EMCC European Monitoring Centre on Change

Biomedical healthcare industry - visions of the future

This second article in the Sector Futures series on the biomedical healthcare sector focuses on the main factors shaping the present and future of the industry. It assesses the major trends and drivers, and evaluates different scenarios for the biomedical healthcare industry. The article also examines why the European biomedical healthcare industry is lagging behind the US, and is facing increasing competition from companies in developing markets.

Biomedical healthcare is a young industry, engaged in the most advanced biological research and aiming to create innovative products. It is relatively free from traditional employment patterns and it seeks, through new flexible forms of employment and the nature of its work, to attract a highly-qualified workforce.

As the European industry is younger than the US biotechnology industry, Europe lags the US at the leading edge of research. At the same time European biotechnology companies face increasing competition from companies in developing markets, particularly India, which are also engaged in original research. In addition, the European biomedical healthcare industry also faces challenges from the scarcity of funding to support companies after the start-up phase and from concerns about the ethical issues involved in stem cell research. These concerns give rise to regulations of different degrees of strictness in different EU Member States.

The biomedical healthcare industry has an important role to play in coping with the medical and financial consequences of the ageing of the European population. However, unless a more uniform approach is adopted across Europe, the European biomedical healthcare industry will not live up to its potential as a source of products to help in the prevention and treatment of illnesses.

STEEP analysis

The following table summarises the sociological, technological, economic, environmental and political (STEEP) factors affecting, or expected to affect, the biomedical healthcare industry.

Table 1: STEEP analysis of factors affecting the biomedical healthcare industry
Trends and drivers Summary
Sociological drivers People are attracted to scientific research due to a highly congenial work setting and the fact that it is knowledge driven and innovative.
  Part-time employment, sabbaticals and other forms of flexible working attract highly qualified people and make the sector attractive to women.
Technological drivers Biomedical healthcare technology is the most recent of the technologies that are changing our world.
  The industry is about to reach a critical mass for economic take-off and for the convergence of different research strands.
Economic drivers The European biomedical healthcare industry is highly dynamic and is catching up with the US after a later start.
  There is a considerable amount of start-up and seed finance available for the biomedical healthcare industry in Europe.
  The lower availability of mezzanine finance and private equity reflects the industry’s short track record compared to the US.
  US companies devote a higher share of revenues to research and development (R&D), which will ensure their lead over European counterparts in the foreseeable future.
  Globalisation is breaking down barriers to entry in biomedical healthcare, challenging European companies in knowledge-intensive segments of the market.
  Despite the challenges facing the European biomedical healthcare sector, the long-term prospects are good because an ageing population has greater needs for medical treatment.
Environmental drivers Energy efficiency, waste and recycling are far less important issues in the biomedical healthcare industry than they are in the production of traditional pharmaceuticals.
Political drivers The conditions under which biomedical companies operate vary considerably between Member States, both with regard to restrictions on entrepreneurial activity and the acceptance and regulation of the relevant technologies.
  A more unified approach is needed in relation to the ethical issues, particularly in the area of stem cell research and therapy, if the biomedical healthcare industry is to live up to its potential for growth in Europe.
  The European Commission can play an important role promoting a better understanding of the opportunities provided by biomedical technologies.
  The current position is not satisfactory at EU level, with very little support specifically for stem cell research.
  The European Medicines Agency (EMEA) needs to streamline the process for authorising medicinal products in the Single Market.

Trends and drivers of change

Trend and driver linkage

Figure 1: Trend and driver linkage

Trend and driver linkage

Assessment of major trends and drivers

The biomedical healthcare industry is unusual because of the controversy it is capable of creating and the strict regulations it is subject to. This is particularly true of stem cell research and therapy, which raise ethical concerns. Public opinion is therefore very important to the industry, as it feeds through to the political environment responsible for the level of regulation, which is already holding back the industry, more in some countries than others.

Technological progress can ignite social reaction, thus managing technological advances is crucial to how society will use and perceive biotechnology. Not only can operational management help improve the public acceptance of the industry, but it can help to bring about changes to the legislation that is holding back research.

Globalisation also affects the industry. On the cutting edge of research, US companies are likely to continue to lead. Not only is the industry more mature in the US and biomedical healthcare companies are more developed and larger, the internal market is also larger. Because the average European firm size is much smaller, consolidation is likely to follow the start-up stage for most firms. To a certain extent, EU enlargement is addressing the problem of serving a small market. This should also make European businesses stronger to fend off competition from companies emerging in developing countries, which have the advantage of lower costs combined with high levels of scientific knowledge, expertise and innovation.

Scenarios for the biomedical healthcare industry

Scenario summary

In the international journal, Technological Forecasting & Social Change, Sager (2001, pp. 109-29) developed four scenarios for biotechnology, which depend on two key drivers (one technological, one social) that will shape the future of the industry.

The technological driver arises from the integration of technologies from the various sectors of biotechnology, combining with nanotechnology and information technology. This technological integration is expected to lead to new levels of progress and expansion in the industry. More specifically in terms of biomedical healthcare, this could speed up the development of molecular breeding, pharmacogenomics and embryonic stem cell technology, all of which will have a profound impact on the public’s perception of health and ageing.

