“The pharmaceutical industry is a major contributor to quality of life and prosperity in Switzerland. At the same time, Switzerland traditionally provides an attractive operating environment for innovative pharmaceutical companies. However, it is increasingly losing ground to other countries in terms of competiveness.” (Interpharma, p.7)
The Swiss pharmaceutical sector has a major impact on Switzerland’s economy and the well-being of its citizens in general. It is a true example of a world-class innovation hub and is one of the industry’s global leaders when it comes to R&D activities. Nonetheless, one of the concerns - often pointed out in public - is whether the pharmaceutical industry in Switzerland will be able to overcome the rising challenges of the vibrant environment in which it operates and will be able to retain its top position in the future. With this in mind, we revisit how it has evolved and discuss its current importance for the whole economy.
Economic impact of the Swiss pharmaceutical industry
Click here for details about the data we used for this analysis
Steady increase of pharmaceutical jobs: Data is taken from ILOSTAT database. Employment data comes from local labor force surveys which cover only the resident population. This means that the employment figures do not cover cross-border commuters. In addition, given that an employed person may hold several jobs, employment refers to his or her primary job only. Finally, this data covers all persons of working age who, during a specified, brief period, were either in paid employment or self-employed.
Swiss pharma is highly productive: Data on gross value added is similar as before. In addition, we used labor force survey data on the number of employees from ILOSTAT database; firms survey data on the number of jobs from FSO; and data on cross-border workers from FSO database. The FSO defines a job as follows: “The term “jobs” refers to all positions of employment that are filled. While largely covering the same concept, “jobs” and “employed persons” do not always coincide, given that an employed person may hold several jobs. In such cases, the employed person holds one primary job and one or more secondary jobs”. In addition, ILO data on employment covers only the residents, given that this data is collected via local labor force surveys. We utilize these differences to create three distinct labor productivity indicators, primarily by assuming that ILO employment data represents a good approximation for jobs held by Swiss residents.
Swiss pharmaceutical exports to each partner country over time: Data on exported goods is taken from the OECD. Exports are measured using freight on board valuation methodology and are adjusted for re-export values (whenever possible). The values show Swiss pharmaceutical exports to each partner country in total Swiss pharmaceutical exports.
Today, the pharmaceutical industry directly employs around 33’000 individuals with permanent residency in Switzerland. Furthermore, around 7,000 cross-border commuters work in the Swiss pharmaceutical sector. The interactive graph below illustrates absolute and relative employment figures in the pharmaceutical industry across different countries. Although the absolute numbers may seem to be low, the share of employees in the Swiss pharmaceutical sector in total number of employed individuals is twice those of the USA, Germany, France or Italy. Interestingly, the share of employment in the pharmaceutical industry in Switzerland is similar to Belgium, but the Swiss workers are creating a much higher economic impact than their Belgian colleagues. This suggests extraordinarily high productivity levels of workers in the Swiss pharmaceutical industry.
Steady increase of pharmaceutical jobs
Source: CIEBs’ own estimations based on data from the ILOSTAT. The data used for this plot is available on GitHub.
Even with rather “low” numbers of employed persons, the pharmaceutical industry in Switzerland is generating an immense added value for the Swiss economy. This implies a very high level of labor productivity relative to other manufacturing industries (even taking into account the large number of cross-border commuters employed in the sector). Hence, in recent years, the pharmaceutical industry has contributed substantially to the wellbeing of the Swiss, accounting for more than 5% of the total gross value added (GVA) in the economy (see Federal Statistical Office of Switzerland, FSO). However, the true rise of the Swiss pharmaceutical industry began only after the year 2000, when it overtook two other big Swiss industries – the manufacture of computer, electronic and optical products, which also includes the world-famous Swiss watches, and the manufacture of machinery and equipment.
Pharma’s growing importance for the Swiss economy
Source: CIEBs’ own calculations based on data from the FSO. The data used for this plot is available on GitHub.
The fact that less than 1% of the labor force generates more than 5% of Switzerland’s total value added is remarkable and deserves more attention. Obviously, the following question arises: How dependent on foreign workers is the Swiss pharmaceutical sector’s high productivity, especially on cross-border commuters? In order to illustrate this, we present three productivity estimates that use different definitions of the number of employees: (a) workers with residence in Switzerland, (b) total number of jobs and (c) workers with residence in Switzerland + cross-border commuters. We define the labor productivity for each sector as the GVA in CHF per worker.
