Budget cuts mean that many European governments are willing to pay less for pills, but new laws in some countries are also putting pressure on companies to prove the effectiveness of their drugs or see them dropped off the coverage list — or, at the very least, covered at a lower rate.
And price reductions in Europe can have a ripple effect. Profits from sales in emerging markets may also fall, since governments in emerging markets refer to the prices set in Europe to determine their own.
That would particularly hurt European pharmaceutical companies, which have been quite successful in emerging markets over the past five years. U.S. companies, by contrast, do not rely as much on overseas revenue because of their large domestic market.
Before the recent wave of austerity measures, drug companies faced relatively low resistance from European governments when they set prices and introduced new products. Countries with strong industrial bases, like Germany, France and Britain, allowed companies the most flexibility when they set prices.
“The euro crisis is forcing governments to restructure how they think about medications,” said Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations.
Since the prices that governments are willing to pay are falling, drug companies are recalibrating their business strategies and considering economic factors earlier in the process of developing medicines. They are also cutting down on the number of new drugs in which they invest research money.
On average, West European countries spend 8 percent to 12 percent of their gross domestic product on health care — a proportion that has remained stable despite the crisis, according to the Organization for Economic Cooperation and Development.
The pharmaceutical sector, though, is being hit disproportionately hard because cutting prices for pills is a quick way to reduce spending, compared with alternatives like cutting hospital funds or restructuring health care systems.
During the past year, pharmaceutical sales to both pharmacies and hospitals declined 2.2 percent in France, 3.1 percent in Italy and nearly 9 percent in Spain, according to Business Monitor International, a company in London that follows the pharmaceutical industry.
Analysts say that it is difficult to predict exactly how badly profits will be affected in the next financial year. Other factors, like expiring patents, mean that each company’s profit will be affected differently.
Still, “the austerity measures themselves are going to affect everyone,” Mr. Bergstrom said.
And the numbers are not encouraging.
Novartis, the Swiss pharmaceutical giant, posted a 7 percent decline in net income for 2011 despite a 16 percent increase in sales. AstraZeneca, based in Britain, posted full-year revenue for 2011 of $1.34 billion, down 2 percent from 2010. In 2011, net profit for the company’s West European market was down 11 percent from the year earlier.
Kaushal Shah, an analyst with Business Monitor International, said the clearest way to see the effects of the euro crisis on pharmaceuticals was in job cuts. AstraZeneca plans to cut more than 7,000 jobs in Europe, in addition to the 21,600 positions it has eliminated since 2007. Novartis, a largely European company, will cut nearly 2,000 jobs in its U.S. bases this year. Pfizer, the U.S. giant, cut 6,000 jobs last May.
In times of hardship, pharmaceutical companies usually lay off sales representatives and protect their research and development departments, which spearhead the creation of new drugs. In this crisis, even R.&D. posts are getting the ax — 2,200 of the AstraZeneca cuts are in the research sector — as companies strive to make these departments more efficient so as to cut costs while maintaining a pipeline of new products.
“2011 is the first year recorded where R.&D. is down in the industry as a whole,” Mr. Bergstrom said.
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As gold strengthens on the back of the extreme experimentation of the world's (now-sheep-like central bankers' easing and printing protocols, it does no real harm to the world, but as John Burbank (of Passport Capital notes, the painful unintended consequence of all this liquidity is energy costs skyrocketing - and it won't stop until the economy breaks. The negative feedback loop, that we pointed to yesterday as potentially the only thing to stall a magnanimously academic response to the insolvency we see around the world (and the need for deleveraging at this end of the debt super-cycle , of oil prices into the real economy will be devastating not just for US but for EM economies, though as the bearded-Burbank reminds us - Saudi benefits greatly (and suggests ways to trade this perspective . Flat consumer incomes while costs are rising is never a good thing and while we make new highs in oil in terms of EURs and GBPs, he warns we may soon in USDs also. Summing up, his perspective is rising tensions in the Middle East combined with central bank liquidity provision are a huge concern: "We're actually quite bearish. The only reason all this liquidity is coming into the market is because things are really bad. It's not because things are good. It's hard to know where things are going to go. The point is, just because they're putting liquidity in the market doesn't mean the economy is improving."
Edited Transcript below:
On the price of oil and his Saudi investments:
"[Oil] is up 16%, more than any of the indices. It's a big problem for the rest of the world - central bank easing and liquidity providing presents a lot of problems for the average consumer here but also for emerging markets around the world.”
“The one market it really helps is the Saudi market. We have 15% of our capital in the Saudi market - only about 1% is held by foreigners. It should be opening up this year. So we think unfortunately QE3, which is now being pursued in Europe and Japan, essentially in the U.S. with other programs, has negative feedback loops. And oil we think is the one. Gold goes up 10%, 20%, 50%, it doesn't cause any problems with people the way banking is done these days, but oil does… I don't think oil is going to stop until the economy breaks which is a real risk."
