THE GERMAN DRUG MARKET

The following information has been taken from "Pharmaceutical Data", a publication of the Association of the German Pharmaceutical Industry (BPI)

Germany is one of the most interesting healthcare markets in the World not just because of its size. The numerous statutory regulations, which have been adopted by the German Government in order to contain the costs of statutory health insurance, have attracted considerable interest on the international level. The introduction of the so-called reference price system aiming to influence the prices of medicinal products seems to fascinate numerous governments around the world.

The sector and it´s structure

In the Federal Republic of Germany there are roughly 1.100 pharmaceutical manufacturers which qualify as such in accordance with the legal definition. The range of companies extends from pharmacies, which sell medicinal products under own names to roughly three dozen multinational groups which distribute their products around the world.

At the beginning of 1997 just under 300 pharmaceutical manufacturers were members of the Association of the German Pharmaceutical Industry (BPI). Small and medium-sized companies are in the majority in the German pharmaceutical industry.

Employees

In 1996 the pharmaceutical industry employed a workforce of 120,776, approximately 1.7 % less than in 1995. Between the entry into force of the Health Sector Act (GSG) on I January 1993 and the end of 1996, the pharmaceutical industry lost roughly 14,000 jobs in Germany.

Pharmaceutical production

 In 1996 the pharmaceutical industry produced pharmaceutical products amounting to a value of DM 34.052 billion, 4.9% more than in 1995. This information was provided by the Federal Statistics Office and was based on its new, Europe. wide uniform classification system.

 The development of production is dependent on a variety of factors such as prices, import development in the case of finished medicinal products and the demand behavior of physicians and consumers at home, the creation of production capacities abroad as well as demand from abroad which is of decisive importance for the German pharmaceutical industry.

The pharmaceutical market

is made up of different, sometimes overlapping market segments. Transparency is rendered more difficult by the fact that the distinguishing features are first the distribution channel, second the statutory health insurance (SHI) as a funding body and third the dispensing status of medicines over the counter or prescription only.

Further criteria are the manufacturer selling prices on the one hand and the pharmacy selling price on the other.

In 1996 the market volume of all medicinal products dispensed in public pharmacies and hospitals amounted to DM 29.7 billion (manufacturer selling prices). This means an increase of 4.3 %over 1995.

The pharmacy market had a volume of DM 24.9 billion on the basis of manufacturer selling prices in 1996. This corresponds to a growth of 5.4%. DM 20.1 billion were accounted for by west Germany (+ 5.3%) and DM 4.8 billion by east Germany (+ 5.7 %). The number of packages sold fell by 0.4% in 1996 compared with 1995. The pharmacy market takes in all medicinal products sold in pharmacies: prescribed medicinal products as well as non-prescription, pharmacy-only medicinal and over the counter medicines (OTCs).

The statutory health insurance market covers all prescribed medicinal products, the costs of which are borne by the statutory health insurance (SHI). In terms of manufacturer selling prices, turnover amounted in 1996 to DM 18.9 billion 1+ 6.4%). DM 14.8 billion were accounted for by the old German states (+ 6.3%), DM 4.1 billion by the new German states (+ 6.9%). The number of prescribed medicines packages increased by only 0.1 %. The statutory health insurance market is part of the pharmacy market.

In 1996 overall expenditure by the statutory health insurance based on pharmacy selling prices for medicinal products amounted to a total of DM 30.6 billion (of this, new German states: DM 6.7 billion). This amount includes copayment irrespective of package size for medicinal products which the patients themselves must bear as well as the 5% pharmacy discount which pharmacies must give the sickness funds. In 1996 the insured made a total copayment of exactly DM 2.96 billion. Medicinal products used in hospitals are not included into the statutory health insurance market.

The hospital market had a volume of DM 4.8 billion based on manufacturer prices in 1996, 1.1 % less than in 1995. In the old German states turnover fell by 0.4% to DM 3.9 billion and in the new German states by 3.5 % to DM 0.9 billion.

The OTC (over the counter) market recorded a turnover based on retail prices of DM 16.7 billion in 1996. This is 3% more than in 1995. This market includes both pharmacyonly medicines, nonprescription medicines and freely available medicinal products. The OTC market only partially overlaps the pharmacy market since freely available medicinal products can be sold not only in pharmacies but also in drugstores, health stores and supermarkets. The OTC market overlaps to a considerable degree the statutory health insurance market since many prescriptionfree medicinal products are also prescribed. In 1996 patients spent DM 8.6 billion on medicinal products out of their own pocket.

