Germany on the rise as a centre for pharmaceuticals – concerns in Switzerland

A competition between locations is looming in the European pharmaceutical industry. Germany is currently acting as a magnet for international pharmaceutical companies. This is causing concern in Switzerland, where the industry is publicly perceived.

Written by Armin Scheuermann

Pharmaceutical equipment at the POWTECH TECHNOPHARM trade fair in September 2023 — Germany is an attractive location for pharmaceutical production – thanks to its extensive research network and highly qualified specialists, among other things.

The alarm call did not go unheard in Germany either: in September, the online portal of Swiss Radio and Television SRF ran with the headline ‘Germany threatens to overtake Switzerland in the pharmaceutical industry’. The background to this was reports of major investments by international pharmaceutical companies north of the Swiss border. The German pharmaceutical industry is currently experiencing a real rush of investment. Pharmaceutical giants Eli Lilly from the USA, Roche from Switzerland and Sanofi from France have invested billions in German locations in recent years. Eli Lilly is building a state-of-the-art production facility for diabetes medication in Alzey, Rhineland-Palatinate, at a cost of 2.3 billion euros. This will create up to 1,000 new jobs.

But that's not all: other companies such as Boehringer Ingelheim and Sanofi have already announced a number of other projects in Germany. Boehringer Ingelheim is expanding its production facilities in Rhineland-Palatinate and is building a new biotechnology centre in Biberach for 350 million euros. In Pfaffenhofen, Bavaria, the Japanese pharmaceutical company Daiichi Sankyo is investing one billion euros in the construction of laboratories for antibody drug conjugates. Roche is also building a gene therapy development centre in Penzberg and investing in the expansion of its production facilities. Bayer will build a new production plant in Berlin worth 130 million euros. Biontech, a leading company in vaccine development, is investing 40 million euros in the expansion of its Marburg production facility and is conducting research in Mainz on novel cancer therapies. These projects show that The German pharmaceutical industry is becoming increasingly interesting for international investors.

Germany is the ideal location for these projects

What makes the location so attractive? Germany is the ideal location for such projects. Lilly chose Germany for good reason. The infrastructure, the political situation and the supply of skilled labour were decisive factors in the choice of location. Germany has a lot to offer, especially in the area of research and development. The German research landscape enjoys an excellent reputation worldwide and is outstandingly networked with numerous universities, institutes and companies. Germany also spends a great deal of money on research and development and leads the way in Europe in terms of patent applications in the healthcare sector.

The German labour market is an additional catalyst for state funding of major investments. Highly qualified specialists in the fields of biotechnology, pharmaceuticals and chemistry are a decisive locational advantage in the increasingly specialised high-tech factories. In addition, there is a lively exchange between pharmaceutical manufacturers and suppliers of pharmaceutical equipment. And what has hardly been noticed in the public perception: Germany still offers a stable regulatory environment for companies that, like the pharmaceutical industry, are confronted with complex approval procedures.

The company leaders also mention the central location and the infrastructure development as arguments in favour of investment. Thanks to its geographical location at the heart of Europe, distribution in the European single market is easy for German companies and the network of fine chemical pre-production, logistics and transport is perfect.

The pharmaceutical strategy is well received – and politicians are also clearly committed to the pharmaceutical industry. As part of the current national pharmaceutical strategy, investments are being specifically promoted and the conditions for clinical studies are being improved. The Medical Research Act adopted in spring 2024 makes the approval of clinical studies easier and faster. Bureaucratic hurdles are being reduced. This makes access to medical research considerably easier. In addition, the efficiency of the approval process will be increased. The German government is working more closely with industry and also using real-world data to better evaluate drugs. This will enable companies to bring new products to market faster. In addition, digital solutions in the supply of medicines and the expansion of electronic health records will be promoted to accelerate data-based research and care. And last but not least, depreciation options will also provide much-needed investment incentives.

Wake-up call for Switzerland

The latest investment announcements in its northern neighbour are a wake-up call for Switzerland. This is because the pharmaceutical industry is of central importance for Switzerland as a business location. After all, around 36% of the country's total goods exports come from the pharmaceutical industry. The pharmaceutical industry thus plays a major role in supporting Switzerland's export strength. In 2022, its direct and indirect contribution to gross value added reached around 74.5 billion Swiss francs, which corresponds to about 9.8% of Switzerland's gross domestic product (GDP). Each job in the pharmaceutical industry also secures four additional jobs in other sectors. The industry thus contributes significantly to securing a total of about 300,000 jobs.

The Swiss market is also innovation-friendly and companies appreciate the flexibility and quality of the labour market. Nevertheless, the pharmaceutical industry association Interpharma fears that Switzerland is losing ground in terms of digitalisation and bureaucratic processes. The approval of new drugs sometimes takes longer than in Germany. This is an additional burden for companies. Switzerland offers excellent conditions for pharmaceutical researchers. However, project-based research dominates here, and small research units tend to be funded. In Germany, large projects and start-ups benefit from well-developed networks.

Global competition instead of particularism!

What does the future hold? Will there be competition between locations, or can we be stronger together? Increased competition between Germany and Switzerland could bring both opportunities and challenges for the European pharmaceutical industry. While German investments and the optimised pharmaceutical strategy are attracting international pharmaceutical companies, the question arises as to how Switzerland will react. Competition for skilled workers and new ideas could lead to both countries further improving their conditions and learning from each other.

Despite all the self-criticism of national pharmaceutical associations, the latest major investments also send a strong signal to global players regarding the attractiveness of the pharmaceutical environment in Central Europe. The traditionally close cooperation between the chemical-pharmaceutical industry in Germany and Switzerland must therefore be further strengthened. Only in this way can we stand up to the strong competition from the USA and Asia. The German pharmaceutical industry association vfa has stated that the global balance of power is increasingly shifting to Germany's disadvantage. According to the vfa, Europe is increasingly losing ground in the ‘competition for investment against the USA and China’.

Author

Armin Scheuermann

Chemical engineer and freelance specialised journalist