The Pharmaceutical Industry and the Economy
Even in times of crisis, the pharmaceutical industry is stable. Apart from the significant innovative power of the pharmaceutical companies, this is due to the medical needs of society. With a gross added value of more than EUR 100,000 per employee, the pharmaceutical industry provides a significant asset for Germany’s national economy: Hardly any other industry provides such a high gross added value. The pharmaceutical sector is considered one of the industry branches with the best future prospects. The production of pharmaceutical products in Germany continued to increase in 2008, with more than half of all products still being exported. The number of employees in research and development also continued to rise despite a slight decrease in overall employment. This demonstrates the great potential of Germany as a research location, and the companies continue to invest: With capital spending worth EUR 1.53 billion for new production and research facilities, the pharmaceutical industry achieved another peak value in 2008.The Future-oriented Pharmaceutical Industry
After “medical, measuring and control technology,“ the pharmaceutical industry has the best future prospects out of 35 analyzed German industries. It strongly benefits from expected technological and societal changes and has one of the best growth and development prospects. In this respect, the above-average industry focus on R&D also has a positive effect. Developments in employment also shows that the pharmaceutical industry is already benefiting from this change: Contrary to the prevailing trend, the number of jobs even increased by 8.5 percent in Germany from 2003 to 2008. Particularly negative, however, is the regulatory framework, which significantly hinders the pharmaceutical industry. Economy
Production of Pharmaceutical Products in Germany
In 2008, Germany produced pharmaceuticals worth EUR 27.1 billion, a 3.5 percent increase over the previous year. Contrary to many other products, the production of pharmaceuticals is impacted much less by the economic situation than by government intervention to regulate the health care sector. Regulations regarding pricing and prescription restrictions predominantly limit domestic demand. Particularly drastic legislation has subsequently resulted in small or even negative growth rates in production, which was last observed in 2003 and 2004. The share of pharmaceutical production in overall industrial production has been stagnate at two percent for years.
Production in Europe, Japan and the USA
In an international comparison, Germany has only barely been able to maintain its position as a production location for pharmaceutical products. Eight percent of the overall pharmaceutical production from Europe, Japan and the USA, worth EUR 352 billion in 2007, came from Germany. In 1990, this share was still at nine percent. Compared to Japan and the United States, the countries of the Euro zone have benefited from the strength of their currency over the past five years. Especially medium-sized European countries such as Ireland, Austria, Belgium and Switzerland (as a non-Euro country) have expanded their pharmaceutical production.
Economic Stability
The supply of pharmaceuticals is a basic human need and therefore not subject to economic fluctuations as much as other necessities. As a result, the pharmaceutical industry is one of those economic areas that lends continuity to economic development. One of the most important economic indicators, the index of orders received, shows that the economic cycles of the past years, especially 1993 to 1995, 1996 to 1998, 1999 to 2001 and the 2006/07 boom have barely impacted the pharmaceutical industry.
Export Ratio of the Pharmaceutical Companies in Germany
Due to various types of regulations, the domestic pharmaceutical market has lost its significance for the German pharmaceutical companies in the long term. In contrast, international sales have become more and more important. The export ratio has increased from about 36 percent in 1995 to more than 56 percent. In a ranking of production locations, Germany still ranks fourth after the United States, Japan and France.
Employees of the vfa Member Companies
In 2008, the number of employees in the vfa member companies decreased to about 88,000, which corresponds to a 4.1 percent reduction compared to the previous year. In contrast, the number of employees in research and development increased (by 0.2 percent to 17,100). This shows Germany’s excellent potential as a research location. In particular, research-based pharmaceutical companies depend on the qualified workers they find in Germany.
Capital Spending
With a capital spending share of 4.4 percent of sales, the pharmaceutical industry is among the industries in Germany with above-average capital spending. This triggers considerable additional production and employment in other industries, as was shown in a study by the German Institute for Economic Research. These indirect production and investment effects increase the industry’s added value by roughly another 90 percent. Especially industry sectors that provide great added value and employment volume are pulled along by the pharmaceutical industry, e.g. research and development services. Each job in one of our companies creates another job in other industries.
Capital Spending of the vfa Member Companies
In 2008, the research-based pharmaceutical companies in Germany increased their high level of capital spending once again. At EUR 1.53 billion, the 2008 volume was even above that of the 2006 peak and therefore significantly higher than during previous years. As a result, the guarded behavior of the first half of the decade has not continued, proving the industry has greater trust again in Germany as an industrial location.
Price Trends
Up until 2003, prices for pharmaceuticals barely changed. Over the past five years, they have significantly decreased. Today, pharmaceuticals are about 10 percent cheaper than they were in 1995. In contrast, prices for all consumer goods and services have increased by almost 20 percent from 1995 to 2008.
Price Changes: A Comparison
The prices of pharmaceuticals provided to patients insured through statutory health insurance decreased by 5.5 percent over the past three years. In contrast, retail prices increased by 5.5 percent and prices for private consumption were up a total of 6.6 percent. The income of SHI members that is subject to contributions increased by 3.4 percent.
Pharmaceutical Prices: A European Comparison
Pharmaceuticals in Germany are not more expensive than in many other industrialized nations as confirmed by the latest research institute study commissioned by the Norwegian ministry of health. The survey examined the drug prices of 200 of the most frequently sold molecular entities in 10 European countries. The results show Germany in the midrange of the compared countries, on a par with Denmark, Sweden and Austria. Since the period of investigation (first half of 2007), pharmaceutical prices in Germany have again decreased by more than two percent.
Price Structure in Europe
With a manufacturer’s share of 57 percent of the retail price, Germany is located in the bottom segment of the European ranking. Pharmaceuticals are subject to the full value-added tax rate in Germany. Together with legally mandated manufacturer and pharmacy discounts, the tax rate in Germany amounts to 24 percent of the retail price, making it the highest in Europe. In most other European countries, the tax burden for pharmaceuticals is either reduced or waived completely.
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