Lower drug prices may deal new blow to pharma sector

Newsroom 06/08/2015 | 14:14

Romanians pay the lowest prices for medicine in Europe from July 1, after the authorities announced price cuts of up to 20 percent for some drugs. However, both producers and associations representing patients are skeptical and warn that this is a trap that could hurt patients, the pharma industry and investments in the long run.


By Otilia Haraga


“From July 1, Romania will have the smallest drug prices in Europe, as is natural given the socioeconomic background. Drug prices here cannot be similar to those in countries with a much higher GDP. Discussions have taken place with the European Commission and the IMF, drug producers, distributors associations and pharmacy chains to ensure that distribution is continuous, no supply problems occur and the entire procedure is completed,” said the Romanian healthcare minister, Nicolae Banicioiu.

Under law 75/2009, the price of original drugs sold in Romania was not allowed to exceed the price at which they were sold in the following countries: Bulgaria, the Czech Republic, Hungary, Slovakia, Lithuania, Poland, Germany, Italy and Greece.

However, over the past five years, this law has not been applied by pharma companies or the authorities. It was only at the start of 2015 that the Romanian authorities asked producers to update their medication prices by March 10.

The new prices came into force with the publication of the National Catalogue of Drug Prices for Human Use (CaNaMED) approved for sale on the local market.

The drop in prices is meant to save Romanian patients – and the state – money. National Health Insurance House (CNAS) officials told the media that the updated prices, which could be 20 percent lower in some cases, would allow the difference to be spent on acquiring innovating products.

Also from July 1, the Romanian healthcare minister announced that four new programs would be financed from the ministry budget, benefitting patients in a serious condition in hospital.

However, the signals coming from pharma players, associations representing patients’ interests and experts in the pharma market are not equally optimistic.

“Although the goal of the drug price reduction was to achieve considerable savings for the state budget, which will permit the inclusion of new products on the list of subsidized medicines, there may be negative effects down the line, considering the substantial impact this will have on the pharmaceutical market,” Anca Grigorescu, partner, head of healthcare & pharma at bpv Grigorescu Stefanica, tells BR.

She adds that on the short term, pharmacies will be at a disadvantage as they will bear the losses for the medicines already in stock.

“From July 1, pharmacies are required to lower their retail prices in order to comply with the prices established by the new CaNaMed, even though those medicines were bought at the old distribution rate. As such, there is a risk that pharmacies will increase prices in the OTC (over- the-counter) sector, in order to cover these losses, since the price of OTCs may be freely established,” she warns.

The anticipated long-term effects are even worse, in Grigorescu’s view.

“In the long run, as the Romanian market becomes less attractive, several medicines which are no longer cost-effective may be withdrawn from the national market, or we may see an increase of trade within the European market. In addition, some players may exit the Romanian pharmaceuticals market,” she cautions.

So far, revenues on the pharma market have increased above expectation, according to data on the first quarter of the year from the latest Pharma & Hospital Report released by Cegedim.

The value of drugs released to patients in Romania reached RON 3.27 billion in Q1, 2015, based on the distribution price, up by 10.7 percent compared to the first quarter of 2014.

However, this rise may have been induced artificially, as a result of state policy, rather than be a signal of a healthy market, according to the pundits asked by BR.

“The evolution of the market was most likely driven by the government’s announcement of its plans to reduce drug prices. The goal of the executive to set the lowest medication prices in Europe caused major dissatisfaction among pharmaceutical manufacturers and distributors, who said that such measures would force them to seek other more attractive markets and may lead to the disappearance of some specific medicines from the market. Naturally, the immediate reaction of patients was to procure the medicines they need, which ultimately triggered the growth,” Grigorescu tells BR.

Medication released on prescription in pharmacies reached RON 2.27 billion, representing 6.7 percent growth, according to Cegedim. OTC medication released without prescription (over-the-counter) totaled RON 0.63 billion, up by 27.7 percent. Meanwhile, the hospital segment reached RON 380 million, up by 11.5 percent compared to the first quarter of the previous year, according to the Cegedim report.

“The evolution in Q1 2015, although below the value posted in Q4 2014, was above our previous expectations. This was due to the performance of OTC products, especially seasonal ones, and, somehow paradoxically, due to the announcement of the reduction in drug prices and the introduction of the health card,” says Petru Craciun, general manager of Cegedim.

He adds: “As a result, because of the price reductions announced recently, we are revising the market prognosis for 2015 from +3.5 percent to -2.8 percent, calculated in RON (…), but we wish to draw attention to a significant drop in the availability of cheap products in the second half of the year.”

Over the past 12 months, the total value of the market was RON 12.6 billion, representing 10 percent growth compared to April 2013-March 2014.

Sales of drugs for the respiratory system grossed higher revenues, at 15.3 percent of the total, followed by drugs for the blood and hematopoietic organs, which represented 14.4, and those for the digestive tract and metabolism, on 11 percent.

But this growth will be short lived and followed by major risks for the Romanian pharma sector, warn pundits.

“2014 and the first half of 2015 have seen modest investments and stagnation due to gloomy forecasts for the pharmaceutical industry, regarding the continuation of the clawback tax and the reduction of medicine prices. Considering that turnover decreases of 15-20 percent on the national market are forecast for the main drug manufacturers, the lack of enthusiasm towards new investments is understandable,” Grigorescu cautions.


