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Europe: Market trends during the current economic crisis Victor Lino Mendonça, EGA 15 th Annual IGPA Conference Kyoto, December 2012 2
Life in the Red Zone Annual deficit by country 3 Source: European Commission
First time health spending has fallen in Europe since 1975 4
Pharmaceutical expenditure growth rate turned negative in several countries in 2010 5
Cost containment measures in the pharmaceutical market External reference pricing Reference price system Discounts/rebates, payback and clawback policies Price freezes and cuts Public tendering 6 Source: European Commission
External Price Comparison (ERP) Definition: when a country authority or payer organisation sets a price on pharmaceuticals based on the price of another country or group of countries. 7
European picture Country basket for ERP 8
Impact External Price Comparison Creates a downwards price side spiral Reduces the availability of medicinal products provokes shortages 9 Source: Global Insights
Reference Price System Reference pricing system means determining the maximum price for generics and the maximum reimbursement rate for each medicine. Source: PPRI
European picture Reference Pricing System 11
Impact of Reference Pricing System Reduces the price of medicines; • Can increase generic medicines usage; • If not correctly implemented, significant cost • can be transferred to patient. 12 Source: Prof. Steven Simoens
Payback and clawback Mechanisms requiring manufacturers and pharmacists to return a part of their revenue to third party payers . • Payback policies require manufacturers to pay back a share of their revenue, if a pre-specified budget ceiling for public pharmaceutical expenditure is exceeded. • Clawback policies are usually applied to pharmacies, to capture discounts which increase pharmacies' profits, and to pass them on as income/revenues to the public Source: EC - DG ECFIN
European picture Payback and clawback policies 14
Impact of Payback and clawback policies Generic medicines are on the cost containment side. Generic medicines contribute to the decrease of pharmaceutical expenditure (and not to the increase), therefore these kinds of agreements should not apply to generic medicines . 15 Source: EMAC – European Market Access Committee – EGA
Price freezes and price cuts • Price freezes and cuts are set unilaterally by public authorities, with the objective of achieving short-term savings; • Widely used in Europe, in 2010 and 2011, they have been applied in: Czech Republic, United Kingdom, Spain, Germany, Slovenia, Lithuania, Portugal, Ireland, Malta and Turkey. 16 Source: EC - DG ECFIN
Impact of Price freezes and price cuts “ They have further implications on price evolution in other countries through external reference pricing ” EC - DG ECFIN Introducing price cuts after intense price competition in the market creates supply problems for the industry. Prices should not go beyond the sustainable price level .
Tendering Tendering is a mechanism whereby a purchaser buys medicines based on a competitive bidding process. The contract is granted to the manufacturer who offers the best bid following strict criteria. 18
European picture: Tendering • Stakeholders with a financial interest in savings are the driving force for tendering, like health insurance funds or governments; • Currently applied in Germany, the Netherlands, Sweden and Denmark;
Impact of Tendering Pharmaceutical savings can be achieved in the short term, but also….. • threaten the long-term sustainability of the generic medicines industry; • Lead to shortages in the market; • Create new costs related to logistics for medicine procurement, for substitution management and data processing costs;
Impact of Tendering Reduces competition in the market: • "It appears that instead of intensifying competition, as desired, tendering has led to increased seller concentration (...)" * • "(...) manufacturers that are not preferred have an incentive to stock-out or even exit the market."*; • products not being launch because of their low profitability; • Difficulties for small and medium sized companies leading to market concentration; * Panos Kanavos, Tender systems for outpatient pharmaceuticals in the EU, 2012
European generic medicine markets heading towards tender and commodities market types Expected future High direction of change complexity Italy Spain France Germany Germany Belgium Portugal Netherlands Distribution characteristics Poland Norway Denmark Greece Hungary Sweden Slovakia UK Austria Ireland Czech Republic Low Finland complexity Prescription Substitution Distribution Tender Market drivers
At the same time… the regulatory burden is increasing. 23
New regulatory costs Anti-Falsified Medicines Initiative by the EC Safety features € 1 billion in implementation costs € 200 million per year for the EU generic industry EMA Pharmacovigilance database > € 20 million per year for an average sized generic medicines company Source: EGA and EC - Sector Inquiry
Unsustainable challenge More Regulation/ Increased Costs Price Decrease National level National + EU level
Positive trends in Europe 26
Market still growing + 5,4% in Value ($43.1bn) + 4,5% in Units (235.7bn) 27 Source: IMS MIDAS MAT Mar 2012. RX only.
Opportunities Expe Expensiv nsive ne e new w th ther erapies pies Pate tent nt Expir Expiry Ne New w ma markets ts 28
Better regulation can improve Generics market EC Transparency Directive Price & Reimbursement EC initiative • Lost savings of about € 3 billion for health systems during 2000 to 2007 for the chosen sample of medicines facing patent expiry in 17 Member States 29
Improved use of Generic medicines could save 30bn USD 30
Opportunities • Introduction of budgets (e.g. Germany, Ireland, UK); • Instruments to support generic medicine e-prescribing (e.g. Portugal, Greece); • Introduction of a remuneration schema for pharmacists that incentivises the dispensing of generic medicines (e.g. Germany); • Creation of incentives for patients to buy generic medicines, such as co- payment. • Price differential between generic and originator.
“ To understand Europe, you have to be a genius - or French. ” Madeleine Albright Victor Lino Mendonça victor@egagenerics.com 32
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