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Drugmakers fear spillover as Greece slashes prices

* Greek drug prices cut by an average 21.5 percent

* Drugmakers fear knock-on effect due to EU parallel trade

* Problems in Europe add to pressure from U.S. health reform

LONDON, May 5 (Reuters) - Cash-strapped Greece is slashing the price of medicines by more than a fifth, on average, in a government cost-cutting drive that may trigger downward pressure on prices elsewhere in Europe.

New regulations on pricing of pharmaceuticals were introduced this week, resulting in stepped cuts of up to 27 percent for the highest-priced medicines.

The Hellenic Association of Pharmaceutical Companies, representing local and international manufacturers, said the draconian cuts risked creating a shortage of medicines. It is considering legal action to challenge to the move.

“It will be a big issue for the country. Although it is a relief for the social security system, low prices will fuel parallel trade, so products will go out of the country,” Yannis Chryssospathis, the association’s legal counsel, said in a telephone interview.

Under European Union free trade rules, wholesalers are allowed to buy drugs in low-priced markets and resell them in countries with higher prices -- a system known as parallel trade and which, manufacturers argue, effectively exports price cuts.

In the face of the latest cuts, some companies could opt to stop selling medicines in Greece, although local rules mean they need to give notice and get government approval before taking such action, Chryssospathis said.

Greek cutbacks may be no great surprise, given the country’s dire fiscal position. But they will add to mounting downward pressure across Europe since many countries set maximum drug prices in relation to prices in other EU states, including Greece.

“Greek prices were already among the lowest in Europe, so cutting them again will ratchet up the pressure even further in terms of profitability for companies,” said Brendan Melck, a pharmaceuticals analyst at IHS Global Insight.

U.S. REFORMS

Globally, pharmaceutical investors have focused recently on pressure in the United States, where President Barack Obama’s health reforms are also driving down prices.

But the budget problems now facing governments in Europe -- where the state traditionally contributes far more to healthcare costs -- also represent a substantial risk this year and next, according to industry analysts.

Germany announced plans to cut the cost of prescription drugs last month and other countries, including Spain, have introduced new curbs. [ID:nLDE62P0XP]

Outside the EU, Turkey has also pushed through major pharmaceutical price cuts. [ID:nL05453396]

GlaxoSmithKline GSK.L chief executive Andrew Witty said last week his company was experiencing average price cuts of around 3 percent a year across Europe and current fiscal problems would likely exacerbate the situation. [ID:nLDE63R1XV]

The new Greek regulations will result in a weighted average price reduction of 21.5 percent, with bands of price cuts ranging from 3 percent for products with a wholesale value of 1-5 euros up to 27 percent for drugs priced above 100 euros. (Editing by Dan Lalor)

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