Greek Arrears Give Drugmakers ‘Collateral Damage’
(Corrects story published Aug. 17 to show in 11th paragraph that costs relate to Fresenius SE (FRE), the largest shareholder of Fresenius Medical Care AG.)
Greece’s unpaid hospital bills are leaving drugmakers including CSL Ltd. (CSL), Australia’s largest, and Roche Holding AG (ROG) to write down the value of bonds from the cash- strapped government’s health-care system.
CSL posted a A$25 million ($26 million) charge against earnings today because of declines in the value of securities used to settle outstanding payments due from hospitals in southern Europe, mostly from Greece.
“You would have to describe it as collateral damage,” CSL Managing Director Brian McNamee said on a conference call today to discuss the company’s full-year earnings. “We have been selling important, arguably life-saving, medicines to the Greek population through government-owned hospitals. They seem to have a habit of not paying very rapidly.”
Greece, struggling under debt equal to almost 1 1/2 times the size of its economy, announced a new drug-pricing plan last year to cut costs, prompting companies including Novo Nordisk A/S of Denmark to withdraw some products. The country spent 2.4 percent of gross domestic product in 2007 on pharmaceuticals, the highest of among Organization for Economic Cooperation and Development countries.
Bad debts at state-owned hospitals in Greece will affect the “entire pharmaceutical industry,” McNamee said.
Bonds for Receivables
“The pharmaceutical industry in Greece realizes how critical the circumstances are,” Dionysis Filiotis, chairman of the Hellenic Association of Pharmaceutical Companies, said in a May interview posted on its website.
Roche, the world’s biggest maker of cancer drugs, has said its receivables arrears from Greece were converted into a bond, which it sold.
“We had a discount of 26 percent, but we have now the cash,” Roche Chief Financial Officer Alan Hippe said on a July 21 conference call. “And cash is what counts. We are monitoring our exposure, especially in Southern Europe very, very diligently.”
Eighty percent of drug products bought by the Greek government from January 2010 to March 2011 were in arrears, Dow Jones reported in June.
‘Infamous Zero Bonds’
Fresenius SE, the largest shareholder of Fresenius Medical Care AG, the world’s biggest kidney dialysis provider, and Baxter International Inc. (BAX) have also reported costs on Greek debt in their profit and loss statements in the past month.
“We have received these infamous zero bonds from the Greek government,” Stephan Sturm, chief financial officer of Bad Homburg, Germany-based Fresenius SE, said on an Aug. 2 conference call with analysts and investors. “A good chunk of that has been sold and the respective effect has gone through the P&L.”
Baxter, based in Deerfield, Illinois, took a charge in the second quarter of last year to recognize the valuation on bonds it received in lieu of payment, Robert J. Hombach, Baxter’s chief financial officer, said on a July 21 conference call.
“Historically, while the governments have paid on a longer timeline in Spain, Portugal, Greece and Italy, they have paid,” Hombach said. “Greece I think is a bit more of an acute situation.”
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