Switzerland has always been at the forefront of scientific progress, but with the world stage opening up to Eastern players, Ian Shine investigates how the country is planning to stay ahead of the competition
Basel-based biotech company Actelion, formed in 1997 by former Roche scientists, evokes this spirit in its motto - "innovate or perish" - and in its achievements, effectively founding the pulmonary arterial hypertension (PAH) market with its drug Tracleer in 2000, which contributed heavily to its 2005 annual revenue of CHF663.6m (US$ 594.6m) with sales of CHF633.2m.
routes to innovation
Now recognised as one of Swiss biotech's big two (alongside Serono), the company is not content to rest on its laurels. In the words of its ceo Jean-Paul Clozel, the company is looking to grow "above and beyond Tracleer", both testing the drug in new indications and expanding its r&d pipeline with the goal of achieving CHF1bn annual net revenue by 2009.
But this traditional route to innovation - what the Swiss Society of Chemical Industries (SGCI) describes as "the scientific skills of a few top scientists" - is no longer the sole avenue that Swiss companies are exploring. As times change and knowledge spreads, methods of invention inevitably become less innovative, meaning that new roads to progress have to be discovered; a fact that has been underscored by the rise of eastern European and south-east Asian markets.
"Innovation today is not limited to products and production methods; it also includes administrative processes and organisational structures," says the SGCI's annual report on the Swiss chemical and pharmaceutical industry. "Translation of ideas into fully developed products and services has to be better, faster and more cost-effective. New corporate advantages and restructuring are inevitable...under intensified international competition."
Fundamentally, this entails outsourcing, and the division of labour and co-ordination of numerous autonomous companies that this allows gives each part of the chain licence to focus on its specific strengths and areas of speciality. This collaborative streamlining creates "large virtual enterprises" with the resources to compete on the international stage and fosters emerging niche markets often found in SMEs, enabling the country to stay in touch with its roots - scientific innovation.
Undoubtedly the most prominent of these evolving niche sectors is biotechnology, with the number of SMEs active in this field rising from around 110 at the start of 1995 to approximately 250 in 2005, according to Ernst & Young. This boom has meant that the country now ranks second in Europe in terms of biotech revenue and market capitalisation, accounting for 79 of the continent's 465 pipeline products.
collaborative efforts
However, this progress did not occur naturally. The impetus really began when Swiss Biotechnet was founded in 1999 by a number of "Universities of Applied Sciences" (UAS) looking to address a perceived lack of innovation in the country. Supported by Switzerland's Innovation Promotion Agency, CTI, with grants totalling CHF2m to date, and by Swiss industry, which has contributed a similar amount, Biotechnet is a virtual and voluntary network that promotes "knowledge and technology transfer" between academia and all levels of industry, as well as co-operation between national research institutions and international partners.
"Switzerland outperforms and outranks other nations in many basic research areas, but turning results from research into innovative products is often lacking," says Daniel Gygax, president of Swiss Biotechnet. By allowing larger companies to gain access to both basic and more novel technologies available at the UAS and smaller SMEs, research budgets are able to be stretched further - a critically important fact considering that the r&d process is a risk-heavy one with costs in the area of US$800m (CHF975m) per product.
"A major role is played by large companies such as Novartis, Roche, Serono and Syngenta through their ongoing formation of alliances with innovative biotech organisations," says Ernst & Young in its Swiss Biotech Report 2005. "For example, co-operation agreements have recently been signed between Roche and the Zurich-based start-up Glycart; Syngenta and Affimed; and Johnson & Johnson and Basilea Pharmaceutica."
cost problems
However, while companies are finding ways of stretching their budgets, the fact remains that costs are high. Last year saw more than 10 SME's in biotech file for bankruptcy while many others were forced into consolidations. This is partly because of "a downward trend" in investors" "risk-tolerance" according to Ernst & Young, whose report predicts similar fates for start-ups that focus "solely on the development of a single product, one type of technology or one service, weakening both their innovative strength and their attractiveness to investors."
A factor that can help companies survive is patent protection, although a fine balance needs to be struck to ensure that future research is not inhibited. As the Ernst & Young report states: "There is increasing concern that the fast-growing number of patents and the broad patent protection on basic discoveries may result in a severe limitation of the protective possibilities on findings in biotechnology. Also, the increasing patenting of upstream discoveries - such as targets for drug intervention - potentially restricts access for those involved with follow-up research."
With the increasing prominence of generics and the patent disputes that they have ushered in, the average eight-year market exclusivity for new drugs is looking less and less lucrative. The period is also getting scythed into by increasing levels of safety testing and legislation, which, according to the SGCI, have "considerably reduced the promotion of innovation that the patent was intended to stimulate".
The Society has in turn called on the Swiss Government to "contribute towards a climate of openness to innovation" in order to support the intentions of CTI and Swiss Biotechnet. Yet the country's biotech industry is still in a healthy state, outperforming France and Germany and ranking third in Europe in terms of attracting venture capital between 2002 and 2004 (CHF194m in 2004), while the chemical and pharmaceutical industry grew at an average annual rate of 11.3 % between 1995 and 2005, despite a national average of 2.1%, so why all the talk of "downward trends" and excessive legislation?
The answer is the Swiss chemical and pharmaceutical industry's, and Switzerland's, massive dependency on exports. Of the CHF57.5bn (US$47.4bn) the industry brought in in 2005, only 5% (CHF2.8bn) came from sales within Switzerland. The remaining CHF54.7bn represented 35% of the country's total exports, making it the ninth biggest chemical/pharmaceutical export nation (the biggest per capita) and giving it an export surplus of CHF22bn - the largest of all Swiss industrial sectors.
To maintain this level of exports the country needs to continue attracting companies to its cities, which it can do only if it has an inviting regulatory environment - a position that is not easy to maintain in the face of relative permissiveness in eastern Europe and south-east Asia.
For the moment companies are still coming to Switzerland, with biotech companies predominantly heading to Basle and Zurich, although Biogen Idec recently moved its European headquarters to Zug. If associations like Swiss Biotechnet and CTI can continue to foster areas of academic and industrial density and collaboration, the lure of less legislative regions may well be negated and the above-average growth rates will be maintained.
ethical issues
The Swiss industry is also pushing boundaries on emissions and animal testing. The Responsible Care Programme (RC), a voluntary world-wide chemical industry initiative of which the SGCI has assumed patronage, promotes safety, health and environmental protection and has helped reduce CO2 emissions by 10.6% from 1993 to 2004, despite a production volume increase of 150% in the same period.
Meanwhile, Interpharma, the association of Swiss pharmaceutical research companies, is encouraging its members to support the 3R objective on animal research: Reduce the number of tests on animals; Replace tests on animals with alternative methods, and Refine the test schedule for the benefit of animals. A 75% drop in the level of animal testing has consequently been seen.
Switzerland is determined to remain a key global player, streamlining its methods, enhancing its knowledge transfer systems and maintaining its global savvy through national agencies. It is this lithe stance on adaptation and evolution that makes Switzerland destined to maintain its strong position.