Friday, 14 May 2010

Switzerland - How will the government’s cost-containment plans affect the generics market?

The generics market will benefit from upcoming patent expiries, but further price controls may hinder growth in money terms.

The Swiss government is keen to contain costs in the healthcare sector, and a number of specific measures have been taken to rein in costs. The promotion of generics has been at the forefront, with spectacular success since 2001, when generic substitution was introduced.

The first price control on generic drugs was implemented in 2005; new generics had to be priced at least 30% below the level of the corresponding original drug in order to qualify for reimbursement. In 2008, this was reduced further to 40%. This is likely to boost generic use by volume, but will serve to hinder growth in value terms. The major companies in the market have been able to cope with previous price cuts by increasing volume sales, although the decreasing amount of ‘slack’ in the market may make growth harder to maintain in 2010. Patent expiries will become a far more significant source of growth.

By international standards the Swiss generics market remains uncompetitive. Over 70% of generic sales are made by two companies; Mepha, acquired by Cephalon in April 2010, and Sandoz. A more competitive environment would almost certainly lead to lower price levels. However, the government’s policy of period price reductions may prove counterproductive in this regard, by making the market less attractive for new players and further solidifying the position of the existing manufacturers. A few other companies, notably Teva, Actavis and sanofi-aventis (through Winthrop), are active in the market, but to date have not gained much market share. It is noticeable that, in stark contrast to the other leading markets of Western Europe, no Indian or central European companies have yet shown much interest in Switzerland.

Further reading - An in-depth analysis of the Swiss pharmaceutical market is available from Espicom: The Pharmaceutical Market: Switzerland (published May 2010)

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