EMCC European Monitoring Centre on Change

EMCC dossier on the European biomedical healthcare sector

Modern biotechnology is one of the key enabling technologies of the 21st century: it could potentially prevent, treat and cure a wide range of diseases. However, the development of biomedical products – especially drugs – is an expensive, long-term endeavour. Thus, the biomedical healthcare sector relies on a wide range of supporting sectors and interacts with public administrations in all phases of the development, manufacturing and selling of a product. In a European policy context, the biomedical sector offers the potential to create a knowledge base that could contribute to Europe’s competitiveness in the global market. This dossier aims to provide an in-depth analysis of the trends and forces shaping the sector, drawing primarily on recent original Eurofound research. It provides a sector mapping report, company and cluster studies, future scenarios and links to recommends sources of information.

According to the Organisation for Economic Cooperation and Development (OECD), biotechnology can be defined as ‘the application of science and technology to living organisms, as well as parts, products and models thereof, to alter living or nonliving materials for the production of knowledge, goods and services’.

EuropaBio’s recent survey of 18 European countries found that the there were 2,163 biotechnology companies in Europe. Of these companies, 37% are in the human healthcare sector. The importance of the biomedical healthcare sector in relation to the pharmaceutical industry is also growing: medicines deriving from biotechnology innovations (biopharmaceuticals) are estimated to account for approximately 20% of all marketed medicines, and represent around 50% of all new medicines in the pipeline. The European biotechnology sector is dominated by young, small companies: 55% have been in operation for fewer than five years and most are micro enterprises (with fewer than 10 employees) or small enterprises (with fewer than 50). Just 10 % of companies have more than 50 employees.

Germany, the UK and France account for the largest number of biotechnology companies in Europe. This is not surprising given the relative size of these three countries. On the other hand, relativelty small Member States such as Sweden, The Netherlands and Denmark account for a significant number of companies given their size.

Total turnover in the biomedical related sector reached close to €440 billion in 2004 and has been steadily increasing in the biomedical related sectors since 1999. Growth rates have been highest in wholesale (67% increase in turnover between 1999 and 2004), while manufacturing and research and development (R&D) has shown more modest growth rates, rising from 34% in 1999 to 36% in 2004.

Total employment in the sector has fluctuated in recent years; however, in 2004, employment for the first time since 1999 increased above the 1999 level, reaching a figure of 96,500 employees.

The research shows that Europe has lost its major place as a global hub for biomedical research. In fact, over the last decade, the US has invested far more in public sector sponsored biomedical research. Among the major differences between the US and Europe is the higher innovation intensity of US companies compared to European companies. US companies are bringing more new products onto the market than are European companies, and they devote a higher share of their revenue to R&D than do European companies (nearly 40% as against 32%). While R&D investments in Europe grew by 2.6 times between 1990 and 2003, the corresponding increase in the US was more than fourfold. At the same time, new leading-edge technology research units are being transferred out of Europe, mainly to the US. In 1990, major European research-based companies spent 73% of their worldwide R&D expenditure in EU territory; by 1999, this figure had fallen to 59%. The US was the main beneficiary of this transfer of R&D expenditure.

Trends and drivers of change in the biomedical healthcare sector

The mapping report for the biomedical healthcare sector (pdf 584kb) identifies a range of important drivers of change affecting the environment in which the biomedical healthcare sector operates, and hence the sector itself. Companies in the European biomedical healthcare sector face a range of political, regulatory, economic, social and technological challenges to growth and consolidation: new public regulation, intense global competition for market shares, a lack of European scientists, global competition for high-skilled employees, availability of venture capital etc. These factors are drivers of change in the sector, and policy makers and stakeholders need to understand these drivers in order to ensure the best possible conditions for sustainable growth.

Political and regulatory background

In policy terms, the European biotechnology industry has been declared an important sector when it comes to the realisation of the Lisbon agenda and the overall policy goal of making the European Union ‘the most dynamic and competitive knowledge-based economy in the world’. A number of policy initiatives aim to encourage the development of the biotechnology industry. While the use of biomedical products might be in the hands of medical doctors, the allocation of public funds for R&D and public biotechnology policies in democratic societies depend on the public attitude towards the use of biotechnology-derived products and biotechnology in itself. To some people, biotechnology is seen as a risk for human health and the environment, for some it is not compatible with religious beliefs, while for others biotechnology offers a solution to global problems of hunger, disease and environmental destruction.

