The Decline of German Pharma Companies | Business| Economy and finance news from a German perspective | DW | 21.04.2005
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The Decline of German Pharma Companies

The country that brought the world Aspirin hasn't been the "world's pharmacy" for quite some time. By resisting change and new investments, German pharma companies have been slipping down world rankings steadily.


Finding that one blockbuster drug can cost billions

Once Germany's pride and joy, drug companies like Hoechst and Schering have gone from world beaters to also-rans in recent years.

Experts say that while the rest of the industry adjusting to changing demands and markets through fusions and acquisitions, German firms have looked on. Nowadays, you'd be hard-pressed to find a German name under the list of the world's top 10 pharmaceutical concerns. The reputation, fashioned in the 1980s, as the "world's pharmacy" no longer holds.

"Germany has refused to play catch up and as a result has clearly lost out in importance," said Ingrid Mühlnikel, of the trade magazine kma.

Mergers leave Germans behind

The reason is a decreasing emphasis on research and development, especially compared to American companies, she said. Most of those foreign companies have overcome costly drug development and marketing channels merging.

In 1993, Pfizer was the seventh-largest pharmaceutical company. After buying up competitor Warner-Lambert in a hostile takeover in 2000, and then Pharmacia in 2002, they moved up to number one. Right behind them is GlaxoSmithKline, whose name alone suggests the varying changes the company has undergone in recent years.

Hoechst, which once dominated the industry, quietly disappeared through a series of mergers and buyouts in the past five years. After merging with Rhome-Poulenc and Aventis in 1999, the German company lost its identity completely when Sanofi-Aventis bought up Aventis in 2004.

Pressure for the next blockbuster

The high cost of developing and marketing the drugs they produce pushes many companies into complex mergers.

"The marketing costs alone for the introduction of a new drug are up in the billion euro region," said Thomas Kautzsch, an analyst at the consultancy firm Mercer, in an interview with the news agency dpa.

Viagra Pillen

Viagra earned Pfizer half a billion dollars

Preceding those marketing costs is immense, and risky, investment in developing the next blockbuster drug. Only a handful of products actually survive the testing phase in order to make it out on the market. Pfizer's cholesterol-reduction drug Lipitor is one of those success stories. After it was introduced, it became the first drug on the market with annual sales of more than $10 billion. It was one of several home runs by the company, which also produces the impotency drug Viagra.

Disastrous if they don't come through

The flip side of billion dollar sales are the billion dollar losses incurred by a company that has to delay introduction of a drug. Last March Schering, Germany's third-largest pharmaceuticals company, announced that it was pushing back introduction of its cancer drug more than two years. Since the announcement, the share price on the DAX index dropped 13 percent.

Bayer has also shrunk its drug-producing sector since recalling its cholesterol drug, Lipobay, which was suspected of inducing deadly side effects in people who took it. The catastrophe forced a re-structuring at Bayer at the cost of billions of dollars in 2003. Since then, they've focused on over-the-counter drugs like Aspirin+C.

Produktion von Anti-Baby-Pillen bei Schering

The right drug can make or break a company

The risks will continue the merger and takeover carousel of recent years, Kautzsch said.

"In the end there will be far fewer than 10 internationally-active, big companies still around," he added.

A flourishing business awaits those that survive. In 2004, industry sales climbed more than 6 percent worldwide.

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