The Romanian pharmaceutical market grew a reported 4.4% year-on-year in the second quarter, a major reduction in its growth dynamic compared with quarter one, with the clawback system seen as the main reason for the drop; meanwhile, a new proposal for changes to the clawback system has been met with anger by the country's generics association.
IHS Global Insight Perspective | |
Significance | The effects of the clawback system on the Romanian pharmaceutical market can be seen for the first time in he second quarter, as the growth dynamic of the market's value tumbled to 4.4% y/y, from 21% in the first quarter; meanwhile, the Romanian government's proposals for changes to the system have been met with derision by the country's generics association. |
Implications | Changes in pharmaceutical companies' strategies, with a greater focus on profitability rather than volumes, is being seen as the main reason for the weaker growth; generics producers have been subject to a number of severe pressures on the Romanian market for several years, and their inclusion in the clawback system on the same basis as others is highly controversial among the sector. |
Outlook | The Romanian market is likely to continue to be adversely affected by clawbacks for the remainder of the year; meanwhile, it is hard to see how the predicted withdrawal of such a large number of cheaper generics—which is being predicted if the clawback system is not changed—could be sustained in Romania, as it would almost inevitably result in the Romanian authorities having to reimburse more expensive medicines instead, and patients having to pay higher co-payments, or being excluded from treatment entirely. |
Clawback Results in Sharp Slowdown in Q2 Market Growth
The Romanian pharmaceutical market saw a sharp decline in its growth dynamic in local currency terms during the second quarter, according to the latest Pharma & Hospital report of the Romanian branch of pharmaceutical market research company Cegedim, with the overall value of the market reportedly rising by 4.4% year-on-year (y/y) to 2.772 billion lei (USD760.035 million), compared with 21% y/y growth in the first quarter of the year. In euro terms, the market's value suffered a 2.5% y/y decline, compared with an 18% rise in the first quarter of the year. The drastic change is being seen as a direct consequence of the changes in strategy adopted by pharmaceutical companies operating in Romania due to the ongoing application of the clawback system, under which pharmaceutical companies supplying reimbursed medicines are required to pay a proportion of their revenues from the sales of these back to the Romanian authorities.
The effect of the clawback system is seen in the reduction of the market's overall volume—by 0.5% y/y—as companies begin to focus more on profitability than volume, as Cegedim Romania interprets. According to Romanian business newspaper Ziarul Financiar, the average price of medicines in the second quarter rose to RON22.4, reflecting the focus on profitability.
Looking at the various market segments, the hospital and over-the-counter (OTC) segments remained the main growth drivers on the Romanian market, seeing y/y growth in the value of their sales of 7.9% and 7.0% respectively; in comparison, the value of the sales of reimbursed medicines via pharmacies in the retail sector grew only 3.2% y/y.
Romanian Pharmaceutical Market by Value, Q2 2012, RON Mil. | ||
Market Segment | Q2 Value (RON Mil.) | % Change Y/Y |
Retail | 2,383.0 | 3.8 |
- Reimbursed Drugs | 2,005.0 | 3.2 |
- OTC Drugs | 377.6 | 7.0 |
Hospital | 389.4 | 7.9 |
Total | 2,772.0 | 4.4 |
Source: Cegedim Romania | ||
Clawback Is "30% of Sales"
Pharmaceutical producers in Romania state that the clawback tax has reached the level of around 30% of their sales, reports Ziarul Financiar, and they are compelled to review their portfolios in response, as the level of the tax is much higher than anticipated. The source reports that the National Agency for Fiscal Administration received some RON335.82 million from pharmaceutical companies under the clawback system for sales in the first quarter of the year. A statement from Ioan Nani, director general of state-owned pharmaceutical company Antibiotice, is reported, saying that after the first quarter, pharmaceutical companies realised that the clawback system was not going to be scrapped, so they decided to curtail their activities somewhat in response.
Romanian health minister Vasile Cepoi is reported as saying after a recent meeting with a delegation from the International Monetary Fund—one of Romania's key creditors in its 2009 bailout—in which the subject of clawback was not discussed, that the rate of clawback will reduce, because clawback has been used to pay "arrears", and that until April/May, there had been an upward trend in arrears, while from then, the trend had started to drop.
Changes Planned for Clawback System
The Romanian Ministry of Finance has recently revealed a draft ordinance for public debate that envisages changes to the method of calculating clawback, reports Romanian legal news source Avocatnet, although the proposed changes do not specifically include any reduction in payments from pharmaceutical companies, but concern technical aspects of the calculation of payments, as well as the possible annulling of penalties for late payments, and annulling tax debts on clawback payments under certain conditions. These changes—assuming they are approved—would come into effect in the last quarter of 2012, the source reports.
Generics Producers Angry at Proposed Changes
The Association of Romanian Producers of Generic Medicines (APMGR) has responded angrily to the draft ordinance, reports Ziarul Financiar, accusing the ministries of finance and health of failing to find a solution to the problem of access to affordable medicines in Romania, and also of failing to prevent the destruction of the country's domestic pharmaceutical industry. The APMGR is reported as stating that the draft ordinance ignores any of its proposals for the clawback system. The source reports the comments of the APMGR's executive director, Mihai Laurentiu, to the effect that the Romanian authorities treat generics producers as "part of the problem" of unsustainable pharmaceutical consumption, rather than "part of the solution". Laurentiu denies that generics producers are part of the problem, pointing to the large rise in spending on more expensive medicines in the past few years and the abolition of caps on pharmaceutical spending as the main factors behind the overspending.
Ziarul Financiar also reports that, in addition to the changes in the formula for calculating clawback, the draft ordinance also includes a requirement for pharmaceutical companies to submit the list of drugs that are subject to clawback by the 15th of the month after the quarter for which the clawback payment is due.
Outlook and Implications
The data on the value of the Romanian market from the second quarter of 2012 show the first real signs of how the clawback system is affecting the market. A number of pharmaceutical companies had stated previously that the system could lead to a lower number of medicines being put forward for reimbursement in the country, and the fact that the outpatient reimbursed drug segment is the weakest in terms of growth is unsurprising.
The Romanian government had previously met with representatives of the pharmaceutical industry, and each had proposed some reduction in payments under the clawback system, while warnings about numerous cheaper drugs being withdrawn from the market if the clawback system remains in more or less the same shape as it is now have been made for some months (see Romania: 9 July 2012: Romanian Government to Consider Lowering Payments Due from Drug Makers in Clawback System).
Although every segment of the pharmaceutical market is adversely affected by the clawback system, larger multinational pharmaceutical companies, which dominate the Romanian market in terms of value sales, are much less affected due to the fact that they are significantly less exposed to the Romanian market. By contrast, smaller domestic and regional generics producers are more exposed, as their losses from the clawback system are not offset by profits from other regions.
Larger and multinational generics producers are also not affected as much by clawback, and indeed, one of the main market segments that has experienced growth in recent years has been branded, more expensive generics, while cheaper, unbranded generics have suffered (see Romania: 28 November 2011: Declining Sales of Cheaper Generics in a Time of Economic Austerity: How Pro-Generic Regulation in Romania Is Failing).
It remains to be seen whether pressure from the generics association will bear any fruit, considering the large number of cheaper medicines that have already been withdrawn from the market because of a number of factors, including long payment delays and very low prices (forcing pharmacies to stop stocking them because they are not profitable); it is hard to imagine that it would be sustainable to lose more.