Originally Published EMDM
May/June 2004
A NOTE FROM THE EDITOR
It’s Too Quiet on the Western Front
The enlargement of the European Union on 1 May does not seem to be generating much enthusiasm among the current EU member states. I find this somewhat perplexing. As the number of member states balloons to 25, the European Union will become the single largest economic area in the world. Its economic, diplomatic, and political influence will increase accordingly on the world stage.
To be sure, enlargement has raised a number of unanswered questions. Most important, perhaps, is a lingering uncertainty about how the 10 acceding countries will affect the economies of what can now be called the original 15. The potential impact on the life sciences industry is the object of a report released in March. EU Enlargement—Driving Change in the European Life Sciences Industry, published by Cap Gemini Ernst & Young (Utrecht, Netherlands), contains some heartening findings. One of its bolder assertions is that enlargement may reduce the “innovation gap” between Europe and the United States.
Europe’s life sciences industry has experienced a brain drain during the past few years, contend the authors. This is most apparent in the pharmaceuticals sector. Historically, most new drugs have been developed and manufactured in Europe. Between 1990 and 2002, however, R&D investment in the United States rose more than fivefold. It grew by only half that amount in Europe. As a result, many talented professionals have followed the money to the United States. Favourable business conditions in some of the acceding countries may help to staunch this flow, posits the report.
Lower clinical development costs, greater productivity, and less-burdensome national regulations among the new member states could attract investment, according to the report. A larger patient pool for clinical trials and more-cost-effective facilities also will shore up Europe’s life sciences industries. In some cases, the “Celtic-tiger” principle may come into play, as the presence of a well-educated workforce combined with low labour costs attracts firms to some of the new member states. For the med-tech industry, Hungary and the Czech Republic are the standouts among the acceding countries. In fact, Hungary ranked in the middle category, with Germany and Spain, as a desirable location for a med-tech facility.
Med-tech executives are not wont to make snap decisions, and a movement of manufacturing plants to the new member states will take time to gather steam. As the report correctly notes, getting the necessary certifications and regulatory approvals for a greenfield facility can be onerous. It is often easier and less costly simply to expand a current plant. Nevertheless, Poland has become the fourth-most-successful location in Europe in attracting life sciences manufacturing investments. Its market share grew from 6% in 2001 to 8.7% in 2002. Clearly, some executives see long-term advantages in setting up a facility in eastern Europe despite the initial hurdles.
The acceding countries also represent a potentially lucrative market for medical device OEMs. Healthcare spending among most of the new member states is well below the EU average, notes the report. Only the Czech Republic, Hungary, and Slovenia have healthcare budgets approaching those in the western EU countries. Although there are considerable regulatory issues that still need to be addressed (see “Growing Pains: EU Enlargement Poses Regulatory Challenges for Device Companies” in the January/February 2004 issue at www.devicelink.com/emdm), the report stresses that the new member states are committed to healthcare reform. Poland is the most advanced in this regard. Greater regulatory transparency combined with a gradual rise in healthcare spending will create increasingly important markets for the life sciences industry.
It would be disingenuous to suggest that the accession of central and eastern European countries into the European Union will not create some turbulence. Some sectors will thrive, others will adjust to the new lay of the land, and some will struggle. For the life sciences industry, though, the eastward expansion holds great promise. And in my world, that’s worth getting excited about.
A quick word about the report that led me to write this piece. Studies of the so-called life sciences industry tend to heavily favour the pharmaceuticals sector, and this report is no exception. But to the authors’ credit, they recognize the singular nature of the med-tech sector and have made an effort to provide meaningful analysis specifically for that market.
More information about the report can be obtained at the company’s Web site, www.cgey.com.
Norbert Sparrow
Copyright ©2003 European Medical Device Manufacturer
