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Greek pharma industry continues to be caught in austerity crosswind
Greek pharmaceutical companies have had a tough year in 2014. The year started with the implementation of a new decree on pharmaceutical pricing (ΦΕΚ Β 88/22.01.2014), which had wide-ranging implications for the entire pharmaceutical industry in Greece, and it continued with more pricing decrees, and more turmoil and uncertainty
Greek producers affected from both sides
Greek producers are affected by the decrees both as producers of generics - their primary activity - and as partners of multinationals in the marketing of originator drugs. Major price reductions have resulted for off-patent originators: for products with generic equivalents on the market, whose patents expired after the beginning of 2012, either prices were reduced to a maximum of 50% of the price of the originator prior to losing patent protection, or they were to be referenced against the average of the price in the three lowest-priced EU markets - whichever resulted in a lower price. For products which lost patent protection before the beginning of 2012, and have generic competition already, a system of tiered price reductions based on the price of the product was introduced - the highest being 8% for products priced at EUR12 or over.
This has a direct impact on the prices of generics, which in the case of products marketed after 1 January 2012, also had their maximum price compared with the off-patent originator cut from 80% to 65%. In the latest of a series of price cuts, in the case of generics marketed before 1 January 2012, tiered price cuts were introduced depending on price, with a maximum of 4% for products priced EUR12 or over.
Also, a system of dynamic pricing for generics came into effect, under which, for products marketed prior to 2012, products priced above EUR12 were subject to a price cut for every 1% of market penetration. For products marketed after the beginning of 2012, for every additional EUR250,000 of sales, a price decrease is also imposed, up to a maximum of 15%.
In addition to this, there are fixed rebates on all medicines sold to social security funds of 9%, as well as volume rebates while a clawback system comes into play if spending in the public drug budget is exceeded (as it has regularly been in recent times).
Numerous complaints on price calculations
Through the course of the year, numerous pharmaceutical companies, including innovative and generics companies, have challenged the prices arrived at by the Greek National Organisation for Medicines (EOF) in new price bulletins - and continue to do so. The EOF has always maintained that it has carried out the process correctly, but that it cannot be responsible for what it has called the sometimes contradictory and frequently-changing legislation on pricing. Additionally, one of the most controversial elements of the pricing decree is that it does not allow for price increases, even if that is what would result from price referencing according the current arrangements - except in the case of errors.
Hospital tenders present new challenges for domestic producers
Having seen a drop in their profitability due to the lower prices resulting from the new pricing regulations, Greek producers faced another obstacle imposed by new reforms later on in the year. In December, The Panhellenic Association of Pharmaceutical Industries (PEF), which represents Greek producers, reported on what it described as 'illegalities' in tenders for hospital drugs worth EUR33.7 million, carried out under the new electronic public procurement system, including what it described as "price dumping" by generic multinationals. PEF decried the fact that the only criteria in the tenders was price, and that for each active ingredient, only one supplier was sought - which led, it has stated, to situations in which companies which won tenders are failing to deliver at the very low prices quoted in their bids.
Greek producers are seeking to expand their presence in export markets to compensate for the challenging situation at home, but they remain more reliant on Greek sales than the multinationals which they face increasingly stern competition from at home. So even with the Greek government's commitment to increasing generics' share of overall pharmaceutical consumption in Greece to 60%, in prescription volume terms (it is currently less than half that figure), it is not necessarily the case that Greece's producers of primarily branded generics will benefit hugely from an increasing generics market share.
PEF has appealed to the Greek government on the basis of the importance of the Greek pharmaceutical industry as a provider of jobs - 10,800 employees in the industry, and a capacity to create another 2,500 in the next three years, as estimated by PEF - as well as an important investor in research and development.
Accusations of "favouring multinationals"
When pricing decree ??? ? 88 was put before the Greek parliament towards the end of 2013, it was the subject of intense and fractious debate, with the main opposition Syriza party warning of dire consequences for the Greek pharmaceutical industry, and accusing the government of favouring large multinationals. A year down the line, PEF is suggesting that the strong focus on the lowest price is threatening to sideline Greek producers in their domestic market.
But with public expenditure on pharmaceuticals in the open-care sector - including vaccines and payments for uninsured citizens - set not to exceed EUR2 billion (EUR1.8 billion without vaccines and payments for the uninsured), it is unlikely that things will get much better in the short term. Greek producers have appealed to the government to support the domestic industry in the interests of Greek jobs and the development of Greek industry and innovation, but with those saving targets needing to be hit, the government has little room for manoeuvre at the moment.
Brendan Melck is a life science analyst with IHS
Published January 12, 2015
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