Market Insight: Big pharma hit by Greece's fiscal crisis
This article was originally published in Scrip
Hospitals' failure to pay pharmaceutical companies and newly announced price cuts are just some of the challenges facing the sector in Greece, Elizabeth Sukkar, Scrip's world editor, discovers.
While Greece is embroiled in eurozone talks to save it from bankruptcy and austerity measures to cut its soaring public debt, the Aegean nation may have forgotten about the billions of euros it owes pharmaceutical firms. The industry, however, has not.
For more than a decade now, Greek hospitals have struggled to pay for the medicines they obtain from pharmaceutical firms. This is evidenced by the number of settlements with pharma firms in recent history: in both 1998 and 2000, the government paid off its hospital debt to companies using state bonds; and in 2004, it paid off debt in cash on the provision that companies gave a 3.5% discount on the money owed. All members of the Hellenic Association of Pharmaceutical Companies (SFEE) agreed to this discount, bar for two firms – GlaxoSmithKline and Pfizer.
Yannis Chryssospathis, legal counsel for the SFEE whose members cover 95% of Greece's pharma market share, told Scrip that: "Most of the SFEE companies have a hospital debt problem, especially those that have medicines that are mainly used in hospitals."
Some of the obvious companies are Sanofi-Aventis and Novartis – the top two firms in the country in sales terms, see table 1 (data provided by IMS Health) – and Roche. (Sanofi-Aventis also markets the top-selling product in the country, the antiplatelet agent Plavix (clopidogrel); see Table 2.)
When the new socialist government came to power in October 2009, it said that it would start to pay some of the debt – namely €1.1 billion out of the cumulative €6.5 billion owed to pharmaceutical and medical device firms – by the end of 2009. Specifically, hospital debt (accumulated since 2005) for pharmaceuticals had reached €3.6 billion by the end of 2009, according to an SFEE report.
And it had also promised to pay all debt by the end of this month. To date, the government has paid firms only 60-70% of the €1.1 billion, says Mr Chryssospathis.
According to industry sources, the government now plans to give out bonds again to wipe clean the hospital debt, but it is uncertain how popular this would be with companies as Greece solves its budget deficit.
It is estimated that some 30 companies are going through the Greek courts to retrieve money from hospitals, including Sanofi-Aventis and Octapharma (a Swiss firm), but it is difficult to identify all companies as many are concerned the matter may become a "public relations disaster", said one source.
GSK queries eight-year-old debt
Lena Lyberopoulou, government affairs director for GSK Greece, told Scrip: "There is also concern regarding accumulated old debt from 2002-04 which has not been paid which amounts to approx €70 million whereby hospitals refuse to pay since there is no framework for this debt in the new government's proposal. Time passing, it becomes obvious that the government will not be able to stick to its commitment. Also the government recently called upon the industry to compromise and agree to a substantial discount."
Following the new government announcement and circular to hospitals in December 2009, relating to the immediate payment of the January 2005 – June 2007 overdue hospital debt, hospitals have been paying pharmaceutical companies. So far, invoices issued until June 2007 have been paid, accounting for 15-20% of the total outstanding.
"The problem remains for the debt accumulated since June 2007 until March 2010 and this is particularly critical for companies that have a major part of their business with hospitals," said one multinational industry source.
The government has promised a separate regulation will be announced in the first quarter of this year on how payment for debt for the July 2007 – September 2009 period will be made.
EFPIA - white knight?
The Greek pharma industry has an ally in the European R&D pharmaceutical trade association, EFPIA, which raised the matter with the European Commission last year, relating to Greece's non-compliance with Directive 2000/35/EC concerning late payments in commercial transactions. The procedure is expected to be long-winded, but the SFEE hopes the case ends up being heard in the European Court of Justice.
EFPIA told Scrip that: "[It] has formally asked the Commission to remedy the shortcomings in the application of Directive 2000/35/EC in Greece since the Commission is responsible for ensuring that Community law is correctly applied in member states. At this point in time there is no confirmation if the Commission will go forward with this dossier." About eight other sectors have also provided the Commission with similar observations, it believes.
EFPIA expects the College of Commissioners to be informed about the dossier in the next two weeks. The College will decide what action to take including the possible sending of a "letter of formal notice" to Greece. If this were to be the case this would be the first stage in the process which requires the member state to submit its observations by a specified date.
Based on the member state's response, the Commission may decide to give a "reasoned opinion", explaining why it considers there is an infringement of Community law and calling on the member state to comply. "If the member state does not change its behaviour then the case might be referred to the European Court of Justice," EFPIA added.
unpopular pricing policy
With hospital debt simmering in the background, the industry was dealt a further blow last month. On February 16th, Louka Katseli, Greece's minister of economy, competitiveness and shipping, announced a new medicinal products price determination policy to drastically reduce pharmaceutical expenditure by at least €1 billion per year – it had reached €6.6 billion in 2009, according to her data.
