance, while the opponents of the new technology distrust the motives of its supporters.

Such features characterised the debates about atomic energy and are found today in debates about biotechnology. This is true not just of the most publicised issue, stem cell research, but of other areas as well. Genetically modified (GM) crops, for example, arouse strong opposition not only from consumers in general, but also from farmers who fear for their livelihood. In particular, alternative agronomists fear that their business will suffer if there are no controls on the spread of GM crops.

Consequently, it will not be easy to hold open-minded discussions about biotechnology and stem cell research in particular. Nevertheless, it is essential to invite all groups in society to debate these subjects. Ethical questions are the most difficult issues to be addressed. Not only are there considerable differences between different groups within countries, but there are also different values and institutions between European countries. In this respect, communication and debate between national ethics committees is of outstanding importance as a prerequisite for the formulation of a consistent European research programme for the biotechnology industries. Only then will an efficient use of resources become possible.

A discussion of ethical questions needs to take into account all the effects of biotechnological research and the opportunities provided by the results of research. For instance, in the area of stem cell research, this means balancing ethical concerns related to the use of embryos against the opportunities for the treatment of illnesses for which there is either no cure today or for which the treatment has harmful side effects.

There should also be more initiatives taken in the near future to encourage debate among the groups involved in decision making. Greater understanding of different perspectives, values and traditions should take some of the heat out of the discussion of ethical problems and make it easier to reach decisions that command wide support. An arena such as the US National Health Policy Forum could act as a catalyst in the debate on healthcare that is urgently needed within the EU to achieve a better understanding of the opportunities provided by biomedical technologies, along with their perils and the ethical problems. The European Commission’s Health and Consumer Protection DG (DG SANCO) should push such European initiatives forward.

In future, it is also crucial for political leaders to communicate their understanding of the issues to the wider public. This will help to moderate the public discussion. Such steps may well reduce the emotional pressures in the current debate and allow for the creation of more adequate institutional conditions for biotechnology.

If such an approach is successful, the prospects for biomedical healthcare become brighter than described in the Present day scenario (one of the four scenarios described in the second article of this series) and the Police state scenario becomes realistic. In this scenario, the institutional framework for biotechnology in Europe improves and technological progress is not constrained by an exodus of scientists. However, these changes alone will not be sufficient. Economic conditions for biomedical technology will need to be improved through publicly funded schemes and research programmes. Such a supply-side push is necessary to compensate for the weakness of demand.

Domestic demand often plays a decisive role for the competitiveness of an industry, but demand for biomedical products and services in Europe will remain weak until there is a better public acceptance of the related technologies and a greater interest in biomedical products. An indispensable prerequisite for such a change is a better knowledge of biotechnology to overcome the resistance and anxieties it provokes.

Improvements in natural sciences education will benefit European biomedical healthcare in two ways. A better understanding of what biotechnology really is will lead to a more balanced discussion of the complex issues involved in research into and application of this technology. This will contribute to better supply-side conditions. Second, there will be a more open-minded attitude to biomedical healthcare products and a greater willingness to use innovative products.

If the supply and demand sides could both be improved, biomedical healthcare would become an integral part of European society and economy and would have a good chance of becoming a global leader able to compete on equal terms with its US counterpart. This is the outlook of the Techno-utopia scenario described in Article 2. However, it is not a very likely outcome because of the difficulties of overcoming public resistance and scepticism.

Globalisation

Traditional trade theories speak of the creation of wealth by an international division of labour based on the comparative advantages and factor endowments of different regions. The advantages of trade arise from the fact that at least some of the tangible and intangible input factors necessary for production cannot (easily) be moved. Yet the era of globalisation is characterised by the wide dissemination of know-how and capital. Consequently, it is no longer true that the manufacture of capital-intensive and knowledge-driven products can be carried out more advantageously in mature industrialised countries, whereas low-tech and labour-intensive products are more suited to less developed countries.

Countries in the process of industrialisation, such as India and Korea, have become important players in new technologies, among them biotechnology. These countries have created appropriate institutions for R&D and hence have become attractive to scientists who want to carry out research in the leading edge of technology. That is why Korea has launched an ambitious stem cell project and has invited biotech researchers to participate. This project will provide researchers with opportunities that they cannot find in the EU because of ethical objections.

There is a threat that the European biotech industry, which is about to leave its stage of infancy, will suffer from a brain drain if no adequate institutions are installed. Different institutional frameworks in the Member States hamper the design of European research initiatives in the area of biotechnologies. The major challenge is to create a consistent multinational framework in order to prevent the waste of resources by a number of diversified, poorly coordinated research efforts. There is a need to design pan-European research activities aimed at catching up with the US biotech industry.

If such initiatives are not taken, the EU will lose even its current medium position in international competition. The prospects might then be even worse than under the conditions of no change, as described in the Present day scenario, where it is assumed that misunderstanding and fear about biotechnology among the public prevent the improvement of the institutional framework and also keep demand weak. The present cautious optimism about the future of biomedical healthcare in Europe would fade away.

In the medium term, supportive conditions for the growth of biomedical healthcare companies must be created. Comparison of the European and the US biomedical healthcare industries shows that venture capital to support the creation of new companies is available in Europe, but the funding of growth is more difficult than in the US. Remedying this deficiency goes far beyond policy support for this sector. There is also a need for an adequate financial market to provide sufficient venture capital. ‘Business angels’ - until now not that common in Europe - can support such a development. More use should be made of the experience of older managers to help small research-oriented businesses become market-oriented companies.

