A government decree cutting Greek drug prices by up to 27 percent has aroused the local pharmaceutical industry's wrath, and it may have repercussions for companies throughout the EU.

The cuts, announced on April 28, are greater for higher-price products - 27 percent for medicines priced at €100 (US$129) or more per pack (usually a month's supply), 20 percent for those priced at €5-20, and three percent for those priced between €1.01-5.

Big pharma is keeping a close eye on whether such price cuts in Europe are accelerating or normal for the region - health care reforms announced this year in the much larger German market also are creating concern.

Responding to a question last month about the EU reimbursement climate, GlaxoSmithKline's Chief Executive Andrew Witty said that, as a rule of thumb, four to five European countries usually do something relatively dramatic in any one year, leading to a 3 percent price cut across the whole of Europe.

"Are we going to see something that goes substantially beyond that? I think it is premature to take a view on that," he told investors during an April 28 earnings call.

Merck & Co's President Ken Frazier has also pointed out that Europe is a difficult operating environment. "Often [in Europe] you have volume growth but because of the pricing pressures you don't see growth on a dollar basis," he told analysts on his company's quarterly call on May 4.

Bailed Out by IMF

The Greek cuts are a small part of austerity measures which the heavily indebted country put in place in order to receive a €120 billion bailout from the International Monetary Fund and the EU.

Despite the country's economic crisis, the Hellenic Association of Pharmaceutical Companies (SFEE), which represents national and international biopharma companies in Greece, pointedly criticized the price reductions. It called on the government to abide by the previously agreed process of controlling drug prices. This involves prices being adjusted every three months or so, with the results publicized in "price bulletins." The Greek price is based on the three lowest prices from other European countries.

The Greek market is comparatively small - worth around €4 billion - but such a steep drop in prices could have a knock-on effect, leading to lower prices in other EU countries. This is because other countries could use the Greek price as part of a "basket" or average of various countries' prices to calculate their own prices.

In addition, Greece could once again become a source of cheaply priced medicines that are exported by parallel traders to other EU countries with higher prices, a concern for branded pharmaceutical companies throughout the EU (Also see "EU Tackles Counterfeits, But Parallel Trade Poses Tough Issues" - Pink Sheet, 5 January, 2009.).

Greece has a history of low prices, and over the years has served as a source of relatively cheap pharmaceuticals for parallel trade in the EU. The research-based industry has had some success in reducing such trade through supply agreements and other measures, but if prices get too low, the problem could re-emerge.

International pharmaceutical companies could be tempted to withdraw from Greece altogether, taking with them employment opportunities and investment, the SFEE argues, although it is not a strong argument because many manufacturers already market their products through local distributors.

The industry is also worried that Greek hospitals may never pay their outstanding debts, which have been mounting up over the years. The amount owed by the country's hospitals to the pharmaceutical industry stood at €3.52 billion in October 2009, SFEE has estimated.

The Greek government, through its health insurance bodies, spent €3.8 billion on pharmaceuticals in 2007, the last year for which data are available. The country's total pharmaceutical market, including sales to private health care providers and to parallel traders, amounted to €7.87 billion in the same year, the government says.

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

Greece Lowers Drug Prices By Up To 27 Percent

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