"We saw medicines were overpriced. We had to contain the cost of medicines," Nontas Chaldoupis, a spokesperson for the ministry of economy, competitiveness and shipping, told Scrip.
Ms Katseli told a press conference last month: "Our country up until today is one of the most expensive European countries regarding the prices of medicinal products, while at the same time is the third most expensive country in the world in generics."
She blamed excessive expenditure on other factors such as "extensive over-prescribing" and the abolishment of the reimbursement price list in 2006, which the government plans to reintroduce this year.
On March 4th, the parliamentary financial committee decided against including an amendment bringing the new policy into force as part of the fast-tracked finance bill aimed at reducing Greece's deficit. However, it will be re-introduced (and possibly amended as talks are held with stakeholders) as part of another bill in the next two to three weeks.
The ministry agreed that the amendment needed to be fully discussed "over two to three days – not just one evening", as some parliamentarians in the ruling Pasok party did not agree with the new pricing formula, said Mr Chaldoupis. A price list will be published soon after the law is passed.
Under the plans, 6,500 medicines will see an average price decrease of about 20% as prices are calculated in a new fashion: the average of the three lowest prices in the eurozone (16 countries use the euro). The new policy will change a pricing formula that had only been introduced in the summer of 2009 – that is, prices had to be the average of the prices in 26 EU member states (not Greece), including low priced Bulgaria and Romania, which joined the EU in 2007.
Preceding the summer of 2009, Greece had operated a "2+1" basket formula for medicine prices for the previous four to five years – the average of the two lowest prices derived from the EU-15 member states (before more member states' joined the EU in 2004) and the lowest price from one of the new EU member states.
The new policy – which will apply to all medicines, including the private sector, and will have a two-month transitional phase during which medicines will be sold at both prices – is not popular with the SFEE. Instead, it has proposed that "free pricing" be allowed for the private sector and cost-containment for the state-funded sector.
Roughly, in sales terms, 60% of pharmaceuticals are reimbursed by the state (through the many existing social security funds), 20% through hospitals and 20% out of pocket.
The social insurance funds spent an estimated €5.09 billion on medicines in 2009 (up by 11%) from €4.53 billion in 2008, according to data from the General Secretariat of Social Insurance. The pharmaceutical expenditure of the state insurance funds constituted 1.89% of Greece's GDP in 2008, rising from 1.78% in 2007, and 1.31% in 2004, according to data from the Greek National Statistical Service (ESYE).
IMS Health data for Greece, in US dollars, shows total pharma sector sales fell in real terms by 2% to $5.9 billion for the 12 months to the third quarter 2009, compared with 27% real growth in the year before (see Table 3). For IMS Health's forecasts for Greece to 2013 see Table 4 and for the top-selling therapeutic classes in the country see Table 5.
Parallel exports still a problem
Mr Chryssospathis says: "The new price policy is better than the existing one, but it does not go far enough to prevent parallel exports."
The industry is worried that a reduction in medicine prices can result in an increase of parallel exports, resulting in the risks of shortages of medicines in the local market and the expansion of the "fake prescriptions" phenomenon.
It believes the government's health deficit problems lay with the system's waste of resources. Dionysios Filiotis, president of the SFEE, wrote in the association's recent newsletter (October-November 2009): "Hospital debts to suppliers have reached unprecedented levels while waste of resources and mismanagement in the health system have reached equally disproportionate heights. It is obvious that the two issues are inextricably linked...Medicines, representing 20% of total health expenditure, pay the penalty for the waste of resources and mismanagement within the remaining 80% of total health expenditure."
The SFEE believes "technological streamlining and the thorough upgrade of the IT infrastructure of the health system is the only way to contain the expenditure and to save resources."
The other matter in the new pricing policy worrying pharmaceutical firms is the re-introduction of the reimbursement list, particularly as the government has not revealed the criteria it will use to place products on it. "Studies have shown that during the period when the list was implemented in Greece the public pharmaceutical expenditure continued to rise. So the list had no effect on the containment of pharmaceutical expenditure," argues the SFEE.
One area the Greek authorities should work on immediately to obtain quick results is the high prices of generic medicines. Generics make up only 13% of Greek pharma sales, according to EFPIA data. Compare that with 19% in the Netherlands, 20% in Italy, 29% in the UK and 30% in Germany – however Greece is not the only one at the lower end of the spectrum: Spain is at 7%, Ireland 8% and France 9.5%.
In Greece, generics are priced only at a 20% discount to the innovator's off-patent version, but in the new price policy, the discount will be 30%, a step in the right direction.
