AstraZeneca Leads Drugmakers With European Sales Decline

AstraZeneca Plc (AZN), Roche Holding AG (ROG) and Sanofi (SAN) reported declining revenue in Europe as government austerity measures push down prices and make it harder for some customers to pay their bills.

Sales in Western Europe fell 20 percent, London-based AstraZeneca said today in a statement. That compares with an 11 percent decline at constant exchange rates for Paris-based Sanofi and a 3 percent drop for Roche of Basel, Switzerland. GlaxoSmithKline Plc (GSK), also based in London, yesterday said European sales fell 8 percent.

There’s no sign that the pressure on government finances will ease anytime soon. Spain requested 100 billion euros ($122.6 billion) of international aid for its banks last month, becoming the fourth nation in the euro region to seek assistance, and the cost of insuring against a Spanish default rose to a record yesterday. Some purchasers of medicines in Spain and Italy have struggled to pay their bills as governments cut spending on health care to help rein in the debt crisis.

“Europe is very much the biggest problem that these companies face,” said Gustav Ando, director of health-care research at consulting company IHS Global Insight in London. “Some of these countries might be looking at new price cuts on individual, high-cost or high-volume products. So I don’t think they’re out of the woods at all.”

AstraZeneca rose 0.2 percent to 2,913.50 pence in London. Roche gained less than 0.1 percent to 168 Swiss francs in Zurich, and Sanofi rose 3.4 percent to 63.75 euros in Paris. The Bloomberg Europe Pharmaceutical Index (BEPHARM) of 19 companies rose 1.1 percent.

Rajoy’s Cuts

Falling drug prices in Europe and elsewhere have cost drugmakers more than $2.67 billion in revenue, the European Federation of Pharmaceutical Industries and Associations said last month. In Spain, Prime Minister Mariano Rajoy cut 7 billion euros out of the medical system as part of about 45 billion euros of cost cuts and tax hikes. Italy may need to pass new budget cuts of as much as 10 billion euros this year, MF reported today.

Not all drugmakers are affected equally. Pressure from governments looking to trim budgets is “testing the high end” of AstraZeneca’s forecast for price cuts of a mid- to high- single-digit percentage range, Chief Financial Officer Simon Lowth told reporters on a conference call today. The company also is suffering from generic competition to some of its biggest-selling products.

‘Most Difficult’

Western Europe “is clearly the most difficult region today in the world,” Sanofi Chief Executive Officer Chris Viehbacher said on a conference call. “Europe is the region of the world where government reimbursement is the highest and unfortunately the pharmaceutical industry is sometimes seen as an easier target, especially compared to more structural reforms which are going to be needed.”

Planned spending cuts in Italy may wipe out 100 million euros in revenue, said Hanspeter Spek, Sanofi’s president of global operations, on a conference call today.

Roche, whose best-selling products are cancer treatments, is experiencing price pressure of about 2 percent on sales in Europe, Chief Executive Officer Severin Schwan said at a news conference in Basel today. Price pressure is probably about twice as high for the industry as a whole, Schwan said.

Government Policy

“This really confirms what we have been saying for quite some time,” Schwan said on a conference call with analysts. “When the environment gets tougher, it is not the expensive and innovative drugs that suffer first; it is the less differentiated drugs that suffer first.”

He said he expects “very moderate growth” in the near future in Europe, offset by the U.S. and continuing double-digit growth in emerging markets.

Glaxo’s prices fell by about 7 percent in the second quarter, CEO Andrew Witty told analysts on a conference call yesterday. The company reported an 8 percent decline in European sales.

“We think to some degree that may be the worst it gets, but that all depends on government policy,” Witty said.

If no further price cuts are implemented and trends such as so-called parallel trading don’t worsen, the pricing impact may improve to 6 percent and 5 percent declines in the next two quarters, he said. Parallel trading is the export of drugs from low-price countries to nations where they can be sold for more.

Unpaid Bills

While Glaxo’s U.S. sales also dropped 6 percent, that decline was driven more by temporary factors, mostly patent expirations for products including the Valtrex antiviral and Arixtra blood thinner, Witty said.

“These one-offs in the U.S. will work their way out of the system pretty quickly,” he said. “This is less concerning to me than the European picture.”

Novartis AG (NOVN) has experienced European price cuts of between 5 percent and 6 percent, David Epstein, the head of the Basel- based company’s pharma division, said on a conference call last week.

Unpaid bills are also plaguing drugmakers in some of the countries most affected by the debt crisis.

“Our biggest concern has always been our outstanding bills,” Roche’s Schwan said. The Swiss company has been able to cut unpaid bills by 24 percent in Europe in the first half, he said, helped by a Spanish government plan to repay money owed by Spanish regional governments to suppliers.

Italy, Spain

At the beginning of the year, public and private customers owed Roche about 2 billion euros in Europe, Schwan said. That number has now been cut to about 1.5 billion euros. Spain and Italy are the biggest debtors, he said.

Customers in Italy owed Roche about 700 million euros at the end of the first half, down from about 800 million euros at the beginning of the year, he said. Spanish unpaid bills sank in the half from about 800 million euros to about 400 million euros.

Actelion Ltd. (ATLN), the Swiss maker of the Tracleer lung drug, enrolled in a plan aimed at injecting cash into the Spanish economy through repayment of debt by local authorities. Through that agreement, the company was able to collect more than 100 million Swiss francs ($102.2 million) from customers in the country, CFO Andrew Oakley said on a conference call last week.

“The situation, however, in Southern Europe remains challenging and we continue to look at ways to best manage the situation,” he said.

Because the European economies are unlikely to improve soon, companies need to adapt and become more aggressive about pursuing business to keep sales growing, Novartis CEO Joe Jimenez said.

“I’m still relatively optimistic, despite the fact that there is increasing austerity,” Jimenez said on a conference call with journalists. “I think it’s going to take a while for the economies of Europe, in particular some of the more troubled economies, to begin to grow again.”

To contact the reporters on this story: Kristen Hallam in London at khallam@bloomberg.net; Makiko Kitamura in London at mkitamura1@bloomberg.net

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

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