07 Oct German Life Science Oktoberfest Comes to the Midwest
CHICAGO – Germany has often been regarded as the economic motor of the European community particularly with its central geographic location. It’s just south of Scandinavia, to the east of the U.K. and France, just north of Switzerland, Austria and Italy and west of the east European countries of Poland, the Czech Republic and Hungary.
With about 83 million people, it has not only one of Europe’s largest populations but – considering its size, which is slightly smaller than the state of Montana – one of the most dense population centers.
Germany has one of the highest GDP’s in Europe with a level of $22,700 per capita. The Germans traditionally have been among the world’s largest and most technologically advanced producers of iron, steel, coal, chemicals and let us not forget cars. (Yes, I’ll admit I drive a BMW.)
Although not necessarily thought of as an agricultural powerhouse, 33 percent of the land (137,847 square miles) is arable and about 2.7 percent of the labor force is dedicated to agriculture including such crops as wheat, barley, potatoes, cattle, pigs and poultry. For those who celebrate Oktoberfest in Chicago, the Germans celebrated it in a big way in places like Munich just a few short weeks ago.
Germany has also traditionally been a pharmaceutical powerhouse. Of the $90.6 billion in pharmaceutical sales in the European community in 2002, Germany alone represents about 29 percent of this amount with about $26 billion. This level makes Germany the third-largest country market for pharmaceuticals in the world after the U.S. (about $183 billion) and Japan ($47 billion).
While German pharmaceutical companies are usually part of large chemical conglomerates, they have fared poorly in recent years. Historically, they have been among the world’s leading companies and still are despite difficult times.
Of the top 50 pharmaceutical companies around the world, Germany has seven with total pharmaceutical sales of almost $42 billion and more than 10 percent of the world pharmaceutical sales. Please note that many of these companies are part of companies with sales in other areas and total sales are even higher.
In the early days of pharmaceutical companies, many of these firms were part of larger chemical companies. This phenomenon was evident not just in Germany but also the U.K.
The Zeneca of AstraZeneca came from ICI (the former Imperial Chemical Industries), which was a U.K. chemical company. This trend was also seen in Japan (Takeda) and of course the U.S. with Dow Chemical (Marion Merrell Dow, which is now Aventis), Dupont (Dupont Pharmaceuticals, which is now part of Bristol-Myers Squibb) and Monsanto (Searle, which is now part of Pfizer).
While the American and U.K. chemical companies have peeled off their pharmaceutical businesses, the German chemical companies have been much slower to do so. Bayer in particular has therefore lost ground.
Hoechst saw the American trend and also saw that its pharmaceutical business alone didn’t have sufficient critical mass and had already started an M&A process to build such mass (first with Roussel in France followed by Marion-Merrell Dow and finally in more recent years with Rhone-Poulenc Rorer to become Aventis).
Some of the other German pharmaceutical companies, though, resisted such M&A activity at least on a grand scale due to strong family ownership. These included such companies as Altana Pharma (the same family that owns this company, the Quandt family, owns most of BMW) and Boehringer Ingelheim.
Another trend was the advent of World War II, which hastened the split of two companies with strong American ties: Merck KGaA and U.S. counterpart Merck, Inc. and Schering AG and Schering-Plough. Even Bayer had to give up substantial assets in the U.S. including its right to its Bayer Aspirin trademark, which it finally recovered about 10 years ago.
Some of the above companies have made important acquisitions in the Midwest during recent years.
Bayer bought Miles Laboratories (Alka-Seltzer) in Indianapolis and set up an important operation there (it has since moved its U.S. headquarters to Pittsburgh) and Boehringer Ingelheim has substantial Midwest assets from its purchase of Roxane Laboratories (a generic company in Columbus, Ohio) and Ben Venue Laboratories (Bedford, Ohio). It also has its veterinary division (Vetmedica) in St. Joseph, Mo.
Additionally, Schwarz Pharma has made recent acquisitions in Milwaukee (Kremers-Urban) and Indianapolis and has its U.S. headquarters in Milwaukee.
Many of the German companies have kept their agricultural pesticide/insectide businesses, which are transforming into ag biotech companies. These include Bayer, Aventis and Schering AG. In fact, Aventis and Schering pooled their ag companies in a joint venture called AgrEvo, which has substantial Midwest operations.
American Pharma in Germany
Although you may think this is a one-way trade transaction, the size of the German (and European) pharma market is so appealing that our Illinois-based pharma and life science industry has made sizeable acquisitions there in the last 24 months.