It makes it hard for the R&D industry to promote its case when the pharma sector is not one of Greece's strongest industries, such as shipping. The sector employs around 13,000 people – compare that with Switzerland's 34,440 drawn from a smaller population. Greece has the second-highest pharma trade deficit in Europe after Poland (according to EFPIA data) – it imports a good share of its medicines, and then to the frustration of the R&D-based pharma industry, medicines are then exported out of the country by parallel traders. It also undertakes relatively little pharmaceutical production – worth €704 million compared with Switzerland's €19.69 billion, for instance.
So hurting Greece's pharma sector may not cut much ice with the government.
Elizabeth Sukkar is Scrip's world editor. Her latest Market Insight was on Turkey, which analysed how the government's protectionist moves are affecting R&D-based pharmaceutical firms (scripnews.com, March 2nd, 2010). Email: [email protected]
Key Marketing Company(s) | Country Sales, 12 months to Q3 2009, $(millions) | Growth, 12 months to Q3 2009, $(%) | Growth, 12 months to Q3 2009, Fixed Rate $(%) |
1. Sanofi-aventis | 496 | -5 | 5 |
2. Novartis | 496 | 8 | 20 |
3. Pfizer | 463 | -11 | -1 |
4. AstraZeneca | 345 | -6 | 4 |
5. GlaxoSmithKline | 284 | -6 | 4 |
6. Merck & Co | 276 | -7 | 3 |
7. Lilly | 197 | -4 | 7 |
8. Johnson & Johnson | 180 | -11 | -1 |
9. Abbott | 173 | 3 | 14 |
10. Wyeth | 172 | 0 | 11 |
Total Others | 2,823 | 0 | 11 |
Total Greece | 5,905 | -2 | 9 |
Product Name | Active Ingredient(s) | Country Sales, 12 months to Q3 2009, $(millions) | Growth, 12 months to Q3 2009, $(%) | Growth, 12 months to Q3 2009, Fixed Rate $(%) |
1. PLAVIX | CLOPIDOGREL | 195 | -3 | 8 |
2. LIPITOR | ATORVASTATIN | 142 | -7 | 3 |
3. ENBREL | ETANERCEPT | 96 | 15 | 27 |
4. HUMIRA | ADALIMUMAB | 93 | 17 | 30 |
5. ZYPREXA | OLANZAPINE | 81 | -3 | 8 |
6. EXELON | RIVASTIGMINE | 78 | 11 | 24 |
7. CO-DIOVAN | HYDROCHLOROTHIAZIDE + VALSARTAN | 59 | 16 | 28 |
8. VYTORIN | SIMVASTATIN + EZETIMIBE | 52 | -14 | -5 |
9. SERETIDE | FLUTICASONE + SALMETEROL | 50 | -9 | 1 |
10. LEPUR | SIMVASTATIN | 49 | -1 | 10 |
Total Others |
| 5010 | -3 | 8 |
Total Greece |
| 5,905 | -2 | 9 |
| 12 months to Q3 2005 | 12 months to Q3 2006 | 12 months to Q3 2007 | 12 months to Q3 2008 | 12 months to Q3 2009 |
Country Sales, $(millions) | 3,536 | 3,726 | 4,765 | 6,041 | 5,905 |
Growth, $(%) | 22 | 5 | 28 | 27 | -2 |
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
Country Sales,$ (millions) | 5,573 | 6,028 | 6,515 | 7,014 | 7,569 | 8,157 |
Growth, $(%) | 10.40% | 8.20% | 8.10% | 7.70% | 7.90% | 7.80% |
Therapeutic Class | Country Sales, 12 months to Q3 2009, $(millions) | Growth, 12 months to Q3 2009, $(%) |
Cholesterol And Triglyceride Regulating Preparations | 443 | -1 |
Antiulcerants | 323 | -3 |
Antipsychotics | 284 | 1 |
Angiotensin-II Antagonists, Combinations | 224 | 11 |
Platelet Aggregation Inhibitors | 212 | -2 |
Specific Anti-rheumatic Agents | 210 | 16 |
Anti-depressants And Mood Stabilisers | 191 | -6 |
Anti-Alzheimer's Products | 163 | 1 |
Angiotensin-II Antagonists, Plain | 159 | -3 |
Bone Calcium Regulators | 121 | -4 |
Pure Vaccines | 107 | 17 |
Calcium Antagonists | 104 | -12 |
Combinations Of B2-stimulants With Corticoids | 101 | -1 |
Anti-epileptics | 96 | -2 |
All Other Antineoplastics | 95 | -10 |
Total Others | 3,070 | -4 |
Total Greece | 5,905 | -2 |