sitecontent

The German Healthcare Modernisation Act (GMG) will redefine the market environment in the German healthcare sector and entail serious consequences for pharmaceutical companies. This is the result of a study presented today by the IHCI institute of Healthcare Industries.

The major market changes for Germany’s pharmaceutical industry will result from the fact that the costs of OTC drugs will no longer be refunded by the statutory health insurance funds from 2004 and a compulsory discount of 16% will be imposed on drugs for which no fixed amounts have been defined.

This situation will force pharmaceutical companies to cut their costs and reposition themselves strategically. Many medium-sized pharmaceutical companies in Germany will not be able to survive in the short or medium term. The corporate landscape in the healthcare sector will change as a result of full and partial company sales, mergers as well as insolvencies. In the absence of suitable counter-measures the international competitiveness of the German pharmaceutical sector will continue to suffer. Germany, the former pharmacy to the world, has already become a net importer of drugs - one of the key technologies of the 21st century.

WestLB AG’s Life Science Group, the IHCI Institute of Healthcare Industries, Steinbeis University Berlin, and the Federal Association of the Pharmaceutical Industry (BPI) have conducted a market study on the expected consequences of the healthcare structure reform and today’s and tomorrow’s strategic positioning of medium-sized pharmaceutical companies in Germany.

According to Prof. Dr. Michael Brucksch, Director of the IHCI and academic director of the study, response to the study was good. A total of approx. 300 pharmaceutical companies were surveyed, of which almost 100 (most of them medium-sized enterprises) agreed to respond in detail and make relevant data and information available.

58% of these companies generate sales of up to EUR 25 million (31% EUR 25-100 million; 12% over EUR 100 million). Some 65% of the companies surveyed are proprietor-managed. 55% of the companies have up to 250 employees, while 12% have more than 500 employees.

The German Healthcare Modernisation Act (GMG), which is backed by political consensus, is considered to be negative (44%) or very negative (53%). The main points of criticism include the poor legislative workmanship, the apparent absence of a proper macroeconomic view and the lack of genuine structural changes in the medical care sector. Between 60% and 75% of the pharmaceutical companies regard the GMG initiatives aimed at the pharmaceutical sector as negative.

Accordingly, 65% of the companies expect their sales to decline by up to 25%, while 12% expect sales to drop by far more than 25%. 89% of the companies project their earnings to decline by 25% and more in 2004. 70% of the companies intend to reduce their headcount in response to the GMG. 60% of them plan to lay off 25% of their staff, while 10% even intend to reduce their workforce by over 25%. Only 26% of the companies assume that they will maintain their current workforce in the medium term. Only 4% expect the market changes to enable them to create new jobs.

Some 80% of the respondents expect to see a wholesale demise of Germany’s medium-sized pharmaceutical companies. A total of 54% consider the GMG to be a direct threat to their continued existence, which means that a high number of jobs is at stake.

When asked what entrepreneurial tasks they would prioritise, 92% of the companies said they would focus on maintaining their sales levels, followed by stabilising their financial situation (88%), optimising their cost structures through rationalisation (87%) and strategic repositioning to the new legal framework (85%). Increased marketing efforts, the implementation of innovative marketing concepts and the intensification of market communication were of minor importance (60-70%). The intensification of research and development was ranked last (34%), meaning that there is a risk of companies’ primary strategic focus shifting away from R&D in the medium term.

The GMG will place an extremely heavy burden on the pharmaceutical industry. The industry participants expect a drop in capital spending as well as headcount reductions to be the main short-term consequences. In the medium term, the competitiveness of the German pharmaceutical industry will continue to suffer as R&D expenses will be cut.

Many proprietor-managed companies feel their independent status hardly offers any perspectives for the future. The study shows that the market consolidation will accelerate significantly in the coming years. Against the background of the market developments, 23% of the respondents consider a sale of their company to be an attractive option at this time. 58% of the companies consider it a possibility in the medium term. A merger with an equally strong partner is an option for 20%, but generally a possibility for over 70%. The acquisition of another company with a view to strengthening their own position is an option for 46%, with approx. 60% considering it feasible in the medium term.

With regard to the future repositioning of many companies, the most critical bottleneck factors are

• the lack of knowledge of attractive cooperation, merger or acquisition opportunities (55%);
• the debt and equity position (39% and 29%, respectively).

Compared to the previous years, companies’ financing requirements for safeguarding their assets or expanding their respective positions will increase significantly.

Prof. Dr. Michael Brucksch, Director IHCI, Manager of the IHCI study
Prof. Dr. Thomas Teyke, Associate Director IHCI
Institute of Healthcare Industries, Steinbeis University Berlin, Market and Technology Office Köln, Löhe 2, 51429 Bergisch-Gladbach
Tel. 02204 / 426960, fax 02204 / 426988, mobile 0176 / 24458951, brucksch@stw.de

The Institute of Healthcare Industries (IHCI) is an international academic facility focusing on the healthcare industries and the healthcare markets. The Institute is divided into three units, Teaching, Research and Market Development. The Teaching unit focuses on training and further education (MBA, Executive Programs) of executives and young potentials in the healthcare industry, the medical care sector and the research sector and their integration into networks. The Research unit comprises internationally established basic medical research as well as network, development and application research. The tasks of the Market Development unit include analysing and forecasting the market development in the healthcare sector, preparing studies on market-relevant topics and providing market participants with operational advice on management, organisational, process and T&D issues.

The IHCI is an institute of Steinbeis University Berlin (SHB), one of the few state-approved private universities in Germany. Established in 2001, the IHCI is a member of a global network of similar institutes. www.ihci-mba.com, info@ihci-mba.com 

Dr. Jan E. Friske, Associate Director WestLB AG, Chemical Life Science
David Pfeiffer, Managing Director WestLB AG, Chemical Life Science
Harald Wenzel, Executive Director WestLB AG, Chemical Life Science
Cordula Uebbing, Executive Director WestLB AG, Chemical Life Science
Corporate Finance Chemicals / Life Sciences WestLB AG,
Herzogstr. 15, 40217 Düsseldorf
Tel. 0211 / 826 - 01, fax 0211 / 826 - 71969

As one of the leading German banks, WestLB AG has been active in the European life sciences markets since 1996. WestLB AG offers its clients a fully integrated range of investment and commercial banking services. The Corporate Finance Life Sciences Team has a Europe-wide track record. The Bank has been particularly successful with medium-sized clients requesting innovative financing services. WestLB AG has recently adopted a new strategy, which focuses more strongly on serving medium-sized companies. This strategy will consistently be implemented with Germany’s medium-sized pharmaceutical companies.