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 Governments and healthcare authorities around the world are
questioning whether they are getting the best value for money as
they struggle to find space in their budgets to care for an ever
older and sicker population. Their demands that medicine prices be
cut is a growing challenge for drugmakers.
But Switzerland's spat with its pharmaceuticals firms risks
alienating some of its largest exporters and employers. Roche and
Novartis are the world's biggest drugmakers by market capitalization
and the Swiss pharmaceutical industry makes 6 percent of the
country's economic output. It is responsible for 40,000 jobs and had
sales abroad worth more than 66 billion Swiss francs ($70.5 billion)
in 2013.
Drugmakers have long argued they need to charge high prices for
successful drugs to recoup development costs, including for those
that fail to make it to market. But those paying for the drugs now
want more for their money's worth - greater innovation and
efficiency - before they foot the bill.
Swiss per capita spending on pharmaceuticals is already
significantly lower than that in other countries: at $562 it is
almost half of the $1,010 spent in the United States and behind
other European countries including Belgium, Germany, Ireland, France
and Greece, according to data from the Organisation of Economic
Cooperation and Development.
This reflects, in part, measures by the government to reduce the
price of patent-protected medicines in recent years. Switzerland's
healthcare system is privatized so consumers must pay for it out of
their own pocket and claim insurance, but the government is anxious
to stop costs from spiraling.
However drugs still cost on average 5 percent more in Switzerland
than the comparative benchmark of six other European countries -
Denmark, Austria, Germany, the United Kingdom, France and the
Netherlands - at the end of 2013, according to Santesuisse, an
umbrella organization for Swiss health insurers.
So in a bid to further push down prices, the Swiss health ministry
recently announced plans to amend the pricing system again from 2015
- proposals that infuriated its drugmakers.
"The consequence of this would be a significant weakening of the
pharmaceutical companies that are active in Switzerland, which would
inevitably have a negative impact on their future contribution to
the Swiss economy and employment," industry lobby group Vips warned,
adding it was likely that additional jobs would be moved abroad.
It said the measures did not take into account Switzerland's high
wage and cost structure and risked burdening firms already battling
a strong Swiss franc.
PRICE PAIN
Switzerland's export economy is closely tied to the fortunes of the
euro zone, its biggest export market, and sluggish growth there has
taken a toll in recent years.
The economy stalled in the second quarter, hit by stagnation in its
main export market Europe and weaker private consumption growth that
had propped up demand. The strong Swiss franc has been a further
burden, making goods more expensive abroad. To stave off the risk of
recession and deflation, the Swiss National Bank capped the franc at
1.20 to the euro in 2011 but prices growth remains largely absent.
The country's machinery and electronics industries have borne the
brunt of its strong currency. So far its more robust exporters -
drugmakers and watchmakers - have held up better.
Switzerland makes up roughly just 1-2 percent of pharmaceutical
companies' sales, according to industry group Interpharma. But the
companies worry that ceding to demands for lower prices at home
would cause a domino affect elsewhere.
Roche recently refused to accept a price from the Swiss government
for its new breast cancer drug Perjeta that was 20 percent lower
than that in other European countries. In response, the ministry
took it off a list of medicines reimbursed by basic health
insurance.
Roche Chairman Christoph Franz stood by his decision in a recent
interview.
"You have to question whether we should give out our medicines in
our home market for a price that is 20-30 percent cheaper than in
the neighboring EU," he told the BaslerZeitung.
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"It's obvious that we can't do this from the signal it would send
alone."
The Vips lobby group says the squeeze could mean patients may have
to wait longer for new medicines and risks creating a two-tier
system where patients without supplementary health insurance would
be denied access to some drugs.
It and other lobby groups rejected the government's latest proposals
and hope they will garner support from political parties to water
down the measures, which include adding more countries to the
state's comparative price references as well as including any known
discounts elsewhere.
INNOVATION PREMIUM
Such demands have pressured the average internal rate of return from
pharmaceutical research and development, which fell to around 4.8
percent in 2013 from 7.2 percent in 2012 and 10.5 percent in 2010,
says a study by Deloitte and Thomson Reuters.
Over the same four-year period, the average forecast peak sales of
each new drug dropped by 43 percent to $466 million in 2013,
reflecting the impact of austerity measures on health spending, plus
a shift to more niche drugs.
Still the figures mask a big divide in performance between the
leaders and the laggards.
Roche, which has launched a slew of pricey new cancer drugs in
recent years, had a core operating profit margin of 38.3 percent in
2013 compared to 22.5 percent for Novartis, which is faced
competition from cheaper copycat drugs.
Both Roche and Novartis remain sanguine that healthcare authorities
and insurance companies will still cough up for truly innovative
medicines, despite pressure on budgets.
"The reason why I'm optimistic is that even after 2008, the
financial crisis, and two years later when many countries in
southern Europe were having a very hard time, we were able to get
reimbursement for (our multiple sclerosis drug) Gilenya, because it
had best-in-class efficacy," Novartis Chief Executive Joe Jimenez
said at the end of August.
However drugmakers still have to navigate creative proposals from
European governments to make room for the best medicines by seeking
cutbacks elsewhere.
In July, French lawmakers amended their social security budget to
allow the use of Roche's cancer drug Avastin as a cheaper treatment
for age-related vision loss, even though it is not designed for this
purpose.
And in Italy, the government is seeking 1.2 billion euros ($1.55
billion) in damages from Roche and Novartis for allegedly colluding
to try and stop Avastin from being used as a cheaper alternative
over their more expensive drug Lucentis.
Companies, insurers and healthcare authorities will have to work out
together ways to reward innovative medicines without threatening the
supply of medicines, said Patrick Flochel, global pharmaceuticals
leader at consultancy firm EY in Zurich.
"Pharma companies need to come up with suggestions about how to work
together with payers and providers, to find ways to make it possible
for healthcare systems to be sustainable while patients benefit from
innovation."
(Additional reporting by Paul Arnold; Editing by Sophie Walker)
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