Why Europe Lags in Pharmaceuticals and Biotech

Governmental, cultural and academic differences are hurting Europe’s chances of gaining on the U.S. Can anything be done?
by Sean Silverthorne

Governmental, academic, and cultural differences are hurting Europe's chances of creating more competitive pharmaceutical and biotech industries—and not much hope is on the horizon, according to a panel of experts at the 2003 HBS European Business Conference.

Although some European countries are the preferred testing ground for Phase 1 clinical trials of new drugs, the benefits of massive R&D spending and economic throw-offs are being enjoyed elsewhere, primarily in the United States and in an increasingly competitive Asia.

"In Europe, it's mostly bad news for biotech and pharma," said HBS professor Regina Herzlinger, moderating a panel discussion titled "Pharma and Biotech—Where does Europe Stand in the World?" The discussion was held at the conference on November 22.

At the start of the 1990s, the U.S. and European drug makers each controlled about a third of the worldwide drug market. But today, the U.S. share has climbed to about 50 percent while the European slice has dwindled to 21 percent. What's more, many drug makers in Europe have moved their R&D facilities to the U.S., where they make most of their income. (Americans account for about half of worldwide pharmaceuticals spending, according to Food and Drug Administration Commissioner Mark McClellan.)

One problem, several panelists noted, is that European healthcare systems do not reimburse the high prices charged for new drugs, as do U.S. healthcare providers. The result: patients either do not have access to the drugs or drug makers do not receive a fair reimbursement, panelists said.

Lessons Of A Lemon-aid Stand

But differences are as much cultural as regulatory. Cultural differences favor entrepreneurship and risk-taking in the U.S. more than Europe, said Anne MacDowell (HBS MBA '86). She is global marketing director at Baxter Healthcare. She recalled that while living in the United Kingdom, her children started a lemonade stand but few potential customers even gave it a second glance. In the U.S., she said, you would be able to count on almost every parent driving by to stop for a drink, eager to reward business initiative.

What's missing in Europe are the incentives and the network.
— Enrico Bastianelli,
ProSkelia Pharmaceuticals

Expanding on that theme, Ted Llana, vice president of Global Commercial Strategy for Biogen Idec, recalled working with a British team on a new product. While the Americans concentrated on ways to get the product out the door, his British colleagues "always wanted to do the extra study."

Ironically, there are more biotech companies in Europe than the U.S., but they remain small and their performance lags, said Enrico Bastianelli, vice president of corporate development at ProSkelia Pharmaceuticals in France. Once companies are created, there is little incentive to improve, he said, and labor laws make it difficult to remove unproductive employees.

"What's missing in Europe are the incentives and the network," Bastianelli said.

Also missing are the partnerships between academic and business communities that are common in the States, added Thomas G. Wellner, executive director of marketing at Eli Lilly and Company's European Operations.

The drug approval process is "incredibly inefficient" and requires drug makers to build huge infrastructures to deal with it, said François Maisonrouge, managing director of Credit Suisse First Boston.

Solutions For The Asking

Herzlinger asked her panelists what could be done to rectify these problems.

Bastianelli said that in Europe, star scientists stay put in academia. Universities must find a way to "push" these talented people into biotech companies, he said.

As a marketer, I want an informed patient.
— Thomas G. Wellner,
Eli Lilly and Company

Wellner suggested European companies should look to India, China, and other countries for intellectual capital. And intellectual property laws need to be rewritten to allow companies a longer time to reap the benefits of their inventions.

Does Europe have a future as a location for clinical trials? Herzlinger queried. Panelists said that for the most part the answer depends on the type of trial being conducted and the location. For example, doing cross-border clinical trials in Western Europe can be a nightmare of paperwork, Llana said. But trials can be much easier in Eastern Europe.

As to career opportunities, Wellner said marketers might do well to look for jobs in Europe. Some studies suggest that the European consumer's thirst for medical knowledge is greater than even what is seen in the U.S. "As a marketer, I want an informed patient," he said.

Maisonrouge urged students to look for opportunities with established firms, not start-ups. You will learn what competencies are required in your chosen field (start-ups often struggle obtaining this knowledge), and you can do well early in your career, he said.

"Healthcare is a fantastic opportunity," MacDowell said. Not only are the demographics in your favor—the population is aging—but also a career in healthcare allows you to do something that means a great deal to the consumer.

In a September speech, FDA Commissioner Mark McClellan said that low drug prices charged elsewhere in the world results in U.S. consumers paying more. He urged countries to adopt "ability-to-pay" pricing models to spread the burden.