Given the large number of suppliers, there is stiff competition on the pharmaceutical market. The competition between pharmaceutical manufacturers mainly focuses on prices. Other aspects of competition are product quality, new developments and improvements in known medicinal products, information and further training for physicians, the range of services offered by companies and advertising.

Generics: In the last few years fierce crowding-out competition could be observed whenever pharmaceutical manufacturers used the expired patents of successful products to manufacture their own products. The considerable growth of these so-called generics is revealed in a comparison of the years 1988 and 1996 by the Institute for Medical Statistics (IMS) in Frankfurt. The market share of generics in the pharmaceutical market covered by the statutory health insurance in the former German states rose in terms of the number of prescribed packages from 34.6 to 53.2%.

The share of generics in the overall statutory health insurance market amounted in terms of turnover to 44.8% and in terms of packages prescribed to 54.4%, according to calculations by BPI. 507 million generic packages, amounting to a value8.3 DM billion, competed with 425 million original products amounting to a value of DM 10.6 billion.

Marketing

Competition involves advertising and information about medicinal products. Advertising for prescription-only medicines is only permitted in medical or pharmaceutical journals. Scientific information is one of the important services of the pharmaceutical industry and one element in the pharmaceutical supplies. The pharmaceutical industry makes use of scientific films, brochures, manuals, audio-visual media, colloquia and individual consulting.

Advertising: Advertising for prescription-only medicines is only permitted in specialized media for the so-called professional circles, i.e. physicians and pharmacists. The final consumer may only be exposed to advertising for prescription-free and OTC medicinal products and even this is subject to major constraints. According to the Central Committee of the Advertising Industry, pharmaceutical manufacturers spent DM 895 million on this consumer-directed advertising which corresponds to an increase of 8% over the previous year. Television accounted for the major share of the advertising volume (just under 57%), followed by general-interest magazines (38%).

Market shares

Foreign companies have secured themselves a very strong position amongst the 1,100 pharmaceutical manufacturers. Foreign groups with their German subsidiaries and distribution companies account now for 49.9 % of turnover on the German pharmacy market.

If group affiliations are taken into account, this leads to somewhat higher percentages on the overall market for the largest companies including their subsidiaries and affiliates: the five leading manufacturers chalked up a share of 21.5 % in 1996, the largest 10 a share of 34.3 %.

The German pharmaceutical market is characterized by the fact that even from the group angle the market shares of the individual groups are relatively low compared both with the pharmaceutical markets in other major pharmaceutical countries as well as with other important industrial sectors in the Federal Republic of Germany. The current wave of mergers in the sector, however, will probably lead to a considerable increase in the degree of concentration.

In 1996 producer prices for medicinal products increased by 1.7%. The prices of proprietary medicinal products, to use the terminology of the Federal Statistics Office, increased on the same scale as the cost of living which rose by 1.4 % in the old and 2.3 % in the new German states.

Prices

The development was far better for medicines which were reimbursed by the statutory health insurance, the so-called statutory health insurance market. The pharmacy selling prices increased on average by 0.1 %. The prices for medicinal products, to which reference prices applied, fell overall by 1.1 % whereas the prices of the products which were not yet affected increased by around 1.9%. In the quarter of 1997 the prices of medicinal products covered by the statutory health insurance fell overall by 0.1%.

A longer term comparison revealed that medicine prices remained stable. This is shown in a comparison by the Federal Statistics Office of the individual cost of living index and the price index for medicinal products which are eligible for reimbursement by sickness funds.

When assessing the prices of medicinal products, it should be borne in mind that only approximately half of the retail price actually accrues to the manufacturer. The other half of the retail price is shared by the pharmaceutical wholesale trade, pharmacies and the government. In 1996 the latter earned approximately DM 6.3 billion from value-added tax (VAT) on medicinal products. The budget of the statutory health insurance, alone, had to shoulder VAT payments amounting to approximately DM 4 billion.

The gross profit margin of pharmacies, which has to cover all their costs, is regulated by the Ordinance on Medicine Prices of 14 November 1980. This lays down a specific gradation for the mark-ups on wholesale prices. The latter, in turn, are calculated on the basis of the manufacturer selling prices not including VAT plus a maximum mark-up which is also governed by the Ordinance on Medicine Prices.

Contrary to food and newspapers, proprietary medicinal products for human use are liable to the full VAT rate of 16 %. In other countries medicinal products are either completely or partially exempt from VAT.

For more information you can visit  the Association of the German Pharmaceutical Industry (BPI) at http://www.bpi.de    or contact us.

last modified: 05/30/06 11:33