EMCC European Monitoring Centre on Change

Biomedical healthcare industry - what future?

The biomedical healthcare sector comprises biotechnologies dedicated to the treatment of human beings. The first of three articles in the Sector Futures series on biomedical healthcare looks at key features of the sector, including the size and structure of its market, the nature of employment, the main trends and drivers shaping the present and future of the industry and the principal issues and uncertainties at stake in the industry.

Defining the biomedical healthcare industry

The biomedical healthcare sector comprises biotechnologies dedicated to the treatment of human beings. This sector is related to the pharmaceuticals industry in so far as pharmaceuticals is also dedicated to the treatment of human beings. A wider linkage is to other products and services of the healthcare market, such as the supply of hospitals and ambulant health services. Moreover, biomedical healthcare is related to biotechnologies, which to a certain extent are based on similar technologies, but are dedicated to applications outside the healthcare market. Green biotechnology, for example, provides products for agriculture and white biotechnology has a wide range of applications in different industries. Both of these sectors are linked to the chemicals industry. Figure 1 depicts the relationship between the sectors of biotechnology and the mature industries.

Figure 1: Biotechnology and related mature industries in the EU15 plus Norway and Switzerland

Biotechnology and related mature industries in the EU15 plus Norway and Switzerland

Source: EuropaBio, 2005, p. 5; European Federation of Pharmaceutical Industries and Associations (EFPIA), 2005, pp. 11 and 25.

The biotechnology industry is divided into the following activities:

  • red biotechnology, which belongs under life sciences;
  • white biotechnology: industrial and environmental products and processes, such as biocleaning, bioremediation, environmental and industrial diagnostics, water and effluent treatment as well as recycling;
  • green biotechnology: veterinary healthcare, biopesticides, plant agriculture, food technology and processing;
  • services, such as contract research, contract manufacturing, bioinformatics and functional genomics.

As an industry, biotechnology is a young, dynamic and research-intensive sector of great interest to policymakers. Nevertheless, official quantitative data for the assessment of its importance are not available; surveys and other information supplied by stakeholders in the sector are the main sources of hard data about this industry.

In April 2005, the European Association for Bioindustries (EuropaBio) published a survey of the biotechnology industry in Europe, i.e. the EU15 plus Norway and Switzerland (EU15plus). According to this study there were 1,976 biotechnology companies in the EU15plus in 1993, with around 94,000 employees and revenues of €19 billion. Some 51% of the turnover was attributable to the biomedical healthcare industry (see Figure 2).

Figure 2: Structure of the biotechnology industry by revenues in the EU15 plus Norway and Switzerland, 2003

Structure of the biotechnology industry by revenues in the EU15 plus Norway and Switzerland, 2003

Source: EuropaBio, 2005, p. 5.

The biomedical healthcare industry is concerned with human health, specifically with the diagnosis of health risks, and the prevention and treatment of illnesses. Biomedical healthcare products and processes are part of the human medicine market served by the pharmaceuticals industry. The products provide treatments for illnesses that could not be treated until recently; they are more efficient than traditional cures and many of them are on the verge of replacing traditional pharmaceuticals. This means that the demand for biomedical healthcare is driven by roughly the same factors as the demand for the products and services of life sciences as a whole.

The principal activities and products of the biomedical healthcare industry may be grouped as follows.

