Cablegate: Promoting France's Competitiveness in the Health Industry

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PP RUEHIK
DE RUEHFR #1499/01 3131406
ZNR UUUUU ZZH
P 091406Z NOV 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC PRIORITY 7501
RUCPDOC/USDOC WASHDC PRIORITY
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 001499

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E.O. 12958: N/A

TAGS: ETRD ECON KIPR FR
SUBJECT: Promoting France's Competitiveness in the Health Industry

PARIS 00001499 001.2 OF 002

1. (U) Summary. President Sarkozy plans to make France the priority
destination for foreign investment in medical research, with the
healthcare industry becoming "a centerpiece of French
competitiveness" on par with France's aerospace and luxury goods
sectors. With new investment funds, business-friendly policy
changes, and a clear invitation to major U.S. companies, France is
hoping the health industry becomes an engine of economic recovery.
This initiative focused on the health industry is a good example of
how France under Sarkozy carries out industrial policy. Through tax
breaks and other measures, France is successfully attracting R&D
activity in key sectors, although regulatory issues, e.g.
restrictions on agricultural biotech and price controls on
pharmaceuticals continue, may give potential investors cause for
concern. End Summary.

The New And Improved Strategic Council For Health Industries (CSIS)

-----------------
2. (U) To launch his new plan to attract foreign investment to the
healthcare industry, President Sarkozy invited 15 CEOs of major U.S.
and other foreign pharmaceutical and medical device companies to
take part in a meeting of the Strategic Council for Health
Industries (CSIS), a council created by Jacques Chirac in 2004, but
which had not met for three years. Five ministers (Economy
Minister Christine Lagarde, Budget Minister Woerth, Health Minister
Bachelot, Industry Minister Estrosi, and Research Minister Pecresse)
took part in small roundtables, along with the President himself.
Sarkozy called the meeting step one in ensuring that the health
sector becomes an engine of economic recovery.

3. (SBU) Reinvigorating CSIS is step two: Sarkozy appointed a new
CSIS Chair, Thierry Tuot, an anti-trust specialist who has worked on
promoting competition in the French electricity market and more
recently on the Grenelle Summit for the Environment. Tuot will work
with the LEEM (Les Entreprises du Medicament) which represents all
the major French and foreign pharmaceutical companies, and France
Biotech, France's professional association for French life science
companies, which developed many of the proposals put forward by
Sarkozy. (Note: These proposals were, in turn, based on a recent
R&D survey of France by a Paris and New York-based health care
consultancy, AEC Partners, which boasts as one of its senior
partners the President's brother, Francois Sarkozy. End note.) The
CSIS will be institutionalized, with a permanent Secretariat to be
established in 2010.

Help Wanted: U.S. Investors Need Apply
---------------------------------------
4. (SBU) President Sarkozy's office made a direct pitch to U.S.
companies in particular, pushing back the date of the meeting to
accommodate the three American CEOs of Lilly, Pfizer, and
Becton-Dickinson, and placing the Lilly CEO face-to-face with
Sarkozy in a roundtable. The three companies told post that the
meeting was a great success, and that they welcomed some significant
policy gestures the French government made during the session. For
example, the government announced it will begin to allow
pharmaceutical companies to charge two prices for drugs: one fixed
price for drugs reimbursed by government health services and an
unregulated price for non-reimbursable drugs and/or exports. This
pricing strategy would prevent parallel imports that undercut market
strategy and sales in export markets, a key issue for U.S. firms.

Why the Plan Is Necessary: Strong Pharmaceutical
Industry But Biotech Lags
-------------------------
5. (SBU) France is Europe's leading drugs manufacturer and the
world's third largest pharmaceutical exporter behind Germany and the
United States. With over 200 manufacturing sites throughout France,
the industry employs over 300,000 people, directly or indirectly.
(Comment: Ireland is rapidly gaining on France; an Abbott labs
contact said Ireland has a better environment for investment, a good
English-speaking labor force and excellent transportation links.
While President Sarkozy boasted of France's dominance in the
pharmaceutical sector, the new plan is meant to keep France ahead of
the European competition. End note)

6. (U) France is less competitive in biotech. There are about 400
biotechnology companies in France, employing roughly 20,000 people,
and half of all new drugs produced in France are biodrugs. However,
no French biotech company is among the world's top ten, and biotech
investment in France is falling rapidly. France Biotech, France's
professional association for French life science companies, reports
a major drop in equity investments in French biotech companies:
funding fell by 79 percent between 2007 and 2008 (143 million euros
(USD 210 million) in 2008 versus 694 euros (USD 950 million in
2007). As a result, France Biotech is lobbying the government to
get its share of public funding for its life science projects and
fast-growing companies as part of the proposed "grand emprunt," or
special debt offering for strategic technologies and sectors.

PARIS 00001499 002.2 OF 002

New Funding and an NIH-style Research Arm
-----------------------------------------
7. (U) Sarkozy's technical adviser on health issues, Raphael
Radanne, told post that while France has skilled engineers and
expertise in chemistry and biology, links between public research
and private companies need to be strengthened. To that end, Sarkozy
and the CEOs signed an agreement for a newly-established 140 million
euro (USD 208 million) investment fund for innovative firms in the
medical biotech sector. The fund will be co-financed by the GOF's
Strategic Investment fund (FSI). Companies further committed to
invest 62.5 million euros (USD 93 million) through 2012 via
public-private research partnerships largely modeled on U.S.-style
agreements between universities and the private sector. To
facilitate these partnerships, France's eight public research bodies
will be merged into one NIH-like entity over the next three years.
Sarkozy's special debt offering will also likely carve out funds for
the pharmaceutical and medical device industries.

Keeping Counterfeit Drugs Out, and French Jobs In
--------------------------------------------- ----
8. (U) Sarkozy's plan will also beef up France's anti-counterfeiting
strategy by mandating that there be counterfeiting specialists in
all pharmaceutical companies capable of providing information in
real time, and over the internet, to authorities at ports and
airports. In 2008, French customs seized 880,000 counterfeit drugs,
a 41 percent increase over the previous year. To discourage
pharmaceutical companies from manufacturing generic drugs in
low-cost countries like China, India and Brazil, which could siphon
off 5,000 French jobs, Sarkozy's plan will allow them to produce
generics in France a few weeks before patents expire so that
products can be ready for sale as soon as the patent ends. In
France, the generic market now represents 20 percent of the drug
market, compared to four percent in 2004. France has been promoting
generic drugs as part of overall healthcare reforms.

Comment:
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9. (SBU) This initiative focused on health care offers a good
example of France's approach to industrial strategy. Incentives
such as tax breaks for companies engaging in R&D activities have
successfully attracted investment to France in key sectors.
However, regulatory issues remain an obstacle. Despite the
government's gesture on pharmaceutical pricing, it is not yet clear
that pharmaceutical firms carrying out R&D in France will be able to
recover their R&D costs in the French market. In biotech, France
continues to make a distinction between pharmaceutical biotech,
which it favors, and agricultural biotech, the development of which
has become virtually impossible in France. Similar regulatory
obstacles might emerge in the nano-technology industry as well.

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