Ireland slashed the prices of 300 branded multisource medicines, including Zofran and Casodex , by around 40 percent at the start of the month, and there are strong indications that more cutbacks are to follow, with reference pricing and generic substitution as distinct possibilities.

The government's desire to reduce public expenditure drove the cuts in a country that has been severely affected by the global financial crisis. Ireland has pruned costs throughout its economy, including salary cuts for civil servants and lower fees paid to doctors and pharmacists.

But that ubiquity has not made the changes any more palatable. "A lot of people in the industry are worried about the drug price changes," said Nick O'Hare, IMS Health's commercial director in Ireland.

The near certainty of reference pricing starting next January, the large drop in branded-generic prices, and the switch from being a net parallel exporter to a parallel importer, is a potent mix for pharmaceutical companies to weigh, he added, but also urged companies to take a longer-term view on any reorganization they might undertake.

There are no indications yet that research-based companies will make changes to their businesses because of the price cuts. And in other countries that have set up reference pricing, it has sometimes been the generics companies that have been most affected by the changes.

Reference pricing is a system in which all products with the same ingredient at an identical dose are given the same price, regardless of whether they are branded or generic. In Europe, that price is usually calculated from a basket of prices in other EU countries.

Branded Generics Targeted

"The Irish Ministry for Health and Children approached us with a request to make immediate savings on the country's drugs bill...given the current difficult state of the public finances," said Ronan Collins of the Irish Pharmaceutical Healthcare Association.

The association's research-based pharmaceutical company members responded by cutting the prices of around 300 branded generic products. For example, 30 tablets of GlaxoSmithKline's antiemetic Zofran (ondansetron 8mg) now has a reimbursement price of €137.57 instead of €229.28, and 28 tablets of AstraZeneca's anticancer Casodex (bicalutamide 50mg) now cost €77.96 instead of €129.94.

IPHA member companies have also agreed to pay an increased rebate to the government on sales of medicines through the community drug schemes, under a 2006 agreement. The rebate has increased from 3.5 percent to 4 percent of all sales.

The changes are expected to save the government €94 million - or about $127 million - over the next 12 months.

The cuts do not affect the prices of patented medicines, which must have been some relief to the research-based biopharma companies. In fact, the government agreed to extend its currently running pricing agreement with the industry for another two years, meaning that patented product prices will not be touched, if at all, until March 2012.

Reference Pricing, Generic Substitution On Way

However, this does not affect the introduction of reference pricing or generic substitution, for products where generics are available. Irish health minister Mary Harney says she intends to legislate for reference pricing and/or generic drug substitution, to start from next year onwards.

This has obviously not gone down well with manufacturers, who are now in talks with the ministry on the issue. Patient choice may suffer if such changes are made, the companies argue.

O'Hare believes that any reference pricing scheme would involve setting prices for individual substances, i.e. it would operate at the molecule level rather than at the therapeutic-class level. He noted patent protection was expected to end on products with sales of up to €400 million over the next two years.

Generics marketers, which are represented by the Association of Pharmaceutical Manufacturers of Ireland, have apparently rejected a request for price cuts from the health ministry, and their current pricing agreement will be reviewed in September, as agreed when it was set up.

Any cuts negotiated then might be backdated to take into account the savings that could have been made now. Generic companies may be currently trying to digest the ramifications of some branded-generic products now being cheaper than their non-branded generic equivalents.

Manufacturing Unaffected

The price cuts came despite Ireland punching above its weight in the pharmaceutical manufacturing sector. It is a favored location for manufacturing facilities - for example, Pfizer's worldwide supply of Lipitor (atorvastatin) is manufactured in Ireland - partly because of the country's corporate tax structure and its historic focus on pharmachemical production.

But because Ireland is a relatively small pharmaceuticals market, its problems are thought unlikely to influence the much larger manufacturing operations, where decisions are made on a global basis. Nevertheless, IPHA's Collins said that it was crucial that Ireland "maintains its reputation as a country that understands and values the contribution of the pharmaceutical industry." Nearly half the country's exports are pharmaceuticals or medical devices, he pointed out.

The Irish government is making changes elsewhere which may help in that regard. In its latest budget, it has proposed changes to R&D tax credits, transfer pricing rules, and tax relief for non-domiciled individuals, all of which should benefit the manufacturing sector. These were welcomed by the American Chamber of Commerce, which represents more than 600 U.S. companies with operations in Ireland.

- John Davis ( ¹ j.davis@elsevier.com )

Ireland Cuts Drug Prices And May Also Introduce Reference Pricing

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