NCPA - National Center for Policy Analysis


January 25, 2006

Germany has a new chancellor, a new government, and a new opportunity to restart the engine of innovation that once positioned it as one of the most powerful and innovative economies in the world, says Dan Coats, former U.S. Ambassador to Germany.

A good place to start would be in the bioscience and biopharmaceutical spheres. Germany -- once known as the "medicine chest of Europe" -- dominated the biopharmaceutical field, but today, there is not one German company among the top 10 drug-makers, says Coats.

A range of shortsighted government policies is to blame, explains Coats:

  • Reference-pricing policies, in which the government will pay only for a certain amount of low-cost medicines in a class of drugs, have become one more disincentive to develop improvements in any category of drugs.
  • Price and access controls make private research and development too expensive, even forcing some labs to shut down, and by steadily scaling back the government resources available to support research, Germany has put its drug-makers at a severe disadvantage.
  • In fact, Germany's share of global pharmaceutical R&D spending fell from 13 percent in 1973 to a mere seven percent in 2000; if Germany simply invested the same share of global R&D resources in bio-pharmaceuticals it invested in 1973, it could create 35,000 more jobs in the field.

Unfortunately, Germany's decline is just part of a larger problem: Europe's biopharmaceutical industry is relocating to America. Companies in the United States have a greater incentive to invest on the front end of drug development, because risk is matched with potential rewards, says Coats.

But if Germany wants to put life back into its life sciences, it should learn from the United States, and if America wants to maintain its dominance in this field, it must learn from Germany, says Coats.

Source: Dan Coats, "Restoring 'The Medicine Chest of Europe'," Technology Commerce Society Daily, January 12, 2006.

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