Economic growth and employment

The EU25 is the world’s largest economy, when measured by output and the number of inhabitants. The creation of the Single Market has given a stimulus to economic development, but growth has slowed down in most Member States since 2000 and there were virtually no signs of improvement before 2005. Although some improvements are expected in the near future, growth will remain weaker than in the US and Asia. The creation of new jobs was not sufficient to make up for job losses, and medium-term prospects are not encouraging.

In 2000, European leaders committed the EU to the Lisbon Agenda, with its objectives to make Europe the most dynamic economy in the world by 2010 and to reduce unemployment. After five years, the mid-term assessment of the goals reached so far is disappointing. Growth has been well below the rates envisaged and no substantial improvement is expected in the near future. One major obstacle to injecting more dynamism into the European economy is believed to lie in the many different and conflicting objectives advocated by the political groups. The European Commission plans to reactivate the Lisbon process, under the leadership of the Commissioner for Enterprise and Industry. The process will involve an evaluation of the institutional settings of the EU in order to identify barriers to growth and entrepreneurial freedom, with proposed measures for overcoming these barriers.

The several branches of biotechnology are all characterised by dynamic technological development. Although biotechnology companies are mainly small and have not so far generated a large number of jobs, their pace of output and employment growth is rapid and accelerating. Total biotechnology output in Europe grew by more than 40% and employment by more than 15% between 2000 and 2003. Biomedical healthcare is the most important industry within biotechnology, accounting for about half of biotechnology output. There is a sharp contrast between biotechnology and such related industries as pharmaceuticals and chemicals. Their output has not grown appreciably since 2000 and they have generated hardly any increase in employment.

Policies to support economic growth ought to pay particular attention to new and fast-growing industries like biotechnology. A better institutional framework would facilitate the development of such industries and improve their chances of success in the global race. It is also important to remember that biotechnology has spill-over effects, which will become even more important in the future. Just as technological advances in micro-electronics prompted developments in information and communication technologies (ICT), so will biotechnology stimulate growth, above all in chemicals and pharmaceuticals, but also in agriculture and nutrition.

The importance of biomedical healthcare to the whole pharmaceuticals sector should be emphasised. In a wide range of applications, biomedical healthcare has become the R&D laboratory for the development of new pharmaceuticals products. More than one quarter of all pharmaceuticals used in clinical trials of medicines are biomedical products. This represents an increase of more than 50% between 2000 and 2003. These figures illustrate the importance of the biomedical healthcare sector to the future of the European pharmaceuticals industry.

Because of the spill-over effects of biomedical healthcare on pharmaceuticals and other high-technology industries, policies that promote biomedical healthcare will contribute to the Lisbon objectives. Such policies will also be supporting an industry that is well suited to achieve other social objectives. Work in this industry requires high levels of skill and qualifications. Furthermore, working conditions are flexible and innovative and thus offer equal opportunities to both sexes.

Demographics and welfare

The European healthcare market is highly regulated: public institutions control more than half of the market. To a large extent, social insurance is funded by contributions from employers and employees. For many years, contributions have been rising faster than wages, but the income of public health systems has still not kept pace with demands on their resources. A solution is urgently needed, for at least two reasons. First, international competition has been exerting downward pressure on labour costs, and as a result, employees’ net real income has been shrinking. Second, demographic changes will worsen the situation. The share of pensioners in the total population will continue to rise, which will lead to increasing demand for healthcare services, while the labour force as a share of total employment will decline further.

This demographic development cannot be avoided even if there were to be an immediate rise in the birth rate. For the next 20 years the gap between the growing need for healthcare services and a shrinking base of contributing employees will not be narrowed.

It is the responsibility of national governments to take adequate measures to keep the public healthcare systems running. Measures will have to be taken to stabilise the balance between receipts and expenditures. It will be necessary to find new sources of finance to reduce the burden of levies borne by employers and employees alone. Moreover, individuals will have to take more responsibility for insuring themselves against the costs of medical treatment. Conversely, long-term solutions will have to be found in order to make healthcare systems better able to meet rising demand. DG Health and Consumer Protection (DG SANCO) has a role to play in this. It can use best-practice analyses to create a better understanding of the deficiencies that lead to a misallocation of resources.

Until now, decision makers have tended to react only to acute crises. Until the problems of healthcare systems are tackled from both directions, funding will be inadequate and the systems will not be able to cope with growing demand. This will further impair the prospects for biomedical healthcare, since there will not be adequate finance both to meet current needs and to pay for new medicines and cures made possible by progress in biotechnology.

In the pessimistic Present day scenario and the more realistic Police state scenario, healthcare systems unresponsive to demographic changes will restrict the market for biomedical healthcare products. Biotechnology will be poorly understood and individuals will be reluctant to pay for advanced cures and medicines. Furthermore the public healthcare systems will not have the means to pay for new therapies. Thus, illnesses will remain untreated although medicines are available.

Conclusion

Biomedical healthcare is a young industry with considerable potential for growth in output and employment. It provides good working conditions for qualified personnel. Its flexible working practices and recruitment strategies provide good opportunities for female employment. However, the current institutional framework does not support a dynamic evolution of this industry. Furthermore, the biomedical healthcare industry in Europe is being challenged from two sides. In this industry, the US sector is the technological leader and US products dominate the market. At the same time, competitors from emerging countries enjoy a more adequate institutional environment and are catching up with the leading industrialised countries.

The institutional framework of the biomedical healthcare sector is far from being the same in all European countries, and this has led to considerable differences between the industry in several countries within Europe. One task for the European Commission is to take initiatives to create a more homogenous supply side, in particular by intensifying the discussion of ethical issues. If the supply side could be improved, biomedical healthcare would become a European industry able to enhance its international competitiveness through the exploitation of synergies and economies of scale.

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