On track for more growth

Switzerland is an ideal location for drug companies to carry out their r&d, as the flourishing pharmaceutical industry in the country shows

There have been times recently when you might have been forgiven for believing that Switzerland is no longer the super-efficient country it was. However, it still excels in many areas, including burgeoning pharmaceutical and biotechnology industries. After the US, the European Union's (EU) major trading partners are Switzerland and Japan (table 1), while in trade with non-European countries Switzerland's pharmaceutical exports are second only to Germany's. The pharmaceutical industry also provides Switzerland with a €7m (US$7m) positive balance of trade (table 2), the highest in Europe, and it employs 26,000 people.

According to the SGCI, the Swiss chemical industries association, international trade has also developed quite well in the first five months of 2002; nominal exports of the industry grew at a rate of 7.7% and imports increased by 7.5% compared with the same period a year ago.

favourable expenditure

Data from the European Federation of Pharmaceutical Industries and Associations (EFPIA) also shows a favourable comparison with Europe. In terms of expenditure, Switzerland spends 3% of its GDP on drug r&d. This compares well with the European average of 1.9%, and extremely well with individual countries such as the UK (1.87%), the US (2.64%). Indeed in Europe Switzerland is behind only Sweden (3.8%) and Finland (3.19%)

Bent Moser, head of the SGCI, said: 'R&d is an international and long-term affair. But, at the same time, science is dependent on regional scientific infrastructures of universities, research institutes and companies.

'The processes which lead to the creation of regional centres of excellence are extremely complex and various. Often historic coincidences play an important role such as in the case of the settlement of pharmaceutical and chemical industry in our country. Today several centres in scientific disciplines that are of specific relevance to our industry are located in Switzerland. Around 40% of worldwide r&d expenditure of Swiss pharmaceutical companies is spent in Switzerland.'

Known as the BioAlps, a region around Geneva-Lausanne has emerged as a world leader in biopharmaceutical research. The reputation has been constructed upon a solid academic foundation, with both cities having major centres for research in many scientific fields, such as basic molecular and cellular biology, and biomedical research. There are also two research institutes in Lausanne: the Swiss Institute for Cancer Research (ISREC) and the Ludwig Institute (mainly immunology), while the Swiss Institute for Bioinformatics, based in Geneva, is best known for its on-line protein catalogue, Swissprot, that is consulted daily by thousands of scientists the world over.

All these research centres develop state-of-the-art biotechnology for basic and applied research in medicine, biopharmaceuticals and biology, and for many other applications.

government priority

A prime example of companies locating to the BioAlps is Serono International, the third biotechnology company worldwide in terms of sales, and number one for the treatment of infertility. Serono runs important research and production centres in the region.

Says Ernesto Bertarelli, ceo of Serono: 'In Switzerland as a whole, and especially in the Geneva-Lausanne area, government authorities have made it a priority to support biomedical research and development. Since the universities run excellent basic and applied research programs, and there is a clear tendency towards creating start-ups, this is probably one of the best places for biotech companies to establish themselves.'

Altogether, about twenty start-ups linked to biotechnology have been created over the past two years in the Geneva-Lausanne region, including Modex Therapeutics, NovImmune and Geneva Proteomics (GeneProt), which recently raised more than $120m (€120m). Behind all this development lies a strong and stable consensus in favour of promoting the biotechnology sector. For example, the Swiss government recently awarded $20m to two major projects in the region.

One of them, run by the ISREC, is investigating molecular oncology, from basic research to therapeutic approaches. The other, frontiers in genetics: genes, chromosomes and their development, is coordinated at the University of Geneva and links several levels of basic research (genetics, cell biology, embryology) to technological progress.

A concern for the pharma industry in Switzerland is the question of parallel imports. In an effort to reduce healthcare costs, the Swiss government has raised the question of the parallel importation of patented drugs.

In a paper on the subject the SGCI notes that there is no general ban on parallel imports in Switzerland, indeed in the majority of cases they are permitted and stimulate competition.

damaging effects

A new therapeutic products law (HMG) lays down a simplified market authorisation procedure for parallel imports of drugs whose patent protection has expired. The HMG incorporates a legal ruling of the federal court, which decreed that parallel imports of goods no longer protected by patent should be allowed. Off-patent pharmaceuticals represent around 40% of the Swiss market, representing SFr1.4bn (€0.95bn) at manufacturers' prices.

The SGCI contends that parallel importation of patented pharmaceuticals would give rise to some damaging effects. First, consumers would probably not reap the benefits arising from lower prices brought about by parallel imports. Experience has shown that it is mainly the importers of parallel products and the wholesalers who improve their margins.

Secondly, parallel imports can jeopardise the safety of medicines. As with any drug, imports must conform to national safety requirements, and this usually means that they have to be repackaged so that the information given on the pack is comprehensible to the consumer. This translation and repackaging process could give rise to confusion or even deception.

Thirdly, if the need arises to withdraw a drug from the market on safety grounds, this could be extremely difficult in the case of parallel imports. Tracing the product back through a number of distributors can be very complex and uncertain.

The association also points out that the cost of medicines, as a proportion of total healthcare expenditure in Switzerland, is grossly overestimated anyway. According to official statistics, new drugs accounted for only 12.5% of the total bill. They also reduce the length of hospital stays, cut treatment costs and speed up recovery, according to a study by Dutch researchers.

The study encouraged the Dutch government to increase its spending on pharmaceuticals significantly rather than investing in primary care facilities.

Moser commented: 'The pharma industry is operating worldwide in an increasingly difficult environment. On one side r&d and marketing costs are increasing and on the other side governments are exercising pressure on prices because they want to contain health costs. In this situation of narrowing margins a further restructuring of the worldwide industry would not surprise me.

That said, the general business strategies of the Swiss companies are sound and long term oriented. I believe Swiss companies to be in good shape to master the future challenges.'