Swiss biotech industry weathers upset

Swiss biotech today ranks among the top ten in the sector worldwide Keystone

The decision by Merck Serono to close its Geneva site has been a shock to western Switzerland. But seen from a wider perspective, the closure may generate opportunities for emerging biotech companies in this still young industry.

Merck announced in April that it would close down its Geneva operation, which employs 1,250 people. The plan will result in the largest layoff the city has ever seen and has been described by the union Unia as an earthquake.

The move is particularly deplored as it is less than six years since Darmstadt-based Merck bought Switzerland’s flagship biotech company Serono for SFr16 billion ($17 billion).

“Serono was a bit of a white knight in this part of the country and acted as incubator for smaller companies. With this move the brand ambassador for biotechnology in the Lake Geneva region will disappear,” Domenico Alexakis, executive director of the Swiss Biotech Association, told swissinfo.ch. “It’s a testimonial [of the state of the industry], but also a signal to the authorities to take good care of the industry.”

The life sciences industry clustered around Lake Geneva in fact offers everything needed to absorb such a shock: As many as 300 companies (including suppliers and service providers) are active in the region, according to Benoit Dubuis, president of BioAlps, one of the four Swiss life-science organisations promoting regional biotechnology and medical technology.

For Dubuis, who works at industry platform and investment vehicle Eclosion, the measures are dramatic, but they also generate opportunities for emerging companies.

Not the end

Swiss biotech today ranks among the top ten biotech industries worldwide and is an important pillar of the Swiss economy with multinationals and dynamic mid-sized companies, which generated revenues of SFr8.7 billion in 2011.

Overall, Switzerland is home to 249 firms, three quarters of which are core biotech. As a whole, the sector employs more than 19,000 people.

Larger drugmakers such as Novartis, Roche and Merck are vital for smaller players because they outsource research contracts to biotech companies and universities.

At the same time, big pharmaceuticals rely on research partners to develop their pipelines: Four out of five products at larger pharma companies were originally developed by smaller companies or research institutes, Dubuis told swissinfo.ch.

The 500 job cuts and 750 relocations are part of a programme to reduce costs, eliminate inefficiencies and streamline the business to secure Merck’s future, said the company, which employs 40,000 people worldwide.

With slowing economic growth, the euro crisis and the continued strength of the Swiss franc, the step by Merck makes sense from a business point of view, according to both Alexakis and Dubuis.

Merck is not alone with its problems. Last year, Swiss companies across all industries including drugmaker Novartis, elevator manufacturer Schindler and Credit Suisse announced job cuts that dwarf the planned losses in Geneva.

Drugmakers also continue to be under pressure from governments, insurers and regulators to cut drug prices, while getting a product to the market requires more research, time and money.

Flicker of hope

Jürg Zürcher, Europe, Middle East, India and Africa (EMEIA) Biotechnology Leader at Ernst & Young, told swissinfo.ch that the closure will offer existing companies the opportunity to hire experienced personnel, as already happened when Serono was sold to Merck.

Alexakis takes a similar view. “On the job level, I think this will be digested relatively well in the short to medium-term,” he said.

The second biotech employer in the region after Merck Serono is Ferring with about 650 people in Saint-Prex, followed by Debiopharm with 300 people. UCB of Belgium has invested €250 million (SFr300 million) in Bulle, where it plans to create 140 new jobs.

The industry associations are also encouraged about Merck’s announcement that it has committed €30 million to help employees seize spin-off and start-up opportunities.

“It’s a flicker of hope. There’s a good knowledge base and good venture capital and demand in the region,” Alexakis said. 

However, the trade union representing many Serono workers, Unia, is far from convinced that the full €30 million will stay in the region.

Furthermore, the prospect of new start-ups filling the gap left by Serono is a long way off, according to Unia spokeswoman Anne Rubin. In the meantime, a range of companies that supply Serono will have to make up for the shortfall by other means, she added.

“Of course new start-ups could emerge, but they would take years to establish themselves,” Rubin told swissinfo.ch. “This is a business where even research cycles take a lot of time.”

Start-ups

The region is home to a clutch of start-up companies such as AC Immune, Novimmune and GenKyoTex as well as larger international companies including Shire, Celgene and Baxter.

The Merck site closure is also not expected to hurt fundraising for promising companies and institutes because venture capitalists will fund innovative ideas anyway, said Zürcher.

“Smaller companies have been keeping their costs under control for quite some time as capital wasn’t as easy to get, especially for young start-ups and early-stage companies,” said Zürcher.

Investors look for advanced product pipelines with convincing clinical data, a proven track record and an experienced management.

In the second half of last year, listed biotech companies including Cytos, Santhera and Mondobiotech had to announce restructuring measures, while industry showpiece Actelion told investors on May 8 that it aims to accelerate cost-savings initiatives.

Driving factors

Companies can certainly operate more cheaply abroad, which is why Switzerland has to try and keep value creation at home, said Alexakis. “It’s a challenge, but we have the advantage of innovation, not only for research but also for production processes.”

Switzerland has supported scientific research through the Swiss National Science Foundation (which offers SFr760 million in funding), the Commission for Technology and Innovation and the Swiss Federal Institutes of Technology in Zurich and Lausanne for years.

High education and research standards, political and economic stability, and an above-average quality of life will continue to be the factors driving growth in the biotech sector.

“Switzerland has been and will be a good location for research and innovation due to the high quality of the education system, the financial system and the support provided by the Swiss National Science Foundation and industry players,” Zürcher said.

Swiss biotech numbers 2011 (2010)

Companies: 249 (237)

Total employees: 19,197 (19,180)

Total capital investment: SFr458 million (SFr255 million)

Revenue: SFr8,696 million (SFr9,254 million)

R&D expenses: SFr2,068 million (SFr2,067 million)

Losses: SFr350 million (Profits: SFr480 million)

(Source: Swiss Biotech Report 2012)

Serono

Merck bought Serono from the Bertarelli family in 2006 for SFr16 billion ($17.5 billion). Last year, it generated €5.6 billion (SFr6.7 billion), or 60 per cent of Merck’s turnover, but its operational result was down 46 per cent to €304 million.

These results were blamed on writedowns at its Corsier facilties, the re-evaluation of some projects and the decision to drop oral multiple sclerosis drug cladribine from its pipeline after the United States Food and Drug Administration refused to authorise its sale over safety fears.

Serono made its earlier fortune thanks to another MS drug, Rebif, which has been on the market for 17 years, and has relied on it along with another product, Erbitux, to generate revenue.

Serono became a household name for many in Switzerland after Ernesto Bertarelli, the company’s previous owner, won the America’s Cup in New Zealand with his Alinghi syndicate in 2003.

Merck has announced that it intends to save €300 million per year as of 2014. However, making the savings will cost it €600 million.

(With input from Matthew Allen)