The labor productivity in the pharmaceutical sector varies heavily, depending on the definition of workers used. Taking into account the cross-border commuters, the productivity estimates drop by roughly 30% and when considering the total number of jobs, it drops by nearly 40% compared to calculations based on the Swiss residents only. This highlights the fact that the Swiss pharmaceutical industry’s performance is substantially dependent on access to the foreign labor force. This result also coincides with another of our analyses within the Innoscape Project on the Importance of cross-border commuters for inventions ‘Made in Switzerland’. However, regardless of the indicator used, the labor productivity of the pharmaceutical industry is by far the highest among Swiss manufacturing sectors.
Swiss pharma is highly productive
Source: CIEBs’ own estimations based on data from the ILOSTAT and the FSO. The data used for this plot is available on GitHub.
The market for pharmaceuticals is global
Access to skilled labor from abroad is important, but free international trade may be even more significant for the growth of the Swiss pharmaceutical industry, since home-market is limited in its size. Thus, Swiss pharmaceutical firms are required to nurture their export activities. Although Swiss pharmaceutical export figures have been rising steadily in the last 30 years, there are some potential caveats concerning these export trends. For example, back in 1990, pharmaceutical products comprised less than 10% of the total Swiss exports to most destinations. Yet, in 2019 the share of pharmaceutical exports made up almost 30% of the total exported goods in most of the destination countries, making the overall Swiss export performance increasingly dependent on a single sector (for a deeper investigation of potential risks associated with such an increased export concentration, see our report for the SECO in German language CIEB, 2017).
Swiss pharmaceutical exports to each partner country over time
Select a continent
Notes and source: Currently not optimized for mobile views. CIEBs’ own estimations based on data from the OECD. The data used for this plot is available on GitHub.
Furthermore, the geographical dispersion of export destinations is also changing. In 1990 around 8% of total Swiss pharmaceutical exports went to the USA, while in 2019 this share was roughly 26%. On the one hand, a larger export orientation towards the USA (and Germany) could produce certain concentration risks. But on the other hand, it may reveal important geographical innovation patterns and collaborations in facilitating new approaches in future research. In other words, the flow of pharmaceutical products may trail the flow of knowledge. Irrespective of this geographic pattern, the question generally arises as to whether the Swiss pharmaceutical industry`s extraordinary success story can be continued in the future. This depends to a large extent on its innovation activities, which is what we will discuss in what follows.
Swiss Pharma: A world class innovator
“The core task of research-based pharmaceutical companies is to combat disease by developing innovative medicinal products and to make these medicines available to patients as quickly as possible” (Interpharma, p.9). Hence, innovation is key in the pharmaceutical sector. Moreover, protecting intellectual property through patents is an important aspect of the Swiss pharmaceutical industry’s R&D activities. According to Severin Schwan (CEO of Roche), without patents there would be no innovation in the pharmaceutical sector (Interview in Prism, 2013). In the scientific literature, patents are often used as a proxy for innovation and as a metric for deriving knowledge flows, an aspect which we will cover later in this report. Even though patents are, of course, an imperfect measure, they still represent a standardized indicator in evaluating knowledge diffusions and innovation effectiveness of an economy (for a recent literature survey, please see: Arvanitis, Seliger and Wörter, 2020).
The Swiss pharmaceutical sector is often denoted as “one of the most important centers of pharmaceutical research worldwide, with a reputation that reaches far beyond Europe” (Interpharma, p.7). However, as one can investigate in the figure below, the number of published patents in the pharmaceutical sector in Switzerland seems to have been slowly losing its pace since 2008, a trend also visible in many other countries. In addition, during the same period the share of pharma patents in total patent applications is also declining, from 17% in 2007 to 7% in 2015. This indicates that, relative to other industries, the Swiss pharmaceutical sector has lost some of its importance for the overall domestic innovation activity. Note, however, that these figures represent patent counts, which are quantitative measures of innovation. In turn, these measures can’t say much about the quality and importance of new inventions in different sectors. Furthermore, and notwithstanding its relative decline, the pharmaceutical sector continues to rank high when it comes to the innovation intensity in total patent applications.
Patent Counts: the Output of Pharmaceutical R&D
Click here for details about patent counts
Our patent counts include only the so-called triadic patents. They are registered by all three major patent offices (European Patent Office, Japan Patent Office and the US Patent and Trademark Office) and protect the same invention. By taking such patents into account, home advantage and the influence of geographical locations are significantly reduced. However, our triadic patent counts may differ somewhat from the OECD database in absolute values. This is because the OECD dataset is based on patent families while ours includes all distinct USPTO and EPO patents (i.e., the number of all non-equivalent patents) belonging to a triadic patent family. USPTO patents are derived from patentsview.org (considering data till August 27, 2020) and EPO patents from the OECD intellectual property (IP) statistics and analysis database (considering data till January, 2020).
