Biotech Clusters in Belgium: The Importance of Health Policy
Speech at the Business Breakfast, British Chamber of Commerce (Brussels)
Ladies and Gentlemen,
I do not know whose unholy idea it was to hold this meeting at this early hour, but it triggers the thought that you should make headway with the research to regenerative medicine. In politics sleep deprivation comes with the job, so I think I will need it sooner than later.
All joking aside, I would like to thank you for the invitation from a sector that can easily be considered as one of the most important of the Belgian economy. As your announcement for this event stated correctly: Belgium represents 3% of the EU economy but not less than 16 % of Europe’s biotech industry. The pharmaceutical industry in Belgium is good for almost 5 per cent of employment and 14 per cent of the European pharmaceutical exports.
We have some world class biotech research centers which have strong liaisons with other international research institutes via the Flanders Institute for Biotechnology. The two success factors of this institute are number 1: a very strict review process for research applicants. And number 2: a strong economic focus. Not science for the sake of science, but science for the improvement of our lives and our economy.
It is therefore no surprise that Belgium was voted the best country for biotechnology in the OECD’s Science and Technology Industry Outlook of 2008. Belgium is number four in the world when it comes to R&D spending per biotech firm. And we are number three within Europe for research per capita in business.
So far the state of affairs as of today. This is a good point of departure but there is no such a thing as a guarantee that things will remain this way. Not with global competition, not with the emerging economies knocking on our front door. We will have to fight for every new inch. In 1990 Belgium had 2 life science companies with R&D activities. Today we host more than 120 companies in that niche. The ambition should be not only to keep our ground but to grow even further.
One of the topics I want to discuss with you in this respect is the concept of ‘re-shoring’. The last couple of years this term regularly appears in the press. It claims that there is the distinct possibility to reverse the process of offshoring and bring back manufacturing and production operations to Belgium. The Boston Consulting Group recently took a more detailed look into the precise drivers behind this reshoring process. They made an analysis for the US and for Belgium.
Their conclusion for our country – and by extension all of continental Europe – was that successfully keeping and fostering industries depends on the improvement of labour productivity. The higher the labour productivity in a certain sector, the more successful its establishment in our economies. In the US the situation is different. There the absolute costs of labour and transport are good predictors for survival. In continental Europe it is the Unit Labour Cost that counts. In this respect the growth opportunities and growth perspectives for the pharmaceutical sector in Belgium look bright.
So in order to make this success story last, we have to make sure highly skilled labour remains affordable. In Belgium there is 75 per cent discount on the income tax for researchers. The federal government decided last month to increase this discount further to 80 per cent. With a total annual budgetary cost of more than half a billion euro, this is not a cheap measure. And one that my party has fought hard for indeed. Together with the patent deduction, introduced in crisis year 2008, these are measures that prove Belgium is committed to support and encourage innovative industries such as the pharmaceutical sector.
It shows our commitment – especially in times of crisis – to every company that is investing in research and development. Every entrepreneur that is on the frontline of innovation, shaping our society and preparing it for the decades to come.
For the record: this federal government is committed to curbing the labour costs in general. During the budget talks last autumn, we took serious action to downsize the wage gap with our neighbouring countries. We adjusted the basket on which the wage indexing is based. We proclaimed a wage freeze ànd we lowered the employer’s contribution with half a billion per year. Altogether an annual 2.2 billion euro injection that goes straight to the companies in Belgium. Thus improving their competitive position vis-à-vis their European peers. By 2018 the wage gap with Germany, France and the Netherlands should again be zero.
But that is 2018. Looking to the more near future, I am especially concerned about having sufficient liquidity in the capital market for pharmaceutical firms. Biotech and Pharmaceutical research is expensive and it takes time to ripen. It is also extremely volatile in nature. The outcome of it: very uncertain. In short: it is expensive and huge amounts of capital are involved. So it does not come as a surprise that long term commitment of investors and moneylenders is essential for your sector. The soon to follow implementation of Basel III will make it harder for banks to lend large amounts with long durations.
