Canada - What effect will recent pricing changes in Ontario have on the generic pharmaceutical industry?

There is concern that generic price cuts will make it harder for manufacturers to produce low-cost generic medicines currently on the market, not to mention develop and manufacture new ones.

In April 2010, Ontario announced plans to reform its prescription drug system, including cutting the price of generic drugs to 25% of the cost of the brand-name originator, and ending the practice of professional allowances paid to pharmacists by generic drug companies, often used for rebates instead of patient care. Other provinces are expected to follow Ontario’s lead with these new measures.

Ontario officials have dismissed claims that the new regulations will lead to job cuts, shorter opening hours and store closures. However, the Canadian Generic Pharmaceutical Association (CGPA) has expressed concern that the generic price cuts could undermine the ability of manufacturers to produce and supply low-cost generic medicines currently on the market, as well as developing and bringing to market new ones. The CGPA is also concerned that the moves could jeopardise jobs within the industry. In addition, Shoppers Drug Mart, the largest pharmacy chain in Canada, has claimed that the withdrawal of professional allowances would force it to close stores and shorten opening hours. Shares in the company have fallen by 12% since the government’s announcement.

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

Germany - How will the German government deal with large deficits seen within the health insurance sector?

The government has proposed a package of reforms aimed at easing the financial problems of statutory health insurers.

In March 2010, the coalition parties agreed on a package of reforms which the government hopes to bring into force by 2011. The proposals includes an increase of the mandatory discount for patented drugs sold to the statutory health system from the current 6% to 16%, which could potentially save 1.1 billion euros (US$1.4 billion). In addition, prices will be frozen at August 2009 levels until the end of 2013, and the current fixed price system for some patented drugs, as well as the discount price contract system for generic, or copied drugs, will be retained.

The government is focusing primarily on a new system to set prices for new, innovative drugs, which the Health Minister claims entirely accounted for the increase in drug spending in 2009. Manufacturers will have the freedom to set prices themselves for the first year of a drug being on the market, but it will need to compile a dossier on its costs and benefits, which will be assessed by the authorities. If the drug does not offer additional benefit to medications already available, it will immediately be put under the fixed price system. The prices of drugs which do offer additional benefit will be subject to central negotiation on prices for the statutory system.

The proposals have angered industry associations which had been promised deregulation for the drug sector when the coalition government was formed, and noted that the system would jeopardise investment prospects. The plans were welcomed by the GKV, however.

Further reading - An in-depth review of the German pharmaceutical market is available from Espicom: The Pharmaceutical Market: Germany (published May 2010)

Ireland - How is the recession affecting the pharmaceutical market environment?

The economic downturn has led to reductions in healthcare spending, necessitating cost-saving measures such as reference pricing.

As a result of the economic downturn, the government faces an extremely tight financial operating environment in the next few years. Ireland needs to make savings of over 1.0 billion euros (US$1.4 billion) in 2010, out of a health budget of 16.0 billion euros (US$22.2 billion). In order to do this, cost-saving measures will be implemented wherever possible.

Firstly, reference pricing will be introduced in 2010. Under the new system, only the reference drug selected by the HSE from a group of treatments will be reimbursed. In addition, although reimbursement for the over 70s was more or less automatic between 2001 and 2009, a means test has now been introduced, in attempt to slow consumption.

In February 2010, the prices of nearly 300 branded medicines were cut by 40%. It is anticipated that the move will make savings for the government of up to 94 million euros (US$130 million) over 12 months. The 40% reductions mean that many patented drugs are now cheaper than their generic versions.

Another measure currently being considered by the government is to impose prescription charges on the country’s 1.4 million medical card holders, of around 50 cent per item prescribed. This would work in two ways; by raising money and discouraging the over-prescribing of medicines. The Prime Minister claimed in November 2009 that this would generate savings of around 30 million euros (US$41 million) a year.

In addition, the Irish Medical Organisation (IMO) is calling for savings to be made through increased generic prescribing and reducing prices of generics. There is vast potential for savings in this area, as use of generics is currently very low. However, this is to try and support manufacturers based in the area, and so this is not likely to be a priority area for cost savings.

Further reading - A detailed analysis of the Irish pharmaceutical market is available from Espicom: The Pharmaceutical Market: Ireland (published May 2010)

Italy - Will the Italian generics market catch up with its European neighbours?

A number of high profile drugs have lost patent protection; will the Italian generic market take off as a result?