  • Cell and tissue therapies provide healthcare solutions ranging from prosthetic and restorative to therapeutic applications. Active research involving human cell- and tissue-based products is currently conducted in the regeneration and repair of bones, tendons, nerves and ligaments.
  • Research on stem cells provides cell-based therapies to treat serious diseases, including Parkinson’s and Alzheimer’s. The research is also relevant to the treatment of spinal cord injuries, diabetes, strokes, heart diseases and other ailments.
  • Gene therapy is dedicated to some of the most debilitating diseases that do not yet have a cure. The molecular basis of many inherited disorders, such as haemophilia, cystic fibrosis and muscular dystrophy, has been revealed by the discovery of affected genes. Many types of genetic predisposition play an important role in some forms of cancer. Identifying the genes for such diseases and redirecting their course is one of the most promising means of cure.
  • There are many (some 5,000) rare diseases (affecting around 20 to 30 million Europeans), for which biotechnology can provide powerful tools to develop diagnostics and treatments.
  • Proteomics is concerned with the analysis of the physiological functions of proteins and their effects on diseases. Some diseases occur if genes do not produce sufficient proteins, or if they produce incorrectly folded proteins. Biotechnology uses recombinant (artificially created) deoxyribonucleic acid (DNA) and cell cultures to produce missing or defective proteins. Replacement protein therapies include Factor VII, a protein essential for the blood-clotting process, or insulin, a protein hormone that regulates the level of glucose in the blood.
  • Pharmacogenetics studies the effect genes may have on an individual’s response to a drug. It is based on the application of biotechnologies, not only to improve diagnosis, but also to provide new ways to match doses and treatment to individual patients. Pharmacogenetics can offer better-selected drugs to treat elusive variations of common as well as rare diseases. It can also limit the occurrence of adverse drug reactions in patients.
  • In diagnostics, biotechnology has provided new tools to detect many diseases and medical conditions more quickly and with greater accuracy than before. For instance, the Polymerase Chain Reaction (PCR) is a technology that imitates a cell’s ability to replicate DNA by generating multiple copies of specific sequences of DNA through amplification. In clinical diagnostics, a small amount of genetic material can be copied by PCR, which will provide sufficient material to detect the presence or absence of a virus as well as to quantify its level in the blood. Important applications are the diagnosis of HIV and of prostate and ovarian cancer.

Genetic testing is based on the information made available by the Human Genome Project. There are currently more than 1,000 hereditary diseases that can be identified in this way. The majority of the tests detect the presence of a mutation or mutations in a single gene, which lead to monogenic disorders, most of which are relatively rare diseases. Many diseases are caused by a combination of environmental factors and one or more hereditary factors. There are complex interactions between the environment and a number of alternative genes, called ‘susceptibility’ genes. These interactions can be disclosed by genetic testing, and the resultant information highlights individual risk factors, and thus gives the patient the opportunity of avoiding environmental triggers for diseases.

The foregoing summary makes it clear that the biomedical healthcare industry is a ‘sunrise’ industry with a strong focus on research and development (R&D) and dedicated to supplying innovative products with a broad range of applications. At present there are a small number of products in the market, but this number is growing rapidly. The prospects for the future importance of this industry are good in all parts of the life sciences market.

Market size, market structure and employment

Market size

The biomedical healthcare industry serves the healthcare market, which comprises the broad subsectors of in-patient care (hospital), out-patient care and pharmaceutical products. The European Federation of the Pharmaceutical Industries and Associations (EFPIA) has calculated the contributions of these subsectors to the total European healthcare market. In 2003, the total market amounted to €730 billion for the EU15plus and only €110 billion euro of which was spent on pharmaceutical products (see Figure 3).

Figure 3: The life science market in the EU15 plus Norway and Switzerland, 2003

The life science market in the EU15 plus Norway and Switzerland, 2003

Source: EFPIA, 2005

Although the €10 billion revenues of the biomedical healthcare industry in 2003 amounted to only between 1% and 1.5% of the total European healthcare market, its importance lies in the fact that innovations in healthcare supply increasingly originate from the biomedical healthcare industry.

Market structure

The healthcare industries mostly supply services for patients, but pharmaceuticals as well as the biomedical healthcare industry have a stronger focus on the supply of manufactured products and related technologies. A comparison of these two industries reveals structural differences that can be attributed to the pace of innovation in biotechnologies and a rate of growth stimulated by an ever-increasing number of new products and applications.

Table 1: Key figures for the pharmaceuticals and biomedical healthcare industry in the EU15 plus Norway and Switzerland, 2003
Indicator Units Pharmaceuticals industry Biomedical healthcare
. as % of pharma-ceuticals
Companies Numbers 3,538 1,008 28.5%
Employees Numbers 550,899 47,940 8.7%
per company 156 48 30.6%
Employees in R&D Numbers 58,844 17,850 30.3%
as a % of total employees 10.7% 37.2% -
Revenues Billions € 160 10 6.1%
per employee 1,000 € 290 202 69.6%

Source: EuropaBio (pdf 2.2Mb), 2005, p. 5, calculations by the Institute for Economic Research (Ifo), Munich, 2005.

