The German pharmaceutical industry expects difficult times after brilliant business with corona vaccines. While the special boom from the pandemic is fading, the industry is feeling cost pressure from politics and more expensive energy.

In 2023, sales will fall by almost 5 percent and production by 1.8 percent compared to the previous year, according to a forecast by the Association of Research-Based Drug Manufacturers (VFA), which is available to the German Press Agency. After the strong increase in jobs in recent years, employment will stagnate at 118,000 people. The VFA warned of foreign competition and called for reforms in the healthcare system.

“Chemical precursors have become 30 to 40 percent more expensive during the energy crisis,” said VFA chief economist Claus Michelsen of the dpa. In addition, the business with corona vaccines is cooling off.

Corona vaccine boosted sales

The coup by the Mainz-based manufacturer Biontech, which launched the world’s first approved corona vaccine from Germany, had given the pharmaceutical location a new shine and given the industry a strong boost. According to the VFA, sales rose by 6.5 percent last year and production by 3.6 percent. According to earlier information from the association, the industry will continue to benefit from corona vaccines for years to come, even though demand falls as the pandemic subsides. The federal government recently announced that it intends to cancel extensive deliveries.

In addition, the industry sees itself under pressure due to regulation. Health Minister Karl Lauterbach has increased the manufacturer discounts that companies have to grant statutory health insurance companies for 2023. This is intended to limit spending in the healthcare system. The tightened discounts cost the industry more than 1.5 billion euros, reported the VFA, which represents 47 drug manufacturers with 94,000 employees in Germany.

Energy costs weigh on industry

“2023 will be a year of challenges for the pharmaceutical industry,” said VFA President Han Steutel. “On the one hand, the high prices for energy and primary products are weighing on the industry, and on the other hand, the framework conditions are deteriorating immensely as a result of the new legislation.” As a rule, the industry has to shoulder the higher costs itself because of the far-reaching price regulation of medicines. The GKV Financial Stabilization Act, which came into force at the turn of the year, will cause further burdens and damage the location.

Individual companies are also worried: the pharmaceutical company Boehringer Ingelheim has warned that increasing manufacturer discounts and freezing drug prices will reduce the industry’s innovative strength – with consequences for patients.

The VFA warned not to gamble away the successes after the Biontech coup. “Because of the poorer prospects, pharmaceutical companies are reluctant to invest in research and development, which will then no longer be available for production in the following years,” said chief economist Michelsen. He expects investment in the industry to fall 2.3 percent this year.

Research in the USA, patents in China

While the competition in the USA scores with strong research and a large capital market, China is catching up in terms of the number of patents. The People’s Republic is in 5th place worldwide – behind Germany in 2nd place and the USA at the top. “If you continue the development of the past few years, China will overtake Germany in a few years,” said Michelsen. China is fast in clinical drug trials with large patient groups. Germany fell back to sixth place in 2021.

The lobby association demanded stable framework conditions in the long term for the industry. He called for manufacturer discounts not to be tightened any further and for statutory health insurance funds to be put to the test. “There are many non-insurance benefits in the system, such as the expenditure for recipients of unemployment benefit II and the co-insurance of spouses, which are a transfer benefit,” said Michelsen. You also have to look more closely at the performance of medicines and question homeopathy.

Sector not very cyclical

The pharmaceutical industry is not one of the really big industries in Germany, but it generates high added value and invests a lot of money in research and development. At the same time, the industry is considered to be less susceptible to economic fluctuations. While chemical production fell by ten percent in 2022 due to more expensive energy, production in the pharmaceutical industry continued to grow noticeably.

In the debate about drug supply bottlenecks, the VFA advocated broadening supply chains. The association is skeptical about bringing active ingredient production back from Asia, as has been repeatedly requested. “It would be very expensive to rebuild the production chains for 300 to 400 active ingredients in Europe,” said Michelsen.

It makes more sense to strengthen strategic reserves, for example for active ingredients, in order to be able to bridge drug shortages. Unlike imitation drugs, including fever juices, supply bottlenecks for innovative drugs such as cancer therapies are very rare. Biopharmaceuticals would continue to be produced in Europe.