Economic developments

Biomedical products are expensive due to the amount of research required in their development. Therefore, demand for them depends on the financial resources available to public healthcare systems and to individuals and families. In addition, ongoing trade liberalisation means that market barriers are increasingly being removed, so permitting the entry of competitors from third countries. This increases international competition and puts pressure on European biomedical companies.

Outperformance by US

According to data on patents and collaborative R&D projects, the US maintains an advantage in innovation in biotechnology compared to Europe. There are several other reasons for this innovation gap: bureaucratic clearance processes, structural problems, laws and regulations, delays in establishing a Europe-wide patent, and in implementing the biotechnology directive in some Member States, the absence of any integrated strategy for biomedical R&D across Europe, and under-investment in education and training. This has resulted in a situation where the North American pharmaceutical market in 2002 was significantly bigger than that of Europe, a reverse of the situation a decade previously. Given that 70% of the worldwide total sales of innovative pharmaceutical products are in the US, it is natural for European companies to look abroad.

Globalisation of the value chain

Low manufacturing costs is the most common reason for moving parts of the value chain to other countries or even other regions of the world. One risk associated with this strategy is the possibility that intellectual property may be stolen. As a result, simple manufacturing activities requiring unskilled or low-skilled labour are offshored to China (as are the less sophisticated back-end work of product development), while most cutting-edge pharmaceutical research is carried out in western Europe, America, Israel and Japan, all of which have highly educated workforces and strong intellectual-property laws.

Financial and investment background

The biomedical healthcare sector and the biotechnology industry as a whole was hit hard by the tighter investment climate that resulted from the bursting of the technology bubble in 2000. Investors became much more risk averse and moved their focus from the scientific potential of new discoveries to late-stage product candidates. Thus, European companies – especially small companies – are still struggling to get funding. The mapping report also covers and analyses the EU and national public funding schemes dedicated to new biotechnology companies and/or small and medium-sized enterprises (SMEs) in general.

Research, technology and development

The biomedical healthcare sector relies on a number of different technologies in both R&D and manufacturing activities e.g. information and communications technology (ICT) and bacterial management systems. In addition, biotechnology is combined with other technologies such as nanotechnology (nanobiotechnology) and sensor technology (biosensors). Technological developments are important for innovation in the biomedical healthcare sector. The mapping report examines the role of cooperation between public and private biomedical actors and in clusters.

Restructuring and human resources

New technologies and low freight rates puts a pressure on the competitiveness of European industries in the world markets; at the same time, lower wage levels makes it attractive for manufacturing industries to offshore parts of the business processes or to move out of Europe altogether. During the early years of this century, the vast majority of functions to have been outsourced demand only basic skills levels; however, countries such as China and India have invested heavily in education and R&D: if a wage gap still persists between these regions and Europe, there is little doubt that the offshoring of knowledge intensive functions will increase. The report also discusses such issues as restructuring activities in Europe, current and future skills needs and training issues.

SWOT analysis

Based on the analysis of trends and drivers of change, the report identifies the following main strengths, weaknesses, opportunities and threats for the development of the sector:

SWOT analysis for the European biomedical healthcare sector

Strengths

Weaknesses

Opportunities

Threats

High level of technology useWell-educated labour forceWell-developed networks and intra-industrial cooperation R&D spending less than in US companiesManagerial competences in sector lacks behind Ageing population and health consciousness Converging technologies Access to cheap and highly skilled labour force outside Europe Proactive biotechnology policies including support measures for SMEsGenerous public funding availabilityRisk society (bioterrorism, pandemics) Skills needs and global competition for brains (‘brain drain’) Extensive regulation imposing administrative burdensYoung Europeans not attracted to natural sciences Lack of private investmentPressure on patents from producers of generic productsHigh cost level in EuropePublic scepticism towards the use of biotechnology

Biomedical healthcare clusters

The dossier includes two studies of biomedical healthcare clusters: one in the western part of Ireland, and one in the area formed by the German capital Berlin and the region of Brandenburg.

