Export growth increasingly depends on pharmaceuticals

Novartis CEO Joe Jimenez (right) says Donald Trump's plans to cut US corporate tax rates could trigger increased investment in the US by Novartis Keystone

Swiss exports hit a record CHF210 billion ($211 billion) last year and the pharmaceutical sector was one of the big drivers. However, this tremendous growth is largely down to higher prices for medicines, a trend that has been criticized by some circles.

This content was published on February 1, 2017 - 16:59

While watchmakers, the machine-tool industry and tourism officials continue to struggle, the Swiss pharma industry appears to be leading the way, seemingly unaffected by the strong Swiss franc and global economic turbulence.

Despite a slowdown last year, the 250 pharma businesses that make up the sector in Switzerland boasted record figures, exporting over CHF80 billion worth of drugs and other products – a 15% increase compared to the previous year.

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The pharma industry, which has been present in Switzerland for almost 150 years, now represents almost 40% of the total value of all Swiss exports. If combined with the chemicals industry, together they are responsible for almost one out of every two Swiss francs earned abroad.

Switzerland is therefore increasingly dependent on multinationals like Novartis, Roche and Merck Serono, their industrial activities and the jobs they provide.

Today, the sector employs over 40,000 people in Switzerland, or up to 180,000 if you also count indirect jobs, according to a survey by the BAKBasel research institute.

Growth has been spectacular. At the end of the 1990s, the sector was responsible for 2% of Swiss gross domestic product (GDP). This now stands at around 4%.

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This growth is explained by stronger demand for medicines from emerging countries, an aging population, more chronic diseases but also much higher prices for certain medicines.

Figures obtained by from the Federal Customs Administration show that between 2015 and 2016, the real increase in exports for the chemicals and pharma sectors was actually only 1.8%. The growth in exports can be explained mainly by an average price increase for drugs of 9.5%.

This rise worries some health experts.

“The increase in medicine prices is not only a problem for emerging and developing countries,” said Patrick Durisch, in charge of health issues at the Swiss non-governmental organization, Public Eye. “In Europe and in Switzerland some patients no longer benefit from certain treatments as they are too expensive. In the long run, these higher costs will endanger our social security and health insurance systems.”

Durisch is critical of the industry’s growing economic influence and regular threats to move jobs abroad, which leave the Swiss authorities’ hands tied when it tries to lower the prices of certain medicines.

“Switzerland is both a hostage and accomplice to its pharma industry. The recent attempt by the State Secretariat for Economic Affairs to stop the Colombian Health Ministry from declaring Glivec – a Novartis cancer drug – of so-called public interest [allowing health regulators to examine the case and set a new, lower price for the drug], illustrates this situation perfectly,” said Durisch.

However, the pharma industry argues that their high prices, which can attain several thousand dollars for a single treatment, are justified on account of the rising cost of research, and longer production deadlines and procedures to market drugs, as well as competition from generic drugs.

Novartis vs Roche - 2016 figures

In 2016, Novartis sales were $48.52 billion (CHF48.19 billion) and net income was CHF6.7 billion.

At Roche, net sales in 2016 grew 4% in constant currencies to CHF50.6 billion. Net profit was CHF9.7 billion.

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Trump and the pharma industry

At a meeting with pharmaceutical executives on Tuesday, US President Donald Trump, urged them to manufacture more of their drugs in the United States and cut prices, while vowing to speed approval of new medicines and ease regulation.

Trump told them the government was paying "astronomical" prices for medicines in its health programmes for older, disabled and poor people.

In attendance were top executives at Merck & Co, Johnson & Celgene, Eli Lilly & Co, Amgen and Novartis, as well as the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) lobbying group.

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Lower prices

On Wednesday the Swiss government announced that had adopted new rules to control the prices of medicines reimbursed by health insurance schemes.

The government said CHF240 million would be saved over the next three years thanks to cheaper drugs. However, this target is much lower than a similar initiative for the 2012-2014 period, when the Federal Health Office ordered lower prices on 1,500 products thus saving CHF600 million.

The pharma industry successfully challenged the federal authorities’ method of calculation and the periodic re-evaluation of prices was suspended. In the future, this calculation should take account of cost benefits compared to other drugs and not just price comparisons with abroad. 

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