The majority of biomedical healthcare companies are young; more than half the businesses have been founded since 2000. As a consequence, the companies are small, with an average of around 50 employees. Regarding the number of companies, and even more so in the number of employees, biomedical healthcare is a small industry compared to the pharmaceuticals industry. Its revenues of €10 billion only amount to 6% of those of the pharmaceuticals industry. On the other hand, the high level of innovation in biomedical healthcare becomes comprehensible if one compares the share of employees in R&D. Pharmaceuticals, a mature research-intensive industry, employs around one-tenth of its workforce in R&D; the biomedical healthcare industry more than one-third (see Table 1).

Despite large structural differences between the two industries, there are also strong linkages. Pharmaceuticals companies founded a considerable number of biomedical companies. They are owned or partly owned by large pharmaceuticals groups and are often staffed by experts from the pharmaceuticals industry. Such companies can be understood as externalised units, which carry out research in areas remote from the markets. A similar development took place in the engineering industries more than 10 years ago. In the era of newly available technologies for the control of manufacturing processes, engineering companies created small firms for the development of advanced hardware and software. The rationale for this was that there was no internal know-how for these new technologies available, and R&D could be carried out more or less independently of the parent company.

Other biomedical companies are taken over by pharmaceuticals companies to obtain access to new technologies that are likely to yield new opportunities in their traditional business areas. For instance, the Belgian pharmaceuticals group UCB acquired the Celltech Group, a leading British biotech company, in 2004. Consequently, analysis of the biomedical healthcare market also must take developments in the pharmaceuticals market into account.

Employment

Employment in the European biotechnology industry had been growing strongly from 1995 onwards, but it reached a peak in 2001, after which the bursting of the dotcom bubble precipitated a decline. In the United States, employment increased more slowly than in Europe, but resumed its upward growth in 2003 after suffering a fall in 2002. In Europe, however, there was no resumption of employment growth in 2003 (see Figure 4).

Despite the bursting of the dotcom bubble, employment in biotechnology in Europe was still 15.5% higher in 2003 than it had been in 2000. The overall pattern of employment growth since 1995 suggests that biotechnology, as a young and growing industry, will provide good job opportunities, especially for highly qualified personnel, as soon as the consolidation of the recent past has been completed. That is one reason why European governments are taking initiatives to stimulate innovation and competitiveness in this industry. It must not be forgotten, however, that biotechnology is still a relatively small industry, unable to make much of a contribution to reducing unemployment in Europe on its own until it generates ‘spill-over’ effects on other industries, above all on pharmaceuticals and downstream industries.

Figure 4: Employment in the biotech industry in the EU15 plus Norway and Switzerland and the US, 2000-2003

Employment in the biotech industry in the EU15 plus Norway and Switzerland and the US, 2000-2003

Source: EuropaBio, 2003

Trends and drivers

Sociological

Several considerations suggest that working conditions in the biomedical healthcare industry are more flexible and less bound by traditional rules than in long-established businesses. The industry is knowledge-driven, its work settings, particularly in natural sciences, are attractive, and the majority of companies are young and thus have the opportunities to design their own patterns of work. However, it must be stressed that no hard data on working practices in biomedical healthcare are available, either from official statistics or from stakeholders in the industry. Nonetheless, the close links between biomedical healthcare and the pharmaceuticals industry allow data about working practices and creative working-time schemes in pharmaceuticals to be used as an indication of conditions in biomedical healthcare. Working practices in biomedical healthcare are likely to be more innovative, and certainly no less innovative, than in pharmaceuticals.

The pharmaceuticals industry is knowledge-intensive and the proportion of R&D personnel (up to 10% in the United Kingdom and Germany) is even higher than in the chemicals industry, but well below the figure of roughly 60% in biomedical healthcare. Data on part-time employment give some indication of the propensity of pharmaceuticals to introduce new patterns of work. The high incidence of part-time work in pharmaceuticals indicates a more flexible approach to the design of working conditions (see Figure 5).

