Health Destination

Germany boasts the largest healthcare

product market in Europe & leads globally in pharma and R&D industries

Germany is the second largest unit of the European territory and a third ranking in a survey done recently for average age expectancy, which is 78 years. The country also stands third in the list of practising physicians and low mortality rate. Spending approximately 12 per cent of its GDP on health care, which is better than any other part of Europe, about 87 per cent of the total population is covered under insurance.

Low wage earners get a part of the expense reimbursed by the government.
In addition, Germany boosts Europe’s second largest population (after Russia) and the strongest economy ranking fifth in the world in Purchasing Power Parity (PPP) terms. Since unification in 1990, Germany has spent considerably to harmonize productivity and wages across the country and prosperity has increased on the back of German exports, particularly of machinery, vehicles, metals, chemicals and other goods needed in emerging markets. Despite massive funds being poured into its economy, the former German Democratic Republic still lags behind, with people in the West resentful for paying more than they initially expected.

Advanced healthcare system

The healthcare in Germany is divided into two sectors, the gesetzliche Krankenversicherung (public health insurance) and the private Krankenversicherung (private medical care). The German market for healthcare products is the largest in Europe and the third largest in the world. From 1996 to 2007, health expenditures rose from € 195 billion to € 252.8 billion. The share of the healthcare expenses of the German Gross Domestic Product (GDP) is at a rate of 10.4 percent. The Statutory Health Insurances (SHIs) bear more than half of the healthcare expenditure (€ 252.8 billion).

Germany’s healthcare industry employs 4.9 million people including doctors, engineers, chemists, physicists, mathematicians, and pharmacists. The medical devices sector employs around 170,000 of these in more than 11,000 companies.

It is predicted that Germany will continue the trend towards an ever-ageing population. By 2050, half the German population will be older than 48 years and one third will be 60 years or older.

The German government’s declared goal for health policy is to keep standards of quality high while keeping the healthcare system affordable. The government’s ‘High-Tech Strategy’ supports innovation in the sectors of biotechnology, pharmaceuticals, and medical devices.

According to the Euro Health Consumer Index, which placed it in 7th position in its 2015 survey, Germany has long had the most restriction-free and consumer-oriented healthcare system in Europe. Patients are allowed to seek almost any type of care they wish whenever they want it.

Pharmaceutical market

With a tradition of invention in the medical field that brought Aspirin, Germany has been an attractive pharmaceutical market for years. It is the world’s third largest pharma market behind the US and Japan, with sales worth an estimated €30.7billion in 2010.

Approximately 62 per cent of pharmaceuticals produced in Germany are exported, therefore this is a crucial area for the industry and vulnerable to what happens to the European currency.

According to the German Federal Statistical Office, healthcare expenditure totalled €278.3 billion in 2009, increasing 5.2 per cent compared to 2008. It corresponded to 11.6 per cent of GDP (10.7pc a year earlier). The public healthcare bill has increased significantly since reunification and the hospital sector is the most costly. Administrative fees represent a third of the bill, according to the BMG and around 15 per cent is spent on pharmaceuticals.

Most generics-friendly country

Germany’s strong and growing generics market is the largest in Europe. In the public system it accounts for 30 per cent in value and 60-70 per cent in volume. Since 2004, incentives have been given to pharmacies to offer generics and substitution is usually compulsory.

The R&D industry association claims Germany is the ‘the most generics-friendly country in the world’ and that their actual share is 80 per cent. ‘Original products often lose almost their entire market share to generic drugs within a few months after a patent expires. An average of over 86.5 per cent of prescriptions and around 78.4 per cent of sales in the generics-eligible market were generated by imitation products in 2010,’ argues the VFA report ‘Statistics 2011, the pharmaceutical industry in Germany’. A subsidiary of Novartis and big player in Germany, Sandoz is second in the world after Teva, now top supplier of generics to the largest health insurer.

Biotech clusters

There are biotech clusters in Munich, Heidelberg and Cologne, and companies in this sector have had government support, although government regulations, for example on the use of stem cells, remain restrictive. The German Stem Cell Act was amended in 2008 to allow the import of cell lines harvested before May 1, 2007, although there is a general ban on creating and working on human embryonic cell lines.

Germany ranks lower than other European countries on innovation, despite its pioneering successes in the 1970s and heavy investment by companies, particularly big pharma. To increase competitiveness, the German federal government created BioREgio in the mid-1990s, a contest with financial rewards for the strongest biotech regions.

After a short boom and bust period, the government launched the ‘Pharmaceuticals Initiative for Germany’ in 2008 to stimulate the sector through partnerships, focusing on clinical trials, allocating R&D grants, interest-reduced loans and special partnership programmes. Each state also has its own R&D grant programs for small and medium sized companies.
Today, biopharmaceutical sales account for 16 per cent of the German pharmaceutical market and are expected to grow up to 20 per cent by 2020. Despite the excellence of German scientific research and business practices, the industry suffers from lack of investment due to risk aversion and a negative image.

Around 80 per cent of biopharma sales fall into applications in metabolism (especially insulins for treating diabetes), immune-mediated diseases, cancer and disorders of the nervous system.

Attractive R&D industry

However, the general business environment, plus the traditional innovative and adaptable nature of the R&D industry are still attractive propositions in a mature and solid market. The ageing population will need new and more effective therapies, particularly in oncology, heart disease and Alzheimer’s.
But a shrinking labour force will mean fewer contributions to sickness funds. This model worked well once but is becoming stretched and outdated.

Out-of-pocket contributions are likely to increase, as treatments become more personalised and the private sector may take more patients who can afford total freedom and access to the latest therapies.

Generics represent a strong segment, useful as a cost containment tool and well established with doctors and patients receptive to the message that they bring savings, although price controls are also stringent. Biosimilars are also growing and have been favoured by the same cost cutting policies that have boosted generics, now with legal backing from the EU, according to PM Live website.

Up to 2010, Germany ranked as the fifth best place for pharma after the US, Australia, Canada and Japan, according to Business Monitor (Business Environment Rating) but it is losing ground. The biotech segment can be a success if more venture capital is found, as the German government is supporting innovation through generous grants, even if price restrictions and stricter regulations will affect all new products being launched.