Western Ireland

Since the 1960s, Ireland has developed a globally significant life sciences industry. A modern specialist infrastructure, access to the European market, and fiscal advantages make Ireland the location of choice of many companies. Currently 13 of the top 15 pharmaceutical companies in the world have substantial operations in Ireland, which has become one of the world’s largest exporters of pharmaceuticals. The country also has a strong global position in the field of medical technologies, 13 of the world’s top 25 companies being located there. Employment in the medical devices sector has grown rapidly, with total direct and indirect employment now at approximately 36,000 jobs.

The western Ireland cluster study (pdf, 123kb) The western Ireland cluster study (pdf, 123kb)

Berlin-Brandenburg cluster

The biotechnology cluster in the Berlin-Brandenburg region was established by the German Federal Ministry of Education and Research in 1996, partly a result of the desire of local government to boost economic growth in Berlin after German unification. The cluster consists of 174 biotechnology companies, five universities, three technical universities and more than 20 research institutes with a total of 350 work groups. More than half of the biotech companies are spin-offs of the universities and research institutes. Today, the Berlin-Brandenburg biotechnology cluster is the biggest biotechnology cluster in Germany, and among the leading biotechnology clusters in Europe. The regional biotechnology industry has developed well: M&A activities and increased international cooperation have generated expansion in the cluster.

The Berlin-Brandenburg cluster study (pdf, 226kb) The Berlin-Brandenburg cluster study (pdf, 226kb)

Company case studies

The dossier looks in detail at the cases of three companies that are operating in different subsectors of biomedical health

  • Biogen Idec (pdf, 108kb), based in Denmark, was formed in 2003 from the merger of two companies, Biogen, Inc. and IDEC Pharmaceuticals Corporation. Today, it is one of the largest biotechnology companies in the world, operating across the value chain from R&D to international sales. It develops and produces drugs for the treatment of multiple sclerosis, psoriasis, cancer and other diseases, and has several leading products on the market.
  • Q-Med AB (pdf, 116kb) is a rapidly growing biotechnology/medical device company located in Sweden. The company develops, produces and sells implants for cosmetic and medical use. The company has just under 700 employees, with around 450 at the company’s head office and production facility in Uppsala. Sales mostly take place through the company’s own subsidiaries or through distributors in over 70 countries.
  • Unimed s.r.o. (pdf, 128kb) is a middle sized contract research organisation located in the Czech Republic. Founded in 2004, the company has developed a range of services and is now able to offer a complete package of monitoring, data management, medical writing services etc. Unimed also performs multinational clinical trials with quality guaranteed by independent audits.

Future scenarios for the European biomedical healthcare sector

The study drew up four scenarios projecting the possible development of the biomedical healthcare sector (pdf, 249kb), on the basis of the major trends and drivers likely to have a significant impact on the sector over the next 10 years. The objective was to create an analysis that can be used as a tool for developing long-term ideas for optimising the sector. The four scenarios represent realistic, internally consistent, and plausible pictures of alternative futures. A particular interest in the scenarios has been the whether the projected future is compatible with further development of the sector in Europe or whether the incentives to move business abroad are greater.

Scenario 1, ‘Slow boat to China’ is a crisis scenario. The companies in the sector are under commercial pressure in Europe and look towards Asia for growth opportunities.

Scenario 2, ‘Forever young’ is characterised by growth. R&D is market driven and market strategies focus on creating lifestyle products rather than on developing new medicines.

Scenario 3, ‘Simply the best’ is also characterised by growth, but companies in the sector focus on developing a wide range of products for both consumers and for the healthcare sector.

Finally, in scenario 4, ‘Should I stay or should I go?’, biomedical companies in Europe are faced with a difficult choice – either to exploit opportunities for funding (which means operating in face of regulatory and ethical barriers for development), or moving to other regions that present them with better opportunities.

Further information sources

A number of other information sources on the biomedical healthcare sector are available.

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