Figure 5: Employment structure in the EU15 pharmaceuticals industry, 2002

Salaried employees in R&D in the EU15 pharmaceuticals industry
Salaried part-time employees in the EU15 pharmaceuticals industry

Source: Based on Eurostat data, calculations by Ifo, 2005.

Technological

Biomedical healthcare technology is the most recent of the technologies that are changing our world. The development of this technology rests on two major achievements of modern science. At the end of 2000, the Human Genome Project completed the sequencing of the human DNA macromolecule. This achievement was the result of a cooperative enterprise between a vast international public consortium and the private US company Celera, headed by Craig Venter. The more than 3 billion nucleotide letters of the DNA molecule provide the most important database for biomedical healthcare technology. In Europe, the core of biomedical healthcare technology is located in the European Molecular Biology Laboratory (EMBL), whose head office is in Heidelberg, with laboratories in France and Italy, and the European Bioinformatics Institute at Hinxton in the UK. Exploiting the information in the human genome for the identification of genes, and the proteins that these genes code for the complete functioning of the human body, is the province of the new science of bio-informatics. The complexity of the task and the large amount of data involved require specifically designed software.

The work being done to make full use of the database created by the sequencing of the human DNA macromolecule is called post-genomics. Although there are only 30,000 genes, rather than the anticipated several hundred million, their alignment, three-dimensional deployment and the innumerable alignments of the nucleotide letters, whose significance is unknown, provide an infinite field for research, compared to which the sequencing of the genome was only the tip of the iceberg.

The other development was the identification, particularly from the late 1990s onwards, of new types of embryonic stem cells. These originally undifferentiated cells develop in the human egg. Their ability to reproduce exceptionally quickly and their extreme mutability have given rise to the hope that stem cells can be used for therapeutic purposes. However, this raises ethical problems because the research involves the use of human embryos, which is why research is now being conducted into identifying stem cells in adults.

The biomedical healthcare industry can be seen as the pharmaceutical industry’s external R&D centre and source of product innovation. The share of biotechnology products in clinical trials as a share of total new pharmaceutical products has grown from 19.2% in 2000 to 27.1% in 2003.

The strength of the biomedical healthcare industry differs widely between European countries. The UK is ahead, with a total of 636 new biotech healthcare products in clinical tests, even though there are no more biomedical companies in the UK than in Germany. The UK industry, however, is more mature and its companies are larger. There are 43 quoted companies among its 334 biomedical healthcare companies, while the corresponding figures for Germany are 350 and 11, respectively (see Figure 6).

Figure 6: Regional distribution of the biomedical healthcare industry by the number of companies and new products

Regional distribution of the biomedical healthcare industry by the number of companies and new products

* New biomedical healthcare products in the pipeline, 2000-2003.

Source: EuropaBio, 2003, calculations by Ifo, 2005.

Environmental drivers

There is no specific information on environmental drivers available. It can be assumed that energy efficiency, waste and recycling play a far smaller role than they do in the production of traditional pharmaceuticals. This could provide an additional motive for the development of biomedical healthcare. In contrast to green biotechnology, genetically modified organisms are not seen to be a threat to the environment.

Economic drivers

There are no official time series data for the analysis of the biomedical healthcare industry. Data for the pharmaceuticals industry are used in Figure 7 as a lower baseline to plot the development of the biomedical healthcare industry. For some years, data for the biotechnology industry have been available from EuropaBio, the umbrella body for the European industry. These data support the inference drawn from the pharmaceuticals data that output growth of biomedical healthcare was much higher than output growth of chemicals over the period 1995 to 2004, although growth slowed markedly after the bursting of the dotcom bubble. Pharmaceuticals output grew much more rapidly than chemicals output, achieving double-digit growth rates over 1995 to 2000 and an average of 5% per year from 2001 to 2004.

Figure 7: Development of the chemical and pharmaceuticals market

Development of the chemical and pharmaceuticals market

Source: Eurostat; EuropaBio, 2003; calculations by Ifo, 2005.

