From today’s edition of the Wall Street Journal:
LONDON—Europe's drugs industry is urging EU leaders give it two major concessions to help keep medicine supplies flowing into crisis-hit countries such as Greece and Spain.
Drug makers in the region have been hard hit by payment arrears and steep price cuts caused by the economic crisis.
They are now urging EU leaders at their coming summit to grant the concessions to prevent drug price discounts granted to troubled southern European countries from distorting supply and demand in the bloc.
In a letter issued Monday, Andrew Witty, chief executive of GlaxoSmithKline GSK.LN +0.14% PLC and the current head of Europe's pharmaceuticals association identified two huge problems for the industry: drug reference pricing, or referring to other countries when setting prices, and parallel trade, or the re-exportation of pharmaceutical products from lower-priced to higher-priced countries. He said they represent a threat to orderly supply of medicines in the region.
"The practice of referral to other countries when setting prices for medicines results in inefficiencies and sometimes in limited supplies. Where the industry has agreed to temporary price cuts to bridge funding gaps, such as in Greece or Portugal, other countries not subject to the same financial pressure automatically lower their prices," Mr. Witty said.
The other major impact comes from parallel trade, which is legal in the 27-member European Union. Low prices in Greece, Spain and other southern European countries have drained medicines from the region to wealthier countries where the prices are higher.
"Recent months have seen a significant increase in this arbitrage trade, which is the result of market distortions caused by pricing policies," Mr. Witty said.
"One immediate impact is a shortage of medicines for patients in countries such as Greece and Romania. There is a genuine risk of supply disruption in several countries," he said.
Mr. Witty's letter has been sent to European Union leaders, Commission President José Manuel Barroso and Council President Herman Van Rompuy ahead of the June 28-29 summit. Mr. Witty sent the letter in his capacity as president of the European Federation of Pharmaceutical Industries and Associations, or EFPIA.
In the letter, EU leaders are urged to exclude countries that are undergoing fiscal restructuring programs from the basket of countries to which they refer in setting medicine prices.
Illustrating the impact of reference pricing, Mr. Witty said a 10% price cut in Greece cost the drug industry €299 million ($375.8 million) in Greece, but €799 million in Europe and €2.15 billion world-wide if all countries were included, re-referencing Greek prices through formal and informal links.
"The impact of a price cut in Greece therefore resonates across the E.U. and globally—the implications for the R&D-based industry are clear," Mr. Witty said.
EFPIA also wants a temporary ban on re-export of medicines to higher-priced countries, to prevent supply shortages.
"The Commission should accept this temporary response to an emergency situation," Mr. Witty said in his letter.
"These measures would deliver tangible relief and give a very important signal about Europe's support for pharmaceutical innovation, while ensuring fair patient access to innovative medicines. They could also provide a platform for further discussions at national level on a more strategic approach to supporting innovation and managing cost-containment."