The Italian pharmaceutical market is expected to remain one of Europe’s slower growing markets over the next five years. Growth will continue to be constrained by low economic growth, cost containment measures for reimbursable products, reference pricing and an expected expansion of the generics market due to patent expiry on several high volume products.

On the plus side, this may be good news for the generic industry. Even by southern European standards, the Italian generics market is small. Excessive price regulation, long national patent supplementary protection, a lack of incentive distribution margins, confusion between branded and unbranded generics, a perception of generics as second-class drugs and the empowerment of doctors to stop generic substitution are all factors that have traditionally constrained the unbranded generic sector.

The combination of high profile drugs losing patent protection and the need to reduce costs should provide a boost to the generic market. In addition to the blockbusters that have lost patent protection in Italy in the last couple of years, a large number of medicines will lose their national supplementary certificates during 2010. Consumer perception of generics and generic awareness continue to improve. The Italian generic market is also being consolidated by leading generic producers in the country.

However, the generic industry has been coming under increasing pressure from manufacturers of branded products, which have begun to implement price cuts to minimise loss of market share. Significant price reductions have been closing the gap between off-patent brands and unbranded generics. The generic industry still has some way to go, but anticipates continued growth in market share and a progressive alignment with the rest of Europe.

Further reading - An in-depth review of the Italian pharmaceutical market is available from Espicom: The Pharmaceutical Market: Italy (published May 2010)

Argentina - Why were new drug regulatory measures implemented in Argentina in QIV 2009?

Argentina aims to tackle drug counterfeiting, fight against the “medicine mafia” and control drug prices.

The distribution of counterfeited drugs in the public sector has been a difficult pill to swallow, but the government has responded with new, and more aggressive, regulatory measures to tackle drug counterfeiting and fight against the “medicine mafia”. Additionally, the government aims to reduce drug prices and has indeed formalised an agreement with drug producers valid until 2010. Below follow the main regulatory measures implemented in QIV 2009:

• Under Law 26,524, issued in November 2009, the penal code was reformed, incorporating drug counterfeiting.
• In November 2009, Article 1 of the Pharmacy Law No. 17,565 was modified, therefore OTC medicines can only be sold by pharmacists or authorised dispensers in pharmacies.
• The Chamber of Deputies approved a drug traceability regulatory draft in October 2009, which is now pending in the Senate.
• Additionally, a formal price-cut regulation was introduced in November 2009 to reduce the price of 600 medicaments by 30.0% until 1st July 2010.

Further reading - An in-depth review of the Argentinian pharmaceutical market is available from Espicom: The Pharmaceutical Market: Argentina (published January 2010)

Australia - How will the imminent expiry of a number of blockbuster drugs affect the Australian pharmaceutical market?

The Australian generics market will benefit from the impending patent expiry of a number of successful drugs, which will cushion it against further government price cuts.

Recently-released data from the Pharmaceutical Benefits Scheme (PBS) indicated that 12 out of the top 20 best-selling drugs by volume in 2008 were now available as generic drugs; the majority of these drugs experienced falling sales in the same year. An example of one of these drugs is Merck’s Zocor (simvastatin), whose patent expired in December 2008; this was the second leading drug by volume of sales. However, generic drugs are also going to be the target of further PBS price cuts, as the Scheme seeks to keep health expenditure low. For example, legislation that came into effect towards the end of 2008 has generally been viewed as negative by generic companies, which believe that they reduce the pharmacist’s ability to discount, as well as cutting prices.

It is likely that Australian imports of pharmaceuticals will increase by a substantial amount in 2010. This is because the Australian dollar in 2010 is projected to be as close to parity with the US dollar as it ever has been. Having invested in R&D pipelines in recent years, the PBS will be expecting new blockbuster drugs to emerge, and like in the past, the PBS will be willing to pay for them. Indeed, generic drugs will likely face the brunt of price cuts if a new blockbuster drug were to emerge.

Further reading - A detailed analysis of the Australian pharmaceutical market is available from Espicom: The Pharmaceutical Market: Australia (published January 2010)

Germany - How is the German generic market set to perform in the future?

The generic market has become increasingly competitive in recent years and will gradually increase its market share.