"The average consumer isn’t doing well. Their income has been flat for almost ten years, but their costs keep rising. They had a benefit with natural gas being cheaper this year, but the oil price is now breaking out and it's breaking out because of all the liquidity in the world. The oil price is making new highs in euros and pounds and it may soon in dollars. That's a big problem."
On investing in Saudi:
"Right now, we have to use swaps. We've been in the market for about three years. Foreigners couldn't actually own Saudi stocks until August 2008. So we've spent quite a lot of time doing our research and understanding the market.”
"[Saudi Arabia] is very sincere in opening up the market to foreigners. It reminds me of India in the 2003, 2004 time period before you could buy Indian stocks directly. Saudi, which is 70% of the G.C.C, and by far the most important, the most liquid market, is something that foreigners are going to want to own.”
"Right now, you can't buy an ETF, you can't buy Saudi stock. It's obviously very difficult to buy a security directly. We have done that. We know that foreigners now are looking at the market. The market is about 11 times earnings with almost a 5% dividend yield in 2012, and that's on an unlevered basis. The Saudis have about $600 billion of reserves and corporates have very little debt. To me, there's a lot of systemic risk in the Western world…[but] in the Saudi market, they've been very restrictive. Banks have not wanted to make it easy to borrow money and buy stocks after the bubble that happened in 2005, 2006."
On tensions in the Middle East:
"If tensions with Iran means oil goes up, then that's good for the Saudi economy but not good for the rest of the world. Fundamentally, if there's a problem with Iran, it's a problem for the whole world…The biggest risk for Saudi is really a risk that the whole world bears, but actually Saudi benefits. Oil goes to $150, $200, it means the economy is going to grow even faster because the government has more money it can deploy in the economy."
"Saudi is not like an overbuilt economy. It's just opening up now. Building is going on. The Saudis are so conservative that they don't lend against land. "
On the European Central Bank issuing more money:
"A lot of the risk has been taken out of the market, on a near-term basis. We're actually quite bearish. The only reason all this liquidity is coming into the market is because things are really bad. It's not because things are good.”
"I don't believe in a global rally right now. It's a bounce back from oversold conditions last year. But I think the confidence in central banking is far overdone. It's hard to fight the Fed when prices are going in the other direction."
"It's hard to know where things are going to go. The point is, just because they're putting liquidity in the market doesn't mean the economy is improving."
On Passport's strategy:
"We’re stock pickers. In fact, this is a great year to be long and short individual securities. In 2008, everything went down. In 2009, everything went up. In 2010, everything moved together and eventually ended up. Last year, things started separating. Our strategy is to be picking individual securities, companies that are not depending on economic growth.”
“Biotech and healthcare is one of those sectors. There hasn't been an obesity drug approved in over 30 years and we thought Qnexa would have a good chance of being approved…We were one of I think four big holders in the stock. We think it can double again because we think a large pharma would probably like to own the company at some point."
We Love Pharma, courtesy of CDM Worldwide
The pharmaceutical industry gets a bad rap. To listen to the critics you’d think pharmaceutical companies are in the same sleazy category as oil, finance and tobacco companies. But pharmaceutical companies invent life-saving medications, not to mention countless other psychoactive products that many of us enjoy on a recreational basis. Pharmaceutical companies get blamed for fraud, kickbacks, and research deaths, but they never get the credit for oxycontin.
That is why I was thrilled to see that GlaxoSmithKline is sponsoring the prize for the
British Medical Journal
‘s annual
Research Paper of the Year. Sure, the pharma-bashers will whine like infants at the
BMJ’
s decision to brand a medical research prize with the name of multinational drug company, just as they’re whining about an American editor’s decision to re-locate a leading bioethics journal to the Texas headquarters of a
stem cell tourism clinic. These people just don’t get it. This is not about propaganda or corruption. It is about developing innovative medications for diseases that we didn’t even know existed.
In that spirit, my nomination for the GlaxoSmithKline (GSK Research Paper of the Year goes to a ground-breaking article about GSK’s very own antidepressant, Paxil, which was published in the
Journal of the American Academy of Child and Adolescent Psychiatry
. The title of the article is “Efficacy of Paroxetine in the Treatment of Adolescent Major Depression,” but seasoned pharma-watchers know it better as
Study 329. The data behind Study 329 showed that Paxil didn’t actually work in adolescents – that, in fact, it was
no better than a sugar pill. However, as any marketer understands, bad data cannot be allowed to interfere with a good paper. By the time Study 329 appeared in print, GSK had used the magic of biostatistics to transform the raw data into a gleaming advertisement for Paxil. As a result, when FDA eventually decided that Paxil had a few minor side-effects,
such as suicide, Study 329 had already done its work: getting a GSK product into the hands of troubled teenagers. And wait, here’s the beauty part: although the published version of Study 329 was “authored” by leading academic psychiatrists, it was actually
written by a GSK ghostwriter.
