* Glaxo, J&J, Novartis see bigger pricing impact from H2
* Europe accounts for 31 percent of world pharma market
* Governments target drugs bill as part of austerity drive
By Ben Hirschler
LONDON, July 21 (Reuters) - A squeeze on European drug prices is set to accelerate in coming quarters as cash-strapped governments push through austerity measures designed to rein in runaway healthcare spending.
Executives reporting second-quarter results this month have warned the worst is yet to come in Europe, following recent moves by countries including Greece, Spain and Germany to slash the price their healthcare systems pay for medicines.
Concerns about the European pharmaceuticals market are increasing just as anxieties over U.S. healthcare reforms have abated, casting a shadow over Big Pharma’s results season.
Europe accounted for 30.6 percent of global drug sales in 2009, against 39.8 percent for North America, according to industry consultancy IMS Health.
Greece has launched the most brutal cuts, slashing the price of medicines by 21.5 percent on average, but other governments have also taken action which will bear down increasingly on prices in the coming months, with a sizeable hit likely in 2011.
Smaller drug firms heavily exposed to western Europe — like Germany’s Bayer (BAYGn.DE) and Merck KGaA (MRCG.DE), Spanish group Almirall (ALM.MC) and Belgium’s UCB (UCB.BR) — are seen as most at risk, but the big players will not escape unscathed.
Here is what three major companies have said on the issue while presenting quarterly results:
GLAXOSMITHKLINE (GSK.L) - July 21
- Andrew Witty, CEO: “We’ve seen some price pressure in the first half. It will accelerate as we move through the second half and actually I think it will be more of a 2011 phenomenon, in terms of how it ramps up.
“We see Europe as being roughly a minus 3 (percent annually) type of marketplace on an ongoing basis. It is likely that over the next 18 months we will see something a little more than 3. Whether it is going to be a lot more than 3 is still a little premature to call.”
JOHNSON & JOHNSON (JNJ.N) - July 20
- Company expects cost containment efforts in Europe to accelerate for remainder of the year, with an estimated impact of around $200 million on its business in 2010.
- Dominic Caruso, CFO: “We have experienced pricing pressure year-over-year (in Europe) in any event, so it is not an unusual phenomenon, but there is now incremental pricing pressure. And I would say that the incremental pricing pressure on an annual basis looks like it is in the mid-single digits impact to the European businesses.”
NOVARTIS NOVN.VX - July 15
- The impact of European drug price cuts in the first half of 2010 was minus 3.1 percent in the Swiss group’s pharmaceuticals business.
- David Epstein, head of pharma: “While I can’t give you an exact number for the second half, I can tell you we’ll see the full-on effects of the cuts in Greece and in Spain. In addition, we will see the introduction of the rebates in Germany and some downward pricing pressure in France. It would not be unreasonable to estimate that the impact could be as much as twice what we saw in the first half in Europe.”
- Jeff George, head of generics: “I think that we may see price erosion increase in the back half of the year, given the wave of price cuts in Western Europe, in particular, which were generally double-digit negative generic price cuts ranging from 25 percent in Spain to 12 percent in Italy, those being the two most significant.”
For previous stories on European drug pricing, click on [ID:nLDE65T1ED]