EU drug prices face deepening austerity squeeze

* Glaxo, J&J, Novartis see bigger pricing impact from H2

* Europe accounts for 31 percent of world pharma market

* Governments target drugs bill as part of austerity drive

By Ben Hirschler

LONDON, July 21 (BestGrowthStock) – A squeeze on European drug
prices is set to accelerate in coming quarters as cash-strapped
governments push through austerity measures designed to rein in
runaway healthcare spending.

Executives reporting second-quarter results this month have
warned the worst is yet to come in Europe, following recent
moves by countries including Greece, Spain and Germany to slash
the price their healthcare systems pay for medicines.

Concerns about the European pharmaceuticals market are
increasing just as anxieties over U.S. healthcare reforms have
abated, casting a shadow over Big Pharma’s results season.

Europe accounted for 30.6 percent of global drug sales in
2009, against 39.8 percent for North America, according to
industry consultancy IMS Health.

Greece has launched the most brutal cuts, slashing the price
of medicines by 21.5 percent on average, but other governments
have also taken action which will bear down increasingly on
prices in the coming months, with a sizeable hit likely in 2011.

Smaller drug firms heavily exposed to western Europe — like
Germany’s Bayer (BAYGn.DE: ) and Merck KGaA (MRCG.DE: ), Spanish
group Almirall (ALM.MC: ) and Belgium’s UCB (UCB.BR: ) — are seen
as most at risk, but the big players will not escape unscathed.

Here is what three major companies have said on the issue
while presenting quarterly results:


– Andrew Witty, CEO: “We’ve seen some price pressure in the
first half. It will accelerate as we move through the second
half and actually I think it will be more of a 2011 phenomenon,
in terms of how it ramps up.

“We see Europe as being roughly a minus 3 (percent annually)
type of marketplace on an ongoing basis. It is likely that over
the next 18 months we will see something a little more than 3.
Whether it is going to be a lot more than 3 is still a little
premature to call.”


– Company expects cost containment efforts in Europe to
accelerate for remainder of the year, with an estimated impact
of around $200 million on its business in 2010.

– Dominic Caruso, CFO: “We have experienced pricing pressure
year-over-year (in Europe) in any event, so it is not an unusual
phenomenon, but there is now incremental pricing pressure. And I
would say that the incremental pricing pressure on an annual
basis looks like it is in the mid-single digits impact to the
European businesses.”

NOVARTIS (NOVN.VX: ) – July 15

– The impact of European drug price cuts in the first half
of 2010 was minus 3.1 percent in the Swiss group’s
pharmaceuticals business.

– David Epstein, head of pharma: “While I can’t give you an
exact number for the second half, I can tell you we’ll see the
full-on effects of the cuts in Greece and in Spain. In addition,
we will see the introduction of the rebates in Germany and some
downward pricing pressure in France. It would not be
unreasonable to estimate that the impact could be as much as
twice what we saw in the first half in Europe.”

– Jeff George, head of generics: “I think that we may see
price erosion increase in the back half of the year, given the
wave of price cuts in Western Europe, in particular, which were
generally double-digit negative generic price cuts ranging from
25 percent in Spain to 12 percent in Italy, those being the two
most significant.”

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For previous stories on European drug pricing, click on

EU drug prices face deepening austerity squeeze