The Pharmaceutical Industry and the Economy
In 2009 as well, research-based pharmaceutical companies have proven to be a stable anchor of the German economy. A slight decline of 2.8 percent in production had little impact on employment levels. In the area of research and development, the number of employees has in fact again increased, and its gross added value proves that the industry is one of the most productive in the German economy. The companies have also maintained the previous year’s investment levels despite the crisis and continue to be reliable customers of the domestic capital goods industry. Their export ratio also increased, with 61.4 percent of total sales now earned from exports. In comparison with other industries, pharmaceutical companies are leaders in the areas of product and process innovations.The Innovative Fields of the Pharmaceutical Industry
89 percent of companies in the chemical and pharmaceutical industry, i.e. nine out of ten, were innovative in 2008, achieving innovations in products or processes; and most (83 percent) did so successfully. In 6 percent of companies the innovation is not (yet) complete. As in previous years, the chemical and pharmaceutical industry achieved the highest innovation rate of all German industries.
Production of Pharmaceutical Products in Germany
Pharmaceutical products worth EUR 26.4 billion were produced in Germany in 2009, a decline of 2.8 percent compared with the previous year. The global financial and economic crisis has therefore also left its mark on the German pharmaceutical industry, although other industries have suffered much heavier impact. Overall industrial production declined by 16 percent. The business activities of pharmaceutical manufacturers are normally influenced much less by the economic situation than by government intervention to regulate the health care sector. This is forecast to again be the case in 2010.
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 overall pharmaceutical production from Europe, Japan and the USA, worth EUR 358 billion in 2008, came from Germany. In 1990 this share was nine percent. Compared with Japan and the USA, countries of the Euro zone have benefited in the past five years from the strength of their currency. Medium-sized European countries such as Ireland, Austria, Belgium and Switzerland (as a non-Euro country) have especially expanded their pharmaceutical production.
Economic Stability
The supply of pharmaceuticals is a basic human need and is 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 recent years, especially 1993 to 1995, 1996 to 1998, 1999 to 2001 and the 2006/07 boom barely impacted the harmaceutical
industry. The current financial and economic crisis has also not hit the pharmaceutical industry very hard.
Export Ratio of the Pharmaceutical Companies in Germany
Due to various types of regulations, the domestic pharmaceutical market has lost its significance for German pharmaceutical manufacturers in the long term. In contrast, international sales have become more and more important. The export ratio has increased from around 30 percent in 1995 to over 60 percent. In a ranking of production locations, Germany still ranks fourth after the USA, Japan and France.
Employees of the vfa Member Companies
Employee numbers in vfa member companies stabilized again in 2009 after a noticeable decline in 2008.
In contrast, the number of employees engaged in research and development again increased slightly. This shows Germany’s excellent potential as a research location. Research-based pharmaceutical companies rely in particular on the qualified workers they find in Germany.
Capital Spending
With capital spending at a 4.4 percent share 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. In particular, industry sectors that provide great added value and employment volume, such as research and development services, are pulled along by the pharmaceutical industry. Each job in one of our companies creates another job in another industry.
Capital Spending of the vfa Member Companies
Research-based pharmaceutical companies in the vfa have proven to be a stabilizing factor during the economic crisis. Investments in long-term tangible assets declined only slightly compared with the previous year (from EUR 1.35 to 1.32 billion) while investments in R&D facilities actually increased slightly. The share of investments as a proportion of sales is above the industry average (most current comparative figures for 2008: 3.7 percent compared with 3.4 percent). In the current crisis, research-based pharmaceutical companies have been shown to be reliable customers of the domestic capital goods industry. As a study by the German Institute for Economic Research in Berlin (DIW) has shown, pharmaceutical production creates additional as well as almost quivalently high added value in related industries and service sectors.
Price Trends
Until 2003 prices for pharmaceuticals had barely changed, yet they have significantly decreased over the past seven years. Pharmaceuticals are now 10 percent cheaper than they were in 2000. In contrast, consumer goods and services prices overall have increased by over 15 percent since 2000.
Price Changes: A Comparison
The prices of pharmaceuticals provided to patients insured through statutory health insurance decreased by 2.7 percent over the past three years. In contrast, retail prices increased by 4.6 percent, and prices for private consumption were up 5.3 percent. The income of SHI members that is subject to contributions increased by 3.6 percent.
Pharmaceutical Prices: A European Comparison
Pharmaceuticals are no more expensive in Germany than in many other industrialized nations, as was confirmed by a
recent study by a Norwegian research institute. The study examined the drug prices of around 200 of the most frequently sold molecular entities in 10 European countries. The results place Germany in the midrange of the countries compared, on par with the United Kingdom, Denmark and Austria.
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 on pharmaceuticals is reduced or waived entirely.
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