US companies dominate the global biotechnology markets. The US industry is on the leading edge of this technology and it consistently achieves strong output growth. Therefore, the US biotechnology sector is a benchmark for the assessment of the state and competitiveness of this industry in other countries. The following paragraphs outline the economic conditions, the opportunities and the failings of the European biotechnology industry compared to its US counterpart. The comparison is based on the 2005 comparative study on biotechnology in Europe (pdf 2.2Mb) commissioned by EuropaBio. Although this study deals with the whole biotechnology industry and provides very few figures specifically about biomedical healthcare, it is safe to treat the findings and conclusions of the study as applicable to biomedical healthcare, since this is the most prominent subsector of the biotechnology industry. In Europe the revenues of the biomedical healthcare industry account for about 50% of the total revenues of the biotechnology industry, whereas in the US the share is 60%.

The numbers of biotechnology companies are roughly the same in the US and in Europe, but the European companies are younger and much smaller, having on average only half the number of employees of the US companies. The most striking difference, however, lies in the higher innovation intensity of US companies compared to European ones. When companies are launching new products on the market, the proportion of revenues they devote to R&D tends to be lower than the proportion devoted by companies that are still developing new products. US companies, however, are not only bringing more new products onto the market than European companies, but they also devote a higher share of revenues (almost 40%) to R&D than European companies (31.6%). This suggests that even though European companies are younger than US companies, Europe is not catching up on the US lead in innovation in biotechnology (see Table 2).

Table 2: Key figures for the European and the US biotech industries, 2003
Indicator Units Europe (EU15 plus Norway and Switzerland) US Europe biotech as a % of US
.
Companies Numbers 1,976 1,830 108.0%
Employees Numbers 94,000 172,400 54.5%
per company 48 94 50.5%
R&D expenditure Billions € 6 16 36.6%
as a % of revenues 31.6% 39.0% ..
Revenues Billions € 19 42 45.2%
per employee 1,000 € 202 244 83.0%

Source: EuropaBio (pdf 2.2Mb), 2005, p. 5, calculations by Ifo, 2005.

The pharmaceuticals industry is knowledge driven and capital intensive. These characteristics, along with the regulation of national healthcare systems, are often seen as barriers preventing developing countries from entering this market. Yet in the era of globalisation, market access barriers have shrunk and competitors from developing countries are also entering pharmaceuticals markets. As in the case of computer software, India has a pharmaceuticals industry with an indigenous knowledge base. In addition, Indian companies are particularly successful in the development of active agents, i.e. substances that produce chemical reactions, as intermediate products for the manufacture of generics, i.e. medicines marketed without a brand name, and most of these products are delivered to European or US pharmaceuticals companies. For example, Biocon (headquartered in Bangalore) produces active agents for Western manufacturers by fermentation methods based on its own patents. Furthermore, Indian companies are poised to enter the US market with generics, and are also entering knowledge-driven market segments with innovative products based on their own expertise.

Indian companies have also become interested in the acquisition of smaller European pharmaceuticals firms in order to get access to their distribution channels. The importance of distribution channels was highlighted by the interest of the German pharmaceuticals manufacturer, Bayer, and the UK pharmaceuticals company, Glaxo-SmithKline, in buying the over-the-counter pharmaceuticals division of the UK retailer, Boots. Their interest, however, was thwarted by the merger between Boots and Alliance Unichem announced at the beginning of October 2005.

Not only do companies from India and other emerging countries enjoy decisive cost advantages in production, but they also have access to a highly qualified labour force at the labour-intensive stages of pre-clinical development and clinical trials. Consequently, competition from developing countries can be expected to grow not only in the area of traditional pharmaceuticals, but also in biomedical healthcare products. This is a challenge above all for the European players in the market, which are lagging behind their US counterparts and are thus exposed to tough competition from two sides, on the leading edge of technology from US firms and from emerging biomedical companies in India.

A comparison of the age patterns of the biotechnology industry in the US and Europe reveals that Europe is not lacking in entrepreneurial spirit. The establishment of new firms is dynamic. Around 60% of the industry’s businesses have been created within the past five years, which exceeds the corresponding US figure of 43%. The explanation for the rapid creation of new companies in Europe lies not only in the delayed take-off of this industry in Europe and a process of catching up with the US, but also in the availability of finance for start-ups.

