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News : EU Economy Last Updated: Jun 8, 2010 - 3:16:11 AM

European countries challenge drugs companies on prices; Europe's drugs bill has risen by 50% in real terms in a decade
By Michael Hennigan, Founder and Editor of Finfacts
Jun 4, 2010 - 5:25:57 AM

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Greece is among a number of European countries who are challenging drugs companies by slashing prices as Europe's drugs bill has risen by 50% in real terms (inflation stripped out) in a decade.

Greece has imposed price cuts of 25% on drugs and last weekend, Denmark's Novo Nordisk said it would refuse to lower the price on its most expensive forms of insulin, effectively making them unavailable to Greek patients. Elsewhere, Spain has announced price cuts for patent-protected and generic drugs by 7.5% and 25%, respectively. Germany's health ministry has proposed slashing drug prices by 10% and banning any drug-price increases through 2013. The proposal must be approved by the Bundestag  before becoming law. 

Germany's health ministry has also proposed to allow drug makers to set their own prices for the first year of a new product, after which state health insurers would negotiate discounts based on data showing whether the new drug was more effective than older treatments. "The prices of and prescriptions for medicinal products must be economically efficient and cost effective,"the health ministry said in a statement last month.

The FT reports that Noël Renaudin, an official in France’s health ministry, has a tough message for the pharmaceutical companies with which he regularly negotiates: “We have to stop the infinite growth in prices for drugs. It’s no longer reasonable.”

Europe’s drug bill was €535bn in 2007, according to the most recent OECD (Organisation for Economic Co-operation and Development) data, up 50% in real terms in a decade. That represents compound annual growth of 4.1% - - well above inflation - - as companies introduced higher-priced new products and increased sales of existing ones.

Sweden has agreed with the industry to save €200m over three years; the UK's new government has said it plans to "move to a system of value-based pricing" for drugs, which analysts say could mean basing a drug's price on the benefits it offers. Citigroup said it expects further action in the UK and France to control drug costs; Denmark cut hospital drug prices by 5% on January 01, 2010; Italy is targeting savings of €600m with a plan from 2011 with reimbursement of generics that will be limited to the cheapest version of a medicine within four therapeutic categories and the lowest price established by a tender system. The tender system for purchases of generics follows similar action by Germany, where tendering has led to reduced prices; France plans to cut its drugs bill by €100m this year.

"Throughout 2009 investors were primarily concerned about the impact of US health reform"on drug companies, Citigroup analysts wrote in a research note. "We believe cuts to European government budgets present a greater underappreciated risk in 2010."

Novo Nordisk, the world’s biggest insulin producer, will no longer sell its next-generation diabetes treatments in Greece. 50,000 people in Greece use the new generation products that the company will pull from the market, while another 40,000 use standard human insulin.

LEO Pharma, the dermatology and critical care drugmaker, said it's withdrawing some of its more expensive medicines from the Greek market.

Drugs prices in the US and Ireland are among the highest in the world.

More than half of Ireland's merchandise exports come from mainly American pharma and medical device firms who employ 40,000 in the country. 

So that factor and a cartel type operation run by pharmacists has resulted in the high prices.

The cost of Irish State financed drugs schemes doubled from 2002 to over €1.6bn in 2008. Fees and other income earned by pharmacists doubled accordingly. It cost the taxpayer an exorbitant €640m to get €1bn of drugs from factory gate to patients in the community in 2008.

A 40% drop in the price of up to 300 commonly prescribed drugs coming off-patent, came into effect in Ireland on February 01, 2010 and is expected to save the State up to €94m in a full year.

However, some generic drugs are now 50% more expensive than their branded equivalents - - a situation "unique in Europe," the Clinical Director of the National Centre for Pharmacoeconomics has told Irish Medical Times.

Describing this as "an extraordinary situation," Dr Michael Barry stated that while GPs were prescribing generic medicines, the patient would pay a premium for the generic product.

“Doctors are encouraged to prescribe generics on the basis that it enhances cost-effectiveness, but this is no longer the case. It is ridiculous: there is no other country in Europe where the original proprietary drugs are cheaper than the generic equivalents,”Dr Barry told Irish Medical Times.

Minister for Health Mary Harney told the Oireachtas Joint Committee on Health on February 09, 2009 that as a result of the new agreement reached with pharmaceutical producers, some generic products would now be more expensive than the products that come off patent.

Generic drugs had traditionally been priced, on average, between 5-10% below their branded equivalents. However, the 40% price cut on off-patent medicines has meant many generics are now considerably more expensive than the brand products.

The Irish Pharmaceutical Healthcare Association (IPHA), which represents the big manufacturers agreed to cut off-patent drugs prices after Minister Harney agreed that the State wouldn't interfere with the cost of their proprietary or branded drugs for another 18 months. The new deal takes the IPHA up to March 2012, replacing the one due to expire this September.

A 2006 Irish agreement provides that the price to the wholesaler of any medication will not exceed the average wholesale prices in Belgium, Denmark, France, Germany, Netherlands, Spain, Finland, Austria and the UK.

The Minister said she was appealing to the manufacturers to reduce their prices.

In 2009, the Government introduced cuts of up to €133m in payments to pharmacists over a 12-month period by reducing from 50% to 20% the retail mark-up payable under the community drugs schemes.

Drugs companies claim that high prices are necessary to promote innovation. However, research published in the American Journal of Public Health disputes it.

Is the pharma industry moving beyond blockbuster drugs? Alan Barge, head of oncology at AstraZeneca, discusses the issue with CNBC:

Researchers from several top schools of public health, including those at Harvard, Johns Hopkins and Yale, analysed all new drugs approved by the US drugs regulator, the FDA, between 1992 and 2004, and the home countries where the products were developed. They then considered a host of economic factors that might influence pharmaceutical innovation, reaching the conclusion that though "US consumers pay disproportionately higher prices for brand name drugs the US is not disproportionately innovative."

The US accounts for around 40% of world prescription drug spending, and has a GDP that accounts for about 40% of total GDP among the countries considered, and develops about 40% of all new drugs. If the US's free market was an engine for innovation, it would be expected that 40% of spending result in more than 40% of all new drug innovations. If wealth was responsible for innovation, the 40% GDP would drive innovations above 40%.

However, the researchers say:  "US pharmaceutical innovation appeared to be roughly proportional to its national wealth and prescription drug spending."

Other innovator countries include the UK, Switzerland, Germany, Sweden, Belgium Israel and Denmark, are all responsible for proportionally more drug innovations than their wealth or drug spending would suggest while Canada, Japan, Italy, Korea and Australia, develop fewer new drug innovations than their wealth or spending would suggest.

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