Drugmakers Afflicted by Greek Pain With or Without Euro

A Greek exit from the euro would further depress drug prices throughout Europe, creating an additional dilemma for manufacturers already wrestling with how to keep supplies flowing as Greek health-care funds dry up.

European countries including Germany, the region’s biggest market, use Greek prices as part of a benchmark when governments and other payers negotiate with drugmakers, according to the European Federation of Pharmaceutical Industries and Associations. A price plunge in Greece because of a return to the drachma may pull down prices across the region, said Richard Bergstrom, president of the industry group.

“We would lose more money outside of Greece than in Greece,” Bergstrom said in a telephone interview. “This is quite fundamental: if Greece or other countries would leave the euro, and you would have to make adjustments on everything, then that could throw into question the whole model for pricing in Europe.”

Falling drug prices in Europe and elsewhere, precipitated by the crisis in Greece, have already cost drugmakers more than $2.67 billion in lost revenue, according to Bergstrom.

Makers of drugs and devices have been struggling with how best to deliver products to cash-strapped -- and often non- paying -- Greek hospitals since the beginning of the crisis. The Greek state’s debts to drugmakers will probably climb to about 1.55 billion euros ($1.9 billion), by the end of June from 1.21 billion on March 31, according to EFPIA. Greece has budgeted 3.67 billion euros for public drug spending and hospital drug costs combined this year. The country agreed in 2010 to issue more than 5 billion euros in bonds to settle three previous years of arrears.

Penny-Pinching

At the same time, penny-pinching national governments are already pushing down drug spending throughout the region. Roche Holding AG (ROG) and GlaxoSmithKline Plc (GSK) said in April that first- quarter sales dropped in Europe as governments slow or cut spending on health care. Drugmakers agreed in May to a spending cut in Portugal of a further 300 million euros, according to a copy of the government’s agreement with the Portuguese Association of Pharmaceutical Industry. In Germany, a new oversight system is pushing companies to prove their new medicines are better than existing therapies in order to charge a premium. Payments have lagged in parts of Spain, Italy and Portugal.

Roche, based in Basel, Switzerland, has tightened its bill- collecting policy for hospitals in Spain and Portugal, requiring clinics with the worst arrears to pay down debts before they can get more drugs on credit, and may do the same in Italy.

Generic drug-makers are also under pressure, with Teva Pharmaceutical Industries Ltd. (TEVA), the market leader, saying on May 24 that the European market won’t grow this year.

No Growth

“What is really difficult to predict is what are the new politicians in France or in Greece going to do,” Rob Koremans, head of the Israeli company’s European unit, told analysts on a call last month. “We do not expect any growth.”

Germany and seven other European countries include Greece in the official basket of countries used to help governments and insurers set drug prices, EFPIA said. Belgium, Hungary, Italy and Poland include Greece informally in their price guides, the drugmakers’ association said.

If Greece stays in the comparison basket after a euro exit, its lower prices will push the average down everywhere else as well, giving other governments an incentive to keep Greece included in the pricing mechanism.

Ripple Effect

Price cuts in Greece already have had an impact outside the country, according to EFPIA. Last year, a 10 percent price drop in Greece cost the drug industry 299 million euros in that country, 799 million euros in Europe and 2.15 billion euros around the world because of price referencing, the practice of linking prices in one country to those of another, the association said. Price referencing isn’t limited by euro-area boundaries.

“If Greece would leave the euro area, they would have a new currency -- let’s call it the drachma -- and then the debts they already have, the Greek state or the companies in Greece, will remain in euros,” Mario Gruppe, an economist at NordLB in Hannover, said by phone.

That would make it even more difficult for Greeks to pay back the money as the new currency depreciates relative to the euro. “This would mean a lot of creditors would have to write down their debts,” Gruppe said.

For Greek patients, the bigger crisis in the immediate aftermath of a euro exit could be access to drugs. The health- care industry is also making contingency plans for how to continue supplying essential products to Greece if payments stop completely in the chaos of a currency switch, company representatives said.

Patient Access

“Obviously there is increasing potential that Greece falls out of the euro zone,” said Gary Ellis, chief financial officer of U.S. device maker Medtronic Inc. (MDT) “We are working with the government to make sure we get our products to those customers.”

Spokespeople at European drugmakers Roche, Glaxo, Bayer AG (BAYN), Novo Nordisk A/S (NOVOB) and AstraZeneca Plc (AZN) said they’re also planning for developments in Greece.

“We continue to work very closely with our private and public customers in Greece to ensure continued supply to patients,” said Eric Althoff, a spokesman for Basel, Switzerland-based Novartis AG. (NOVN) “We are protecting our business in Greece through sensible and proactive contingency planning as well as other measures to ensure we collect receivables.”

Bergstrom is probably right about the reference-pricing impact, said Mike Rulis, a spokesman for Novo Nordisk, the Danish insulin maker.

“We could certainly not rule out that there could be spillover effects,” Rulis said in a telephone interview. “It all depends on how this plays out.”

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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