Public authorities have launched schemes for the establishment of innovative companies. Among other examples, in the Netherlands the BioPartner programme has helped to create around 80 new companies, while in France the initiative Jeunes Entreprises Innovantes (JEI) is dedicated to support independent, research-oriented companies. It provides tax breaks, particularly for the reduction of labour costs. These programmes concentrate above all on seed and start-up finance.

Financial markets are of outstanding importance for young industries. The liberalisation involved in the creation of the Single European Market has improved the financial environment for biotechnology companies in Europe, but compared to the US, the supply of funds is not sufficient, especially for companies beyond their early stages. Finance for funding growth is harder to secure in Europe than in the US and market volumes are much smaller, even when the respective sizes of the biotechnology industries is taken into account.

Table 3: Funding of European and US biotech industries, 2004
Indicator Units US Europe (EU15 plus Norway and Switzerland)
Absolute figures as a % of US
.
Venture capital Millions € 940 2,850 33%
Initial public offering Millions € 414 1,270 33%
Follow-on offering Millions € 250 2,250 11%
Debt financing Millions € 1,150 5,054 23%

Source: EuropaBio (pdf 2.2Mb), 2005, pp. 13-18, calculations by Ifo, 2005.

Two drivers are of paramount importance to demand for biomedical healthcare products: financial restrictions in public healthcare systems and the ageing population. The public healthcare system is the most important determinant of demand. Its share of the total healthcare market is as high as 80% in some Member States and about 65% in others. There are striking differences between the health and social security systems in different Member States, and these systems are likely to remain subject to national control for the foreseeable future. Within the EU, and sometimes within the same country, government-run systems exist alongside self-administered systems subject to national regulation. However, the funding of all types of public healthcare systems has become ever more difficult over the past 10 years or so. Governments have had to introduce austerity measures to contain the rapid rise in costs that have become an increasing burden on the systems.

Public healthcare systems are to a large extent financed by wage-based insurance contributions, which cover healthcare services as well as social welfare. The share of wages spent on healthcare services has grown over the past 10 years and the subsequent rise in labour costs has impaired the competitiveness of European companies. Tackling these problems is a daunting task because so many political objectives are related to the issue of allocating resources to welfare services and the broader issues of allocating scarce resources. Unless funding problems are solved, there will not be sufficient resources to cater for the growing needs of an ageing and more health-conscious society.

Demographic changes in European societies are leading to a growing share of pensioners in the total population. For instance, in Germany pensioners represented 9.7% of the population in 1950, but 16.3% in 2000. On present trends, pensioners will account for around 30% of the German population in 2050, and the share of people aged between 20 and 65 will fall from 62% to 55%. This demographic development produces a growing need for healthcare services while narrowing the financial base of the German public health system.

Political drivers

In many areas of importance for the biomedical healthcare industry, the institutional setting is provided by the Member States. Not only is this true of the different national systems for healthcare, but the conditions under which biomedical companies operate vary considerably between Member States, especially as regards restrictions on entrepreneurial activity in this field and acceptance and regulation of the relevant technologies. The results of such differences are seen in the different levels of development of the biomedical healthcare industry between different countries. While the UK’s biomedical healthcare industry is ahead, the German industry is in an early state of development with a large number of small research companies, but a comparatively small output of products.

The current position is not satisfying at EU level. The European Commission’s Sixth Framework Programme has provided very little support specifically for stem cell research. The Commission envisages incorporating this field in the Seventh Framework Programme, and proposals are to be assessed by ethics committees. However, the European Parliament has voted against spending money for research on stem cells. Although this decision is not binding on the European Commission, the Parliament’s decision reveals the difficulties this field faces in Europe.

European initiatives on R&D contribute to progress in the biomedical healthcare industry. Under an initiative of DG Research, the European Federation for the Pharmaceutical Industry (EFPIA) and the Association of European Biopharmaceutical Enterprises (EBE) created a multi-stakeholder platform, one aim of which is to help formulate and provide input to the Commission’s programme for funding. Within this programme, efforts are being made to give special support to small and medium-sized enterprises in the biomedical healthcare industry. This type of support can contribute to a more balanced development of this young industry. At present it finds supportive conditions in some countries and, at best, neutral conditions in others. Although the European Commission cannot change national legislation, it can provide a more supportive environment for R&D by offering funds for research projects in certain areas.

