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Belgian tax break

A new incentive package could serve as a model for R&D funding across Europe
The European Union is changing. The Lisbon treaty will, if enacted by member states, fundamentally alter the way the Union operates across 27 countries. For those working in Brussels in healthcare, the change in the EU's approach to health issues for its citizens has been evolving for some time.

The latest manifestation of this is the Commission's announcement that it would not raise any objections, under EU state aid rules, to a series of tax reductions initially introduced by Belgium as part of the reform of the tax paid by pharma companies on sales of reimbursed medicines.

"On the surface this announcement was a simple matter of the EU engaging in a spot of competition regulation."

It is worth examining, however, why tax incentives have been deemed acceptable and even desirable for pharma, while they are largely not so in other industries.

First, it is important to note that these incentives offered by the Belgian government were not altruistic or high-minded, but a direct result of Belgium losing a potentially major investment contract from industry. This approach was based on national protectionist instincts or, more charitably, positive discrimination or job creation legislation. The way the package was amended and finally approved by the Commission could serve as a future model for R&D funding.

In the EU where open borders and fair competition are generally deemed desirable, and actively promoted, we might query any protectionist impulses of member states. However the Belgian incentive package underscores several key developments in health thinking at EU level. The most obvious is the continuing emotional and often visceral reaction of European institutions and indeed the general public to activities undertaken by the pharma industry. The phrase 'big pharma' still resonates, one suspects, in all 23 languages of the Union.

The way the package was amended and finally approved by the Commission could serve as a future model for R&D funding

In addition across EU stakeholder groups, there is an improved perception of the desirability of competition; a trend towards increasing involvement of other 'competencies' of the EU in health; and, in this Belgian ruling, there is a new-found commitment to evaluation and assessment, previously lacking in EU institutions.

If the Belgian model is replicated in other European countries, it could profoundly affect pharma marketing

The negative side first: the underlying assumption of the Belgian incentive package is that marketing and communications undertaken by pharma companies is inherently bad, and so should be secondary to 'real' investment in R&D. This might not be so surprising if there were parallels in other industries: however, there is no widespread impetus for manufacturers of 4x4s or cars with V8 engines to divest in marketing their ostensibly polluting products in favour of 'green' R&D, although perhaps that is just round the corner.

The definition of 'marketing' in an agreement such as this must  be queried. Will disease awareness campaigns be deemed as marketing if a company has a clear commercial interest in a specific therapeutic area? Will relationships with patient groups relevant to a company's commercial interests be defined as marketing? If marketing becomes in any way synonymous with communication, it could well give rise to confusion at EU level - and therefore in future regulatory decisions - in the ongoing debate on how to best allow effective communication to patients. This is important as regulations from Brussels will play a role in defining the parameters for these communications. The debate is not an easy one: how to define 'patient information' is a question that has been raging for years, and in fact once again appears on the Commission's 2008 work programme.

More positively, the EU has begun a series of discussions on how it should be involved in the health of its citizens, despite not having what Brussels defines as 'competency' in Health. For example, health may be considered in terms of employment or social inclusion, and so give the EU more say in it. In addition, the competitiveness of the Union, thanks to the Lisbon Strategy under the Barroso Commission, is high on the Brussels agenda. This means that even something as potentially 'Old Europe' as industry-protecting legislation for Belgian foreign investment is scrutinised under competition laws.

More interestingly, the Commission has put forth a 'health in all policies' [HIAP] position in its 2007 Health Strategy White Paper, which in theory will have wide implications in how the EU addresses the health of its citizens, and how it views relations with the healthcare industry. Objective 3 of the Strategy, which details the HIAP proposals, specifically calls for potential partnerships with industry. Other projects such as the Innovative Medicines Initiative, recently agreed between the Commission and EFPIA, demonstrate that the EU is not only taking health much more seriously, but is willing to engage on a large scale with a diverse range of partners to do so.

One final, excellent, aspect of the Belgian agreement is its commitment to assessment and evaluation: it guarantees transparency and at a stroke deflects criticism about the initiative being a 'carte blanche' for industry to reduce its tax burden without demonstrable benefits to R&D in medicine.

If the Belgian model is replicated in other European countries, it could profoundly affect how pharma marketing planning teams decide to allocate resources. One knee-jerk reaction from pharma has been to suggest that many firms would therefore engage in more generalised disease awareness and patient support programmes in response to reduced resources dedicated to market-specific products.

Besides defending the right to communicate information about products pharma has invested in, as an industry we must also take the time to defend the 'public sphere' where debates on the value of communications and the merits of commercial 'freedom of speech' can take place.

This does not mean - as is often suggested in sales meetings - that pharma should mount the battlements of unbridled capitalism for the right to declaim freely the value of the brand. Rather, companies should support the fundamental discussions about where the right to communicate those brand values exists.

As we look ahead to a Europe that is clearly redefining its remit in health, we need to acknowledge that Brussels and the public continue to scrutinise those of us in the business of keeping its citizens healthy. Accordingly, monies must be spent beyond disease awareness and product information activities in order to preserve the space for the debate. This isn't advocating a classic public affairs or government affairs programme, but rather a call for pharma companies to come together to create new ways for the industry to not only be involved with, but to make a positive contribution to, the evolving health agenda of the EU.

The Author
John Lotspeich is director of Weber Shandwick Health in Brussels,

26th March 2008


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