Europe - the North-South divide
In my first article for this newsletter, I included the following paragraph:
“The other reason for the particularly strong UK-India ties on product development was the fact that most other European countries, with the exceptions of Germany and the Netherlands, had no generic industry of any size. The reasons for this will form the subject of another article in a future edition.”
Well, this is the article that was promised for a later edition.
This divide does still exist, but market changes over the first few years of the new decade have eroded it considerably. There are therefore two issues to explore:
1. Why did the divide exist at all?
2. Why is it now beginning to disappear?
For many years the countries of northern Europe exercised a fairly free-market approach to pharmaceuticals and pharmaceutical pricing. The result was that countries like Germany and the UK had high-priced products and a reasonably productive pharmaceutical R&D arm. The Netherlands and Denmark were also fairly liberal in their approach to pricing, but the size of their populations limited their ability to support any intensive R&D activity.
This was important from the generic perspective as these high priced products gave the generic companies attractive targets to aim at after patent expiry. This issue of patent expiry is another of the factors that made the northern countries so attractive for generics. Product patents and their rigorous enforcement gave the owners of the brands time to build themselves a strong business with the brands, thereby offering generic copies a good sized market to attack when the time came.
Another important criterion was the freedom given to the pharmacist in those countries to negotiate the price with the generic supplier so that he could increase his own profit margins by buying cheaper. This led to vigorous competition between the suppliers to grab the pharmacist’s attention and obtain his business.
Contrast this with the situation in the southern countries. Admittedly, “southern” is a loose term in that it includes France, but since France also stretches to the Mediterranean, the word is accurate enough.
In these countries such as Belgium, France, Greece, Italy, Portugal and Spain, repeated state intervention in the pricing and reimbursement process resulted in countries that generally occupied the lower section of any international price comparisons for pharmaceuticals. In several of them, copy products were only allowed a price at least 10% or sometimes 20% below the original, which was itself relatively low-priced.
As a result, there was little incentive for companies to rush to introduce an unbranded generic after patent expiry. In addition, these patents did not even exist in certain of the countries that were late in introducing product patents so that what were effectively branded generic copies flooded the markets in places such as Italy and Spain. These devalued the original brand, further reducing its attractiveness as a target for generic copies.
Add to these factors a situation where prices were low and fixed so that there was no opportunity for the pharmacist to improve his margins and the result is an environment that is as unattractive as it possibly can be for a generic industry to develop.
It was this combination of circumstances that led to strong generic markets in Denmark, Germany, the Netherlands and the UK, and weak or non-existent markets in Belgium, France, Greece, Italy, Portugal and Spain.
The second question asked why this divide has started to disappear. Towards the end of the 1990’s everything started to change as the more socialist, southern states concluded that they had to do something to reduce their enormous healthcare costs and realised that perhaps generics were the answer.
However, two barriers existed at the professional level that could block governmental attempts to promote generics. Firstly, doctors had no incentive to prescribe generically and secondly, pharmacists had no incentive to dispense generically.
The methods used to resolve this at the physician level included reaching agreements to pay doctors a supplement per patient in return for writing more generic prescriptions and close monitoring of prescribing costs with threats to penalise those doctors whose costs rose above a national or regional average.
For pharmacists one particularly important measure was to change the method of reimbursement to ensure that pharmacists did not lose out by dispensing generics. In countries where the margin was a fixed percentage, the pharmacist inevitably has more interest in receiving x% of a high price than x% of a low price.
In addition, the right of substitution has become widespread in these countries so that even when a doctor does prescribe a brand, the pharmacist can chose to dispense a cheaper generic unless the doctor prohibits it on the prescription.
Although none of these countries yet has a generic market to rival those of the more mature generic countries, the measures have had some positive effect and markets are growing. In 2004 the market share of generics by units was 4.4% in Italy, 5.4% in France and 7.1% in Spain.
Clearly all of the developing generic markets are set for high growth rates as they try to catch up to the market penetration rates that already exist in the mature generic markets. There is still a long way to go – according to the UK’s Department of Health Statistical Bulletin for 2003, the level of generic prescribing there had reached the staggering level of 78%!
Peter Wittner
April 05
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