INNsight articles by Peter Wittner, Interpharm Consultancy

Within Europe, the overall Spanish pharmaceutical market is the 5th largest with a value of US$11.2 billion according to IMS. At the same time, it’s generic market totalled only around US$800m, equivalent to only 7.1% of the overall value, making it one of the smallest generic markets.

The authorities have been trying for several years to encourage development of a generic industry in Spain. The Spanish authorities have used measures similar to those introduced in other countries with an underdeveloped generic market, such as pressure on doctors to prescribe generically and rights of substitution for pharmacists. Despite this, little seems to be happening and progress is slow.

In a recent measure, the new Medicines’ Law included an Article 85 that is supposed to encourage pharmacists to substitute. However, this particular aspect of the law has generated great controversy and a flurry of activity in the courts. The court activity has been from the branded side of the industry, which wants the courts to rule that the measure violates competition law. Article 85 should, though, be good news for generics.

Nevertheless, the good news for the generic industry is not necessarily viewed as such by the industry. Speaking in October in an interview with the newspaper “Cinco Dias”, Miguel Barbero, the Director General of the local generic trade body AESEG, denounced the uncertainties in the law and the negative impact that it was having.  He pointed out that the market in unit terms had declined by 2.7% between May and August to a level of 11.6% as a result of the new law. He attributed this in part to confusion about exactly what the law means when referring to the “lower priced” product that the pharmacist should be dispensing in place of the actually prescribed product. This, Mr Barbero said, was also leading to companies cutting prices to try to ensure that their product is dispensed.

At around the same time, AESEG had also been forced to defend generics from an attack on them by the OMC (Collegial Medical Organisation). The organisation’s Vice-President had questioned whether generics could really be considered as bioequivalent to the original brand.

Clearly, things are not going as well for the industry in Spain as they should be with overt hostility still visible as in this incident. AESEG is thus still facing many obstacles to its stated aim of reaching European levels of generic use. By this, it means a market share in units of around 20%.

In a legislative step related to the new Medicines’ Law, the Spanish government has also set March 2007 as the date for introduction of a new Reference Pricing system as part of its cost cutting measures, which ought to encourage generic use. However, the other side of this is that there may be gaps of up to 3 years between updates to the list.

The pattern that seems to be emerging is that of a series of measures by the Spanish government, designed to reach the desirable target of a healthy and competitive generic market, but failing in that aim. Why?

I suppose that the simple answer seems to be that they cannot resist meddling and leaving it to market forces to create the market. In various reports that I have written in the past, I identified a number of factors that I felt essential to creation of a healthy generic market. Not all of these are present in Spain, which might help to explain the current situation.

- High priced branded products; Spain has long been one of Europe’s cheapest markets
- Strong intellectual property legislation; there were no product patents until 1992 and the market is flooded with branded generics
- High levels of generic prescribing; this has never been the case and still remains at a low level for various reasons
- A large number of competing suppliers; at least here there are positive signs
- Purchasing decisions made by pharmacists mainly on price; not yet the case because they do not have any financial incentive to do so
- Pricing levels determined mostly by supply and demand criteria; this is a vital factor that is missing in Spain.

These last two factors are possibly the most important missing elements. A glance at countries such as the US, Netherlands and the UK, which do have successful generic markets shows that these factors played a key role.

It was the pharmacist, whose profit levels depended on his buying cheaply, that forced generic providers to compete with each other on price. In addition, in a classic supply and demand effect, when there were plenty of suppliers of a product prices fell. If one or more suppliers pulled out temporarily, prices would rise for a while until suppliers were tempted back in when prices would fall again.

It is only the dead hand of government intervention that appears to be preventing this happening in Spain. With AESEG reporting 163 companies as having generics on the market, free competition between them would certainly have the desired effect if the Spanish government could just learn to let go. Market forces usually control a free market much better than governments do.

If you have any questions or comments on this article, please do contact me.