Spain for biotechnology, pharmaceutical market and life sciences

“Darwin & Wallace” Consulting Group, a group of students from MADI Master, has drafted a synthetic index that aims to analyze the potential productivity of companies in the pharmaceutical sector among Spain and other European Union market and extra EU. This report gives a brief description on the global pharmaceutical market’s size, trends, issues, challenges and critical success factors etc. The report also elaborates on the profile of the major players in the global pharmaceutical market. Growth in the life sciences sector, comprised of the pharmaceutical, biotechnology, and medical technology (medtech) segments, is closely tied to economic and demographic drivers that fuel a continual transformation of the broader health care industry. Life sciences’ companies have demonstrated their ability to survive and thrive amidst recent periods of economic recession, health care spending cutbacks, geographic market swings, and changing population profiles.

Global pharmaceutical market

The pharmaceutical industry of the world develops and markets medicines prescribed for patients by medical practitioners. The U.S., Japan and European pharmaceutical companies are the major ones of the industry. Top markets for pharmaceutical products continue to be developed countries in Western Europe, East Asia, and North America with high per capita spending on healthcare, growing elderly populations, and advanced regulatory systems. (Fig 1)

Key players of these countries, as Pfizer, Bayer or GlaxoSmithKline compete closely and strongly in the market, and therefore there is a strong rivalry between the companies. Though ranked lower, there are growing opportunities in developing countries like China as incomes and healthcare spending increases.

Pharmaceutical sector is very dynamic and there is a constant need for innovation. This type of industry needs to make huge investments in R&D of new drugs and the cost of innovation proves to be very high as drug business is very risky. However, the return on invested capital can be very high. For example, GlaxoSmithKline got a return on invested capital in 2015 of 41.55%.

In 2014 the global pharmaceutical market reached 1 trillion USD spending. This quantity is expected to increase to 1,3 trillion USD by 2018.


Nature of the Pharma Sector

Although spending is huge for all companies emerged in this type of industry, generic drug development companies have lower costs associated to R&D compared to brand name drugs, allowing them to sell drugs at cheaper prices. Due to the costs, the demand for generic drugs increased compared to the brand name drugs. Moreover, hospitals and other health care organizations buy big quantities of drugs and pressure pharmaceutical industry companies to maintain reasonable drug prices. However, generic drugs can be transformed in new products which need no further approval if an additive is added and Intellectual Property Rights are well applied.

Up to the competitive nature of this industry, the high R&D costs, government regulatory constraints, huge investments for start-ups, approval of the drug (which may take up to 15 years), as well as the high level of risk of no return on investment if a new drug cannot be commercialized, this type of industry count with a lot of entry barriers. Due to that reason pharmaceutical sector is not the most attractive when it comes to new competitors’ entry in the market.

Domestic Market

Regarding the domestic market, Spain is 10th world scientific power and 5th by scientific production in the EU15, and an integrated Healthcare System with a network of 800 hospitals, both public and private, backed by leading-edge research centers. The system is ideal for translational medicine and discovering new drugs and advanced therapies.

Biotech companies are growing faster here than in other countries and pharma industry is leader in R+D spending in Spain.

Solid Macroeconomic impact, with a biotech sector accounted for 10.35% of Spain’s GDP.

Biotech companies makes a total of 2,742, employing 177,973 people, with Food representing a 62% of this sector investment’s, followed by Health Care, 25%, and Animal Health, 10%. Since 2012, there is a 14% of negative growth in number of active companies, whereas business income in companies engaged with biotechnological activities has increased by 30% reaching a total income of 101.787.966 (K€). Advanced economies such as France, Germany-with a 3 billion income- or the UK are ahead of Spain in terms of R&D-Research and Development-investment and return. Besides that, Spain is the top country in Europe having cultivated more than 136,000 ha of GMO -genetically modified organisms, 32% of the total corn crop.

Pharmaceutical products export grew by 7.9% in year 2015 and account for 4.4% of Spain’s total exports. Spain ranks among the top countries in the fields of agro biotechnology, biochemistry and molecular biology. In addition, the Spanish pharmaceutical industry plays a key role in boosting R&D, leading the development of innovative drugs for cancer, malaria, Alzheimer’s disease and HIV.

In the international cooperation scope, Europe and the USA are Spain’s major biotech partners accounting for 17.6% and 7.7% of partnership collaborations respectively.

For foreign investors, companies can deduct up to 40% of the social security contributions of R&D workers. Spain can play an active role within Brexit to relocate British’s companies with a favorable legal framework with tax rates up to 42% for R&D investment and up to 12% for innovation.

Moreover, the main advantage of bringing the production of drugs to Spain in comparison to producing them in the big markets of Western Europe –Germany, France, Denmark…- is the difference of salary of qualified labour force, with a mean national cost per hour worked of around 21€/h in comparison to 32€/h, 35€/h and 41€/h of the previously mentioned countries (according to Eurostats).


Entry barriers in Spain

We analyze, now, the main barriers and difficulties to enter the Pharma Market in Spain. The regulatory differences between communities pose additional risks because they force companies to be located in different territories, facing different production costs, hindering competitiveness. The costs associated with its activity with another major entry barriers that companies identified in this market. Another major obstacle to the pharmaceutical industry in Spain is the period between when an innovative drug is authorized to be marketed until it is introduced into the market, which is set to 349 days. This figure puts the country as having further delay to access innovative therapies in the whole European Union.

The future of pharmaceutical sector

At present, the industry has to face major challenges, the result of the transformation of the structure of competition, increased competitiveness or the inherent risk of investment in R&D as a result of rising costs, long periods required to carry them out and the low probability of successful outcome. The greatest threats to the industry are certain measures on economic policy being adopted by governments of different countries, especially in Europe, in order to correct the imbalances that triggered the crisis. In Spain, the public deficit and funding shortages have resulted in a significant cut in pharmaceutical expenditure. According to Banco de España and OECD, the pharma sector, in Spain, is recovering and in the future, is still expected a positive and dynamic recovery (fig 3). Looking ahead, for the Government of Spain “stability and predictability of the regulatory framework,” it is today a property to ensure the efficiency of business investment in the future.


General Conclusion

The pharmaceutical industry is one of the sectors that contribute to social welfare. On the one hand, the important efforts made by companies in this industry in research and development of new drugs improves the quality of life of citizens and represents a cost savings to the National Health Systems. In the same way improves labor productivity, preventing or shortening time off work, for example, is one of the most active sectors in international trade, which undoubtedly leads to economic growth. Surely it is important at this time the pharma sector in Spain, thanks to the recent data on the performance of the Spanish economy that show the consolidation of the economic recovery, as also indicated by the major international agencies. Apart from its domestic market in the second half, Spain offers a privileged position as a gateway to the European market, Latin America and North Africa. Activities related to Technology and Life Sciences in Spain offer attractive investment opportunities. These results are a demonstration of the interest and growth that the pharma sector plays in the market and the great potential that it offers in the future. All this was achieved through a study of global market analysis, then analyze more closely the domestic sector in Spain.