The Economist recently called this the impending “bank-shaped hole”. A hole that will have to be filled by other players in the capital market. The role of government in all of this? To set the preconditions right. If Basel III really will tighten financing, we have to take action by reorganising the movable withholding tax on capital gains. We will have to lower it for certain categories such as subordinate corporate bonds or over the counter share issue. Some say these kind of measures will cost us too much money. I see it as an investment in our future. A support in the back of entrepreneurs that seek money to grow. Entrepreneurs that make our economy grow.
This is especially true for the pharmaceutical sector. Because your companies are not only important for the health of our economy , but for the health of our society as a whole. We all know that large parts of the world population are ageing: here in Belgium, in the UK, Europe and the US. But also in China. I know this as a pension minister. You know it as an interested industry. For me it is a budgetary concern for the long run. For you it opens up business opportunities. As a budgetary orthodox I want to keep health care spending under control. The share of our health care budget that goes to the reimbursement of medicines went down from 14 per cent in 2005 to 12 per cent today. Some of you in the sector are worried about this trend. I dare to say this fear is not necessary. There are ways to align our interests. So that both the public and private sector can hold clean balance sheets with ultimately the citizen as winner: disposing of high quality and low cost health care.
How can we make this happen? Allow me to start with a generally accepted prediction: healthcare spending will continue to rise. Not only because of inflationary drivers, but because improved health means greater national wealth. And that is something no one can be opposed to. People expect health care to be top notch at any time in their lives. The distinction between basic health care and other treatments will disappear in the near future. Moreover, this is a very rational and sensible demand of people. Because state of the art health care for all, is indispensable to have a healthy economy in the literal sense of the word. If health care is inadequate it affects labour productivity. And labour productivity is a cornerstone if we want to foster industry in Europe as we know thanks to the Boston Consulting Group.
But BCG is not alone with this view point. The Milkin Institute, a US think tank, computed that the loss to the US economy because of suboptimal health care can be considerable. The Milkin Institute looked at the treatment of several severe conditions. They found that government’s expenditure on the treatment of these conditions was far less than the economic loss that resulted from it. I know you should always consider such calculations cautiously but it is nevertheless a clear signal that in some domains our health care level is up for improvement.
Our strategy to tackle this issue should be the following. We should develop a common platform in which we meet regularly to develop a framework where social and industrial needs are brought in line with one another. No meetings free of engagement, no broad and general talks. We need activities that are lead purposefully. Two examples of what this would look like in practice.
One: make competition do what it is best at on the off-patent market. This will create substantial budgetary margin on the government’s account. A margin of which at least half can be reinvested in the private sector that develops innovative healthcare technologies. Companies that deliver products and solutions that are in line with the needs of society, can be compensated for it. This idea has been dubbed “responsible innovation”. It will complement the profit motive in medical R&D, thus creating a win-win situation for the pharma sector and the public sector.
Two: we should rethink our patent model. Today a patent life time is fixed at 20 years and can be renewed once. Regardless of how difficult or easy it was to create the medicine. Irrespective of the development costs that were attached to it. I dare to say we could do better than this very crude benchmark. Patents should be based more on the actual research cost instead of having the same life span for every new medicine. This is typically something government and sector could think about and work out together.
Ladies and Gentlemen,
This government created a biopharmaceutical platform. More than ever this platform should be used to advance the common framework our health care system needs. I know some of you are closely involved and will confirm our willingness to make true progress on a couple of essential ‘construction sites’ in health care. In the decades to come we should pursue our efforts in that direction.
What will the medicines of the future look like? How much will they cost to develop and is there enough capital available to make it happen? How much can governments afford themselves to reimburse? Important questions that need a coordinated answer. I am glad you gave me the opportunity to reflect upon it today together with you. But let this only be the beginning of a fruitful and stable dialogue between our sectors.