Benchmarking the Competitiveness of the European Animal Health Industry
A Report by Business Decisions Limited for IFAH EUROPE - 2006
The Background
• The purpose of Benchmarking is to assess change over time • Continuation of a series of Surveys – 1996, 2001, 2006 • Comparison made with the USA as this is the other region in the World where full product research & development is carried out • We acknowledge that much progress has been made in the regulatory environment and is ongoing – Directive & Regulation reviewed, Variations, Annex I, MRL’s
The Study
• Examines relationship between competitiveness and external business environment, including regulations • Principal sources of evidence: • Two major quantitative surveys with companies (80-85% of sales in each area – EU & USA) • Over 60 depth interviews
The Industry & its Socio-economic Contribution
• Animal health is a small part of the global pharmaceutical industry • Disproportionately large socio-economic contribution: • Protects and improves human health and well-being • Makes essential contribution to food safety • Contributes to sustainable and competitive agriculture • Supports global trade and economic development • Contributes to EU economy based on innovation and knowledge (high-tech; 10% sales in R&D) • Supports 50,000 high quality jobs
Importance of Good Regulation
• Companies recognise need for strong regulatory framework • High quality regulation is an essential pre-condition for competitiveness • Protects intellectual property (data protection) • Creates intangible assets • Builds consumer confidence • Facilitates global market access
Competitiveness, Innovation (New Products), and Regulation
• Product innovation is the major driver of long-term competitiveness • Companies need to achieve critical success factors (time, cost, certainty) to invest and innovate effectively • Regulatory framework is an obstacle to innovation: • Increase development time • Increase development cost • Re-direct resources into Defensive R&D • Create uncertainty
Major Obstacles to Successful New Product Development Europe/USA Comparison 2006
(% of companies identifying obstacle as significant)
Major Obstacles
The Regulatory Framework* The small size of market segments Closure of the market for certain products
Negative consumer attitudes
Poor technology transfer between business and academia
Inadequate intellectual property protection
Internal Company or oganisational barriers
Lack of skilled staff
Lack of availability of financial resources
0 20 40 60
Companies in the USA
80
100%
Companies in Europe
* Note: Companies in Europe were asked about the European Regulatory Framework; companies in the USA were asked about the US Regulatory Framework
Source: Business Decisions Limited ‘Survey of Animal Health Companies in Europe and the USA’ (2006)
Impact of Regulatory Factors on the Average Length of Time Taken to Develop a New Product in Europe and the USA
(changes over the last fifteen years 1991-2005)
Europe
Major Livestock Species
5.9
USA Europe
Companion Animal
3.2
3.5
USA Europe
Minor Species
2.6
2.3
USA
0 2
2.2
4
6
Additional Development Years 1991-1995 1996-2000 2001-2005
Source: Business Decisions Limited ‘Survey of Animal Health Companies in Europe and the USA’ (1997, 2001 and 2006)
Impact of Regulatory Factors on the Average Cost of Developing a New Product in Europe and the USA
(changes in real terms over the last fifteen years: 1991-2005)
Increase in real development cost (Indexed 1990 = 100)
Europe
Major Livestock Species
257
USA Europe
Companion Animal
206
212
USA Europe
Minor Species
196
195
USA
100 150
176
200 250 300
1991-1995
1996-2000
2001-2005
Source: Business Decisions Limited ‘Survey of Animal Health Companies in Europe and the USA’ (1997, 2001 and 2006)
Level of Mandatory Defensive R&D 2006 Compared to 2001 and 1996
(As a proportion of total R&D expenditure)
50 40 30 % 20 10 0 Europe
2006 2001 1996
USA
Source: Business Decisions Limited ‘Survey of Animal Health Companies in Europe and the USA’ (1997, 2001 and 2006)
Europe and Defensive R&D
• Some Defensive R&D is a necessary condition of competing in the animal health market • EU level is substantially higher than USA • Scale of Defensive R&D in EU is not justified by science and risk • Long-term structural problem has emerged – 35% of R&D spend since 1996 • Expected to continue • Major risk to future innovation and product availability particularly in the food animal sector
Competitiveness, Existing Products and Regulation
