France seeks advice on encouraging R&D

At the heart of the move is wider European anxieties about the shift in pharmaceutical research to the US. Between and 2002, R&D investment in US rose more than fivefold, while in Europe it only grew 2.5 times, according to the European Federation of Pharmaceutical Industry Associations, which notes that US spending on R&D in 2002 reached €27.9 billion, compared to just under €20 billion in Europe.

And with 62 per cent of sales for drugs launched since 1997 made in the US, versus just 21 per cent in Europe, it is unsurprising that the research is going in the same direction as the market.

UK-based contract research company Chiltern International is among the organisations that has been approached by France's Economic Ministry in its bid to reinvigorate R&D in the country, which has seen its contribution of new drug launches fall from around 50 in 1985-89 to just 12 in 1990-94. In the same periods, the US launched 80-90 new drugs while UK companies jumped from 11 to 24.

Chiltern's Faiz Kermani told In-PharmaTechnologist.com​ that there are a number of reasons behind Europe's decline, hinging mainly on the fact that it lacks a climate that encourages and rewards innovation. One factor is the effort expended by Europe's national governments to constrain spending on pharmaceuticals, which he believes is denting companies among multinational pharmaceutical companies to invest in the region.

For example, he noted, Switzerland's Novartis recently opted to set up its Institute for Biomedical Research in the US, rather than a European location. At the time, the company's chief executive Daniel Vasella said the decision was based on the entrepreneurial nature of the US and a better pricing and product approval environment (with one regulatory body rather than the multiple agencies in Europe).

In the last year, France has already started taking steps to help encourage innovation, including reforming the R&D tax credit scheme and creating a new fiscal status for emerging innovative companies. But it is also looking to learn from the experience of other European countries, notably the UK which "has been particularly proactive in improving the environment for biopharmaceutical R&D,"​ said Dr Kermani.

For example, the UK is the only country in Europe to have set up Commissions to analyse the standing of both the pharmaceutical and biotechnology sectors and work out how to support them. For instance, the industry and government-sponsored Pharmaceutical Industry Competitive Taskforce (PICTF), set up in 2000, has identified a series of performance indicators that can be used as guidance to improve competitiveness.

The UK also has a different pricing system to those found in the rest of Europe, and this has helped attract companies to the country. The Pharmaceutical Price Regulation Scheme covers all licensed branded prescription medicines and requires that companies can make no more than 17 to 21 per cent return on drugs sold to the National Health Service.

While this limits profitability, it does not affect the ability of companies to bring products to market - as can occur with the lengthy pricing negotiations pursued by other European governments - and so is generally considered more industry-friendly.

Look east​

So what could Dr Kermani and his colleagues give as advice? Aside from looking closely at the UK's actions, he said that one strategy will be to pay closer attention to the chances of inward investment in Europe from areas other than the US.

In particular, the Japanese pharmaceutical industry, which is in the process of expanding internationally to reduce its reliance on the domestic market, is a prime candidate. According to the Japanese Pharmaceutical Manufacturers Association, in 1990 there were 18 companies in the UK, France and Germany. By 2000 this had swelled to 46 companies across Europe.

And lessons can be learned by avoiding the experience of Germany, which stands in stark contrast to the UK in terms of biopharmaceutical R&D investment.

Reforms​ intended to reduce the country's drugs bill have already led to half the membership of the German association of research-based pharmaceutical companies (VFA) to reduce planned R&D spending in the country this year. Meanwhile, Pfizer has initiated a hiring freeze and started shifting some jobs to the UK, according to Dr Kermani.

Meanwhile, the French government's move comes at an interesting time, with France's standing as a major European player in the drug industry at risk from the re-emergence of merger and acquisition (M&A) activity in the sector.

Consider this. If Aventis (ranked number 6 according to 2002 revenues) successfully fends off the hostile takeover bid from Sanofi-Synthelabo (16) and weds with Switzerland's Novartis (8), Sanofi may find it difficult to avoid becoming a target itself. And that could leave France without a pharmaceutical company in the top 20 world rankings and reduce it to a bit player on the global stage.