IHS Global Insight Perspective | |
Significance | International pharmaceutical companies are hitting back at the blanket drug-price cuts introduced in Greece during early May, with two Danish producers—Novo Nordisk and Leo Pharma—announcing product withdrawals, and German producer Merck KGaA lodging an appeal with the Greek government. |
Implications | The pharmaceutical industry's response to these cuts was expected to be strong, although the companies concerned have left open the possibility of negotiation with the Greek government. Meanwhile, the position of pharma companies concerning the Greek price cuts is also affected by the huge debts owed to them by the Greek healthcare authorities. |
Outlook | Much depends on the overall economic situation in Greece, and whether it will stabilise to a degree that will make it manageable for the government to reach some compromise deal with pharma companies over prices. In the meantime, it can be expected that more international pharma companies will announce product withdrawals. |
The director-general of Danish pharmaceutical company Novo Nordisk, Lars Rebien Sorensen, has commented that the decision of the Greek government to reduce the price of certain drugs by as much as 25%—including insulin products marketed in Greece by Novo Nordisk—is "unacceptable", emphasising that there was no possibility of the company accepting these conditions, reports Reuters (see Greece: 5 May 2010: Temporary Blanket Drug Price Cuts Will Have Dire Consequences, Warns Greek Pharma Association). Sorensen adds that such a sharp reduction to prices in Greece could affect prices in what he described as "more important markets", explaining that for European markets that use Greece as a reference country in the setting of drug prices, and also for some countries outside Europe, the Greek cuts will have the effect of a "contagion", reports the source.
Withdrawal of Novo Nordisk Insulin Products to Affect Around 50,000 People
Sorensen is quoted by Reuters as saying that within several weeks, the company’s most "modern" insulin products will start to be in short supply on the Greek market, explaining that pharmaceutical wholesalers have stopped ordering these products, which they will be required to sell at a loss until supplies run out (see Greece: 21 May 2010: Novo Nordisk Withdraws Products from Greek Market Following Mandatory Price Cuts; Reimbursement Withdrawn for 253 Medicinal Products). Some 50,000 diabetics in Greece will be affected by the withdrawal of these products, Danish newspaper Fyens Stiftstidende quotes Sorensen as saying. He told the source that the company had decided, with reluctance, to continue selling its older types of insulin, despite the fact that their prices were being reduced by 25%. Sorensen is also reported as saying that he hopes the Greek government will come back with a compromise offer to make it possible for the company to continue selling its modern insulin products, although he would not reveal what price cut would be considered acceptable.
LEO Pharma Gives Three Months’ Notice
Meanwhile, LEO Pharma, another Danish producer of innovative medicines, which specialises in dermatology, is already reported to have announced its intention to withdraw two products from the Greek market. However, it is reported by the Financial Times that the company plans to continue marketing 11 of its 29 products in Greece, indicating that it would withdraw 18 products in total (see Denmark - Greece: 31 May 2010: LEO Pharma Announces Withdrawal of Several Products from Greek Market Due to Mandatory Price Cuts). This source also reports that LEO Pharma has given the Greek government three months’ notice, in the hope that it might offer an alternative solution. Gitte Aabo, LEO Pharma’s chief executive, is quoted by the Financial Times as saying that the cuts are unprecedented in her 18 years in the pharmaceutical industry, and that they are much more damaging than the healthcare reforms in the United States.
Merck KGaA Files Appeal, AstraZeneca Questions Legality of Cuts
According to the Financial Times, German pharmaceutical company Merck KGaA has submitted an appeal against the price cuts to the Greek government, stating that they are unjustifiable on any legal or scientific basis. However, the company will continue to supply its drugs in Greece. A spokesman for U.K. pharma company AstraZeneca is quoted by Reuters as saying it does not plan to withdraw any of its products from Greece at this stage, although it questions the legality of the decision; AstraZeneca is working together with the Greek association of pharmaceutical companies to attempt to persuade the Greek government to reverse the price cuts, the source reports.
International Pharma Companies Owed Millions of Euro by Greek Authorities
Novo Nordisk and LEO Pharma are owed 24 million euro (US$29.1 million) and 244 million euro, respectively, by the Greek authorities, according to French newspaper Le Figaro. This is part of the huge debt owed by the Greek healthcare authorities to international pharmaceutical companies, which has been a major issue for the pharma industry in Europe for several years, and despite promises of repayment, is still a contentious issue (see Greece: 15 February 2010: Progress Made in Clearing Greece's US$9.5-bil. Hospital Debts to Pharmaceutical and Medical Device Producers).
Outlook and Implications
Considering the continued lack of repayment of the substantial debts owed by the Greek healthcare authorities to drug producers, there is unlikely to be a great deal of sympathy from the producers concerning the need to make drastic cuts to the national deficit by means of reducing expenditure on drug reimbursement, among other things. However, the actions of Novo Nordisk and LEO Pharma will doubtless be painted in terms of "putting profits before patients" in certain spheres in Greece, however inaccurate this sentiment is. The fact that LEO Pharma has given the Greek government a notice period in which to reconsider the price cuts on its drugs leaves open the possibility that some kind of compromise may be reached, although this would appear to be dependent on development of the situation in Greece and Europe in general; if the situation on the Greek economy stabilises, a compromise would be more likely.
Producers of medium-to-high priced drugs stand to lose the most from the Greek price cuts: prices of reimbursed drugs costing between 1.01 and 5 euro per unit have been cut by 5%, while those priced between 5.01 and 20 euro per unit have been cut by 20%, with three further tiers of cuts, up to 27%. Therefore, it is to be expected that more producers of drugs in these categories will follow suit; as yet, no generics producers have voiced any intention to withdraw from the Greek market, despite the fact that their products are subject to an extra 10% cut on top of the tiered price cut.