Hungarian Pharma Law Change Will Affect Industry Adversely; Egis Warns of R&D Freeze

Hungary's parliament adopted a bill on 27 June that provided amendments to a number of acts relating to the regulation of pharmaceuticals in the country, which will result in significant changes being introduced in the country's pharmaceutical regulatory environment, to the detriment of the pharmaceutical industry, reports global legal and regulatory news provider Mondaq. The measures included in the bill have already been revealed as part of the so-called "Szell Kalman Plan" to reduce public deficit in Hungary. The bill, which requires the signature of the Hungarian president, but was expected to come into force from 1 July, includes measures limiting the concessions pharmaceutical companies can claim on research and development (R&D) activities, and imposing much stronger restrictions on the potential areas of activity between pharmaceutical companies and healthcare professionals. One of Hungary's major pharmaceutical producers, Egis, has already stated that its operations will be affected adversely by the measures in the bill, and has warned that the future of its R&D activities—and consequently a good number of jobs in Hungary—could be under threat.

Main Measures in New Pharmaceutical Regulation Bill

• The 12% reimbursed drug sales levy, due from companies that produce and supply medicines reimbursed in Hungary, is increasing to 20%.
• The fee for the registration of pharmaceutical company sales representatives is to be doubled, so that it will now be 832,000 forint (USD4,507), rather than HUF416,000 each month, according to the source (although it seems more likely that this is an annual figure).
• Changes are being made to the system under which deductions can be made on the extra payments charged to pharma companies based on the Pharma Economic Act (such as the reimbursed drugs levy and fees for pharmaceutical reps) depending on the level of a pharmaceutical company's R&D expenses: the previous Hungarian government had intended that in 2010, and potentially continuing after that, Hungarian-based pharmaceutical companies investing a sufficient amount in R&D would be entitled to claim back 100% of these expenses. The source does not specify what proportion of the expenses it will be possible to claim back, noting that it will depend on the R&D spend of each pharmaceutical company.
• Pharmaceutical companies will have to notify the relevant authorities at least 30 days in advance of any scientific or professional event taking place involving the sponsoring of healthcare professionals.
• The relevant authorities will be entitled to have access to agreements made between pharmaceutical companies and healthcare professionals.
• The maximum possible fine for holders of marketing authorisations for medicinal products if they are found not be complying with the regulations regarding promotional activities is increasing to HUF500 million.

Egis Warns of Freeze for R&D Activities

Meanwhile, the second largest Hungarian pharmaceutical company—generics producer Egis—has announced that the change in the law threatens the future of its R&D activities, reports Hungarian medical news provider Weborvos. The source reports that, rather than being able to claim back 100% of its extra expenses, Egis will only be able to claim back 50%, which it is claimed will result in the company being HUF5 billion worse off than otherwise.

Last Minute R&D Concession Change

Hungarian economic news provider Portfolio reports that under an amendment to the package of laws that was due to come into force on 1 July, a measure was included at the last minute that means that if the R&D spend of a pharmaceutical company is above a specified level, then the company will indeed be able to claim back the extra expenses in full. The source reports, however, that on the basis of its R&D spending last year, Egis will only be able to claim back 50% of its extra expenses, while its rival—the largest Hungarian pharmaceutical company, Gedeon Richter—will be able to claim its extra expenses back in full. Thus, it appears that when Egis was planning its 2010 R&D activities, under the previous government's plans, the company expected to be able to claim all the extra expenses back, but with the changes made by the new government, it will manage to claim only half.

Outlook and Implications

As expected, considering the present Hungarian government's substantial majority, it has been able to pass the bill including the first group in a series of measures designed to reduce the country's drug reimbursement bill by around one-third by 2014 (see Hungary: 18 May 2011: Hungarian Government Confirms Increase in Reimbursed Drug Sales Levy and Sales Rep Fee, Plus Generics-Boosting Measures). Hungary has been at the cutting edge in terms of its pharmaceutical cost-containment legislation since its Pharma Economic Act of 2007, and these new measures further intensify those brought in under that act. The Hungarian pharmaceutical market and the country's pharmaceutical industry, which have remained buoyant despite the challenging regulatory conditions they face—with continued growth in sales of medicines and new investment by pharmaceutical companies in production and R&D facilities, notably by Egis and generics major Teva (Israel)—would now appear to be under considerable threat. News that the government plans to reduce drug-reimbursement expenditure by HUF83 billion in 2012 will further compound this sense.