Abbott Labs acquired the pharmaceutical business from Knoll of German chemicals giant BASF in March 2001 for several billion dollars (Abbott’s largest acquisition to date). This acquisition brought to Abbott a new drug pipeline including the blockbuster drug Humira, which launched earlier this year to treat rheumatoid arthritis and is expected to reach $1 billion or more in annual sales in the next few years.
This acquisition also delivered to Abbott an enhanced market presence in Germany and Europe.
Likewise, Baxter made an important acquisition of German chemical giant Degussa’s Asta Medica pharma business when it bought the worldwide oncology business of this company for $470 million in 2001. This acquisition not only enhanced Baxter’s growing interests in oncology but also enhanced its overall German and European presence.
Finally, Dade-Behring, our local clinical diagnostics juggernaut, is a result of a merger of two diagnostics companies: American Dade and the German Behring.
The German Biotech Scene
Germany was a relative latecomer to biotech in Europe. The British, the Scandinavians and the French were much quicker to establish biotech beachheads in their countries in the 1980s.
During the 1990s, the German government realized the importance of this industry and created during the latter half of this decade formidable and attractive incentives for foreign biotech companies to come to Germany to establish local joint ventures and R&D centers as an entry point into Europe.
As a direct result of this strategy, Germany has become the No. 1 market in Europe for biotechnology and leads the rest of Europe in terms of number of biotech companies. In fact, Germany ranks third in the world in terms of number of biotech companies after the U.S. and Canada and has about 400 biotech companies or 21 percent of Europe’s total of 1,878 biotech companies.
BIO, the U.S. biotechnology industry trade organization, has recognized this growth and will hold its annual European conference in Germany (rotating the conference to different German centers of biotechnology). One area of high biotech growth is the German state of North Rhine-Westphalia, which has more than 130 biotech companies and around 180 biotech service providers.
This region is called the “BioRiver” and encompasses the cities of Cologne, Düsseldorf, Bonn, Leverkusen as well as the most dense network of academic research organizations including 53 universities, 11 Max Planck institutes, three national research centers and 13 Fraunhofer institutes.
Another major biotech cluster is Berlin-Brandenburg, which has about 155 biotech companies and includes seven bio parks.
German Health-Care Crisis
One of the issues driving the German growth in biotech research is the aging of the German population and the resultant impact on German health-care expenses. We have the same phenomena in both the U.S., Japan and many northern European countries.
According to an article in Pharmaceutical Executive in September 2003, health care now costs Germans 14.4 percent of their gross wages. Only the U.S. and Switzerland pay a higher level. Eighty-eight percent of Germans are required to belong to the 350 sickness funds (health insurance) to which both they and their employers contribute.
The government, of course, covers all police and military-related employees and there is also private insurance. Only 0.1 percent of the population is uninsured. Compare this with the latest U.S. figures, which show almost 15 percent of the U.S. population with health insurance.
The German government is looking to save its health system about $11.5 billion next year and $23.8 billion by 2007 out of a total health annual bill of $160 billion, according to Pharmaceutical Executive. These cuts will happen as the German government shifts higher co-pays for medical services and drugs to the general population.
Also planned is a controversial reference pricing system for pharmaceuticals, which began with generics in 1989. The impact of this will limit the amount the government reimburses to patients for their medicine.
German Life Science Ocktoberfest in Chicago
Recognizing the importance of the German pharmaceutical market and its growing biotech scene, the Illinois Biotechnology Industry Organization (IBIO) is organizing in conjunction with Invest in Germany an event called “Breakfast with German Life Science” on Oct. 30, 2003 at the University of Chicago’s Gleacher Center.
Participating in this event will be representatives from:
1) Schering AG, one of the largest German pharmaceutical companies.
2) LION Bioscience, the U.S. subsidiary of a top German biotech company.
3) TVM Techno Venture Management, the top German life science VC group and one of the largest life science VCs in Europe.
4) Other experts on the German biotech and health-care systems including a partner from Mayer Brown Rowe and Maw’s Frankfurt office and the U.S. Embassy in Germany.
The event should provide the Illinois and Midwest biotech community with interesting insights into the German pharmaceutical market as well as opportunities for partnering in Germany and Europe. See you next week!
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Michael S. Rosen is the vice chairman of human health at the Illinois Biotechnology Industry Organization (IBIO). He can be reached at rosenmichaels@aol.com. This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at www.eprairie.com.
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