One of the difficulties faced by small and medium-sized pharmaceuticals and biopharmaceuticals companies is the elaborate procedure of applying for product authorisation. Since 1995 the European Medicines Agency (EMEA) has been engaged in streamlining the process to authorise medicinal products in the Single Market and removing the need to make multiple applications on behalf of the same product. There is now a European system with a centralised procedure of mutual recognition. The certification of medicines is to be carried out in conformity with the arrangements laid down by the World Health Organisation (WHO). EMEA and the national authorisation bodies form a network which is responsible for the approval and supervision (pharmacovigilance) of medicinal products in the market.

The authorisation of biopharmaceutical products is subject to specific requirements. Both EBE and EFPIA are involved in drawing up adequate requirements. Cooperation between the European Commission, EMEA and EBE has resulted in a proposal to implement fee reductions and administrative support to SMEs which are taking their products to the EMEA. This is of vital importance for biomedical healthcare companies since the high costs of their product dossiers are a heavy burden on them.

Uncertainties and issues

The varying conditions and stages of development of the national institutions relevant to the biomedical healthcare industry are factors which hamper the kinds of joint European initiatives that are essential if European companies are to catch up with their US competitors. The dynamic development of the industry in some Member States shows that Europe has the potential to catch up, but isolated national efforts will not be sufficient for European companies to compete at the same technological level as their US counterparts. Moreover, initiatives to bring controversial areas of technology into EU research programmes have encountered resistance from the European Parliament, which has led the Commission to take a more cautious stance, but one that is not adequate to meet the US challenge.

Public healthcare systems are of outstanding importance in shaping demand for healthcare products and services in Europe. These systems are under stress because of misallocation of resources and financial restrictions. The result is that there are only very limited financial resources for financing new cures and medicines developed by the biomedical healthcare industry. Among these new cures are treatments for very rare (‘orphan’) and hereditary diseases for which therapies hitherto have not been available. Reform of national social insurance systems and health markets will be necessary if there is to be a more efficient use of resources, as well as access to new sources of finance, for example from private health insurance.

The single currency has contributed much to the creation of a European financial market by making it easier to secure finance for companies and to make use of such financial instruments as private equity investment. This development is decisive for a young industry that has to invest in research before it earns enough from products to pay for the research. More risk-oriented financiers than commercial banks are necessary for such an industry, particularly because investment is not in tangible but rather in intangible assets.

Although the position has improved in recent years, funding in Europe for this industry is far less supportive than it is in the US. There are sufficient public funds available for seed and start-up financing, but there is not enough ‘mezzanine’ funding available for biomedical healthcare companies that are no longer in the start-up phase, as public funds can only be made available for research and start-up activities but not for activities that are directly market oriented. Further improvements in sources of finance for this young industry are necessary.

References

All links accessed on 4 January 2006.

EuropaBio (European Association for Bioindustries), ‘Biotechnology industry figures’, Brussels, 2003, available at: www.europabio.org/documents/EY2003report.pdf (pdf 9kb).

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).

European Institute of Medicine (EOM) (ed.), Health is wealth - strategic visions for European healthcare at the beginning of the 21st century, Salzburg, 2003, available at: http://europa.eu.int/comm/health/ph_overview/health_forum/hiw_full_en.pdf (pdf 2 Mb).

Eurostat, ‘Annual detailed enterprise statistics on manufacturing subsections DF-DN and total manufacturing (NACE D) (part of Annex 2)’, Queen tree statistics, Industry, trade and services, Industry and construction data, available at: http://epp.eurostat.cec.eu.int/portal/page?_pageid=0,1136195,0_45572097&_dad=portal&_schema=PORTAL

Methodological note

The statistics used in the article are based on Eurostat, as far as the pharmaceuticals industry is concerned, which has been defined in line with the NACE nomenclature and comprises all products as mentioned in NACE 24.4. Furthermore, supplementary information is based on Cambridge Econometrics E3ME database in order to complete the time series. Additionally, surveys and statistics from the entrepreneurial associations of the industry were taken into consideration, and most references are from EuropaBio.

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