Swiss Pharma Strength

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.

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).

Nathan Jessop

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.

Regulatory and pricing systems

Regulation

Switzerland's regulatory agency is called Swissmedic and is based in Bern. Although Swissmedic is linked to Switzerland's Federal Department of Home Affairs, it is independent and has its own budget and, as with many other regulatory agencies, it is funded from the fees it charges for regulatory applications and payments from the government for public services.

The agency cooperates closely with foreign agencies, including the EMA. Indeed, the EMA has had a mutual recognition agreement in place with Switzerland since 2002 (12). In principle, the agreement is to avoid duplication of procedures when Swiss and EMA requirements are deemed equivalent, but the nature of acceptable processes is frequently updated. In 2010, the EMA and Swissmedic updated their agreement regarding GMP inspection and batch certification to account for advanced therapy medicinal products, such as those in the field of transplants. This update was made because new regulations on advanced therapy medicinal products had separately come into force in the EU and Switzerland since 2007, but had not been considered in the context of the original mutual recognition agreement (12). The 2010 discussions between the agencies were designed to close any loopholes and avoid potential, regulatory misunderstandings regarding these types of products. The original agreements state the equivalence of the two GMP systems, so that a manufacturer in the EU or in Switzerland can release a batch of medicinal product for sale or supply into the market of either party. Although the agreement does relax some of the requirements for operating in the other market, manufacturers must still have an effective batch-recall system to ensure that products can be recalled at any time when so required (12).

Another example of the two agencies cooperating on an area of mutual interest was during the 2009 H1N1 influenza pandemic. This collaboration was renewed in February 2011, with the two agencies agreeing to share confidential information about the authorisation and safety of medicines used in the context of H1N1 pandemic influenza.

Pricing

Swissmedic's work covers registration and approvals, but it is the Swiss federal government that decides on the maximal allowable public price for drugs in the country. This price is calculated from the ex-factory manufacturer price, distribution costs and a valueadded tax rate of 2.5% (2). The Federal Office of Public Health (FOPH) is the final decision-making body for pricing and reimbursement of approved drugs. The FOPH bases its decisions on product cost-effectiveness and also benchmarks prices with those in Germany, the UK, Denmark, the Netherlands, France and Austria. If the FOPH gives a positive reimbursement decision, then a drug is listed in a positive drug list called the Spezialitätenliste within 30 days. The pricing and reimbursement status of drugs is reviewed every three years and after patent expiry, but drugs that are considered particularly innovative can receive a discretionary additional 20% price reward (2). From 2012, generics can also be included in the Spezialitätenliste, if their ex-factory price is 10–60% lower than the Swiss reference product after patent expiry.

Summary

Being one of the EU's major trade partners, Switzerland is a huge force in the European pharmaceutical market. In 2010, 41.5% of EU pharmaceutical imports came from Switzerland (3), which means that the performance of the Swiss pharmaceutical industry has a strong bearing on what happens to the pharmaceutical sector in the rest of Europe.

References

1. Swissinfo, "Cheaper Prices Slow Down Pharma Market Growth" (Switzerland), www.swissinfo.ch, accessed 8 June 2011.

2. International Society for Pharmacoeconomics and Outcomes Research (ISPOR), "Switzerland–Pharmaceutical" (NJ, USA), www.ispor.org, accessed 8 June 2011.

3. EFPIA, "The Pharmaceutical Industry in Figures" (Belgium), www.efpia.org, accessed 8 June 2011.

4. SGCI Chemie Pharma Schweiz, "Die schweizerische chemisch-pharmazeutische Industrie" (Switzerland), www.sgci.ch, accessed 8 June 2011.

5. SIA workpermit.com, "Switzerland Relaxes Immigration Laws for Most European Nations" (Location of publishing source, 2007), www.workpermit.com, accessed 8 June 2011.

6. Espicom, "The Pharmaceutical Market: Switzerland" (Chichester, UK, March 2011).

7. Novartis, "Novartis en Suisse" (Switzerland), www.novartis.ch, accessed 8 June 2011.

8. Roche, "Our Company" (Switzerland), www.roche.ch, accessed 8 June 2011

9. G. Roth, "2010 Top 20 Pharmaceutical Companies Report," Contract Pharma, online, www.contractpharma.com/contents/view/33747 (9 July 2010), accessed 8 June 2011.

10. A. Langley, "Novartis's Stake in Roche Fuels Merger Speculation," New York Times online, www.nytimes.com (23 June 2003), accessed 8 June 2011.

11. "Roche Changes Raise Novartis Takeover Question," Inpharm online, www.inpharm.com (29 March 2011) accessed 8 June 2011.

12. EMA, "Switzerland. European Medicines Agency" (UK), accessed 8 June 2011).