Swiss Pharma Strength

Jul 01, 2011

Switzerland is an important power in Europe's pharmaceutical industry. As well as being one of the EU's major trade partners, Switzerland represents an important source of new pharmaceutical innovation and is home to two of the world's largest pharma companies.

Nathan Jessop
When it comes to Europe, most attention focuses on the EU pharmaceutical market and the R&D activity of companies in the 27 member states. Switzerland is not an EU member state, but remains one of Europe's most important pharmaceutical markets, as well as a major centre for medical research and new products. In 2010, the Swiss pharmaceutical market was valued at SF4.9 billion (€4 billion), which represented a 3.4% increase compared with the previous year (1). The country's healthcare spending represents 10.7% of gross domestic spending, which is one of the highest levels in the world. Per capita, pharmaceutical expenditure is around the average for Organisation for Economic Co-operation and Development (OECD) countries (2), but the country holds a particular interest for the pharma industry because there tends to be a high share of out-of-pocket payment (around 30%) both for total healthcare expenditure and pharmaceutical spending (2).

R&D and exports

Switzerland is ranked by the European Federation of Pharmaceutical Industry Associations as the fourth highest for R&D expenditure in Europe, behind the UK, France and Germany (3). The country's pharmaceutical industry has been active since the 19th century and is a great source of national pride. Traditionally, the country's lack of natural resources forced it to turn to innovative industries and build up an export network. Furthermore, it has been keen to attract foreign workers, whose presence is often viewed as having helped drive its R&D-based sectors (4, 5). Since 2007, work and residency conditions for EU citizens have been substantially relaxed (5).

Although there has been a steady drift of R&D investment from Europe to the US since 2000, Switzerland's pharma industry has remained an important contributor to the country's economy. In 2011, its annual pharmaceutical exports were estimated to exceed $40 billion (€27.3 billion) (6), while the balance of pharmaceutical trade is positive and has continued to increase since 2000. The Swiss pharmaceutical industry is also a major source of employment, comprising approximately 35000 workers and supporting nearly 120000 other employees in related and downstream sectors (3, 7). For every new job created in the Swiss pharmaceutical industry, it has been estimated that a further two are generated elsewhere in the Swiss economy (8).

For most Swiss companies, exports are a vital source of revenue, particularly as the growth of the domestic pharmaceutical market has been affected by government pressure to control prices. Another trend that is limiting the market for branded products is the steady growth of the country's genericdrug sector. In the past, there was little interest in generic products—possibly because of Switzerland's leading role in developing new medicines, which created brand loyalty among domestic consumers. In 2008, generics represented only about 9% of the Swiss national market, but estimates for 2011 suggest that generics now account for 12% of the market (2, 3).

Novartis and Roche

Switzerland is the home country of pharma giants Novartis and Roche, as well as a host of small and medium-size enterprises (SMEs). All the major multinational pharmaceutical companies are represented in the national market, but the leading forces, by far, are Novartis and Roche. Although active in 140 countries worldwide, Novartis maintains a strong link to its home country and employs approximately 12500 staff in Switzerland. Since 2008, Novartis has also been named in an annual survey of Swiss science university students as the most desired company to work for (7). Out of Novartis' estimated €5.1 billion annual R&D budget, approximately 56% is spent in Switzerland (7, 9). Meanwhile, Roche employs around 10000 people in Switzerland, which represents 12% of its global workforce (7). On a global basis, the company spends around €1.9 billion on R&D annually (9). In 2009, Roche strengthened its worldwide position through a US$47 billion takeover of Genentech. The merged group became the seventh largest drug company in the US market.

From time to time, there has been speculation regarding a merger between Novartis and Roche. In 2003, Novartis announced that it had accumulated enough stock in Roche to control 32.7% of the company's voting rights; however, members of Roche's founding family spoke strongly against any merger, while Novartis' CEO stated that the company was not looking to launch a hostile takeover (10). Since then, rumours have periodically resurfaced, but Novartis has not made any overt move for Roche. In March 2011, one of the members of Roche's founding family left the Roche family voting group, reducing its stake in the company from 50.01% to 45.01%. Some analysts have predicted that, in the long term, a merger with Novartis would be attractive based on the companies' shared interest in oncology. However, Roche has issued a number of media statements to dismiss this possibility and claimed that the suitability of such a merger is even less logical than it was in 2003 (11). Roche's spokesman argued that while Roche has focused on personalised medicine and diagnostics, Novartis has diverged into generic drugs and eye care.

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