A bitter pill to swallow?

While many people associate Switzerland with products such as cheese, watches, army knives and fine chocolates, a few may not be aware that the medicines to beat their colds, hypertension or nicotine addiction come from the small Alpine country. Switzerland is among the world’s largest producers of drugs, pharmaceuticals and related products, with companies such as Roche and Novartis, both headquartered in the idyllic town of Basel, playing a major role in the global pharmaceutical industry.
The Swiss pharmaceutical industry is highly advanced, reputed for the quality of its production and research, and operates nearly exclusively in the field of specialities. Today, 90 per cent of the Swiss chemical industry’s overall product portfolio is specialties.
The chemical industry has been present in Switzerland for more than 150 years. From the beginning a small domestic market and the lack of chemical raw materials led to a focus on production and the worldwide marketing of specialised chemicals with high added value. Despite the changes that took place over the years, this has continued to be the key to success for the Swiss chemical and pharmaceutical industry.

Speciality products
The Swiss pharma industry manufactures more than 30,000 products, according to a study by Sciencetech, the Swiss association for pharma, chemical and biotech industries. The items include drugs, diagnostics, fine chemicals, vitamins, flavours and fragrances, crop protection agents, speciality chemicals for industrial-technical purposes, as well as pigments, paints and lacquers. The Swiss industry has an outspoken international orientation, demonstrated by the geographical breakdown of its sales. Europe and America each share about 40 per cent of the sales, while Asia takes 23 per cent, leaving Switzerland with a very small domestic market.
The Swiss pharma market also occupies a large segment of the $12 billion (about Dh45 billion) Middle East pharma markets, mostly via production hubs in Turkey and trade hubs in the UAE. According to Murat Yesildere, an Istanbul-based expert at research and consultancy group Egon Zehnder, Turkey is the largest pharma market in the Middle East.
The success of the pharmaceutical industry can be attributed mainly to extensive research and development, employing
close to 12,000 people only in R&D, marketing and sales of
high-value products. Swiss companies have been present on the international markets for decades, both big multinational corporations as well as small and medium-sized enterprises. But this strategy has also left Swiss pharmaceutical products vulnerable to attacks from the generic drug  industry. By global standards, the Swiss generic market remains uncompetitive.
More than 70 per cent of generic sales are made by two companies — Mepha and Sandoz, part of the Novartis group. Both are facing stiff competition from US firms and generic drug producers from China and India.

Decline in sales
In 2010, the Swiss pharma market shrank for the first time, with expiring patents on top-selling drugs. State-mandated price declines are responsible for the trend, according to health care consultancy IMS Health. “The expiry of the patents on a number of blockbuster drugs will have a considerable effect on the bottom line of Switzerland’s pharmaceutical industry,” says Odile Rundquist, health care analyst of Geneva-based investment house Helvea.
In January 2012, Novartis announced it would cut 1,960 jobs in the US as it restructures its general medicines business. This will cost the company $160 million this year, but will also result in savings of $450 million as of 2013, Novartis announced in a statement to the Swiss stock exchange.
Competitors’ low prices are also an issue for Swiss pharma giants. According to Thomas Binder, executive director of the Association of Swiss Pharma Companies, there have been 7,000 price cuts since 2006, including 2,900 in 2011. And the trend is likely to continue, which will imply a flat market for the years to come, he says. The appreciation of the Swiss franc over the past two years in the wake of the EU debt crisis has been another risk factor for the industry.

Potential growth
Meanwhile, the European Union and global pharma markets are expected to grow by a respective 2-4 per cent and 4-7 per cent, and the BRIC (Brazil, Russia, India and China) markets by 18-20 per cent, says IMS Health’s latest market study.
Although the Swiss pharmaceutical market will continue to expand, low growth is projected between 2012 and 2017 by UK-based market research company Episcom in its July 2012 report.
Continuing price pressures from greater generic prescribing and general cost-control measures are responsible for the trend. However, the biologic sector is an area of potential growth in Switzerland, says Episcom.