Pharma sector warns of dire long-term consequences of drug price drop

The Romanian authorities say the patient is at the center of this policy, and that by slashing drug prices, more meds will become accessible to more patients.

However, representatives of the pharma sector in Romania warn that the effect may be quite the opposite, and that the snowball effect will be hard to control.

According to Laurentiu Mihai, executive director of the Association of Producers of Generic Drugs in Romania (APMGR), the cheap drugs on the market will be replaced with more expensive alternatives. “On the medium and long term, this effect will be felt strongly, both in the public healthcare system, where public expenditure on medication will surge, due to the disappearance of cheaper medicines, but especially by patients, who will have to cover co-payment for more expensive alternatives. While we do not exclude a growth in the value of the market, the number of days of treatment granted to patients, which is a more important indicator that reflects their access to therapies, will decline,” he tells BR.

The director also says that the number of patients with chronic conditions who will have access to treatment will decline.

“The drop in prices may save money in certain situations, such as in some national health programs where treatment is limited to a few types of molecules and is 100 percent subsidized. But overall, against the background of the disappearance of accessible drugs from the market due to hostile economic conditions for local generic drug producers, we will treat fewer patients in Romania with more expensive drugs,” Mihai warns.

The APMGR official adds that market research has shown that following July 1, the total drop in the price of drugs will reach 9.4 percent for therapeutic drugs, while for the producers that sell in Romania and have generic drug manufacturing units, the decline will be 18 percent.

Meanwhile, associations that represent patients’ interests are also skeptical that the price reduction will produce positive results in the long run, if certain conditions are not met.

“We do not believe that the lowest prices in Europe will ensure access to medication, because commercial interests will take precedence over patients’ needs. We had the problem with parallel exports before July 1 and we do not see why this will not increase from now on, since these regulations do not favor the patient,” Radu Ganescu, president of the Coalition of the Organizations of Patients with Chronic Conditions in Romania (COPAC), tells BR.

Parallel exports mean that medicines sold in Romania at very low prices are shipped abroad and sold on foreign markets at a mark-up.

Ganescu adds: “The main effect that we are anticipating is the disappearance of various cheap and very cheap drugs from Romania, because producers and retailers are saying they no longer generate a profit. This worries us deeply, since we do not see any involvement from the authorities in guaranteeing patients access to these medicines.”

He also anticipates that certain drugs will no longer be brought onto the Romanian market under these conditions, even though they are innovative and local patients need them.

Taking all this into account, Ganescu concludes, “The victims will be first of all the patients,” who will no longer have access to the medication they need.

In previous media appearances, the Romanian healthcare minister promised there would be drugs from all therapeutic lines on the market, even after the introduction of the new prices. He also promised that parallel exports would be discouraged with “very drastic penalties” which could also include the withdrawal of producers’ licenses.

“These regulations must be applied and accepted by everybody. I hope the producers of generic drugs will not be greatly affected, and if they are, this will be settled quickly. We must take into account that the clawback tax will be lower if prices are lower. This is the first time when the pharma market in Romania has been regulated in accordance to the European market,” said the minister.

However, producers complain that the clawback tax is too onerous and is the main reason why investments in the sector have been stalling.

“The lack of sustainability and predictability of the fiscal and legal measures taken by the Romanian authorities over the past few years have made the country miss out on major investments. Important pharma producers have blocked investments of EUR 50 million in the construction of production units in Romania, due to the continually increasing clawback tax,” says Mihai of the APMGR. “The country runs the risk of significant deterioration in the economic independence of this strategic industrial sector, because local producers anticipate serious problems on the market this year, with a decline also in the export figures – the only segment that has maintained the profitability of the production units in the country so far.”


Introduction of the health card has yet to show effects, say pundits

Since May 1, the national health card has been compulsory for every Romanian patient, becoming the only instrument that can be used for the subsidization of and proof of eligibility for medical services. The national health insurance card proves that the holder is insured and also confirms their presence at the provider of medical services.

The introduction of the cards was meant to reduce red tape and corruption in the medical sector. However, it has failed to yield the expected results so far, according to the pundits canvassed by BR, who described its effects in terms from “insignificant” to even “negative.”

“The impact of the introduction of the national health card is still insignificant,” says Mihai, who nevertheless hopes that in the long run, the card will help reduce fraud in the system, which at the moment “is covered by drug producers paying the clawback tax.”

He adds, “The difference between the benchmark budget of RON 1.5 billion allocated every quarter to drugs and the real quarterly consumption of subsidized drugs, estimated at RON 2 billion, also includes the fraud. These are inherent in a system that is still riddled with bureaucracy and lacking efficient control over the way the public money is spent,” he tells BR.

Grigorescu goes so far as to say that the pharma market has been harmed by the implementation of the new instrument. She says that many citizens insured in the public health system have not yet received their cards, and at some medical facilities, staff are not properly trained to use the system.

“For sure, the system is beneficial to the CNAS since it ensures more efficient control over the expenditure incurred by the state budget. It has yet to be seen if the patients, medical staff and pharmaceutical market will be positively affected by the implementation of the new system, a complete assessment of the impact of the cards being premature at this stage. However, considering the initial effects, namely the significant drop in the number of medical services that were settled and approved by the CNAS, we may assume that the pharmaceutical market was negatively influenced by the implementation of the new system,” she says.

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