The speed and extent of technological integration is, however, closely linked to the social driver, which is public acceptance of biotechnology. All the emerging sectors of biotechnology have the potential to ignite social reaction, thus managing technological integration is crucial to how society will use and perceive biotechnology. The biotechnology industry needs to gain the public’s trust to be successful. Public acceptance will not only shape market demand, as the public is ultimately the client of the industry’s products, but also the political environment and, to a certain extent, regulation as the public vote for the politicians who shape policy.

Mixing the two drivers creates the following four scenarios for the future of biotechnology:

  1. Present day (low public acceptance and low technology integration);
  2. Police state (low public acceptance and high technology integration);
  3. Techno-utopia (high public acceptance and high technology integration);
  4. Grass roots (high public acceptance and low technology integration).

The assumptions made in each of the scenarios are based on the current views of technological integration and public acceptance of biotechnology.

The Present day scenario is based on the assumption that the current low public acceptance and low technology integration will continue. Together these will contribute to confusion about biotechnology among the public and lead to low market penetration. As a result, the full potential of biotechnology will not be realised.

The Police state scenario is based on the assumption that even when there is high technology integration and significant market penetration, the public still does not accept biotechnology. As a consequence, biotechnology products and processes have low market value and are poorly understood by the public.

The Techno-utopia scenario is based on the assumption that there is high public acceptance and high technology integration, so that society fully embraces biotechnology. There is a near-seamless integration of biotechnology into agricultural, medical, engineering and industrial products and services. The industry is encouraged to be transparent about its products and processes to facilitate further market penetration.

The Grass roots scenario is based on the assumption that society embraces biotechnology even in the absence of significant industry integration. This leads to high value being placed on the relatively rare biotechnology goods and services, and the public supports continued expansion of biotechnology.

Evaluation of the scenarios

Of the four scenarios, the Present day and Police state scenarios are the most plausible while the Grass roots scenario is the least plausible. It is very unlikely that the public would accept biotechnology and create demand for biotechnology products, but that the industry would not react and develop to satisfy demand. This would go against the current views of technological integration and public acceptance of biotechnology, as well as plain business interests.

The Techno-utopia scenario also seems unlikely because it requires a dramatic shift in attitudes towards biotechnology from both the general public and politicians, especially in Europe, where people remain suspicious of biotechnology. Thus, it seems unlikely that there would be a near-seamless integration of biotechnology into agricultural, medical, engineering and industrial products and services.

The Present day scenario is highly likely. The current low public acceptance is likely to persist even though technology integration continues. Although educating the public and careful actions by operational management can shape public acceptance, the public is likely to remain relatively ignorant of the biomedical healthcare sector, along with much of the other areas of biotechnology. As a result, biotechnology products and processes have low market value and are poorly understood by the public.

The Police state scenario is also likely. The main difference with the Present day scenario is that technology integration continues at a faster rate, despite low public acceptance. The consequences are the same, with low market value and poor public understanding of biotechnology products and processes.

Implications

It is expected that the biomedical healthcare sector will be shaped by five related pressures:

  1. Ethical concerns, in particular in the area of stem cell research and therapy. Strict regulation of the research and use of embryonic stem cells is holding back the development of biomedical healthcare research and products in some countries.
  2. Public acceptance of biotechnology. This will shape both market demand and public policy.
  3. Competition on the leading edge of technology from US firms.
  4. Competition from emerging biomedical healthcare companies in developing countries, most notably India.
  5. Shift of R&D to non-European locations.

Countries that are more open to new technologies are going to benefit more from developments in biotechnology than countries that have reservations and anxieties about it. In terms of the ethical concerns, in particular in the area of stem cell research and therapy, European countries such as the UK fall in the category of countries open to new technology, whereas Austria, Germany, Latvia and Poland are far less open. Unless the differences in regulation are reduced, some countries in Europe are going to be in a more advantageous position than others to enhance the biomedical healthcare sector.

There are two threats from outside Europe to the development of biomedical healthcare in Europe. First, US companies are likely to hold their position on the leading edge of biotechnology. Second, companies in emerging markets such as India are particularly successful in developing and patenting innovative biotechnology products. They can thus combine lower costs with high levels of scientific knowledge, expertise and innovation. If Europe cannot overcome the forces that restrict the development of biomedical healthcare, biomedical companies in developing countries could well overtake European companies in innovation and product development.

References

All links accessed on 4 January 2005.

EuropaBio (ed.), Biotechnology in Europe: 2005 comparative study, Lyon, BioVision, April 2005, available at: http://www.europabio.org/events/BioVision/CriticalI%20studyBiotech-Europ.pdf (pdf 2.2Mb).

European Federation of Pharmaceutical Industries and Associations (EFPIA) (ed.), The pharmaceutical industry in figures, key data, 2005 update, Brussels, 2005, available at: http://www.efpia.org/6_publ/infigures2005.pdf (pdf 532 kb).

Sager, B., ‘Scenarios on the future of biotechnology’, Technological Forecasting & Social Change, Vol. 68, No. 2, October 2001, pp. 109-29.

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