• Exploitation of existing products is the major driver of shortterm competitiveness • Regulatory framework is an obstacle to exploiting existing products more profitably • Regulations: • Create disproportionate costs for licence renewals • Remove profitable products from the market • Divert financial resources away from innovation
Obstacles to Exploitation of Existing Products in Europe and the USA 2006
(% of companies identifying obstacle as significant)
Obstacles
The Regulatory Framework for Licence maintenance/extension* Small size of market segments Pressure from competitors Inadequate intellectual property protection Closure of the market for certain products and technologies Legal restrictions on advertising, labels, trademarks and communications Negative consumer attitudes
0 20 40 60 80 100 %
2006 Companies in2001 Europe
Companies in the USA
* Note: Companies in Europe were asked about the European Regulatory Framework; companies in the USA were asked about the US Regulatory Framework
Source: Business Decisions Limited ‘Survey of Animal Health Companies in Europe and the USA’ (2006)
Regulatory Decision-making and Competitiveness
• Confidence in use of best available science at EU-level • Lack of confidence in predictability in EU: • Use of risk assessment principles (new products) • Separation of risk assessment and management (existing products & retrospection) • Concerns about predictability and ‘cutting edge’ products • Politicisation in the EU
Regulatory Assessment in the EU versus USA for new products
• Overall quality of scientific risk assessment in EU ranked below USA level • Lower scores re the application of Guidelines on the basis of the assessment of benefits & risks • Lower scores re the international standing of benefit & risk assessments
Strategic Decisions and Regulation
• Major strategic decisions taken by companies have been negatively affected by regulations: • Fewer breakthrough products launched • R&D and production investment shifted away from Europe • Product availability reduced • Focus on older technologies • Long-term problem
Regulations and Market Evolution
Indexed 1990 = 100
Europe 2005
300 300
USA 2005
250
250
200
200
150
150
100
100
1990 = 100
50
50
0 Market Size Resources for Innovative Research Livestock Companion Animal
0 Market Size Resources for Innovative Research Livestock Companion Animal
Change in cost of developing new products (due to regulatory factors)
Change in cost of developing new products (due to regulatory factors)
Note: All changes shown in real terms
Source: Data based on Business Decisions Limited surveys (1996, 2001 and 2006) and industry sales data (CEESA IFAH Europe and AHI)
Expected Total Capitalised Cost Needed to Develop and Achieve Regulatory Approval for Archetype New Products Europe compared to the USA (where USA = 100)
Archetype New Product
Innovative pharmaceutical product for livestock Innovative pharmaceutical product for companion animals Innovative biotech vaccine for livestock Non-innovative pharmaceutical for companion animals Innovative biotech vaccine for companion animals
0 25 50 75
USA = 100
100
125
150
175
200
225
*Note: Includes capitalised cost required for development, scientific assessment and marketing approval
Source: Business Decisions Limited (2006)
Policy Reform Goals
• Strengthen competitiveness of animal health industry and hence ensure that Europe’s citizens are able to enjoy socioeconomic benefits • Short and long-term programme • Goals: • Reduce mandatory Defensive R&D from 35% to less than 20% of R&D spend • Reduce out-of-pocket development for new products by 20% • Reduce the length of the product development cycle by 20% • Reduce regulatory uncertainty
Benefits of Regulatory Reform in Europe Potential Changes in Product Development Costs
Archetype Product – Innovative Pharmaceutical for Livestock
200
US $m Full Resource Cost
150
100
50
0
Current Situation
Reduce Uncertainty
Cut Time (-20%)
Cut Cost (-20%)
New Situation
Source: Business Decisions Limited (2006)
Short & Long Terms Solutions
• Subject of presentation later in the morning • Appreciate constructive discussions with representatives from the Commission, CMD(v), CVMP, EMEA & HMA • Benchmark Study highlights trends • Need to work on short & long term solutions to deliver the Lisbon Agenda & Better Regulation in the EU to the benefit of society • Need proactive intervention by all parties • Look forward to the next Benchmark Study showing reduced Costs, less Time and lower Defensive R&D!
Benchmark Study - 2006
Thank You!
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