In order to assign patents to geographical affiliations, we use the inventors’ residence. In the case of inventors coming from different countries, the geographical division is assigned and then summed as shares. For example, if one inventor comes from the USA and the other from Japan, the same patent will be assigned as 0.5 to the USA and 0.5 to Japan (for more information on how to determine the origins of patents see Importance of cross-border commuters for inventions ‘Made in Switzerland’). For Switzerland, we additionally take patents invented by cross-border commuters into account. For details, see our report on the Importance of cross-border commuters for inventions ‘Made in Switzerland’. To assign patents to years, we use a patent’s priority year and limit ourselves to considering only patents up to the priority year 2015 (for a detailed explanation, see the methodology box in Importance of cross-border commuters for inventions ‘Made in Switzerland’).
The indicator absolute numbers show pharmaceutical patent counts for each country. The indicator % of total patents represents the share of pharmaceutical patents in total patent applications across each country and RCA of pharma patents represents the so-called “revealed comparative advantage” in patenting pharmaceutical products. It is the share of pharmaceutical patents in total patents of a country divided by the share of worldwide pharmaceutical patents in total patents worldwide. Thus, it represents a measure of international innovativeness of an industry relative to the entire economy of a country.
Source: CIEBs’ own calculations. For details, see methodology box.The data used for this plot is available on GitHub.
Switzerland also enjoys a very high revealed comparative advantage (RCA) in creating pharma patents (among the top 10 countries worldwide). The RCA is a measure of the international innovativeness of a country’s specific industry relative to the entire economy. In other words, the high RCA of the Swiss pharmaceutical industry means that Switzerland possesses a particular strength in pharmaceutical innovations compared to the rest of the world.
It is also interesting to explore the geographical concentration of innovations in the pharmaceutical industry within a country. For this purpose, you can click on the tab regions in the figure below and investigate the patent applications of the 76 most important pharma clusters worldwide. Not surprisingly, most Swiss innovations in the pharma industry are concentrated in the region of Northwestern Switzerland, with Basel as its center. Indeed, the region of Northwestern Switzerland ranks very high among the world’s most important pharma innovation regions. Being the home to Swiss (and the world’s) pharmaceutical giants - Novartis and Roche, it is a place to be if you are interested in healthcare innovations. Among the most important regions for pharmaceutical research worldwide, Northwestern Switzerland takes the 16th place (according to the patent rankings in 2000), leaving numerous US, Japanese, German and other regions behind. Some other regions in Europe, however, are ahead in terms of absolute numbers of patent applications, but taking into account relative terms and, thus, differences in size across the regions, Northwestern Switzerland ranks number one in Europe as shown by our RCA-index.
Apart from investigating patent activities of countries and regions, the bigger view of continents is also interesting. America (predominantly North America) is still the world leading continent when it comes to the number of filed patent applications in the pharmaceutical sector. In addition, Asia surpassed Europe in 2014 and took its long-held place as the second most important pharma patenting hub, slowly approaching America’s numbers.
All in all, this analysis shows that the Swiss pharmaceutical sector, and, in particular the companies in the region of Basel, are still among the world leaders in innovation.
Let us conclude with a few takeaways. As our short outline shows, the Swiss pharmaceutical industry is one of the most important pillars of the Swiss economy. In addition to a growing number of employees and very high labor productivity, this is reflected in steadily increasing exports to the whole world. Innovations are crucial to ensure that this remains so in the future. With this in mind, it is very important to note that pharmaceutical firms located in Switzerland continue to be one among the world’s leading innovators. Therefore, it seems quite likely that the pharmaceutical industry will continue to contribute substantially to the economic prosperity of Switzerland.
Main takeaways
Employment shares of the domestic labor force in the Swiss pharma sector is twice that of the USA, Germany, France or Italy
Less than 1% of the labor force generates more than 5% of Swiss GDP
Taking into account the cross-border commuters, productivity estimates drop by 30%
In 2019, 30% of Swiss exports are pharmaceutical products and 26% of the total Swiss pharma exports go to the USA
Innovation activities in the Swiss pharmaceutical sector are still at a high level, but some new innovation hubs are strongly emerging
This report was written using R Markdown, JavaScript and R shiny. For the creation of the patent data set, we used sciCORE scientific computing center at the University of Basel. Data and code to reproduce the figures presented in this article are available on GitHub.