Of course, the pharma-bashers have been complaining about Study 329 for years. Some of them even want the journal to retract it. The lead “author” who signed the paper, Martin Keller of Brown University, has been
beaten up by the Senate Finance Committee,
harassed by the New York attorney general, and vilified in the press, all because he put his name on a ghosted article and forgot to report
half a million dollars in pharmaceutical income. To which I say: stand strong, GSK. Ignore the naysayers and the nitpickers. It’s about time you gave these good people some public recognition. Yes, it’s true that Study 329 is eleven years old, but you’re paying the BMJ over $47,000 to
sponsor this prize. Surely they can bend the rules, just this once.
LONDON, Feb 23 (Reuters - Britain, which is planning a radical overhaul of its medicine pricing system from 2014, already has some of the lowest prices in Europe, according to a government report on Thursday.
The findings were seized on by pharmaceutical companies as evidence that existing voluntary price-control measures were working well and that the state-run National Health Service (NHS was getting good value for money.
Health minister Andrew Lansley, however, sees room for improvement. From the end of 2013, he aims to switch to a new system of "value-based pricing" - a concept that has so far been only sketchily defined.
The Association of the British Pharmaceutical Industry (ABPI is due to start detailed talks on how the system will work in late summer 2012.
Drug prices are under growing pressure across Europe as governments tackle ballooning budget deficits and firms fear the British changes might lead to direct price controls or further obstacles to launching new therapies.
The current Pharmaceutical Price Regulation Scheme (PPRS , which companies would be happy to retain, controls the prices of branded drugs by regulating profits they are allowed to make on sales to the NHS.
In its latest report to parliament, the Department of Health confirmed that the PPRS was, by and large, doing its job.
In particular, British medicine prices in 2010 were found to be lower than those in any of 10 other comparator European countries. U.S. prices were on average more than 2-1/2 times more expensive. (
The picture was slightly different, however, when average exchange rates over the last five years were used. On this basis, prices were still significantly lower than in the United States and also lower than in
Australia, Austria, Belgium, Germany, Ireland and Sweden, but not as cheap as in Finland, Spain and France.
Despite low prices, British drugmakers, including GlaxoSmithKline and AstraZeneca, argue that patients still struggle to access new medicines, with use of new cancer drugs 33 percent lower than in the rest of Europe.
The increasingly tough environment for drugs is a growing concern for pharmaceutical companies across Europe, some of which have started to relegate the region when it comes to developing new medicines.
Ratings agency Standard & Poor's said in a report on Wednesday that harsher conditions at home also meant Europe's big pharmaceutical firms had been faster to tap into new emerging markets than their U.S. peers.
Researchers in Mexico are developing a heroin addiction treatment drug for human use.
Having proved itself successful in mouse-based trials, the next step in this drug's career involves planned phased clinical trials - a goal now being worked towards by scientists at the Mexican National Institute of Psychiatry.
The drug comes in the form of a vaccine which, when injected, eliminates the body's heroin response. In other words - heroin users that take the drug would no longer experience and enjoy the sensation it produces.
Heroin Addiction Drug
According to the Mexican National Institute of Psychiatry's director, Maria Elena Medina, the heroin addiction drug would be for "....serious addicts, who have not had success with other treatments and decide to use this application to get away from drugs."
While the US National Institute on Drug Abuse appears to be close to a breakthough cocaine addiction drug launch, no current vaccine exists on the market to treat drug addiction in patients. It's therefore an untapped treatment area and vaccines that fall within its scope are likely to become extremely profitable.
Funding for the Mexican heroin treatment vaccine has been supplied by several sources, including the Mexican Government and the Institute on Drug Abuse.
Mexican Heroin Treatment Vaccine
The tests involving mice saw the rodents exposed to heroin in large quantities. The marked heroin uptake drop recorded - after the vaccine had been supplied - fuelled the researchers' belief that the Mexican heroin treatment vaccine could really help those addicted to the drug.
"Mexico has now succeeded in patenting the first vaccine against heroin use and we're working on more", Salomon Chertorivski - Mexican Health Secretary - stated in comments recently quoted by the Mexican press.
"We can be very proud of our scientists at the National Institute of Psychiatry because they've achieved something that hasn't been achieved in other areas of the world", he added. "And it's not only heroin: that's what's been patented so far but we're [also] advancing rapidly on cocaine and methamphetamines."
Image used solely for representational purposes
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