Reforms instigated in 2004, which entailed greater use of substitution, have placed a lot of pressure on older branded drugs, and prescribers and patients have been given financial incentives to switch to generics. However, reforms have not been especially ‘pro-generic’, so whilst generics will continue to be increasingly widely prescribed, their value share of the overall market will alter less rapidly. In 2007, generic drugs accounted for 36.5% of the prescription market by value; around 81% of this was covered under the GKV. In volume terms, the generic market has continued to grow each year. This was particularly impressive in 2007, when it reached 65.4% of the total market, compared with 60.0% in 2006.

Overall, Germany is the largest pharmaceutical market in Western Europe, twice the size of Italy. Growth in recent years has tended to be uneven, as government reforms take effect on pricing and/or reimbursement. While overall expenditure is still growing, GKV expenditure, which accounts for around 80% of the market, is characterised by price reductions. These are due to tighter reimbursement rules, greater use of generics and downward pressure on generic prices due to the rebate system.

Further reading - An in-depth analysis of the German pharmaceutical market is available from Espicom: The Pharmaceutical Market: Germany (published January 2010)

Japan - How will Japan’s ageing population affect the pharmaceutical market?

The Japanese government is actively pursuing generic promotion, along with changes in the OTC market, in order to cope with its ageing population.

With 26% of the Japanese population projected to be aged over 65 in 2015, the government has a number of obstacles to overcome in order to keep health expenditure to a minimum, and the pharmaceutical market will play a part in this. Although the generic market is currently small and fragmented, it has opened up recently to foreign companies such as Teva, indeed this company could well be the national leader in the near future. Recent JV’s in the generic market, such as Teva-Kowa, have highlighted that the key to success is for foreign companies to have a local partner. Despite all this, the MHLW’s target for generics to make up 30% of the market by 2012 appears unattainable at present.

Another cost-containment measure is biennially price cuts for pharmaceutical products, although these can sometimes take place annually. Annual price cuts will likely increase in the future. In view of this, a number of Japanese companies are seeking to acquire rights to foreign companies R&D lines, in order to guarantee sales outside of the Japanese market. An example of this is Takeda’s recent acquisition of Amylin’s anti-obesity pipeline, in a deal which could eventually reach US$1 billion.

Further reading - An in-depth review of the Japanese pharmaceutical market is available from Espicom: The Pharmaceutical Market: Japan (published January 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 money 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 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 January 2010)

Philippines - Drug Price Cuts, Pfizer a Prized Scalp in this New Order?

Despite desperate manoeuvring - which included allegations of Pfizer attempting to bribe the Department of Health (DoH) as a delay tactic - the government in July 2009 imposed price controls on pharmaceuticals for the first time since the 1970s.

As it stands, the multinationals, who have long controlled much of the Philippines market, have been dealt a severe blow, and look set to lose more ground, as the government has expressed its intention to cut even more prices in the future.

Philippines president Gloria Arroyo, on 27th July 2009, signed an executive order to slash the prices of five essential medicines by 50% effective 15th August 2009. The prices of other medicines, part of the 22 essential medicines by the government, were voluntarily cut before the deadline by manufacturers.

Pharmaceutical companies were given the opportunity to voluntarily reduce prices for the said drugs prior to that and most did reduce their prices. With the deadline looming, Pfizer instead tried to offer the Health Secretary Francisco Duque five million “discount cards” reportedly worth around P100 million (US$2 million) to delay the enforcement of the Cheaper Medicines Law.

The Department of Health perceived this as a bribe, although Pfizer have denied any wrongdoing, saying it was part of the company’s “continuing commitment to expand access to its high quality, safe medicines nationwide”. In a country with a population around 95 million, mainly poor people, the effectiveness of five million, one-off discount cards was questioned by Senate president Juan Ponce Enrile.

The Cheaper Medicines Law, or the Universally Accessible Cheaper and Quality Medicines Act of 2008, was approved in June 2008, but this is the first time that it has been enforced by the president. Allegations of corruption in the Philippines political landscape is not something new, but Pfizer probably miscalculated in trying to offer the discount cards to Health Secretary Francisco Duque, one of the stronger advocates of the Cheaper Medicines Law.

President Arroyo’s time in office has not been without controversy, notwithstanding allegations of corruption and election rigging, and her popularity has suffered especially with the poor majority of the population. The enforcement of reducing prices of drugs by 50% was part of her early promise to voters, and is only now being implemented. Populist politics some might say, but industry players are gearing up for the challenges and opportunities that lie in this largely untapped market.

Further reading - An in-depth analysis of the pharmaceutical market in the Philippines, including some background information on pricing, is available from Espicom: The Pharmaceutical Market: Philippines (published June 2009)